[Click eStock] "Tax Reform Proposal Announced, Positive Investment View on Holding Companies Maintained"

Holding Companies of Major Conglomerates Rise 45.4% in About Four Months
Correction Phase Amid Tax Reform Proposal Discussions
Additional Minority Shareholder Protection Policies Anticipated

On August 1, KB Securities stated its continued positive investment opinion on the holding company sector, noting, "Although the recent tax reform proposal has led to a short-term correction in holding company stock prices, considering the new government's momentum in strengthening protections for minority shareholders, the implementation of related policies is only a matter of time."

Park Geonyoung, a researcher at KB Securities, analyzed, "The combined market capitalization of 34 listed general holding companies within large business groups rose by 45.4% from April 4 (the date of President Yoon Suk-yeol's impeachment ruling) to July 29, significantly outpacing the KOSPI's increase of 31.0% over the same period."

During this period, the average PBR (price-to-book ratio) of holding companies increased from 0.6 to 0.9. However, after reaching its peak last month, discussions on the tax reform proposal?which could increase the tax burden for minority shareholders?have led to a correction phase for holding company stocks.

"Tax Reform Proposal May Increase Burden on Minority Shareholders"

Previously, on July 31, the Ministry of Economy and Finance finalized this year's tax reform proposal. Notably, the threshold for major shareholder taxation on capital gains from listed stocks will be reduced from holdings of KRW 5 billion per stock to KRW 1 billion, thereby expanding the range of taxable investors. The securities transaction tax rate for the KOSPI and KOSDAQ markets is also set to rise from 0.15% to 0.20%.

To encourage higher dividends and apply separate taxation for shareholders, the government plans to introduce separate taxation on dividend income for high-dividend companies. For dividend income received from these companies, a tax rate of 14% will apply to annual income up to KRW 20 million, 20% for income over KRW 20 million up to KRW 300 million, and 35% for income exceeding KRW 300 million.

This benefit of separate taxation will be limited to dividend income from high-dividend companies, specifically those with a dividend payout ratio of 40% or higher, or companies with a payout ratio of at least 25% and a dividend increase of 5% or more compared to the three-year average.

Nevertheless, Park highlighted several ongoing minority shareholder protection policies under discussion. These include: ▲ mandatory cancellation of treasury shares ▲ separate taxation of dividend income ▲ a minimum valuation floor for inheritance tax on listed stocks ▲ mandatory cumulative voting and separate election of audit committee members ▲ amendments to the Capital Markets Act (including mandatory fair value assessment in mergers, protection of parent company shareholders during subsidiary IPOs after physical spin-offs, and sharing of management control premiums).

"Speed Is Key for Minority Shareholder Protection Policies"

Park predicted, "Policies expected to be legislated quickly include the mandatory cancellation of treasury shares, separate taxation of dividend income, and mandatory cumulative voting and separate election of audit committee members. The amendment to the Commercial Act regarding the mandatory cancellation of treasury shares has already been submitted to the Legislation and Judiciary Committee. It is expected to be processed at the National Assembly's plenary session next month."

He added, "The amendment to the Commercial Act regarding mandatory cumulative voting and separate election of audit committee members was approved by the Legislation and Judiciary Committee's subcommittee on July 28 and is expected to be submitted and processed at the plenary session early this month. Separate taxation of dividend income is included in the tax reform proposal."

Park further stated, "A scenario for a short-term rebound in stock prices would be if the remaining minority shareholder protection policies are reviewed by the National Assembly's standing committees in August and September and then passed together at the September plenary session for swift legislation. Since the tax reform proposal has already been announced and the negative impact has materialized for investors, it is now crucial how quickly counterbalancing minority shareholder protection policies can be implemented."

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