감액배당에 대한 과세

Abstract

This paper examines the problem of tax treatment on distribution of reduced capital reserves, and seeks ways to improve it. To this end, this paper analyzes case of distribution of reduced capital reserves that are used as tax-saving strategies, and propose an improvement method, referring to the tax treatment of the United States and that of Japan The legal reserves, such as capital reserves and profit reserves, can be reduced and distributed to the shareholders at the resolution of the general shareholders’ meeting under the Korean commercial law. As there is no restriction on the ratio and order of reduction of legal reserves, the company generally reduces capital surplus and uses it as a dividend resource. When a corporation with both capital surplus and retained earnings pays dividends by reduction of the capital surplus, the tax law shall recognize the resolution of the general meeting of shareholders and shall regard it as being distributed from the capital surplus. The application of this “arbitrary election method” in the determination of distribution resources differs from the US tax law and the Japanese one that enforce respectively the application of the “first out-of-E&P” and the “proportional distribution method”. Accordingly, the shareholders that received the dividends by reduction of capital reserve do not recognize them as a taxable income. Instead, the amount of dividends received is deducted from the book value of the shares held, and if the amount of dividends received exceeds the book value of the shares held, the book value becomes zero. According to the authoritative interpretation of the administration, the amount of dividends received that exceeds the book value is not recognized as taxable gains. It is presumed that the reason why the Korean tax law does not treat the dividend by reduction of capital surplus as a taxable income is because the distribution is considered to be the return of the shareholders’ original investments. However, the dividend by reduction of capital surplus may not be a return of investor’s original investment, unless all shareholders are the original investors at the time of the incorporation or the shareholders have the same acquisition cost per share. From the perspective of a corporation, it may be regarded as returning the original investment to the entire shareholders as a whole. On the other hand, from the perspective of individual shareholders, distribution by reduction of capital reserve may be an opportunity to realize gains for shareholders with low issuance prices, or to realize losses for shareholders with high issuance prices. For example, a shareholder who has invested at a lower price may realize a gain by receiving a distribution greater than its original investment as a result of a reduction in the capital reserve, in which case the gains come from capital paid by shareholders who have invested in high prices. By utilizing arbitrary election method in the determination of distribution resources, taxpayers can take out retained earning accumulated in the corporation without burden of dividend income tax. In addition, a portion of the equity can be disposed without capital gain tax by using taxation treatment that overlooks the nature of realization of gain or loss embedded in the distribution of reduced capital surplus. In this process, taxation may be deferred and the taxpayer’s income may be converted from one type to another, or in some cases, taxation may be permanently omitted. Dividends from reducing capital surplus are similar to stock redemption which is subject to the deemed dividend provisions in Korean tax law, in the sense that the company’s properties are distributed to shareholders. The same is true except that the value of the extinguished shares is zero because no shares are offered in receiving dividends from reducing capital surplus, while the acquisition costs of the extinguished shares is deducted from distribution amount in calculation of the deemed dividend income. Accordingly, in the United States and Japan, both dividends from reducing capital surplus and deemed dividend at the time of stock redemption are taxed in almost a similar way. It is better to improve the taxation method of dividends by reduction of capital surplus in such a way that it can be harmonized with the taxation treatment of the deemed dividend, because both of which have a similar nature. In Korea’s deemed dividend rules, the amount of dividend income changes as the acquisition cost of shareholders varies because acquisition costs are included in the calculation of deemed dividend income. However, if there is a difference in the acquisition costs, there should be a difference in the gain or loss from the sale of shares, while dividend income per share remains the same. In terms of taxation on deemed dividend, the Korean tax law seems to assume a world in which all shareholders are composed of original investors at the time of establishment who have a same acquisition cost. An appropriate way to improve the taxation method of dividends by reduction of capital reserve is to impose restrictions on the choice between sources of distributions as in the United States or Japan, rather than allowing the taxpayers’ arbitrary election of the sources of distribution. In the United States, it is considered that the distribution of property made by a corporation to shareholders is made out of earnings and profits to the extent it has. In Japan, the distribution of original retained earnings is left to the corporation’s choice, but if the capital surplus is the source, it is divided into the reduction of capital and that of retained earnings. The amount settled as distributed from retained earnings shall be deemed dividend, and the amount settled as delivered from capital reserve shall be treated as an amount received from the sale of a portion of the shares held. Considering the improvement of the deemed dividend system, Japanese approach could be a better alternative if it chose between the U.S. method and the Japanese one, which is closer to the Korean current tax law. The tax system for deemed dividends in Korea is problematic when stocks are issued or traded at new prices since the company was established. There is no problem in a world where there are only the original investors at the time of establishment of the company, in which case the Japanese method and the Korean one resulted in the same taxation in the deemed dividends. Therefore, the Japanese method is to expand the scope of its application so that it is suitable even when new equity is issued or equity movement occurs at a price different from the original investment.