Regarding the valuation of unlisted stocks under tax law

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Tax valuation of unlisted stocks is required for various tax purposes. Specifically, when transferring unlisted stocks through inheritance tax and donation, when transferring stocks, when investing unlisted stocks in other corporations or making in-kind contributions, when fair prices are required for capital transactions involving capital changes such as capital increases, capital reductions, mergers, and divisions, etc., unlisted stock valuation under inheritance tax and gift tax laws is required in various cases. This time, we will discuss the considerations for unlisted stock valuation that are frequently encountered in practice.

1. Valuation of unlisted stocks under the Inheritance Tax and Gift Tax Act

In the case of unlisted stock valuation under the Inheritance Tax and Gift Tax Act, it is most commonly used in general situations. In the case of valuation, weights are given to net asset value and net profit and loss value, and the weighted average is used to calculate the valuation price per share. However, for corporations established less than 3 years ago, corporations in the process of closing down, and asset management companies such as real estate and listed securities, the value of unlisted stocks is assessed only by net asset value.

In the case of net profit and loss value, weights are given to the net profit and loss of the most recent three years and the corresponding average amount is converted to calculate. In the case of general weights, a weight of 3 is given to net profit and loss for the fiscal year preceding the evaluation date, a weight of 2 is given to net profit and loss for the fiscal year preceding the evaluation date, and a weight of 3 is given to net profit and loss for the fiscal year preceding the evaluation date, and the total weight is divided by 6 to calculate.

In other words, in evaluating net profit and loss value, the most recent previous fiscal year accounts for 50% of the net profit and loss value. Therefore, when evaluating unlisted stocks, the recognition method for profit and loss can affect the fluctuation of unlisted stock value.
In the case of net asset value, the asset value is calculated by taking into account the company's net book value, revaluation difference, goodwill, etc.

2. Changes in valuation of unlisted stocks

In the case of unlisted stock value, 50% of the net profit and loss value for the year prior to the valuation reference date is reflected, so if unlisted stock transactions are expected to occur in the future, the following factors can be taken into account to consider the impact of fluctuations such as an increase or decrease in the unlisted stock value.

① Accounting for unpaid amounts and unpaid expenses

When reflecting expected expenses including provisions such as retirement benefits, personnel expenses, annual leave reserves, and bad debt reserves to be recorded as of the end of the reporting period, liabilities increase, net asset value decreases, and expenses are recorded in net income and loss, resulting in a decrease. In other words, in this case, the effect is to adjust the value of unlisted stocks downward.

② Depreciation expense calculation

In the case of corporations that do not record depreciation expenses under tax laws, if depreciation expenses are reflected before the valuation of unlisted stocks at a depreciation rate according to the depreciation method stipulated in the law, the assets on the financial statements will decrease and the expenses will be recorded in net income, which will have the effect of lowering the value of unlisted stocks.

③ Reflection of bad debt expense and accounting for bad debt reserve

Likewise, when reflecting the allowance for bad debts on accounts receivable by considering the expected credit loss according to age analysis, both the asset value and the profit and loss value decrease. This is the case when bad debt allowance is recorded up to the limit stipulated in the tax law for accounts receivable with a low probability of recovery.

④ Inventory asset valuation calculation

The same applies to inventory asset valuation losses. If an event occurs that could result in a decrease in the cost of inventory assets, such as depreciation or obsolete inventory, and the valuation loss is reflected, the unlisted stock value will decrease.

Although unlisted stock valuations are involved in various transaction situations, if you prepare in advance, you can proactively respond to various tax issues that may arise.

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