Lee, Jangwook
A icle
E ec s o s ockholde s' seconda y ax liabili y on co po a e
in es men
KDI Jou nal o Economic Policy
P o ided in Coope a ion wi h:
Ko ea De elopmen Ins i u e (KDI), Sejong
Sugges ed Ci a ion: Lee, Jangwook (2024) : E ec s o s ockholde s' seconda y ax liabili y on
co po a e in es men , KDI Jou nal o Economic Policy, ISSN 2586-4130, Ko ea De elopmen Ins i u e
(KDI), Sejong, Vol. 46, Iss. 2, pp. 1-20,
h ps://doi.o g/10.23895/kdijep.2024.46.2.1
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KDI Jou nal o Economic Policy 2024, 46(2):1-20
h ps://dx.doi.o g/10.23895/kdijep.2024.46.2.1
1
E ec s o S ockholde s’ Seconda y Tax Liabili y on
Co po a e In es men
†
By
J
ANGWOOK
L
EE
*
This s udy analyzes he impac o seconda y ax liabili y bo ne by
s ockholde s, an excep ion o he p inciple o limi ed liabili y, on
co po a e in es men . The pape cons uc s a model o a i m o examine
he e ec o his seconda y ax liabili y, inding ha he iola ion o
limi ed liabili y inc eases i ms’ expec ed bank up cy cos s, he eby
educing in es men s. By means o an empi ical analysis, he pape
examines whe he i ms wi h he la ges sha eholde s ake exceeding
50%, he condi ion unde which seconda y ax liabili y is incu ed,
dec ease hei in es men s. The esul s show ha i m in es men is highly
concen a ed in obse a ions o cases in which he la ges sha eholde
s ake does no exceed 50%. In es men s dec ease sha ply in cases whe e
he la ges sha eholde s ake exceeds 50%. The esul s he e p o ide
implica ions pe aining o how excep ions o he limi ed liabili y p inciple,
exis ing only in Ko ea, a ec co po a e in es men s.
Key Wo ds:
Seconda y Tax Liabili y, P inciple o Limi ed Liabili y,
Co po a e In es men
JEL Codes: G30, G38
I. In oduc ion
he p inciple o sha eholde limi ed liabili y e e s o he p inciple ha sha eholde s
a e esponsible o he company up o he amoun o s ock hey pu chase. Requi ing
only limi ed liabili y om s ockholde s o a i m is signi ican in ha i acili a es s ock
ading and accumula ion o capi al by he i m. I a i m goes bank up and s ockholde s
a e esponsible o amoun s g ea e han hose in es ed, he incen i e o s ock buye s o
pu chase is signi ican ly educed. The s ock company sys em based on he p inciple
* Assis an P o esso , Ewha Womans Uni e si y (E-mail: jangwook[email p o ec ed])
* Recei ed: 2024. 3. 3
* Re e ee P ocess S a ed: 2024. 3. 13
* Re e ee Repo s Comple ed: 2024. 4. 22
† This pape is based on a s udy by Jangwook Lee, “The e ec s o he excep ion o limi ed liabili y on i m’s
in es men ”, KDI, 2021(in Ko ean). I am g a e ul o Shiyun Roh o he ou s anding assis ance and o wo
anonymous e e ees o hei aluable commen s. All emaining e o s a e mine.
T
2 KDI Jou nal o Economic Policy MAY 2024
o limi ed liabili y has played a signi ican ole in he bi h and de elopmen o nume ous
companies by acili a ing he inancing and dispe sal o isks in isky businesses.
In Ko ea, he e a e excep ions o he p inciple o limi ed liabili y o sha eholde s.
The e a e cases whe e in es o s mus bea he company’s liabili y in excess o he
in es ed amoun s. The p inciple o limi ed liabili y is adhe ed o in deb ela ionships
be ween companies and o he p i a e economic en i ies (companies and indi iduals).
Howe e , in Ko ea, he e a e excep ions o he p inciple o limi ed liabili y in ela ion o
deb ela ionships be ween companies and he go e nmen , especially wi h ega d o
delinquen na ional axes. This seconda y ax liabili y o s ockholde s is an excep ion o
he p inciple o limi ed liabili y. The seconda y ax liabili y equi es oligopolis ic
sha eholde s o bea he unpaid amoun o na ional axes when a i m is liquida ed. The
pu pose o his law is o achie e p ac ical ax equali y by p e en ing oligopolis ic
sha eholde s, who can exe cise managemen igh s, om acc uing company p o i s o
hemsel es and bu dening he company wi h losses.
Howe e , he seconda y ax liabili y con lic s wi h he p inciple o ax law ha
imposes axes only on hose liable o pay axes, and i does no comply wi h he p inciple
o limi ed liabili y o sha eholde s. The e ha e been many discussions cen e ing on his
ax sys em. Chung (2011) and Kim and Lee (2018) poin ed ou p oblems in de e mining
he scope o oligopolis ic sha eholde s. Hwang and Yang (2017) and Kim (2016)
examined he legal legi imacy o he second ax paymen sys em. Jun (2019) in es iga ed
ways o alle ia e he bu den on ailed small and medium-sized business owne s due o
he seconda y ax liabili y. Kim and Moon (2020) analyzed he seconda y ax liabili y
o in es o s in en u e i ms.
