[News Focus] Samsung estate sparks debate over inheritance tax


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The process of inheriting the fortune from the late Samsung group mogul has rekindled a chronic legislative debate here – the country’s inheritance tax rate which is one of the highest in the world.

While the business community has taken the opportunity to call for a review of the current tax system, authorities have continued to draw the line on the debate, refraining from what may appear to be a privilege for the Samsung empire.

Some market observers, while agreeing to the tax system itself, have argued that more flexibility should be allowed regarding the payment process.

The trigger was the unprecedented amount of tax imposed on the heirs of the late Samsung Group Chairman Lee Kun-hee, who died last October after years in his sick bed. His heirs were his wife Hong Ra-hee and his three children, including his only son Lee Jae-yong, who currently heads the country’s largest conglomerate.

Last month, members of the Lee family unveiled their track record for paying inheritance taxes estimated at more than 12 trillion won ($ 10.72 billion).

The announcement included the donation of a colossal series of works of art and antiques worth nearly 10,000 billion won, as well as 1,000 billion won in funds allocated to improve the system. health of the country.

Despite the massive donations, the family that owns Samsung still faces a huge tax bill that they plan to pay over the next five years.

The majority was the inheritance tax for the late Lee’s shares in Samsung subsidiaries, which totaled 11.3.7 trillion won, representing 58.2% of the value of its equity assets.

The ceiling for inheritance tax in South Korea is currently 50%, but premium rates may be added when the predecessor is the main shareholder or someone specially connected with the company.

In order to make the payments, Hong and her daughter Lee Seo-hyun took out short-term loans at high interest rates from several financial institutions.

Lee Jae-yong also deposited 42.02 million units of his shares in Samsung Electronics in Seoul West District Court as security for the tax payment, according to Financial Supervisory Service data last week.

As the volume of the Lee family’s inheritance and their efforts to secure the necessary cash grab the headlines, other past cases of conglomerate succession and asset inheritance have come to the fore again. public.

A relatively recent example is LG group chairman Koo Gwang-mo, who in 2018 declared 921.5 billion won in inheritance tax on shares held by his late father Koo Bon-moo. Hanjin Group Chairman Cho Won-tae also pays some 270 billion won in inheritance taxes in installments, due to the inheritance of his father Cho Yang-ho, who died in 2019.

According to the Korean Business Federation, the maximum inheritance tax rate in South Korea is 50%, but it can reach 60%, including valuation premiums. The corresponding figure would be higher than Japan’s 55% cap and therefore the highest among member states of the Organization for Economic Co-operation and Development.

Asia’s fourth-largest economy is one of 23 out of 36 OECD member states to impose inheritance tax on those who inherit assets, characterized by its blatantly strict tax rules, KEF said.

“Of the 23 OECD states that adopt an inheritance tax system, 17 would apply differentiated tax rates in the case of a parent-child succession, in order to promote a smooth business succession. “, did he declare.

In addition, in Korea, the range of inheritance tax deductions is limited to small and medium-sized businesses, which can discriminate against large businesses, he said.

Some also pointed out the risk of double taxation since inherited property has already been taxed under the income tax category. So it’s the international norm to keep the inheritance tax cap at a level similar to that of income tax, but in Korea the gap is up to 15%, according to KEF.

“Business succession is not just the transmission of wealth, but a process of sustaining a business so that it can continue to create jobs and contribute to the country’s economy,” said the Korean Institute of Economic Research.

The government has refused to take immediate action, however, while Samsung’s legacy program is still ongoing.

“The government has no plans to lower the inheritance tax rate,” Deputy Finance Minister Lee Eog-weon said late last month, in response to a related question shortly after the revelation of the estate value of the late head of Samsung.

Progressive civic groups have also blamed the business community for their attempts to get rid of tax regulations.

“The inheritance tax system is crucial in reducing economic injustice,” the Citizens’ Coalition for Economic Justice said in a statement, adding that the benefit of the deduction should remain limited to small businesses.

While opposing calls for a reduction in the rate of inheritance tax, the CCEJ appreciated the heirs of Samsung for their serious desire to comply with the tax system, without seeking to dodge it.

In response to the backlash, the Federation of Korean Industries suggested a compromise that extends the installment payment period of inheritance tax to the current five years. In the case of the United States, Germany and Japan, heirs are allowed to pay their inheritance tax over 10 years, under certain conditions.

By Bae Hyun-jung ([email protected])

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