How the Samsung family’s £ 7 billion inheritance tax bill sounds the alarm even beyond South Korea


The £ 7 billion inheritance tax bill facing the family behind Samsung has raised alarm bells even beyond South Korea, writes Arun Kakar

For the Lee Dynasty, 2021 has not started well. Following the death of Samsung Chairman Lee Kun-hee at the end of 2020, and as the de facto chieftain headed for prison, the family was facing a record inheritance tax bill of 12 trillion Korean won – over £ 7 billion.

In April, it was announced that the Lees would donate 23,000 works of art worth around £ 1.3 billion to South Korean museums to help pay off one of the biggest inheritance tax bills in history, which equates to “three to four times the Korean government’s total tax revenue last year, “as the family painfully explained in a report.

Inheritance tax in South Korea the prices are among the strictest in the world. The state levies a tax of 50 percent of the value of assets, which is 60 percent on the company’s stock – well above the 40 percent rate in the US and UK . Not only is the rate higher, but the constraints are also more severe.

Under Korean tax law, certain exemptions and reliefs are available for small and medium-sized businesses, notes Kelly Greig, head of tax at Paris Smith. But clearly, this does not apply to Samsung.

The system is even more punitive. “In addition to the high [inheritance] tax rate, the family can only spread the cost of the tax over five years. Other countries have taken a more generous ten-year payout approach for certain assets, ”said Greig. spear. “It saw the family having to borrow money at high interest rates in order to meet the liability.”

The fact that Kun-hee’s son and vice president of Samsung adds another dimension to the case Lee Jae-yong was in prison at the time of the family’s announcement, serving a two-and-a-half-year sentence for corruption, embezzlement and concealment. In January, Jae-yong, who became de facto head of the conglomerate in 2014 after his father suffered a heart attack, has been recognized by a court as having “Actively provided bribes and implicitly asked the president to use his power to help his smooth succession.” In August, he was released earlier.

The drama has highlighted the ‘chaebols’, South Korean family conglomerates that also include Hyundai and SK Group. Owned, controlled and managed by family dynasties, the chaebols emerged in the mid-20th century during President Park Chung-hee’s rapid industrialization program, which spurred South Korea’s development of a predominantly agrarian economy into one of the world’s leading manufacturers of cars, telecommunications and electronics. .

More than 40 chaebols are active today, collectively making up about half of the South Korean stock market. According to the Council of Foreign Relations, an American think tank, The chaebols maintain a “symbiotic” relationship in government, an aspect of their existence that came to light during Lee Jae-yong’s trial.

The reputation of the chaebols suffers in South Korea, where they are sometimes seen as examples of unfair trade practices and stifling competition. President Moon Jae-in, who was comfortably re-elected last year, first took office in 2017 with a pledge to tame conglomerates, and last December he passed a bill to make more difficult for larger shareholders to appoint auditors and increase control over affiliate relations.

Samsung, South Korea’s largest chaebol (it accounts for 20% of the country’s economy), is also a point of contact for the intersection between reputation and tax issues faced by wealthy families outside of Korea. from South.

“In the case of Samsung, I’m sure the family’s recent reputation concerns were factored into a public display of high-profile philanthropy,” says Marcus Parker, tax partner at Harbottle & Lewis, who notes a “Ever-Growing Desire” among Wealthy Families to Engage in Philanthropy: “Reputation management is a key part of estate planning, and whether or not to pay tax is now a critical issue to consider when planning the affairs of wealthy families. “

The Samsung case comes at a turning point. In May, the OECD argued that inheritance tax could be “an important instrument to tackle inequality” in the current context of new coronavirus-induced pressures facing public finances. And a global minimum corporate tax has already been agreed by G7 governments.

“If people can do this with corporate tax, governments could look at the revenue generated and could ask if it’s possible to do something similar with inheritance tax,” says Jonathan Riley, head of the private wealth management at Fladgate. “It must be interesting for governments to realize that a receipt of £ 7 billion can make a huge difference.”

Image: Jamie Coe


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