Exis ing discussions ha e mainly ocused on he legal dimension. In pa icula ,
nume ous s udies ha e held ha conscien ious oligopolis ic s ock-holding manage s
become c edi delinquen s due o he seconda y ax paymen sys em, making economic
eco e y di icul . Howe e , mo e esea ch on how he seconda y ax liabili y a ec s
companies’ business ac i i ies while i ms a e ac i e is equi ed.
This pape analyzes he impac o he second ax liabili y on co po a e in es men .
Fi s , we de ine he seconda y ax liabili y and p esen a legal de ini ion as well. I also
check he cu en s a us o he companies ha a e subjec o his ax sys em and epo
how many companies ha e a seconda y ax liabili y. Finally, I in es iga e cases in which
a i m can become exemp ed om he seconda y ax liabili y.
This pape cons uc s a model o a i m o examine he e ec o he seconda y ax
liabili y. The impac o he seconda y ax liabili y on i m in es men s is de i ed by
compa ing he in es men a es made by manage s who maximize hei p o i s h ough
a a ional decision-making model wi h and wi hou he seconda y ax liabili y. The
indings show ha he second ax liabili y ac s as a managemen bu den on oligopolis ic
s ockholde s, causing hem o educe hei in es men s in he i m by up o 4% in
ad ance. To he bes o he au ho ’s knowledge, his is an economic e ec ha has ne e
been s udied be o e in he li e a u e ela ed o such a seconda y ax liabili y.
I analyze whe he he esul s ound by he model analysis a e suppo ed by empi ical
da a. By combining owne ship a io da a and he inancial da a o companies exis ing in
Ko ea om 2011 o 2016, he pape analyzes he in es men a es o companies wi h a
maximum sha eholde owne ship a io exceeding 50%, a which poin he seconda y ax
liabili y would apply. Among companies wi h he la ges sha eholde sha eholding a io
o 49% o 51%, I looked o di e ences in in es men a es when he sha eholding a io
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 3
exceeded 50%. When he la ges sha eholde sha eholding a io exceeds 50%, he
in es men a e d ops om 2.6%p o 5.3%p. In sho , he seconda y ax liabili y is a
ac o ha discou ages co po a e in es men e en i he company does no go bank up .
The emainde o his pape p oceeds as ollows. Sec ion 2 desc ibes he seconda y
ax liabili y and de ines i legally. Sec ion 3 examines how he seconda y ax liabili y can
a ec a company’s in es men decisions h ough a model analysis. Sec ion 4 examines
whe he he empi ical analysis is consis en wi h he esul s o he model analysis.
Chap e 5 d aws conclusions and policy implica ions.
II. Seconda y Tax Liabili y
A. De ini ion
A icle 39 o he Na ional Tax Basic Ac de ines a seconda y ax liabili y ha a ises
when a i m’s asse s do no co e he i m’s na ional axes. In such cases, designa ed
indi iduals ha e an obliga ion o pay hese na ional axes. Indi iduals designa ed by
law include mo e han membe s o a gene al pa ne ship and unlimi ed pa ne s o a
limi ed liabili y company. Limi ed pa ne s o a limi ed pa ne ship, membe s o a
limi ed liabili y company, and membe s o a limi ed company a e also designa ed
indi iduals acco ding o he law as long as hei sha e a io exceeds 50%
(oligopolis ic s ockholde s). Because membe s o a gene al pa ne ship and
unlimi ed pa ne s o a limi ed liabili y company ha e an obliga ion unde
comme cial law o epay he company’s deb s, hey ha e an obliga ion o co e he
unpaid po ion o na ional axes. Howe e , in ha limi ed pa ne s o limi ed
pa ne ships, membe s o limi ed liabili y companies, and membe s o limi ed
companies a e liable o he company only wi hin he limi o he amoun in es ed
unde he Comme cial Ac , he p inciple o limi ed liabili y is no obse ed wi h
ega d o his seconda y ax liabili y.
B. Cu en s a us o he seconda y ax liabili y
In o de o unde s and he impac o he seconda y ax liabili y on co po a e
ac i i ies, i is necessa y o in es iga e how many companies a e bu dened wi h
seconda y ax obliga ions and how signi ican such ax bu dens a e. I examine how
much na ional ax is collec ed h ough he seconda y ax liabili y and de e mine
whe he he sys em is being ope a ed e ec i ely.
Table 1 shows ha mos seconda y axpaye s a e oligopolis ic sha eholde s a he
han pa ne s wi h unlimi ed liabili y. In 2017, he e we e 16,411 o iginal axpaye s,
ha is, companies wi h o iginal ax obliga ions, and 19,879 seconda y axpaye s,
who a e oligopolis ic sha eholde s obliga ed o pay he unpaid co po a e ax o alue-
added ax o hese companies. This numbe is g adually inc easing, wi h 19,776
o iginal axpaye s and 21,026 seconda y axpaye s in 2019. On he o he hand, he
numbe o o iginal axpaye s who a e also gene al pa ne s amoun ed o 20 in 2019,
while he e we e 27 seconda y axpaye s a e y low numbe .
