OTC Stocks Must Be Reported and Taxed Regardless of Major Shareholder Status

National Tax Service Produces and Publishes 'Common Mistakes in Stock Capital Gains Tax' Cases

The National Tax Service (NTS) announced on the 13th that it will produce and publish 'Common Mistakes in Stock Capital Gains Tax' in line with the scheduled reporting period for stock capital gains tax pre-filing for the first half of 2024 (August 1 to September 2).

An NTS official explained, "The NTS has been serializing 'Capital Gains Tax Mistake Cases' including real estate, and this time it contains stock-related content. The common mistakes in stock capital gains tax are mainly composed of useful mistake cases to know in advance before the stock capital gains tax pre-filing."

The common mistakes in stock capital gains tax are largely categorized into taxable subjects, profit and loss offsetting, and tax rate application. According to the casebook, A conducted an over-the-counter transaction of domestic listed stocks and judged that small shareholders of listed stocks are not subject to taxation, so did not report stock capital gains tax. However, listed stocks transferred over-the-counter are subject to taxation regardless of whether the shareholder is a major shareholder. Accordingly, the NTS applied a 20% tax rate and imposed capital gains tax of 26 million KRW (including additional tax).

There was also a case where the determination of major shareholder status was made without including the shares held by a divorced spouse. Mr. B was married at the end of the previous fiscal year but divorced by the time of the stock transfer, so he judged that he was a small shareholder excluding the ex-spouse’s shares and did not report stock capital gains tax. However, even if the special relationship ended due to divorce at the time of transfer, if the marital status was married at the end of the previous fiscal year, the ex-spouse’s shares must be included when determining major shareholder status. Including the divorced spouse’s shares made him a taxable major shareholder, and the NTS applied a 20% tax rate to tax accordingly.

An NTS official stated, "There have been institutional changes this year, such as the relaxation of the taxable major shareholder requirements for stock-related capital gains tax. Also, the calculation method of capital gains is unfamiliar, and the reporting periods differ from those for foreign stocks and derivatives, so there are many points to be aware of when filing. It is necessary to carefully review these." He added, "The common mistakes in stock capital gains tax can be easily accessed and utilized by anyone through the NTS website, official blog, Facebook, and other channels."