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Newsletter | February 2014, Issue 1
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TAX |
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Supreme Court Decision on Tax Transfer of Korean Shares Held by Foreign Company |
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In case an unwinding company transferred the shares of a Korean company to a surviving company at the time of merger, the Supreme Court held that the transfer of such shares of the Korean company is a taxable event and thus subject to capital gains tax and securities transaction tax based on the following reasons: |
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Asset transfer arising from a merger is regarded as a taxable event under the Corporate Income Tax Law and the method for calculating capital gain is stipulated therein (the exception for tax deferral in case of a tax-qualified merger does not apply here). |
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In case of a foreign company, the transfer of shares in a Korean company is subject to capital gains tax and unlike share transfer by a domestic company, there are no special rules for deferring capital gains tax. |
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Although securities transaction tax is exempt in case of a tax-qualified merger under the Special Tax Treatment Control Law, such rule does not apply here and the transfer of shares of a domestic company at the time of merger is subject to securities transaction tax. |
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In addition, the Supreme Court further held that transfer of shares in a Korean Company by a foreign company to a newly established entity as part of a business spin-off should be regarded as a taxable event based on a similar reasoning as provided above. |
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Previously, it was unclear whether the share transfer of a Korean company by a foreign shareholder was subject to capital gains tax and securities transaction tax in case of a merger or a spin off. However, the above Supreme Court decision confirmed that such share transfers will be subject to Korean tax. |
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