The Korea Herald

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지나쌤

Transfer of wealth via stock gifts rises

By 양승진

Published : July 26, 2011 - 19:25

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The largest shareholders at Korea’s listed firms have reaped huge profits through gifted stocks in the past five years, taking advantage of fluctuations in the financial markets, a local source revealed Tuesday.

According to Chaebul.com, which tracks news and data on Korea’s conglomerates, gifted stocks or inheritance by the largest shareholders amounted to 3.3 trillion won ($3.1 billion) in the period from 2006 through July 22 this year.

There were 869 cases of stocks being gifted by parents to children, worth 2.8 trillion won. There were 182 cases of stock inheritance, valued at 553 billion won.

The data shows that the shareholders in question focused on transferring their wealth to their families while avoiding taxes, especially when the stock market was bearish.

The number of stock gifts hit a record high of 205 in 2008 when the country’s stock exchange came under downward pressure due to the global financial crisis. The 2008 figure was up from 141 in the previous year. And the number of stock gifts remained high at 203 in 2009 before declining to 112 last year.

The noticeable increase in the number of stock gifts during the rocky economic period reflects the fact that such moves save on taxes and at the same time maximize profits in future sell-offs.

Under current trade regulations, the price for stocks transferred to a third party is determined by the three-month average price.

The transfer of wealth through gifted stock is not illegal, however. The Korean law on inheritance and gift taxation permits the rich to transfer their without paying punishing taxes. Civic organizations tracking the conglomerates said that getting away with lower taxes imposed on such gift stocks when the market is sluggish is not illegal but not perfectly legitimate either.

In the January-July period of this year, the number of stock gifts rose to 132, already topping the level of 2010. The amount of money that changed hands also jumped 45 percent on year to 207.2 billion won, raising concerns that some of Korea’s largest shareholders are rushing to transfer their wealth to their families, reducing the tax take significantly.

Shinsegae Group vice chairman and chief executive Chung Yong-jin, who is Lee Kun-hee’s nephew, and his sister received a total of 840,000 shares valued at 329.8 billion won from his father in September 2006, instantly emerging as a member of the richest group in Korea.

Even excluding the shares handed over in taxes, Chung and his sister saw their stock wealth soaring by 89.4 billion won and 67.5 billion won over five years.

By Yang Sung-jin (insight@heraldcorp.com)