"‘Stock Price Suppression’ Companies Set at ‘Bottom 25% PBR Over Six Years’... Calls for Inheritance Tax Reform First"

Crackdown on Stock Price Suppression Tactics: A Look at the New Tax Reform Plan

Targeting Low-PBR and Dual-Listed Companies: Stricter Inheritance Tax Assessment

"Root Cause Is the High Inheritance Tax Rate" vs. "A Step Back from Previous Proposals"

The government has decided to classify listed companies whose price-to-book ratio (PBR) has remained among the lowest in their respective industries over the past six years as “stock price suppression” companies, thereby subjecting them to higher inheritance and gift taxes. Listed companies that have seen sharp drops in share prices due to dual listings or the issuance of exchangeable bonds (EB) will also fall under this measure. In the market, some point out that the government is simply adding another layer of regulation without addressing the root cause—namely, Korea’s high inheritance tax rates compared to major economies—while also criticizing the plan as being less effective than the previously proposed “Stock Price Suppression Prevention Act” submitted to the National Assembly.

According to the Ministry of Economy and Finance on August 4, the newly released “2026 Tax Reform Plan” unveiled the following changes to the capital market: improvements to the valuation method for shares identified as subject to stock price suppression, the introduction of Individual Savings Accounts (ISA) for productive finance, special tax measures for Business Development Companies (BDC), and a revamp of the tax regime for treasury stock.

Criteria for "Stock Price Suppression" Companies Announced... How Will Valuation Change?

The most notable aspect is the revision of inheritance and gift taxes to prevent listed companies from deliberately suppressing their share prices. Under the existing system, controlling shareholders set to pass on management rights have often been accused of intentionally lowering share prices to reduce tax burdens, resulting in a lack of initiative to enhance corporate value.

Accordingly, the government will regard companies whose PBRs have ranked in the bottom 25% for KOSPI-listed firms or 10% for KOSDAQ-listed firms over the past six years as suspected of suppressing their stock prices. Furthermore, companies that have engaged in actions that can undermine corporate value—such as dual listing or EB issuance in the last year—and those whose share prices have dropped by more than 30% over the most recent three years will also be subject to review.

Once a company is classified as a “stock price suppression” firm, the valuation methods used to calculate inheritance and gift taxes will become more stringent, leading to a heavier tax burden. Previously, taxes were based on the average share price over the four months surrounding the transfer—two months before and after. Under the revised plan, the assessment period can be expanded to a maximum of 6 years and 6 months. Specifically, for low-PBR companies, the taxable value for inheritance purposes will be set at the higher of either “the average share price over the past 6 months to 6 years and 6 months” or “1.3 times the current valuation benchmark.” Companies whose stock price fell sharply due to actions undermining corporate value will be assessed based on the “average share price from the past 6 months to 3 years.” This means the taxable base will be at least 30% higher than before.

Whether a company falls within the scope of these measures is determined after a review by an evaluation committee. If taxpayers can demonstrate a legitimate reason for the decline in corporate value, the current valuation method will remain in place. The government currently estimates the number of companies suspected of stock price suppression to be up to about 200, or 7.5% of all KOSPI and KOSDAQ listed firms. The amendment will apply to stock transfers made from April 1, 2027, following finalization of relevant legislation.

Experts’ Opinions: “Inheritance Tax Reform,” “Weak Effectiveness”

However, tax experts are voicing concerns about the specifics of the new system, even as they agree with its intent. There are criticisms that it is difficult to label a company as engaging in stock price suppression based solely on the PBR metric, even with committee review. Others have warned that the process of proving a lack of deliberate stock price manipulation may impose an unnecessary burden on companies.

Oh Moon-sung, professor of Tax Accounting at Hanyang Women’s University, stated, “PBR is merely one tool for corporate analysis; it’s not definitive. Even if a company is not suppressing its price, being perceived as such could trigger tax penalties, which would also burden companies having to prove otherwise.” He urged authorities to reform the inheritance and gift tax system itself, saying, “If there truly is a social atmosphere where companies intentionally suppress stock prices, the root cause is the inheritance and gift tax. Introducing this new measure without addressing the core tax structure will only create additional derivative problems.”

Given that Korean companies often prioritize succession concerns over shareholder value due to high inheritance and gift tax rates, Professor Oh explained that comprehensive reforms—including rationalization of tax rates—are necessary. Currently, Korea’s maximum inheritance tax rate is 50%, the second highest among OECD member countries. For business shares, an additional 20% controlling-shareholder premium applies, bringing the maximum tax rate to as much as 60%.

Hong Kiyong, professor at the Business Administration Department of Incheon National University, echoed these sentiments: “It’s specifically because Korea’s inheritance tax rate is so high that anxieties about stock price suppression arise. Bringing the rate down and maintaining healthy corporations should be a priority.” He added, “Taxing companies out of concern that they might manipulate their share prices over six years—a period during which many businesses can barely survive—does not align with established principles of taxation.”

On the other hand, some critics argue that the government's proposal is less ambitious and effective than previous discussions. Last year, Assemblywoman Lee So-young of the Democratic Party of Korea introduced the “Stock Price Suppression Prevention Act,” which would have required listed companies with a PBR below 0.8 to be taxed for inheritance or gift purposes based on the valuation framework for unlisted firms (using a combination of asset and earnings-based fair value), rather than market price.

Namwoo Lee, chairman of the Korea Corporate Governance Forum, who has long advocated for both implementation of measures against stock price suppression and rationalization of inheritance tax rates, commented, “The new tax reform proposal is much weaker compared to Assemblywoman Lee’s bill, and only applies to a small number of companies.” He added, “Most KOSPI firms would be excluded when applying the first criterion (industry-specific low PBR). I question whether the Ministry of Economy and Finance truly understands the spirit of what President Lee Jaemyung and the National Assembly have been discussing for more than a year.”

Yoo Horim, professor in the Department of Taxation at Gangnam University, also criticized loopholes in the announced criteria, noting, “There are areas where companies would be able to avoid these rules.” While warning that reducing inheritance taxes could be perceived as a tax break for the wealthy, he also emphasized the need for supplementary measures: “Applying an accumulated PBR average over six years is too long a period and risks reducing the intended effect. There should be consistency with the Financial Services Commission’s standards and timing for the public disclosure of low-PBR firms.”

This content was produced with the assistance of AI translation services.