Structure of the Anti-Stock-Price Suppression Law and the PBR 0.8x Issue

The so-called “Anti-Stock-Price Suppression Law” proposes using 80% of net asset value as the valuation floor when low-PBR listed shares are inherited or gifted. It could reduce incentives to keep share prices low, but safeguards are needed to reflect differences among industry asset structures, accounting net assets, and actual disposal values.

The Anti-Stock-Price Suppression Law is not an official law name, but a term referring to a proposed amendment to the Inheritance Tax and Gift Tax Act that would change how listed shares are valued for inheritance and gift tax purposes.
Under the current system, listed shares are generally valued using the average closing price over the two months before and the two months after the valuation date.
The key proposal under discussion is to apply 80% of net asset value as the valuation floor for inherited or gifted assets when the PBR is below 0.8x.
The “60%” figure, combining the top tax rate of 50% with the 20% controlling-shareholder premium, is a simplified expression of the highest marginal burden, not an effective tax rate applied uniformly to the entire assessed value.
A uniform PBR floor could result in tax burdens exceeding actual market value for asset-intensive industries and companies experiencing a temporary downturn.

The so-called “Stock Price Suppression Prevention Act” is a policy proposal intended to eliminate incentives for controlling shareholders to resist increases in share prices or keep them low in order to reduce inheritance or gift tax. No official name for the legislation has been finalized; the term generally refers to a proposed amendment to the Inheritance Tax and Gift Tax Act that would introduce a floor based on net asset value when valuing inherited or gifted listed shares.

The core idea is simple. If a listed company’s price-to-book ratio (PBR) is below 0.8, its shares would not be valued solely at the price formed in the market but at no less than 80% of net asset value. However, the specific scope of application, exceptions, and method of calculating net assets must be confirmed in the final bill.

What Is the Stock Price Suppression Prevention Act?

“Stock price suppression” is a term used in policy debates rather than an independent legal term. It stems from concerns that controlling shareholders or management may suppress share price increases ahead of a succession through decisions such as the following:

Being reluctant to pay dividends or cancel treasury shares despite holding sufficient cash
Excessively holding low-profit assets or idle real estate
Pursuing capital increases or corporate splits whose effects on corporate and shareholder value are unclear
Taking a passive approach to investor communications, disclosures, and IR activities

Such actions do not always indicate an attempt to suppress share prices for succession purposes. There may also be legitimate business reasons for holding cash, acquiring real estate, increasing capital, or splitting a company. The purpose of the system is therefore to reduce the tax benefits derived from low share prices by imposing a floor on inheritance and gift valuations, rather than regulating each individual management decision.

Current Valuation Method for Listed Shares

Under the Inheritance Tax and Gift Tax Act, listed shares are generally valued based on the average of the publicly announced daily closing prices during the 2 months before and the 2 months after the valuation date. The valuation date is generally the date inheritance begins for an inheritance and the date of the gift for a gift.

The reason for using an average over a total of 4 months before and after the valuation date is to mitigate the tax impact of a sharp rise or fall on a particular day. Separate rules may apply when it is difficult to apply the average period as-is because of a capital increase, merger, or other event.

Under the current method, even if a company has substantial net assets on its books, a low market price results in a low share valuation. Conversely, even if net assets are limited, a high share price reflecting growth expectations results in a higher valuation and tax burden.

Proposed PBR Floor of 0.8

PBR is an indicator of how many times the net asset value per share a stock is trading at.

Per-share basis: PBR = Share price ÷ Net asset value per share (BPS)
Company-wide basis: PBR = Market capitalization ÷ Net assets

The proposal under discussion would apply 80% of net asset value as the valuation floor for listed shares with a PBR below 0.8. Conceptually, it can be expressed as follows:

Inheritance or gift valuation = The greater of the market-price-based valuation and 80% of net asset value

This is a simplified expression of the system’s basic idea, not finalized statutory language. Actual legislation would need to determine whether to use consolidated or separate financial statements, which fiscal period’s net assets to reflect, and in what order to apply the controlling-shareholder premium, among other matters.

Simple Example

Assume that the net asset value corresponding to a particular equity stake is KRW 100 billion and its value based on the current average share price is KRW 60 billion.

PBR-equivalent ratio: 0.6
80% of net asset value: KRW 80 billion
Current market-price-based valuation: KRW 60 billion
Valuation after applying the proposed floor: KRW 80 billion

In this example, the taxable valuation increases by KRW 20 billion. The actual tax amount will vary depending on whether the transfer is an inheritance or gift, whether there are other assets and liabilities, the applicable deductions and tax brackets, and whether the controlling-shareholder premium applies.

Relationship to the Valuation of Unlisted Shares

The PBR figure of 0.8 is inspired by the net asset value floor used in valuing unlisted shares. Because unlisted shares do not have continuously formed market prices on an exchange, a supplementary valuation method under tax law is used.

Generally, net income value and net asset value are weighted to determine the valuation, but if a specified supplementary valuation is less than 80% of net asset value, that 80% is used as the floor. However, different valuation rules may apply to companies with excessive real estate holdings or companies that have been operating for only a short period, among others.

