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About UsPublic Column Regarding the reinforcement of the ban for the Borrowed Name to revise of “ACT ON REAL NAME FINANCIAL TRANSACTIONS AND CONFIDENTIALITY (Hereinafter “AcT”)” (effective from 29th Nov. 2014)
Recently the Act is revised and people have concerned about the reinforcement of the prohibition for the borrowed name transaction. The Act is electrically implemented from President Kim Yongsam regime in 1993. It revised several times for last 21years and reached it at present. Especially, this revisions on 29th Nov. 2014 are contained that inter-family borrowed name transactions are principally prohibited which was allowed in the past. Therefore the act is highlighted as a Prohibition Act for the borrowed name transaction in the news paper
This revised Act focused mainly to prohibit the borrowed name transaction however it permitted a limited cases 1) within the range of the tax-exemption of inheritance tax for inter-family, 2) the fund which are controlled by the manager of friendship meeting if it is proved, 3) Over the limit of buying stock in a public offering ( for more detailed case, please see the following )
At the moment I can't estimate the ripple effect because the Act is revised and effective a few day ago. However I'd like to introduce that, if billionaire or the people who are daily handled the financial issue, have to know and understand it for the future risk hedge. Hope to help your financial life as a reference. The following articles are publicized in the Newspaper. I'd like to summarize and introduce it to the readers.
(*) Legality or illegality by case
|
Type |
Descriptions |
How to cope with it. |
|
The person subject to the general taxation of financial income |
If person borrow the family member name to reduce the financial income under KRW 20 million - illegal |
when converted the real name, to use the non-taxable instrument or utilize the inheritance property deduction |
|
Livelihood Deposit, etc Tax-saving account user |
Unqualified person who want to use the tax-saving purpose borrow the other name - illegal |
Legally file the inheritance report or need to correct the account holder |
|
Business entity who has a loan from the financial institutions, Oligopolistic shareholder of company |
To avoid or afraid of the creditors or NTS's seize, to use the borrowed name - illegal |
To convert the real name account or to insure the possible insurance which can be changed between contractor and beneficiary |
|
Wholesaler or retailer business and hospital owner who trade cash frequently. |
It's illegal to use the account in the name of acquainted person or staff's name. The borrowed name account is regarded as the holder's account and title. |
Before the revised Act is effective, it have to correct the account name and avoid the ownership dispute. |
|
Representative Director and shareholder |
The borrowed account to laundry the slush fund of company - illegal |
As it'll be the misappropriation of embezzlement of company, company have to return it or insure the pension or life-long insurance under the company name. |
|
The user of saving bank or the humble financial institutions |
It's legal for the borrowed account to protect the Depositor protection limit (KRW50 million per person) |
It's illegal for the borrowed account to avoid the general taxation of financial income between parent and their children. |
|
It's legal for the borrowed account to avoid the limitation of per person |
It require to explain the purpose of the borrowed account which know the cash flow and prepare the tax issue | |
|
To manage the financial account under the parent name on behalf of minor children. |
It's legal for the financial account to manage by parent on behalf of the minor children if the money source is clear. |
Must be explained the money source for the Financial Source Investigation |
|
Woman's society. Alumni Association, fraternity, church, etc friendship association |
It's legal for fee management to use the member's account |
If it's the friendship association, have to clear and explain it. |
(*) An extract of Newspaper report
Judged on recently both the revised Act and regulation and Gift and inheritance Act Article 45-④ (The deemed gift from the borrowed name trade), the borrowed name account between the family member is reached only the limitation of Gift and inheritance Act without the burden of penalty and gift tax. This is, between spouse is limited to KRW 600 million and lineal descendant and ascendant is possible to limit KRW 50 million
On the other hands, there are a lot of questions in effective of the real name system though the borrowed name between the family members are still existed. In this case principally I recommend that you have to meet the revised Act. However you have to consider the following point;
“Originally when the gift amount is transferred? What's transfer amount” is important,
and also you think “what is the tax burden as it is?”, “in the future you want to return it or not”
Look forward to your wise judgment depends on the situation.
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