4 KDI Jou nal o Economic Policy MAY 2024
TABLE 1— NUMBER OF SECONDARY TAXPAYERS BY TYPE
Oligopolis ic s ockholde Pa ne s wi h unlimi ed liabili y
Yea O iginal axpaye
( i m)
Seconda y axpaye s
(indi idual)
O iginal axpaye
( i m)
Seconda y axpaye s
(indi idual)
2017 16,411 19,879 14 20
2018 18,728 19,883 19 20
2019 19,776 21,026 20 27
Sou ce: p ocessed by he au ho based on Kim & Moon (2021).
The numbe o companies ha incu seconda y ax obliga ions, which amoun s o
app oxima ely 20,000 pe yea , is signi ican conside ing he scale o co po a e
ex inc ion each yea in Ko ea. Acco ding o S a is ics Ko ea’s business su i al
s a is ics, app oxima ely 46,000 co po a ions disappea ed in 2018. As o 2018,
app oxima ely 18,000 companies, nea ly 41%, a e belie ed o ha e incu ed
seconda y ax obliga ions. The collec ion a e o such ax obliga ions is e y low,
and conside ing he high likelihood ha seconda y axpaye s o his size will de aul
on na ional axes and become c edi delinquen s, he impac o he seconda y ax
liabili y on Ko ea’s economy is no negligible.
Table 2 epo s ha he ax amoun o be paid by companies was in he
app oxima e ange o KRW 2.3 illion o KRW 2.5 illion om 2017 o 2019.
Among he incu ed liabili y, he amoun s paid by i ms equaled app oxima ely 490
billion won in 2017 and 2018, bu in 2019, he amoun dec eased o 320 billion won.
The amoun o axes owed by o iginal axpaye s has consis en ly emained a abou
wo illion won om 2017 o 2019. Among hese, oligopolis ic sha eholde s incu a
liabili y only o an ex en co esponding o hei sha eholding a io. Thus, he
delinquen ax amoun is smalle han he amoun unpaid by he o iginal axpaye s
( ax payable). The amoun designa ed by s ockholde s was app oxima ely 1.6 illion
won in 2019, up om app oxima ely 1.4 illion won in 2017. The collec ion a e is
e y low and is g adually dec easing. In 2017, abou 82 billion won was ecei ed,
bu in 2019, only abou 60 billion won was ecei ed. The app oxima e accep ance
a e was 3.75% in 2019.
The e a e a ange o ax i ems ha can incu a seconda y ax liabili y. Table 3
shows he seconda y ax liabili y s a us by ax i em in 2019. Co po a e axes and alue-
added axes accoun o he la ges po ion o he seconda y ax liabili y. In 2019,
TABLE 2— SECONDARY TAX LIABILITY DESIGNATED AND PAYMENT AMOUNTS
Yea Tax payable Delinquen ax
amoun
Amoun paid by
o iginal axpaye
( i m)
Seconda y ax paye
(indi idual)-
designa ed amoun
Amoun ecei ed by
seconda y axpaye
(indi idual)
2017 2,319,589 2,045,563 489,706 1,412,055 82,786
2018 2,519,717 2,162,349 496,931 1,568,087 87,563
2019 2,491,722 2,085,214 320,834 1,618,792 60,059
No e: in millions o KRW.
Sou ce: p ocessed by he au ho based on Kim & Moon (2021).
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 5
TABLE 3— SECONDARY TAX LIABILITY BY TAX ITEM IN 2019
Co po a e
ax
Value-added
ax
O he indi ec
axes
Wi hholding
ax O he s To al
Delinquen ax amoun 771,731 1,110,819 22,718 176,836 3,691 2,085,993
Designa ed amoun 546,620 921,576 10,314 137,800 2,774 1,619,202
Amoun ecei ed 17,376 37,760 202 4,616 98 60,059
No e: in millions o KRW.
Sou ce: p ocessed by he au ho based on Kim & Moon (2021).
TABLE 4— CHARACTERISTICS OF ORIGINAL TAXPAYER (FIRM)
Yea
Numbe o
delinquen
paymen s
Age
(yea s)
Numbe o
oligopolis ic
s ockholde s
Sales
(in mil. KRW)
Amoun o
delinquen
axes
(in mil. KRW)
Designa ed
amoun
(in mil. KRW)
Collec ed
amoun
(in mil. KRW)
2017 6.25 3.98 1.21 2,725.54 124.65 86.04 5.04
2018 6.80 4.02 1.06 2,432.95 115.46 83.73 4.68
2019 7.47 4.15 1.06 2,482.27 105.44 81.56 3.04
Sou ce: p ocessed by he au ho based on Kim & Moon (2021).
app oxima ely 770 billion won in co po a e ax was delinquen , esul ing in a
seconda y ax liabili y o abou 540 billion won, o which nea ly 17 billion won was
collec ed. App oxima ely KRW 1.1 illion in alue-added ax was delinquen , and
seconda y ax obliga ions o app oxima ely KRW 920 billion we e designa ed, o
which app oxima ely KRW 37 billion was collec ed.
