Shareholders also get tax benefits when companies cancel treasury shares

[Financial News] A plan is being pursued to link tax benefits to shareholder returns through the cancellation of treasury shares. The aim is to expand tax-support criteria, which currently center on cash dividends, in line with the push to strengthen shareholder returns, including through mandatory cancellation of treasury shares.
According to political circles on the 25th, Kim Nam-jun, a Democratic Party of Korea lawmaker on the National Assembly Planning and Finance Committee, filed an amendment to the Restriction of Special Taxation Act as its lead sponsor on the 21st. The amendment would include treasury-share cancellation performance in the special criteria for separate taxation of dividend income from high-dividend companies.
Under the current system, companies are classified as high-dividend companies based on factors such as their payout ratios, and their shareholders receive the benefit of separate taxation on dividend income. However, it has been pointed out that because treasury-share cancellation performance is not taken into account, companies that combine dividends with share cancellations could be excluded from tax support.
The amendment would add the acquisition cost of treasury shares canceled in the immediately preceding fiscal year to the calculation of the amount of dividends distributed from profits. The aim is to reflect shareholder-return performance in the tax system, encourage companies to pay dividends and cancel treasury shares, and support efforts to address the undervaluation of the domestic stock market and revitalize the capital market.
Rep. Kim said, “The system should be improved so that actual shareholder-return results are reflected in tax benefits,” and also stressed the need to balance this with investment in future growth, such as research and development and facility investment.

[email protected] Jiwon Song Reporter