"To Promote Donation Culture, Regulations on Corporate Public Interest Foundation Shares Must Be Eased"

Hankyung Association 'Research on Public Interest Corporation Legislation' Report
Ranked 79th in the English Release of the 'World Giving Index'
"Easing Regulations Will Also Revitalize Corporate Succession"

There has been a call to ease regulations related to the acquisition and holding of stocks by corporate public interest foundations in order to promote the spread of a donation culture.

The Korea Economic Association (KEA) announced this on the 29th through a report titled "Research on the Legal System of Public Interest Foundations," commissioned to Professor Choi Seung-jae of the Department of Law at Sejong University.

FKI Tower Yeouido, Seoul, Korea Economic Association Monument. Photo by Jinhyung Kang aymsdream@

The report highlighted that South Korea's donation participation index scored 38 points in the "2023 World Giving Index (WGI)" published by the UK-based Charities Aid Foundation (CAF), ranking 79th out of 142 countries surveyed. Although this is a slight improvement from last year (35 points, 88th place), it still falls short compared to major countries such as the United States (5th) and the United Kingdom (17th).

The report identified "strong regulations on public interest foundations" as a major reason for the underdeveloped donation culture in South Korea. In particular, it pointed out that the Monopoly Regulation and Fair Trade Act (Fair Trade Act) and the Inheritance and Gift Tax Act excessively regulate the acquisition and exercise of stocks by public interest foundations, thereby discouraging corporate social contributions. The Fair Trade Act generally prohibits public interest foundations belonging to business groups with total assets exceeding 10 trillion won from exercising voting rights on stocks of domestic affiliates they hold. The report criticized this as a "regulation that does not consider the positive functions of public interest foundations," warning that it could even threaten their sustainability.

While some criticize that public interest foundations are used as a means to solidify the governance of group affiliates, the report also emphasized the positive role of corporations using public interest foundations to identify and solve national challenges such as supporting socially vulnerable groups.

Additionally, the Inheritance and Gift Tax Act imposes gift tax on the excess portion when a public interest foundation receives stock contributions exceeding 10% of total shares (or 20% if voting rights are not exercised). The report noted that for public interest foundations belonging to business groups subject to cross-shareholding restrictions, the tax-exempt threshold is about 5%.

Accordingly, the report argued that corporations may limit contributions to public interest foundations up to the tax-exempt threshold to reduce gift tax burdens, which could shrink social contribution activities. It added that such unreasonable regulations do not exist in major overseas countries such as the United States, Japan, and Germany.

Professor Choi stated, "It is desirable to continue corporate social responsibility (CSR) in a sustainable form through public interest foundations," adding, "If regulations such as the voting rights restriction under the Fair Trade Act are abolished and the tax-exempt threshold for stock acquisition under the Inheritance and Gift Tax Act is expanded to 20%, the level seen in the United States, the donation culture will spread and corporate succession will be revitalized."

Lee Sang-ho, head of the Economic and Industrial Division at KEA, said, "In line with the strengthening of ESG (environment, social, governance) trends, it is necessary to improve regulations related to public interest foundations so that companies can participate more actively in social contribution."

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