Democratic Party lawmaker Lee So-young announced on the 9th the acceleration of the 'PBR 0.8x Law' (Inheritance and Gift Tax Act amendment) aimed at preventing stock price suppression, revealing plans to reflect the bill in the government's tax reform plan to be announced at the end of this month and simultaneously pursue National Assembly Strategy and Finance Committee review. The proposed amendment, first introduced in May 2025, targets the longstanding practice where controlling shareholders allegedly suppress stock prices to reduce inheritance tax burdens, as current law values listed companies based on average share prices around the succession or gift date. Under Korean tax law, lower stock prices directly reduce tax liability for major shareholders, creating structural disincentives for shareholder-friendly policies at companies approaching succession, a dynamic that has fueled chronic undervaluation concerns in the domestic Korean stock market.
Lee So-young Reveals Legislative Timeline for PBR 0.8x Inheritance Tax Reform
Lee So-young disclosed on the 9th the status of the bill and announced plans to secure both inclusion in the government's tax reform plan to be released at the end of this month and National Assembly Strategy and Finance Committee review. The bill was originally proposed in May 2025. The government tax reform plan is scheduled for announcement at the end of this month.
Amendment Establishes 80% Net Asset Value Floor for Tax Valuation
The core provision of the amendment sets a valuation floor at 80% of net asset value for listed companies whose market capitalization falls below 80% of net assets (PBR 0.8x). Under the proposed system, if a company's PBR drops below 0.8x, tax authorities would assess corporate value considering asset value and earnings value, with the floor set at 80% of net asset value. This extends the principle already applied to unlisted stocks to undervalued listed companies. The current system allows controlling shareholders to reduce inheritance tax by suppressing stock prices, as tax liability is calculated based on average share prices during a specified period around the succession or gift date.
Hanwha Investment & Securities Analyst Identifies Incentive Shift for Controlling Shareholders
Eom Su-jin, researcher at Hanwha Investment & Securities, published a report on the 10th analyzing the incentive changes created by the proposed law. According to the report, for companies with PBR below 0.8x, the tax base would be calculated using net asset value rather than stock price, which "weakens or eliminates the incentive for the person being inherited from or the donor to keep stock prices low, creating an incentive to raise stock prices to the level where PBR reaches 0.8x." The incentive operates specifically up to PBR 0.8x, as tax liability becomes linked to stock price again above that threshold. The researcher noted that this could create a "convergence" phenomenon where low-PBR company stock prices move toward the 0.8x level.
The report explained that the reform would trigger a "domino effect": tax law revision leads to changed behavior by controlling shareholders, which in turn drives changes in corporate capital policy. Companies no longer incentivized to suppress stock prices would have fewer reasons to avoid shareholder-friendly policies such as share buybacks, dividend increases, and active investor relations. The effect extends beyond the moment of tax assessment due to Korea's installment payment system for inheritance and gift taxes over 10-20 years. During this period, heirs must secure funds to pay taxes, typically through stock-backed loans or partial stake sales rather than dividends due to dividend income tax and comprehensive income tax burdens. Both methods benefit from higher stock prices.
Eom stated that "stock-backed loans allow borrowers to receive more loan funds when stock prices are high at the time of loan execution, and there is a risk of forced selling if stock prices subsequently decline, creating an incentive to actively manage stock prices even after receiving the loan," adding that "this incentive will be maintained throughout the installment payment period." The law revision would amplify this incentive, as low-PBR companies would face significantly higher tax assessments—potentially several times larger—resulting in larger tax amounts and likely longer installment periods.
Researcher Recommends Focus on Long-Term Low-PBR Firms Facing Succession
Eom advised that companies that have remained below PBR 0.8x for extended periods without clear reasons deserve more attention than those that temporarily fell below 0.8x from normally higher levels. The researcher suggested that the former group may have had controlling shareholders intentionally suppressing stock prices, making meaningful stock price appreciation more likely if the amendment passes. Conversely, companies with clear reasons for low PBR—such as belonging to declining industries, maintaining high debt dependency for multiple years, or having asset values like factory sites and headquarters buildings not reflected in stock prices—are unlikely to see revaluation from the law change alone.
The analysis identified specific characteristics of companies most likely to respond to the incentive shift: companies where the largest shareholder or founder is elderly or has long stepped back from frontline management; companies where the largest shareholder's children were recently promoted to executive positions or appointed as registered executives; and companies with large gaps between the largest shareholder's stake and their children's stakes, indicating substantial remaining shares to transfer. According to the report, the larger the tax burden during succession, the more sensitively companies are likely to respond to the incentive changes.
FAQ
What did Democratic Party lawmaker Lee So-young announce on the 9th regarding the PBR 0.8x Law?
Lee So-young announced on the 9th the acceleration of the 'PBR 0.8x Law' (Inheritance and Gift Tax Act amendment) and revealed plans to reflect the bill in the government's tax reform plan to be announced at the end of this month while simultaneously pursuing National Assembly Strategy and Finance Committee review. The amendment was originally proposed in May 2025.
How does the proposed amendment change inheritance tax calculation for low-PBR Korean stocks?
The amendment establishes a valuation floor at 80% of net asset value for listed companies with market capitalization below 80% of net assets (PBR 0.8x). Tax authorities would assess corporate value considering asset value and earnings value, with the floor set at 80% of net asset value, eliminating the current system where controlling shareholders can reduce tax liability by suppressing stock prices below this threshold.
Which types of companies does Hanwha Investment & Securities researcher Eom Su-jin recommend focusing on?
Eom Su-jin's report published on the 10th recommends focusing on companies that have remained below PBR 0.8x for extended periods without clear reasons, particularly those facing succession issues such as elderly or retired founders, recent executive appointments of founders' children, and large stake gaps between largest shareholders and their children, as these companies face larger tax burdens and are more likely to respond to the incentive changes created by the law.