Table 4 epo s he a e age cha ac e is ics o he o iginal axpaye ( i m) wi h a
seconda y ax liabili y. Companies mus pay a ious axes, and each company has an
a e age o six o se en delinquen paymen s gi en ha i one ax i em is delinquen ,
he company’s inancial capaci y is insu icien , and he likelihood o o he ax i ems
being delinquen inc eases. Companies wi h a seconda y ax liabili y ha e been in
business o app oxima ely ou yea s on a e age, implying ha liquidi y and he
business en i onmen a e mo e likely o be challenging o younge companies han
o olde companies. The numbe o oligopolis ic sha eholde s subjec o a ax
liabili y anged om app oxima ely 1.06 o 1.21, mos likely due o he exis ence o
mo e han one pe son exe cising a s ong in luence on a i m. Mos i ms ha incu
a seconda y ax liabili y a e small i ms. A e age sales amoun o app oxima ely 2.8
billion won, and he a e age amoun o delinquen axes is abou 120 million won.
The a e age amoun designa ed o he seconda y ax liabili y is close o 80 million
won, o which only abou h ee o i e million won is collec ed.
C. Excep ions o he second ax liabili y
I ce ain condi ions a e me , he ax au ho i ies may exemp companies om he
seconda y ax liabili y o pos pone o ex inguish p e iously imposed liabili ies in
acco dance wi h es ablished equi emen s. Fo an accu a e examina ion o he impac
6 KDI Jou nal o Economic Policy MAY 2024
o a seconda y ax liabili y on co po a e ac i i ies, i is necessa y o in es iga e he
companies o which he sys em applies and cases in which i does no apply. I
appea s ha policy au ho i ies a e gene ally awa e o he side e ec s o he seconda y
ax liabili y o some ex en and ha e made e o s o p epa e hei own de ices o
alle ia e hem. None heless, judging whe he he scope o equi emen s a e su icien
is complica ed by many ac o s.
The seconda y ax liabili y is pos poned o ex inguished o companies a e
exemp ed om paying i in he ollowing cases. Companies lis ed on he s ock
ma ke , ce ain en u e companies, companies ha ha e ecei ed e-s a up unds
om he Small and Medium Ven u e Business Co po a ion a e hey mee speci ic
equi emen s, and cases whe e speci ic equi emen s a e me du ing business
con e sion suppo p ojec s a e eligible o ax exemp ion o pos ponemen .
I appea s ha policy au ho i ies a e somewha awa e o he side e ec s o he
seconda y ax liabili y, as no ed abo e. They a e hus a emp ing o o m a consensus o
y o alle ia e hem. Howe e , in o de o be exemp ed om a seconda y ax liabili y
in ad ance, a company mus main ain a minimal sales olume and mus use mo e
han 5% o sales o pay esea ch and de elopmen expenses. Unlis ed companies
wi h sales o app oxima ely one o 12 billion won o mo e, depending on he indus y,
a e no exemp om he seconda y ax liabili y. In addi ion, because companies ha
mee he sales s anda d mus also mee he R&D expense s anda d, companies ha
do no engage in R&D ac i i ies a e incen i ized o c ea e ex a R&D expenses.
In o de o de e o ex inguish he seconda y ax liabili y ex-pos , i ms mus
ecei e e-s a up inancing om he Small and Medium Business Co po a ion. This
condi ion only applies o limi ed cases, howe e . Thus, al hough policies exis o
elie e companies o he seconda y ax liabili y, he e a e limi s o how much he
bu den can ac ually be educed o a wide ange o owne s o small and medium-
sized businesses.
III. Model analysis
In his sec ion, I cons uc a model o a i m o examine he e ec s o he seconda y
ax liabili y as de ined abo e. In pa icula , he examina ion ocuses on he ex-an e
impac o he seconda y ax liabili y on co po a e in es men s. In o he wo ds, he
pu pose is o analyze he e ec o he seconda y ax liabili y be o e a company goes
bank up . P e ious esea ch has ocused on he ac ha a seconda y ax liabili y
imposed a e a co po a e bank up cy hinde s a eco e y by conscien ious manage s.
Taxes o a co po a ion mus be paid wi h he pe sonal p ope y o oligopolis ic
sha eholde s, bu in many cases, he oligopolis ic s ockholde becomes a c edi
delinquen because he o she is unable o pay hese axes. Addi ionally, an
oligopolis ic s ockholde who becomes a c edi delinquen has di icul y s a ing
ano he business.
In he analysis he e, a he han analyzing he aspec s o in es o s’ seconda y ax
liabili y making i di icul o hem o eco e as en ep eneu s, a model is designed
o show ha an in es o ’s seconda y ax liabili y can ac as a p e-emp i e ac o ha
ul ima ely sh inks he company’s managemen , e en when a business ailu e has no
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 7
occu ed. This sec ion aims o show quali a i ely ha hese excep ions o limi ed
liabili y unc ion as a bu den on en ep eneu s so as o cla i y he di ec ion o he
economic e ec .