The policy proposal seeks to introduce part of this floor concept for unlisted shares to listed shares as well. However, because listed shares have actual market prices, there is debate over whether they can be treated in the same way as unlisted shares.

The Controlling-Shareholder Premium and the Meaning of “Up to 60%”

The highest nominal inheritance and gift tax rate is 50%, which applies to the portion of the tax base exceeding KRW 3 billion. Shares held by controlling shareholders and others that meet certain requirements may be subject to a premium valuation that adds 20% to their assessed value.

Accordingly, the expression 50% × 120% = 60% is commonly used. However, this figure merely provides a simplified representation of the highest marginal burden compared with the original share value.

For example, if a controlling shareholder’s stake with a market-price-based value of KRW 100 billion is subject to a 20% premium, its assessed value becomes KRW 120 billion. Even under the simplified assumption that there are no other assets, liabilities, or deductions and that the entire KRW 120 billion is the tax base, the calculated tax after reflecting the progressive deduction of KRW 460 million is approximately KRW 59.54 billion.

In actual calculations, the following factors change the tax amount:

Inheritance deductions or gift property deductions
Deductible items such as liabilities and funeral expenses
Prior gifts received from the same person
Tax credit for filing and method of payment
Whether the controlling-shareholder premium valuation applies and any exceptions
The proportion of the total estate represented by the shares concerned

Therefore, the “effective tax rate of 60%” should not be understood as a fixed rate applying to every inheritance or gift involving controlling shareholders.

Comparison of the Current System and the Proposal

Category	Current valuation of listed shares	PBR floor under discussion
Basic standard	Average closing price for the 2 months before and after the valuation date	Considers both market-price valuation and a net asset value floor
Low-PBR companies	Low market prices are reflected in the valuation	If PBR is below 0.8, 80% of net asset value may be applied as the floor
Policy objective	Respect prices formed in the actual market	Reduce tax incentives to keep share prices low before succession
Advantage	Relatively clear calculation and close to actual transaction prices	Reduces the possibility of lowering the tax burden by exploiting undervaluation
Main risk	Controlling shareholders may have an incentive to resist share price increases	The taxable valuation may exceed the price obtainable in the market

Expected Effects

Stronger Incentives for Shareholder Returns

If the valuation no longer declines even when the share price is below 80% of net asset value, controlling shareholders preparing for succession would receive fewer tax benefits from a low share price. This could also reduce incentives to avoid shareholder-value-enhancing policies such as increasing dividends, canceling treasury shares, and selling non-core assets.

Better Alignment Between Minority and Controlling Shareholders

It has been pointed out that ordinary shareholders prefer share price increases, while controlling shareholders preparing for succession may prefer low share prices because of the tax burden. A valuation floor can be interpreted as a mechanism intended to reduce this conflict of interest.

Addressing the Limits of Regulating Individual Management Actions

It is difficult for outsiders to determine whether holding cash, purchasing real estate, increasing capital, or splitting a company constitutes a normal business judgment or a means of suppressing the share price. Changing valuation rules has the advantage of adjusting tax incentives without directly proving the intent behind the action.

Main Side Effects and Design Issues

Normal PBR Levels Differ by Industry

Industries such as manufacturing, steel, construction, finance, and transportation, which require large amounts of tangible assets or equity capital, may structurally have low PBRs. In contrast, biotechnology, software, gaming, and similar industries may have high PBRs because of technology, personnel, and growth expectations that are not fully recorded on their books.

Applying the same 0.8 threshold to every industry risks treating low PBRs arising from normal industry structures as stock price suppression.

Book Net Assets May Differ From Economic Value

Net assets are figures calculated under accounting standards. They may differ from actual disposal value or earnings capacity for reasons such as the following:

Net assets have increased due to land revaluation
Receivables or inventories with low recoverability remain on the books
The economic value of aging equipment is lower than its book value
Intangible value such as brands, technology, and personnel is not fully reflected on the books
Capital impairment has made the denominator very small or negative

In particular, when net assets are negative, an ordinary interpretation of PBR is difficult, so separate rules are needed.

Tax May Be Imposed on a Valuation Higher Than the Market Price

Listed shares have actual prices at which they are traded in public markets. Applying a net asset value floor could require taxpayers to pay tax based on a valuation higher than the amount they could receive by selling the stake in the market.

If shares must be sold to pay inheritance tax, a liquidity problem may arise because the taxpayer may have to sell the shares at a price below the value used to calculate the tax.

Management Control Value Must Be Distinguished From the Value of an Ordinary Stake

A controlling shareholder’s stake may include management control value, but not every low-PBR stock carries the same control premium. If both the PBR floor and the controlling-shareholder premium are applied, it is also necessary to examine whether this would result in double-counting management control value.

It Is Difficult to Distinguish a Temporary Downturn From Deliberate Undervaluation

Share prices across an entire industry may fall because of economic cycles, commodity prices, interest rates, exchange rates, or regulatory changes. If the PBR floor applies even though the company has not intentionally damaged shareholder value, the tax burden may become excessive.

