Consideration and Improvement about the Gift Tax on the Related Party Transactions
Asian Tax Journal Vol. 17 No. 6 (2016), pp. 227-248
Abstract
Taxation on the Related Party Transactions is a provision that regulates ‘unfair profit transfer’ which is done by the special related firm of controlling shareholders. If the specific firm, controlled by major shareholders, was provided concentrated business transactions or opportunities by the related party(the firm managed by major shareholder’s relative), the controlling shareholders of specific firm gained profits unjustly. There has been pros and cons about this provision(Taxation on the Related Party Transactions). In a positive point of view, this provision is reasonable since it regulates abnormal distribution of benefits. But on the other hand, it limits company’s freedom in business activities. For this reason, current tax law is now setting the tax requisition in a rigid manner and regulating the case of application narrowly. And when the benefited firm distributed the imparted profits to the shareholders, the regulation requires that dividend is subtracted from the deemed gift for the purpose of reconciliation of dual taxation. In this research, We considered that this reconciliation rule preventing double taxation is not complete, and searched alternatives that can resolve the problems caused by double taxation and enhance the accordance of current tax law. According to the analysis, current provision does partially adjusting double taxation between dividend tax and gift tax, when the profited firm pay the dividend or not. Furthermore there is a double taxation problem between gift tax and capital gains tax when the controlling stockholders sell off their shares. To remedy the shortcoming of current regulation in this issue and to secure accordance of current tax law, it is necessary to deduct the deemed gift amount from dividend income without time limit and to exclude the amount already taxed from the capital gains. The deduction method is better than current arrangements in terms of concision and wholeness. This study emphasizes the necessity to keep the legal consistency even the case of tax policy.
Keywords
- deemed gift
- related party transaction
- reconciliation of dual taxation
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