ed Tax on donations

Time to revise law to promote giving

There is no question that no one would be ready to practice the spirit of giving and sharing if they faced a tax penalty for their good deeds. A recent lawsuit is a typical example of discouraging givers. Last week, the Seoul High Court ordered a businessman to pay 14 billion won ($12.9 million) in gift tax for donating 20 billion won in stocks to a scholarship foundation.

The action has caused bewilderment not only to the donor, Hwang Pil-sang, and the scholarship recipients, but also to the public. The court accepted the tax authorities’ claim that Hwang donated the shares to illegally transfer his wealth through the foundation.

How come the court imposed such a harsh penalty on Hwang? The problem is the inheritance and gift tax law that strictly limits the donation of company stocks to nonprofit organizations.

The limit is designed to prevent illegal inheritances or transfers of wealth and management rights from company owners to their children. The law stipulates that anyone donating over 5 percent of his or her company’s shares should be subject to a maximum 50 percent tax.

The legal battle began in 2008 when a tax office in Suwon, south of Seoul, tried to collect gift tax from Hwang. A lower court ruled that Hwang had no obligation to pay the tax, saying that his stock donation did not constitute an illegal wealth transfer. Regrettably, the appellate court overruled the decision.

Now attention is focused on what decision the Supreme Court will make. Too rigid an interpretation or application of the tax law is of little help. Our basic position is that the authorities should crack down on illegal transfers of company assets and management rights. But, they must separate illegal activities from noble acts of donation.

Policymakers and lawmakers should work together to change the draconian tax code to promote stock donations to nonprofit foundations. Donors such as Hwang should not be penalized but rewarded with a tax break. Otherwise, the nation cannot create a culture of giving and sharing.