A. Model
I model a i m ha makes a ional decisions abou hei in es men s dynamically.
The objec i e unc ion o a i m is o maximize i s alue. S a e a iables a e he
company’s in es men s and de e ed co po a e ax liabili ies as de e mined in he
p e ious pe iod. Taxes a e de e mined based on he p e ious yea ’s p o i s and a e
paid in he cu en yea . This e lec s ha Ko ea’s cu en co po a e ax paymen
schedule is om Ma ch o May o he yea subsequen o he company’s se lemen
o accoun s ending in Decembe . In his model, i is assumed ha de e ed co po a e
ax liabili ies do no accumula e bu a e de e mined a he cu en pe iod and paid in
ull he ollowing yea . The choice a iable is he company’s in es men (i).
The i m’s p oduc ion unc ion, ha is, i s ope a ing p o i (
π
), is de ined as ollows:
.
x
ek
α
π
=−
The ope a ing p o i (
π
) inc eases as he amoun o capi al ( k ) inc eases o
p oduc i i y (
x
) inc eases. Howe e , he ma ginal a e o e u n on capi al is
assumed o dec ease gi en ha pa ame e (
α
) is se o be less han 1. In addi ion,
he p oduc ion unc ion e lec s a ealis ic business en i onmen such ha ixed cos s
(
) a e incu ed e en i he e a e no sales, which allows he company’s alue o all
below 0 e en i he company’s deb is no assumed in he model.
In his model, a i m’s p oduc i i y ollows a i s -o de au o eg essi e p ocess.
This p ocess is de ined as ollows:
(1 ) ,xx x
ρρ
σε
′′
=+− +
whe e
x
′ is he nex pe iod p oduc i i y,
ρ
is he pe sis ence pa ame e ,
σ
is he
s anda d de ia ion o he e o e m, and
ε
′ is a andom a iable ha ollows a
s anda d no mal dis ibu ion (0,1)N. P oduc i i y ollows au o eg ession cen e ed
on long- e m a e ages,
x
.
The p ocess o asse accumula ion is as ollows. The nex pe iod’s capi al ( k′) is
deduc ed a he dep ecia ion a e (
δ
) o he cu en pe iod’s capi al, and i inc eases
as i is in es ed (i).
(1 )ki k
δ
′=+ −
Adjus men cos s, c , a e incu ed when adjus ing a company’s asse s. The
de ini ion o he adjus men cos is as ollows:
2
.
2
ai
ck
k
=
8 KDI Jou nal o Economic Policy MAY 2024
The pa ame e a go e ns he le el o he adjus men cos s. Adjus men cos s add
eali y o a i m’s capi al accumula ion. They inc ease sha ply as in es men s
inc ease and dec ease when he exis ing capi al amoun is la ge, e lec ing ha such
cos s a e highe o a i m ha apidly inc eases i s in es men and lowe o a i m
wi h enough asse s o accumula e addi ional asse s.
The axes( z′) ha a company mus pay in he nex pe iod a e de ined as ollows:
max(0, ( )).
c
zk
τπδ
′=−
The co po a e ax a e is deno ed by c
τ
. Tax is le ied only on ope a ing p o i a e
dep ecia ion ha is g ea e han 0.
A i m’s cash low ( d) is de ined using he equa ion below.
{ ...}
1
1nll
dic zI
πλ
=−−−
+
The isk- ee a e is deno ed by
. The de aul p obabili y is
λ
, and {...}nll
I is a
dummy a iable and akes a alue o 1 i he in es o ’s has a seconda y ax liabili y,
aking a alue o 0 o he wise. The cha ac e is ics o his model a e de i ed om he
las e m ( { ...}nll
zI
λ
), indica ing he po en ial bu den el by an en ep eneu due o
he seconda y ax liabili y. In he a ional decision-making model, when an
en ep eneu makes an in es men , he o she de e mines he op imal in es men le el
o maximize p o i s by conside ing he expec ed p o i s and cos s.
Fi m alue, (,,) kzx , can be exp essed as s a e a iables , ,kz and
x
. T h e
en ep eneu de e mines he in es men amoun ha sa is ies he ollowing equa ion,
hus de e mining he i m alue:1
1
(,,) max {(,,}.
1
kzx d E kzx
i
′
=+
+
B. Pa ame e
Table 5 shows he calib a ion esul s o he model pa ame e s. The cu a u e
pa ame e de e mines he dec easing, cons an , o inc easing e u ns o scale o he
p oduc ion unc ion. I is se o 0.7 and assumes a diminishing e u n o scale. I is
app op ia e o assume ha indi idual i ms ha e diminishing e u ns o scale because
as e u ns o scale inc ease, he op imal amoun o co po a e in es men will inc ease
in ini ely. Empi ically, he smalle he company, he highe he e u n on in es men , and
as he size o he company inc eases, he ma ginal e u n on in es men ends o dec ease.
