[Disabled Wings Public Interest Corporations] Efforts to Revitalize Public Interest Corporations in the National Assembly... Will the Korean Version of 'Wallenberg' Break New Ground?

Ruling and Opposition Parties Push to Expand Exemption Limits for Stock Donations to Public Interest Corporations
Government Also Takes Flexible Stance... Law Revision Expected to Accelerate in National Assembly This Year

Although bills to raise the exemption limit on gift tax imposed when companies donate stocks to public interest corporations have been submitted, they have repeatedly failed to pass the National Assembly. In the 22nd National Assembly, bills to expand the tax exemption threshold for stock contributions to public interest corporations, including those belonging to mutually invested restricted companies, are expected to be submitted by both ruling and opposition parties. Attention is focused on whether this will open the way for the birth of a Korean version of the ‘Wallenberg Foundation.’

According to political circles on the 13th, Park Soo-young, the senior member of the People Power Party on the National Assembly’s Planning and Finance Committee, is preparing to propose an inheritance and gift tax bill that significantly increases the tax exemption rate when companies donate stocks to public interest corporations. This amendment reflects the fact that concerns about indirect control of public interest corporations have largely been dispelled through the Fair Trade Act, and aims to activate stock donations by raising the tax exemption rate for companies’ stock contributions to public interest corporations.

Currently, companies face restrictions under the Inheritance and Gift Tax Act when attempting to contribute stocks to public interest corporations. In particular, for public interest corporations belonging to ‘mutually invested restricted groups,’ tax exemption applies only up to 5% of the contributed domestic corporation stocks. For general public interest corporations, the exemption limit is 10%, and if the public interest corporation for charitable, scholarship, or social welfare purposes does not exercise voting rights on the held stocks, the exemption limit is up to 20%.

Park proposed that for public interest corporations of mutually invested restricted groups, if only voting rights related to appointment/dismissal of executives, amendments to articles of incorporation, and mergers and acquisitions (M&A) under the Fair Trade Act are retained, tax exemption should apply up to 15%, and if voting rights are not exercised, up to 50% of stock contributions should be exempted. Additionally, an amendment is being prepared to expand the exemption limit up to 50% for general public interest corporations if voting rights are not exercised.

Furthermore, the scope of public interest corporations’ roles will be expanded beyond charity, scholarships, and social welfare to include support for science and technology, academia, and arts and culture.

Among the opposition and majority party members of the Democratic Party, there are also lawmakers who sympathize with the purpose of the related law amendment, raising expectations for legislation through the regular National Assembly tax law review. In particular, the Democratic Party is also pushing for the enactment of a bill to activate social investment by public interest corporations, which is expected to strengthen efforts for the bill’s passage.

Discussions on amendments related to public interest corporations have already been raised in the 22nd National Assembly. On June 20, the People Power Party’s Special Committee on Finance and Tax Reform, together with the Ministry of Economy and Finance, announced at a forum on ‘Rational Reform Directions for Inheritance and Gift Tax’ that they plan to expand gift tax exemptions when companies contribute stocks to public interest corporations. Song Eon-seok, chairman of the special committee and chair of the National Assembly’s Planning and Finance Committee, stated, “In the past, excessive restrictions were imposed because the controlling family tried to secure indirect control by donating stocks to public interest corporations, but if the public interest corporation does not exercise voting rights, it can contribute purely for public benefit regardless of indirect control, so the restrictions on exemptions should be eased.”

With both ruling and opposition parties reviewing legislative bills and the related special committee announcing legislative plans, the expansion of tax exemption rates for stock contributions to public interest corporations is expected to gain momentum in this year’s National Assembly.

Although voices calling for raising the stock contribution rate to public interest corporations have been raised in the National Assembly, concerns about indirect control have also been significant. In particular, there has been caution about expanding the exemption rate for companies within mutually invested restricted groups. Song Eon-seok and Park Dae-chul of the People Power Party each proposed bills in the 21st National Assembly to raise the non-taxable stock holding limits through amendments to the Inheritance and Gift Tax Act.

However, these bills failed to pass the National Assembly. In review reports, the Ministry of Economy and Finance and others expressed the opinion that “additional increases should be approached cautiously” regarding legislation. They emphasized that “considering the purpose of the system to prevent controlling shareholders’ management control and irregular succession through public interest corporations by setting stock holding limits, expanding these limits should be done cautiously.”

Looking at the amendments to the Inheritance and Gift Tax Act passed since 2020, there has been a trend toward strengthening and refining management regulations on public interest corporations. These include changes in classification systems for public interest corporations, raising the mandatory expenditure ratio on contributed assets stipulated by enforcement ordinances to the law, and introducing additional taxes for violations of accounting audit obligations for public interest corporations. A legal industry insider said, “In recent years, every time the Inheritance and Gift Tax Act has been amended, the parts related to public interest corporations have changed, generally moving toward strengthening post-management obligations annually.”