A Study on the Requirements of Value－upCompanies under the Estate Tax Act
Asian Tax Journal Vol. 25 No. 6 (2024), pp. 75-100
Abstract
This study is a theoretical study that proposes a method of specifically stipulating the contents of the “Corporate Value－up Plan” in the tax law when granting tax benefits to value－up companies under the Estate Tax Act and additional allowance requirements other than the shareholder return rate. The specific research results are as follows. First, the disclosure of the “Corporate Value－up Plan” is clearly established in the Enforcement Rules of the Estate Tax Act. It includes the classification of the business type of the company necessary to determine whether it is subject to the family business inheritance deduction, the classification of SMEs and mid－sized companies, the work status of the CEO and his or her family (including positions), and summary financial information, business status diagnosis, and indicator analysis are omitted. For clarity of the tax requirements, BR and PER are used for market evaluation, ROE and COE are used for capital efficiency, and dividends, dividend payout ratio and dividend yield are used for shareholder return, only the total asset growth rate and operating profit ratio are required for growth, and the debt ratio is the only disclosure requirement for financial soundness. Second, the evaluation items for corporate governance transparency were clarified. From the shareholder’s perspective, it is necessary to notify shareholders of the dividend policy and dividend plan at least once a year, disclose the predictability of cash dividends, secure communication channels for all shareholders, and immediately disclose details of shareholder changes, but whether electronic voting is conducted is determined by corporate governance. If a company is not required to submit reports, it is excluded from mandatory evaluation items. In terms of the board of directors, it is necessary to operate outside directors, plan and operate an internal control policy, hold a board meeting and disclose resolutions, and subscribe to executive liability insurance, but separation of the board chairman and CEO is excluded from evaluation items unless the company is required to submit a corporate governance report. In terms of the audit organization, accounting, tax, or financial experts must participate in the internal audit organization (internal audit, audit committee), and an external accounting audit by a certified public accountant is required. In addition to disclosure, post－verification procedures for transparency practice are also required. Third, if two or more of the following three requirements other than the shareholder return rate proposed in the tax law amendment are met, the shareholder return rate is deemed to have been met. ① Return on equity(ROE)＞Cost of equity(COE), ② Dividend payout ratio≥40.0%, ③ Market value growth rate＞150% of the average bank time deposit interest rate or the interest rate determined by the Commissioner of the National Tax Service. The results of this study can be used as reference material when setting the scope or requirements for value－up companies when granting tax benefits to family business inheritance companies under the Estate Tax Act.
Keywords
- value－up
- corporate value－up
- corporate governance transparency
- the family business inheritance deduction
- the shareholder return rate
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