An estate tax bill you can’t understand: $10.8 billion

SEOUL — Picasso, Monet and Dalí are among the assets South Korea’s wealthiest family is parting with as they prepare to pay one of the largest inheritance tax bills in history.

The Samsung family announced on Wednesday that it will pay $10.8 billion in inheritance tax after Samsung chairman Lee Kun-hee passed away last year. South Korea has one of the highest inheritance taxes in the world. The family are required to inform the tax authorities of how they intend to settle the bill by Friday.

The answer will have profound implications for family control of the company, South Korea’s largest and most profitable family conglomerate.

Mr. Lee has been credited with turning Samsung into a global tech giant known for its semiconductors and smartphones. But the reclusive president kept many secrets, including how he wanted to divide his wealth between his wife and three children after his death.

Mr. Lee’s only son, Lee Jae-yong, is the de facto leader of Samsung. If he inherits his father’s shares in Samsung’s subsidiaries, it will tighten his control over the company. But it’s still unclear how much he will inherit or how he will raise the billions of dollars needed to pay the inheritance tax.

Analysts had expected Mr Lee to sell non-core Samsung shares and secure bank loans, hoping to repay them with dividend payouts from his Samsung holdings.

“How to share Chairman Lee’s fortune is at the heart of the question of who controls Samsung,” said Chung Sun-sup, editor-in-chief of chaebul.com, which monitors South Korean family conglomerates, also known as of chaebol. “It appears the family hasn’t come to a complete agreement yet.”

The Lees are the richest family in South Korea. The $10.8 billion represents more than half the total value of the father’s estate and more than three times the total estate tax the government collected last year, according to Samsung.

The family said they would donate Mr. Lee’s personal art collection of 23,000 works to national and provincial museums in South Korea as part of their estate disposal plan. The collection is estimated at $2.2 billion by some South Korean media. It includes one of Claude Monet’s “Water Lilies” and Pablo Picasso’s “Portrait of Dora Maar”.

The family has also committed $900 million to fight the growth of infectious diseases and to help children with cancer and rare diseases. Half of the sum will be spent on building South Korea’s first hospital dedicated exclusively to infectious diseases.

The Lee family said the donations reflect Mr. Lee’s intentions to “give back to communities.” But this sudden generosity comes from a family that has struggled to improve its public image.

In January, the son, who is vice-president of Samsung, was imprisoned after being sentenced to two and a half years for corruption. In recent weeks, corporate lobby groups have called on the government to pardon Lee Jae-yong so he can lead Samsung amid growing uncertainty in the semiconductor industry.

“It is our civic duty and our responsibility to pay all taxes,” the Lees said in a statement on Wednesday.

The family did not always respect this rule.

Samsung has long been accused of trying to achieve a father-son transfer of power at all costs, even if it means breaking laws, dodging taxes and buying political influence. It’s a problem that Lee Jae-yong himself has acknowledged.

“All the problems basically started from this question of succession,” he said last year. “From now on, I will ensure that no controversy reoccurs regarding the question of succession.”

His father was given a three-year suspended prison sentence in 2009 for tax evasion on billions of dollars he secretly inherited from his father, Samsung founder Lee Byung-chull. He hid the money in securities accounts opened in the name of his collaborators. Samsung said at the time that Lee Kun-hee kept the funds secret to protect the company from hostile takeovers by foreign investors.

Lee Jae-yong’s legal troubles stemmed from a similar issue. In January, he was found guilty of bribing former South Korean President Park Geun-hye to gain government support for a merger of two Samsung subsidiaries in 2015. The merger was intended to tighten his control over Samsung.

Who will control Samsung has been a subject of great public curiosity since the death of the father. The company accounts for one-fifth of South Korea’s total exports. Samsung Electronics, the group’s flagship, alone posted $213 billion in revenue and $32 billion in operating profit last year.

Lee Jae-yong has led the conglomerate since a heart attack disabled his father in 2014. He owns just 0.7% of Samsung Electronics but owns 17.5% of Samsung C&T, a subsidiary created by the 2015 merger His siblings also hold smaller stakes, giving the family a majority stake in the business.

Through a network of circular holdings, the family continues to control the conglomerate. Samsung C&T owns 5% of Samsung Electronics and 19.3% of Samsung Life. Samsung Life owns 8.5% of Samsung Electronics.

Lee Kun-hee owned 4.18% of Samsung Electronics, as well as 20.7% of Samsung Life. How these shares are distributed within the family will affect the son’s chances of running the business.

By law, the president’s widow, Hong Ra-hee, is entitled to one-third of the total inheritance, with the rest split equally between Mr Lee and his two sisters. But chaebol families often make a private deal to ensure the eldest son controls the business.

Some South Koreans were astonished on Wednesday to learn the amount of inheritance tax the Lee family had to pay.

“Ordinary people like me can’t imagine how much it is,” said Park Soon-mi, a stay-at-home parent in Seoul. “It’s good for the president to leave so much money in taxes and make such important donations to society.”

Others weren’t so impressed.

This is not the first time the Lee family has pledged to use their wealth to benefit society as part of a larger agenda. In 2008, when Lee Kun-hee was charged with tax evasion, Samsung said he would use the money “not for the president or his family, but for certain beneficial causes”.

The family had not kept their word until Wednesday, said Kang Jong-min, a chaebol expert with the civic group Solidarity for Economic Reform in Seoul. “He belatedly follows his old promise.”

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