South Korea to crack down on share-price suppression for inheritance tax evasion with 30% valuation surcharge

Companies caught deliberately suppressing their share prices to reduce inheritance or gift tax burdens will face a share valuation at least 30 percent higher than the current assessed value under new rules announced Monday. The measure targets so-called "share-price suppression" — the practice of artificially deflating a company's value before an inheritance or gift transfer — and shifts the tax base from a temporarily depressed price to a long-term "normal price."

The Ministry of Economy and Finance unveiled the plan as part of its 2026 tax reform package Monday. The package sets out two specific conditions under which share-price suppression may be presumed. Share-price suppression refers to a controlling shareholder intentionally driving down a company's value and share price to reduce inheritance or gift tax liabilities.

The first condition is a persistently low price-to-book ratio. A company whose PBR has ranked in the bottom 25 percent of its Kospi sector or the bottom 10 percent of Kosdaq over the past six years may be presumed to have engaged in share-price suppression. PBR measures a share price against net assets per share; a low reading indicates the market has undervalued the company over an extended period.

The second condition covers companies that carried out actions likely to harm corporate value — such as a dual listing or the issuance of exchangeable bonds — within the past year, and whose market valuation has fallen more than 30 percent compared with the average over the preceding three years.

A company that files an inheritance or gift tax return under the current valuation method and meets either condition will be deemed to have engaged in share-price suppression and referred to a valuation review committee. If the committee confirms the finding, the listed shares will be revalued and the tax recalculated. However, if the taxpayer can demonstrate that the business decisions behind the price decline were legitimate, the original valuation method will stand.

For low-PBR companies, the taxable estate value will be set at whichever is greater: the average closing price over the six months to six and a half years preceding the transfer, or 130 percent of the current assessed value. In practice, this means inheritance and gift taxes will be levied on a figure at least 30 percent above the value calculated under the existing method.

For example, if shares are currently valued at 1 billion won ($698,000) under the existing method, a confirmed finding of share-price suppression could push the taxable value to 1.3 billion won or more.

Companies that qualify under the sharp share-price decline condition will have their taxable value based on the average closing price over the six months to three years before the transfer. The government said the measure is designed to reflect a company's long-term normal value rather than a short-term depressed price.

The same valuation approach will apply when calculating gift tax on transactions in listed shares between a controlling shareholder and related parties. Ordinary on-exchange trades by general investors — excluding large block trades conducted outside regular trading hours — are exempt.

The tax treatment of treasury shares will also change following a Commercial Act amendment in March that clarified treasury shares as part of a company's capital. The government said it has aligned the tax code with that reclassification.

The most significant change affects taxes paid by shareholders. Under the current rules, the tax treatment depends on the purpose for which a company acquires its own shares. Shares bought for cancellation are taxed as deemed dividends, while shares bought for later disposal are taxed as capital gains from a share sale.

Starting Jan. 1 next year, that distinction will be eliminated. All treasury share acquisitions will be taxed as deemed dividends regardless of the company's stated purpose. Deemed dividends are a tax regime under which no actual dividend payment is made, but the amount is treated as a dividend for tax purposes.

The tax treatment for corporations will also change. From next year, any gain or loss a company realizes from disposing of its own treasury shares will be excluded from corporate tax. The government said it is treating treasury share transactions as capital transactions — adjustments to equity — rather than operating income or losses, and has therefore removed disposal gains and losses from the tax base.

Anti-avoidance rules for controlled foreign corporations will also be tightened to align with global standards. The controlled foreign corporation, or CFC, regime is designed to prevent companies from accumulating profits in low-tax overseas subsidiaries to reduce their overall tax burden.

Under the current rules, a foreign subsidiary whose effective tax rate falls below 17.5 percent — 70 percent of the top corporate tax rate — is flagged as a potential tax avoidance vehicle and taxed accordingly. The threshold will be lowered to below 15 percent, matching the global minimum tax rate.

The government said unifying the CFC trigger with the global minimum tax rate should reduce the compliance burden on multinational companies by eliminating the need to monitor their foreign subsidiaries against two separate standards.