법무법인(유한) 율촌 | Yulchon LLC

The Tax Group successfully represented Humax Co., Ltd. in a Supreme Court case which establishes that the profits from the exercise of stock options after a stock split may be exempt from the earned income tax even if the exercise price is not determined by a special resolution of the shareholders' meeting.
 

Under the old Special Tax Treatment Control Act, profit from the exercise of stock options is exempt from the earned income tax within a certain range, but requires a special resolution of the shareholders' meeting within the range of the amount higher than the market price at the time of deciding the exercise price. If the value of the stock is diluted after granting the stock option, particularly after a stock split, the exercise price should be adjusted accordingly. The Act, however, does not require a special resolution of the shareholders' meeting in the above case.

Humax adjusted the exercise price of stock options after a stock split. The Tax office pointed out that Humax did not obtain a special resolution of the shareholders' meeting in the course of adjusting the exercise price in connection with the stock options it had granted, and therefore imposed corporate and earned income tax in the amount of approximately KRW 8 billion. Humax brought an administrative action seeking to cancel the tax.
 

The case eventually reached the Supreme Court, where Yulchon's Tax Group argued that a special resolution is required to prevent the shareholders from being negatively affected in connection with the granting of the stock options. In this case, the stock split results in an increase in the number of shares to be purchased and a reduction in the par value of each share. If this is reflected directly in the exercise price, the stock split does not affect the interests of the shareholders at the time of granting the stock options.

Deciding in favor of Humax the Supreme Court admitted the special nature of the stock split, which is significant considering the fact that the Court's past rulings required a special resolution of the shareholders' meeting in adjusting the exercise price as a result of issuance of new shares and bonus shares.

Partners Soon Moo Soh, Seok Hoon Kang, Dong Soo Kim, and associates Sung Mo Kang, Young Ran Kim and Se Hoon Park from the Tax Group handled this case.