Excessive dividend means that, when a corporation distributes profits, on the condition some shareholders, such as major shareholders, do not receive dividends they are eligible to receive or receive dividend less than even dividend, the amount of the...
Excessive dividend means that, when a corporation distributes profits, on the condition some shareholders, such as major shareholders, do not receive dividends they are eligible to receive or receive dividend less than even dividend, the amount of the dividend they do not receive is paid to the specific shareholders they appoint, such as their children. Its legal nature is similar to a contract for a third party.
In case of excessive dividend, major shareholder who has not received dividend or less than equal dividend has acquired the right to claim profit dividend, and then transfers the dividend right to shareholder who received excess dividend. Therefore, the obligation to pay income tax on excess dividends belongs to the majority shareholder who does not receive dividends or receives dividends less than equal dividend.
In the case of excess dividends, where a shareholder who does not receive a dividend they are eligible to receive or receive a dividend less than equal dividend allocates the dividend they are eligible to receive to be paid to another shareholder at no cost, the shareholder who receives excess dividends is obliged to pay the gift tax on the excess dividend amount since the excess dividend amount is granted.
Article 41-2 of Inheritance Tax and Gift Tax Act(ITGTA) stipulates that where a shareholder specially related to the largest shareholder receives an excess dividend, on condition that the largest shareholder does not receive a dividend he is eligible to receive or receives a dividend less than the even dividend, notwithstanding the provisions of paragraph 2 of Article 4-2 of the ITGTA, a gift tax shall be imposed on shareholder who receives excess dividends, regarding the excess dividend amount as the value of the gift, and the amount equivalent to income tax on the excess dividend amount shall be subtracted from the amount of gift tax on the excess dividend amount, and that where the amount of gift tax on excessive dividends is less than an amount equivalent to the income tax on the excessive dividends, the excessive dividends shall be the value of property donated to the person specially related to the largest shareholder.
The provisions of Article 41-2 of the ITGTA have the serious problems as follows.
First, Section 41 (2) of the is an error in the legislation resulting from the misunderstanding that the excess dividend is also subject to the income tax of the shareholder who receives the excessive dividend and also subject to taxation of the gift tax. According to the legal logic that prescribes the provision, it is impossible to make proper taxation in the case of a contract for a third party.
Second, according to Article 41-2 of the ITGTA, even if a large amount of property is donated to a child by using excess dividend, the gift tax may not be borne at all. Article 41-2 of the ITGTA makes it possible to avoid taxation legally, which encourages tax avoidance, reduces tax revenue and hampers fair taxation.
Accordingly, the provisions of Article 41-2 of the ITGTA shall be deleted as soon as possible, and the correct taxation standard should be legislated so that the taxation is in line with the legal relationship of excess dividends.