1This model does no add ess he ac ha he seconda y ax liabili y can po en ially p e en sha eholde s om
engaging in mo al haza d o some ex en . Al hough empi ical da a show ha collec ed axes in ela ion o he
seconda y ax liabili y a e minuscule, om he pe spec i e o co po a e manage s, he incen i e o unnel may be
educed due o such a seconda y ax liabili y.
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 15
B. Empi ical analysis
In he empi ical analysis, we examine whe he he e is a di e ence in he
in es men a e depending on he sha eholding a io o companies when he la ges
sha eholde ’s sha eholding a io is be ween 49% and 51%. I he in es o ’s
seconda y ax liabili y has no impac on in es men , he e should be no co ela ion
be ween in es men s whe he o no he la ges sha eholde ’s sha e exceeds 50%, he
condi ion in which he in es o ’s seconda y ax liabili y applies. The model analysis
in he p e ious sec ion shows ha he seconda y ax liabili y discou ages he
in es men willingness o en ep eneu s. I examine whe he he e ec can be
con i med h ough empi ical da a.
The uni o analysis is he sha eholding a io o he manage , who is bo h he
la ges sha eholde and CEO a he same ime, and he in es men a e o he i m. The
la ges sha eholde will ha e a dominan in luence on he co po a ion. The la ges
sha eholde s a e able o a ec decisions on whe he o in es in he company. I he
la ges sha eholde ’s sha eholding a e exceeds 50%, he o she mus bea ax a ea s
in he e en o a co po a e bank up cy, sac i icing hei pe sonal p ope y, whe eas i
he sha eholding a io is less han 50%, he seconda y ax liabili y is no imposed.
The i s p edic able ac ion o he la ges sha eholde unde he seconda y ax
liabili y is o se hei sha eholding a io below 50%. The e may be a a ie y o
ac o s ha a ec a company’s go e nance s uc u e, bu i he la ges sha eholde ’s
s ake is de e mined o be a ound 50%, he e is an incen i e o keep he s ake below
50% o a oid he seconda y ax liabili y. This pa e n, as ound ea lie , is con i med
in Figu e 3. The sha eholding a io o he la ges sha eholde is e y high a p ecisely
50%, wi h much a iance in he la ges sha eholde s wi h sha eholdings below 50%
and abo e 50%.
I he majo i y sha eholde ’s sha eholding a io is less han 50%, he seconda y
ax liabili y can be a oided. I would be a ional o oligopolis ic s ockholde s o
ha e sha es less o equal o 50%. Howe e , due o a ious managemen condi ions,
he e may be cases in which an oligopolis ic sha eholde holds a s ake exceeding
50%. In cases whe e legal p oblems may a ise in he u u e i managemen igh s
canno be secu ed, secu ing managemen igh s is ad an ageous, bea ing he
po en ial cos o he seconda y ax liabili y. In such cases, he la ges sha eholde can
choose o secu e a s ake exceeding 50%.
In he p esence o he seconda y ax liabili y, he la ges sha eholde wi h a s ake
exceeding 50% is likely o in es less due o he bu den o po en ial ax paymen
cos s. In his empi ical analysis, I ocus on hese in es men incen i es and seek o
de e mine whe he he e is a signi ican dec ease in he in es men a e in
co po a ions in which he la ges sha eholde ’s sha eholding exceeds 50%. The
empi ical speci ica ion is as ollows:
(1) 01 2
50
iiiiiii
Y Dum Sha eRa io con ol imeFE indFE
ββ β
ε
=+ + + + + +
The dependen a iable i
Y e e s o I/A o i m i. The dummy a iable, 50i
Dum ,
has a alue o 1 i he la ges sha eholde ’s sha eholding a io exceeds 50% and has
16 KDI Jou nal o Economic Policy MAY 2024
a alue o 0 i i is less han 50%. The independen a iable, i
Sha eRa io , e e s o
he sha eholding a io o he la ges sha eholde . The con ol a iable, i
con ol ,
includes LnTA, D/A, and AG, which a e a iables ha can a ec a company’s
in es men s. As he asse size inc eases, he in es men a e usually ends o
dec ease. I is known ha i exis ing deb impedes addi ional capi al aising e o s,
he esul can be a dec ease in he in es men a e (deb o e hang). On he o he hand,
deb can inc ease in es men le els due o he isk- aking incen i e o manage s
( isk-shi ing). Companies wi h a highe asse g ow h a e end o ha e a highe
e u n on in es men , and hei in es men a e also ends o be highe . The analysis
includes yea - ixed e ec s, i
imeFE , and indus y- ixed e ec s, i
indFE . Indus ies
a e ca ego ized by he i s English no a ion o he S anda d Indus ial Classi ica ion
Code (KSIC 10 h). A o al o eigh een indus ies a e conside ed in he analysis. The
las e m, i
ε
, in he equa ion deno es he e o .
