Korean Tesla shareholders seek tax deferral if Tesla and SpaceX merge

Petition filed after merger talks

Chosunbiz reports that concern has risen in South Korea over the possibility that a merger between Elon Musk's Tesla and SpaceX could trigger capital gains tax for local retail investors even if they do not sell their shares. In response, Korean investors who trade U.S. stocks have asked the National Assembly to improve the system.

According to the financial investment industry, a petition titled "Introduction of a system to defer capital gains tax on overseas stocks during corporate restructuring" was posted on the National Assembly's public consent site on the 22nd of the previous month. As of the day of the report, about 27,150 people had signed it. The petition would be sent to the relevant standing committee for review if it reaches 50,000 endorsements.

What sparked the concern

Chosunbiz says the concern followed remarks by Elon Musk, who is chief executive of both companies. On a SpaceX earnings conference call on the 20th of the previous month, Musk said each company board would set up a special committee to examine a merger. Barclays then forecast that a Tesla-SpaceX merger could be announced before Tesla's regular shareholders meeting in December.

How current tax rules can apply

Under the current system described by Chosunbiz, when overseas companies merge and investors receive new shares in exchange for shares they already hold, that exchange can be treated as a transfer for tax purposes even if the investor has not sold the stock. That means taxes may be due on paper gains.

The article gives Tesla as an example: if a shareholder receives another company's shares through a merger, the investor may owe tax on the gap between the original purchase price of the Tesla shares and their value at the time of the exchange. Chosunbiz says gains on overseas stocks are taxed at 22% above the annual basic deduction of 2.5 million won.

What investors are asking lawmakers to do

Through the petition, shareholders are asking that capital gains tax not be imposed until investors actually sell shares, even when shareholdings are converted into different shares in an overseas merger or stock swap. The petitioner wants the Income Tax Act or the Act on Restriction on Special Cases Concerning Taxation revised to create a special rule that delays taxation until actual disposal.

The petition also asks lawmakers to consider temporary measures such as installment payments or deferral in cases involving large mergers like Tesla and SpaceX before any legal amendment is completed.

Scale of domestic Tesla holdings

Chosunbiz notes that many Korean investors could be affected because of the large amount of Tesla stock they hold. Citing the Korea Securities Depository's SEIBro portal, the article says domestic investors' custodial value of Tesla shares stood at about $23.3 billion, or roughly 31 trillion won, as of the 2nd. That was the largest among overseas stocks, according to the portal.