[Interview] Rep. Park Su-young Rolls Up Sleeves to Revitalize Public Interest Foundations: "Let's Create a Korean Version of Wallenberg"

Bill to Expand Tax Exemption for Contributions to Public Interest Corporations Including Sangchul Group to Be Proposed Soon
If There Are Concerns About Indirect Control, It Should Be Addressed in the Fair Trade Act
"The State Cannot Do Everything... The Role of Public Interest Corporations Should Be Expanded"

Editor's NoteDiscussions are underway in the political sphere regarding institutional support measures to revitalize public interest corporations. Serious consideration is being given to expanding tax exemption limits to allow companies with a sense of purpose to support public interest corporations through stock contributions. We met with Park Su-young (People Power Party) and Yoon Ho-jung (Democratic Party of Korea), lawmakers seeking institutional improvements to revitalize public interest corporations.

"Shouldn't we also try to nurture a public interest corporation like the Wallenberg Foundation?"

Park Su-young, a People Power Party lawmaker, recently told Asia Economy in an interview that they are preparing an amendment to the Inheritance and Gift Tax Act (IGTA) that would significantly expand the tax exemption limits when companies contribute stocks to public interest corporations, and are coordinating the timing of its legislation. Although there have been legislative attempts related to this in the National Assembly, they have repeatedly failed. Park proposed a significantly broader plan that surpasses previous legislative efforts. Even for so-called large corporations known as Mutual Shareholding Restricted Corporate Groups (MSRCGs), if voting rights are restricted, contributions to public interest corporations up to 15% would be granted tax exemption benefits, and if voting rights are not exercised, contributions up to 50% of stocks to public interest corporations would not be subject to gift tax. The scope of activities for public interest corporations is also being expanded beyond social welfare and scholarships to include support for science and technology, academia, and the arts.

Regarding concerns about indirect control, which was an obstacle to deregulation but has been dispelled by amendments to the Fair Trade Act, Park stated, "Even if concerns about indirect corporate control arise, it is the Fair Trade Act, which aims to block indirect corporate control, that should be amended?not the IGTA, which aims to secure fiscal revenue through tax collection." In other words, issues of indirect control should be addressed at the Fair Trade Act level, not blocked by inheritance and gift tax regulations.

Having also served as the head of the Korea Peninsula Advancement Foundation, a conservative think tank, Park was inspired by Sweden’s Wallenberg Foundation, which accomplishes tasks typically expected of the state, and hopes that a sizable public interest corporation will emerge in Korean society. As the ruling party’s secretary of the Planning and Finance Committee and chair of the Tax Subcommittee responsible for practical tax law review, Park plans to introduce the bill before the Tax Subcommittee begins full operation.

Park Soo-young, a member of the People Power Party, is giving an interview to Asia Economy at the National Assembly on the 10th. Photo by Kim Hyun-min kimhyun81@

What is the content of the bill being prepared regarding public interest corporations?

Simply put, it aims to unify the ownership limit systems of the Fair Trade Act and the IGTA concerning companies contributing stocks to public interest corporations. Currently, the IGTA maintains exemption limits established when there were no voting rights restrictions under the Fair Trade Act, intended to prevent indirect corporate control. Specifically, for MSRCGs, the exemption limit is only 5%, regardless of whether voting rights are exercised. The Fair Trade Act has already been amended. There may be concerns about indirect control or indirect inheritance related to stock contributions to public interest corporations. However, if the Fair Trade Act has changed, the IGTA should have changed as well. If companies do not exercise voting rights and intend to do good, why should the country block that?

Could you explain in more detail?

The Fair Trade Act allows stock contributions up to 15% if voting rights are restricted, so the IGTA should also set a tax exemption limit up to 15%. Additionally, if voting rights are not exercised at all and the contribution aligns with public interest purposes, the exemption could extend up to 50%. However, unlike general public interest corporations, if MSRCGs maintain voting rights, only 5% exemption would be allowed as currently, but if voting rights are exercised restrictively according to the Fair Trade Act, the exemption would be 15%, and if voting rights are not exercised, exemption would apply up to 50%. Furthermore, public interest corporations should be allowed to engage in basic education and science and technology, like the Wallenberg Foundation, but also contribute to culture and the arts. Allowing donations to cultural sectors would be an opportunity to improve the quality of culture experienced by the public. To enable this, the scope of public interest corporations’ roles would be expanded from charity, scholarships, and social welfare to include academic advancement and cultural and artistic support, similar to the Public Trust Act.

There are concerns about indirect control through public interest corporations. Hasn't the government been cautious for this reason?

So far, stock voting rights for MSRCG public interest corporations have only been allowed in very exceptional cases, such as when 100% ownership is held or when a listed company needs to defend against hostile M&A. The Fair Trade Act prevents public interest corporations from being used to maintain or expand the controlling family's power. The regulation applying gift tax beyond 5% ownership was introduced in 1994 and has become stricter over time. Even if concerns about indirect corporate control arise, it is the Fair Trade Act, aimed at blocking indirect control, that should be amended?not the IGTA, which aims to secure fiscal revenue through tax collection. Post-management should also continue to ensure that board resolutions and disclosure obligations regarding the scale and content of internal transactions stipulated by the Fair Trade Act are properly observed.

Park Soo-young, a member of the People Power Party, is giving an interview to Asia Economy at the National Assembly on the 10th. Photo by Kim Hyun-min kimhyun81@

Even if stock contributions increase, mechanisms to enhance actual public interest utilization should be established.

Currently, at least 1% of the contributed property value must be directly used for public interest projects, and a certain percentage of operating income, as prescribed by presidential decree, must also be used directly for public interest projects. It is necessary to review whether these regulations are properly followed. If projects are carried out based on arbitrary allocation by companies, an obligation could be imposed to re-contribute a certain percentage to expand support for areas with high demand for public interest projects. Additionally, the government should prepare and discuss measures for post-management.

Why do you want to propose such a bill?

When I was the head of the Korea Peninsula Advancement Foundation, I was very interested in this issue. At that time, I had a strong interest in Sweden and was amazed when I encountered information about the Wallenberg Foundation. From their website, I saw that they undertake tasks that would normally be done by government agencies. Because they have no restrictions on stock contributions, this is possible. If we had a similar public interest corporation, it could fill these gaps. Sweden awards the Nobel Prize and accelerates research on good topics through the Wallenberg Foundation, connecting it with companies. I think this is a truly great opportunity for national development. Also, among people I know who run companies, some want to donate half of their stocks to public interest even if they give half to their children. But they hesitate because of taxes. Having worked as a public official for 30 years, I know it is impossible for the state to fulfill every role everywhere. It is time to consider expanding the roles of public interest corporations and the like.