In his analysis, I examine whe he he coe icien o he dummy a iable has a
nega i e alue. I he e is a signi ican dec ease in he in es men a e in g oups wi h a
s ake exceeding 50%, one can see ha he seconda y ax liabili y in es o s ac s as a
bu den on he la ges sha eholde s and educes co po a e in es men le els. This can
be in e p e ed in wo ways. Fi s , when a company seeks o make a la ge in es men ,
i can be se such ha he la ges sha eholde has an equi y a io o exac ly 50% in
o de o a oid he seconda y ax liabili y. Second, i he la ges sha eholde ’s
sha eholding a io exceeds 50% o any eason, in es men s may be educed o a
limi ed ex en in o de o educe he bu den o he seconda y ax liabili y. In ei he
case, he esul s a e consis en wi h he implica ions d awn om he model analysis.
C. Resul s
Table 7 epo s he es ima ion esul s o equa ion (1). In he i s column, i ms o
which he la ges sha eholde ’s sha eholding exceeds 50% in es 5.3% poin s less
han companies wi h a co esponding sha eholding a e o less han 50%. E en a e
conside ing indus y ixed e ec s in he second column, i ms wi h he la ges
sha eholde ’s sha eholding a e exceeding 50% in es 4.7% poin s less. When
con olling o managemen indica o s ha may a ec in es men s, i is es ima ed
ha i ms wi h he la ges sha eholde ’s sha eholding a e exceeding 50% in es
app oxima ely 2.6%p less. As he o al asse size inc eases, he in es men a e
dec eases, and companies wi h a s eep asse g ow h a e in es mo e. Le e age does
no ha e a signi ican e ec on he in es men a e. The es ima ion esul s a e
consis en wi h he p edic ion ha i ms wi h he la ges sha eholde ’s sha eholding
a e exceeding 50% in es less due o he seconda y ax liabili y.
The seconda y ax liabili y is a na ional ax bo ne by he la ges sha eholde when
a company goes bank up . The bu den o he seconda y ax liabili y on he la ges
sha eholde s is hea ie in companies ha a e mo e likely o go bank up . I a i m
has a high deb a io, he isk o bank up cy may inc ease as he in e es bu den
inc eases. The la ges sha eholde o a i m wi h a high deb a io is subjec o a
g ea e isk o he seconda y ax liabili y. The e o e, i i is ue ha he seconda y
ax liabili y o in es o s has a signi ican impac on he in es men a e, he di e ence
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 17
TABLE 7—EFFECTS OF OLIGOPOLISTIC STOCKHOLDERS ON INVESTMENTS
(1) (2) (3)
Dum50 -0.053*** -0.047*** -0.026*
0.015 0.015 0.015
Sha e Ra io 0.061*** 0.052*** 0.034**
0.016 0.016 0.016
LnTA -0.015***
0.003
D/A -0.018
0.014
AG 0.024***
0.003
imeFE Y Y Y
indFE N Y Y
R-squa ed 0.0046 0.0173 0.0353
in he in es men a e depending on whe he he seconda y ax liabili y is imposed
on in es o s may be mo e e iden in companies wi h a high deb a io. In his
analysis, I sample only i ms wi h a deb a io o 30% o mo e ela i e o o al asse s
and examine he impac on in es men in cases in which he la ges sha eholde ’s
sha eholding exceeds 50%.
Table 8 shows summa y s a is ics o he sample wi h i ms wi h a deb a io o
30% o mo e. Excep o he minimum deb a io o 0.3, he e is no signi ican
di e ence in i s cha ac e is ics om he i ms used in he p e ious analysis. Because
his is a sample wi h a limi ed deb a io, he deb a io is somewha highe and he
asse g ow h a e is dec eased sligh ly, bu conside ing he s anda d de ia ion, he
di e ence is no signi ican .
Table 9 shows he es ima ion esul s o equa ion (1) o i ms wi h a deb a io o
30% o mo e. In companies wi h a high deb a io, whe he he la ges sha eholde ’s
sha eholding a io exceeds 50% has a g ea e impac on he in es men a e as
compa ed o his ac o in he en i e sample. In he i s column in Table 9, he
in es men a e dec eases by 5.8% poin s, which is app oxima ely 10% g ea e han in he
en i e sample. In he second column, he in es men a e is shown o dec ease by 5.5%
poin s, ma king a 17% g ea e e ec han in he en i e sample. In he hi d column,
he in es men a e dec eases by 3.1% poin s, also showing a g ea e e ec han he
en i e sample. This sugges s ha he seconda y ax liabili y is a g ea e bu den on
en ep eneu s in companies wi h a highe deb a io, posing a g ea e isk o de aul .
