Abstract

Comprehensive exchange/transfer of shares being used as a reorganization scheme for resuscitating the corporations which are faced with financial predicament. For the purpose of reducing tax burden on this corporate restructuring, the Special Tax Treatment Control Act (“STTCA”) section 38 was established on Jan. 1st 2010. And it allows a tax benefits to the case of qualified comprehensive exchange/transfer of shares. However, when we apply STTCA sec. 38to practice, it seems to occur that the qualified restructuring bears more tax than the nonqualified case does. In case of qualified comprehensive exchange/transfer of shares, the STTCA sec. 38 allows the former shareholder to defer reporting of capital gains till the time on assignment of the new stocks by setting up the compressed－registering－reserve. And it regulates that the parent company, which undertakes the old stocks, should succeed the book value of old stocks as a basis of new stocks. Therefore if the two parties concerned sell their stocks in the future, both of them should report whole capital gains, the difference between selling price and book value of old stocks. This result shows that the qualified case is at a disadvantage compare with the nonqualified case which is requested to resister its new stocks basis as the market price at the time of transfer. Hence the present STTCA sec. 38 has several problems. It brings about contradictory tax effect that the qualified case bears more tax burden as a whole than the non－qualified case does. And it induces double taxation problem on the capital gains which was attained during the former stockholder’s holding period, because the parent company will take over the capital gains of former shareholder besides the former stockholder reports its gains also. Moreover these problems are occurred in the STTCA sec. 38－2 which is applied to the holding company. In order to enhance the effectiveness and rationality of tax policy on the qualified corporate reorganization, it is necessary to revise the STTCA sec. 38 and 38－2 this way keeping up the article that allows the former shareholder to defer its tax by setting up the compressed－registering －reserve and this way deleting the article that requests the parent company to take over the book value of former shareholder.

Keywords

• corporate restructuring
• Comprehensive exchange/transfer of shares
• investment in kind
• tax deferral
• double taxation

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