FKCCI "Improvement of Fair Trade Regulations Needed to Expand Corporate Social Contribution"

Submitted Opinion Letter Reflecting Corporate Voices to the Ministry of Economy and Finance and the Fair Trade Commission

The Federation of Korean Industries (FKI) has requested the government to improve fair trade regulations that hinder the expansion of corporate social contribution activities. They proposed revising the provision that prohibits joint investment by holding company affiliates to allow the operation of standard workplaces for the disabled in the form of group joint investments. They also pointed out the need to specify provisions related to donations from large business groups to avoid side effects.

On the 5th, the FKI announced that it submitted these opinions on "Improving Fair Trade Regulations that Hinder Social Contribution" to the Ministry of Economy and Finance and the Fair Trade Commission.

First, the FKI pointed out the problem of fragmentation of standard workplaces for the disabled into separate subsidiaries during the transition to holding companies, which leads to their downsizing. Currently, some groups that are non-holding company business groups establish standard workplaces for the disabled in the form of subsidiaries through joint investments by affiliates, and are recognized as fulfilling employment obligations proportional to their investment ratio. However, when these groups transition to holding companies, they must eliminate joint investments by affiliates according to the Fair Trade Act. This means they must establish standard workplaces for the disabled separately as subsidiaries.

The FKI explained that in this case, the workplace size becomes too small to achieve economies of scale, making comprehensive support and management difficult. They pointed out that "it is necessary to introduce an exception to the prohibition of joint investments by holding company affiliates in the Fair Trade Act or to exclude the application of some provisions of the Fair Trade Act in the Act on the Employment Promotion and Vocational Rehabilitation of Disabled Persons as an exceptional measure."

Under the current Fair Trade Act, if a company or executive belonging to a large business group donates above a certain amount to a 'nonprofit corporation or organization,' the nonprofit corporation may be included in the large business group. The current enforcement decree of the Fair Trade Act stipulates that if the same person (head of the group) or the same person with related parties (affiliates, executives, spouses, relatives, etc.) donates 30% or more of the total donation amount to a nonprofit corporation, that corporation is included in the business group.

However, since the criteria for calculating the total donation amount are unclear, if the donation amount from the head of the large business group or related parties (affiliates) exceeds the size of the nonprofit corporation, the nonprofit corporation may be incorporated as a related party (affiliate). If the nonprofit corporation is omitted from the related parties (affiliates), there is a possibility that the head of the large business group may face criminal penalties for failing to submit designated documents. Additionally, if the nonprofit corporation is incorporated into a specific business group affiliate, it may face difficulties in receiving donations from other companies.

The FKI stated, "As a result, donations tend to concentrate on larger nonprofit corporations rather than small nonprofit corporations that urgently need support," and argued that "the total donation amount criteria for nonprofit corporations or organizations in the enforcement decree of the Fair Trade Act should be limited to the donated assets for the establishment purpose or basic assets." They also added, "The Framework Act on National Taxes limits the scope of donated assets of nonprofit corporations to those for the establishment purpose when defining special related parties."

In addition, the FKI pointed out issues with the "restriction on voting rights for domestic affiliates' stocks owned by public interest corporations belonging to mutual investment restriction business groups" and "various investment regulations on holding companies." Choo Kwang-ho, head of the Economic and Industrial Headquarters at the FKI, said, "Recently increasing corporate social contribution activities are being restricted by various fair trade regulations," and added, "It is necessary to abolish unnecessary regulations in line with global standards so that companies can actively participate in social contribution activities."