TABLE 8— SUMMARY STATISTICS - FIRMS WITH HIGH DEBT RAT IO S
Mean S.D. Min Max
I/A 0.071 0.197 -0.213 1.123
Sha e Ra io (%) 49.989 0.196 49.01 50.99
LnTA 14.740 1.078 12.726 18.236
D/A 0.627 0.171 0.300 0.965
AG 0.403 0.898 -0.355 5.557
18 KDI Jou nal o Economic Policy MAY 2024
TABLE 9—EFFECTS OF OLIGOPOLISTIC STOCKHOLDER ON INVESTMENTS (HIGH DEBT RATIO)
(1)(2) (3)
Dum50 -0.058*** -0.055*** -0.031*
0.018 0.018 0.018
Sha e Ra io 0.069*** 0.065*** 0.045***
0.021 0.021 0.021
LnTA -0.016***
0.003
D/A -0.058***
0.021
AG 0.025***
0.004
imeFE Y Y Y
indFE N Y Y
R-squa ed 0.0045 0.0146 0.0351
D. Placebo Tes
Conside ing ha second ax liabili y applies o companies whe e he la ges
sha eholde ’s sha eholding exceeds 50%, we looked a changes in he in es men a e
depending on whe he he sha eholding a e exceeds 50%. I he seconda y ax liabili y
does no a ec he in es men a e, bu a he he sha eholding a io i sel in luences
he in es men a e, one should be able o ind a b eak in he in es men a e a a
h eshold o he han 50%. I examine whe he changes in he in es men a e can be
ound by se ing he la ges sha eholde ’s sha eholding o 48% as a placebo es .
The dummy a iable dum48 has a alue o 1 i he la ges sha eholde ’s sha eholding
a io exceeds 48% and a alue o 0 i i is less han 48%. The sample consis s o
i ms wi h CEOs wi h owne ship a ios g ea e han 47% and less han 49%. The
emaining a iables a e iden ical o hose in he p e ious analysis. Table 10 shows
summa y s a is ics pe aining o companies o which he la ges sha eholde ’s
sha eholding a io exceeds 47% and o hose whe e i is less han 49%. The o al
numbe o obse a ions is 1,000, and he in es men a e, deb a io, and asse g ow h
a e a e all sligh ly lowe han in he sample used o he main analysis.
Table 11 shows whe he he in es men a e changes signi ican ly as he
sha eholding a io inc eases om a ound 48% o o e 48%. These esul s show ha he
in es men a e does no change signi ican ly when he in es men a e exceeds 48%.
TABLE 10— SUMMARY STATISTICS FOR THE PLACEBO TEST
Mean S.D. Min Max
I/A 0.044 0.124 -0.213 1.123
Sha e Ra io (%) 48.000 0.449 47.04 48.98
LnTA 15.041 1.119 12.726 18.236
D/A 0.497 0.234 0.041 0.965
AG 0.234 0.622 -0.355 5.557
VOL. 46 NO. 2 E ec s o S ockholde s’ Seconda y Tax Liabili y on Co po a e In es men 19
TABLE 11—EFFECTS OF OLIGOPOLISTIC STOCKHOLDERS ON INVESTMENTS (PLACEBO TEST)
(1)(2) (3)
Dum48 -0.012 -0.010 -0.005
0.013 0.013 0.013
Sha e Ra io -0.001 -0.001 -0.004
0.014 0.014 0.013
LnTA 0.001
0.004
D/A 0.013
0.019
AG 0.016***
0.006
imeFE Y Y Y
indFE N Y Y
R-squa ed 0.0197 0.0442 0.0528
No only is he coe icien no s a is ically signi ican , bu he magni ude o he
coe icien is also smalle han he coe icien in Table 7.
In his sec ion, I in es iga e in es men s o i ms wi h CEOs whose sha e a io
exceeds 50% o hei i m. Consis en wi h he model p edic ions, he empi ical
analysis implies ha he po en ial bu den om he seconda y ax liabili y on an
en ep eneu can dec ease he in es men s o such i ms.
V. Conclusion
The p inciple o limi ed liabili y o sha eholde s is a co e p inciple in many
coun ies. The p inciple is c ucial because i becomes easie o aise capi al when he
limi ed liabili y o s ocks is ecognized, and his allows la ge-scale p ojec s ha
canno be ca ied ou a an indi idual le el o be ealized by dispe sing isks.
This pape examines he impac o he cu en sha eholde limi ed liabili y
excep ion sys em on i m in es men ou comes. Fi s , i is widely known ha he
seconda y ax liabili y makes i challenging o ailed en ep eneu s o eco e . This
ep esen s a limi ing ac o in ac ual en ep eneu ship. This pape sugges s ha he
seconda y ax liabili y can ac as a ac o inhibi ing in es men s e en be o e a
company goes bank up . The model analysis shows ha i an en ep eneu mus pay
na ional axes ou o his pe sonal p ope y in he e en o a co po a e bank up cy, he
in es s less. The empi ical analysis also ound a signi ican dec ease in in es men
le els a he poin whe e he company’s la ges sha eholde ’s sha eholding a io
exceeded 50%, which is he h eshold a which he seconda y ax liabili y applies.
In no coun y excep Ko ea, sha eholde s o a s ock company a e no subjec o
na ional axes beyond he scope o limi ed liabili y unless a c iminal o ense such as
b each o us o embezzlemen has occu ed. I appea s be e o hinde ax e asion
a emp s wi h clea c iminal cha ges and o adhe e o he p inciple o limi ed liabili y
o sha eholde s. Obse ing he limi ed liabili y p inciple can imp o e he business
s a -up and in es men en i onmen and can ailed en ep eneu s eco e .
20 KDI Jou nal o Economic Policy MAY 2024
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