Possible Supplementary Measures

Supplementary measure	Expected effect	Caution
Industry-specific PBR standards	Reflect differences in asset structures across industries	May lead to disputes over industry classification and selection of comparable companies
Use of multi-year average PBR	Mitigate short-term share price declines and accounting fluctuations	May delay reflecting the latest corporate value
Exception for sharp industry downturns	Prevent excessive burdens on cyclical industries	Criteria for granting exceptions may become complex
Asset value adjustments	Realistically reflect impaired and non-operating assets	May increase appraisal costs and tax disputes
Limitation to controlling shareholders	Focus application on controlling shareholders with significant ability to suppress share prices	Requires a determination of effective control
Establishment of explanation and appeal procedures	Protect the rights of normally low-PBR companies	May increase administrative costs and processing times
Phased application of the floor	Mitigate the impact of introducing the system	Rules may become complex

Matters to Check When Reviewing the Bill

Statements that “the government proposal will be released soon” may vary depending on when they are made. To determine whether the system will actually apply, it is necessary to check, in order, the government’s tax law amendment proposal, the original text of the bill in the National Assembly’s legislative information system, whether it passes the National Assembly, and its effective date.

The following items are particularly important in the final bill:

Whether the PBR of 0.8 is a fixed standard or an industry-specific standard
Whether it applies to all listed shares or only to controlling shareholders’ stakes
Whether net assets are taken from consolidated or separate financial statements
The fiscal year-end used for valuation and the asset revaluation method
The treatment of companies with capital impairment or undergoing rehabilitation or liquidation
The order in which the controlling-shareholder premium valuation and PBR floor are applied
Exceptions for temporary industry deterioration and sharp share price declines
Transitional provisions for inheritances and gifts completed before the law takes effect

Conclusion

A PBR valuation floor of 0.8 is intended to make it more difficult to reduce succession-related tax burdens by taking advantage of low share prices and to strengthen controlling shareholders’ incentives to enhance shareholder value. On the other hand, PBR varies significantly depending on a company’s profitability, industry, accounting policies, and economic cycles, so a low PBR alone cannot establish deliberate stock price suppression.

The validity of the system depends less on the figure of 0.8 itself than on how carefully its scope of application, method of calculating net assets, industry-specific exceptions, relationship with the controlling-shareholder premium, and taxpayer explanation procedures are designed.

FAQ

Is the Stock Price Suppression Prevention Act already in effect?

The “Stock Price Suppression Prevention Act” is not an official name of a law, but a nickname for a proposed amendment that would introduce a PBR or net asset value floor for the valuation of listed shares for inheritance and gift tax purposes. Whether it has actually taken effect and its effective date must be confirmed from the final legislation after the government proposal, passage by the National Assembly, and promulgation.

What does a PBR of 0.8 mean?

A PBR of 0.8 means that the share price or market capitalization is at 80% of the book value per share or the company’s net asset value. The key point of the proposed method is that even if the PBR is below 0.8, the value assessed for inheritance and gift tax purposes would not be reduced below 80% of the net asset value.

How are listed shares currently valued for inheritance and gift tax purposes?

In principle, the final quoted prices for each day during the 2 months before and the 2 months after the valuation date are averaged. However, if it is difficult to apply the average for that period as is due to a capital increase, merger, or other event, separate provisions under tax law may apply.

Does a PBR below 0.8 mean that the company deliberately suppressed its share price?

No. A low PBR can result from various factors, including low profitability, an economic downturn, an asset-intensive business structure, regulatory risk, or an increase in accounting net assets. PBR alone cannot determine management’s intent or whether any illegality occurred.

Is the highest inheritance and gift tax rate actually 60%?

The statutory highest tax rate is 50% for a tax base exceeding KRW 3 billion. Assuming that a 20% valuation premium applies to shares held by the largest shareholder, the maximum marginal burden relative to the original share value is described as 60%. However, because progressive deductions and various other deductions and exceptions apply, 60% is not uniformly imposed on the entire assessed value.

What problems could arise if a PBR of 0.8 were applied to all listed companies?

Industries with large net assets, such as manufacturing, construction, and finance, may have low PBRs even under normal business conditions. A uniform floor could impose tax on an amount higher than the price at which the shares could actually be sold in the market or place an excessive burden on companies experiencing a temporary downturn.

Is there also an 80% net asset value standard for unlisted shares?

Because it is difficult to verify the market value of unlisted shares, a supplementary valuation method using net income value and net asset value is applied. Under the general supplementary valuation method, there is a structure in which 80% of the net asset value serves as the floor when the calculated amount is lower than 80% of the net asset value. However, different valuation methods may apply depending on the type and circumstances of the corporation.

If the bill passes, will taxes for ordinary minority shareholders also change?

It depends on whether the scope of application is set to include all listed shares or is limited to shares held by the largest shareholder and others. If the bill applies to ordinary shareholders who hold shares at the time of inheritance or gifting, the assessed value of minority shareholders’ shares could change, so the final scope of application must be confirmed.

Sources

Images

Financial illustration with a rising stock chart and scales comparing coins, company assets, and factories

Illustration contrasting growing and distressed companies around scales and sector bar charts