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How to Acquire Treasury Shares and Tax Issues According to the Purpose of Acquisition

How to acquire treasury shares and tax issues according to the purpose of acquisition



Acquisition of treasury shares mean buying stocks from the issuing company and the company becoming a shareholder. Let's look into how it is possible and what tax issues exist according to the purpose of acquisition.


Acquisition method of treasury shares

There are two methods of acquisition. According to the Article 341 of the Commercial Act is 1) acquisition that doesn'texceed distributable profits and according to the Article 341-2 is 2) acquisition for particular purposes.

(1) Acquisition that doesn't exceed distributable profits

- (Article 341) A company may acquire treasury shares under its own name and on its own account, in accordance with the following methods: Provided, That the total acquisition price shall not exceed the amount obtained by subtracting the amounts prescribed in the subparagraphs of Article 462 (1) from the net assets value on the balance sheet for the immediately preceding period for the settlement of accounts.

- [Article 462 (Dividends)]

1)       Acompany may pay dividends within the limit of the value of net assets stated on the balance sheets after deducting the following:

1.        Amount of capital;

2.        The total amount of the capital reserve and the earned surplus reserve accumulated until the pertinent period for the settlement of accounts of the company;

3.        The amount to be accumulated for the pertinent period for the settlement of accounts of the company;

4.        Unrealized profits determined by Presidential Decree.

(2) Acquisition for particular purposes

In cases falling under any of the following subparagraphs, a company may acquire its own shares, notwithstanding the provisions of Article 341:

1. In the case of merger of the company or acquisition of the entire business of another company;

2. In cases where it is necessary to achieve the objective in the course of exercising the rights of the company;

3. In cases where it is necessary to deal with fractional shares;

4. In cases where a shareholder exercises his/her appraisal rights.


Taxissues according to the purpose of acquisition

- Acquisition for purpose of holding shares

1) Seller: The seller pays capital gains tax and securities transaction tax on capital gains incurred from the date of acquisition of shares to the date of transfer.

2) In case of acquisition at a price lower or higher than the market price, rejection of unfair act and calculation of the Corporate Tax Act or Income Tax Act may take effect.

- Acquisition for purpose of retirement ofshares

1) Seller: dividend income tax

2) If the seller is receiving payment incurred due to the retirement of shares, the seller is not obligated to pay securities transaction tax. Because it is not transfer of share certificates of the Securities Transaction Tax Act.



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