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Samsung's Lee family announce details of hefty inheritance tax plan Updated: 2021-04-28 16:54:14 KST

11 billion U.S. dollars in tax and 23-thousand artworks.
That's the legacy plan unveiled today by the heirs of late Samsung patriarch Lee Kun-hee.
Lee Kun-hee, who is credited with transforming Samsung into the world's largest smartphone and memory chip maker, died in October last year with an estate valued at around 23 billion dollars.
The Lee family's handling of the hefty inheritance tax bill - one of the largest-ever in Korea and globally - has been closely watched as it could have resulted in the dilution of the family's controlling stake in Samsung.
Our Min Suk-hyen is live in the studio to dig deeper into this story.

Good afternoon.

Suk-hyen, this was the richest man in South Korea and among the wealthiest in the world, as well. Why don't you first paint us a picture of the size and scope of his assets that he's left behind.

Sure. The late Samsung Chairman Lee Kun-hee is known to have left behind at least 20 billion U.S. dollars in assets.
This includes his stocks, valued at around 17 billion dollars.
But he also has around 2 billion dollars in real estate, his art collection and cash.
In a statement, the Lee family said they will have to pay about 11 billion dollars in inheritance taxes, by far the highest amount ever imposed in South Korea.

So, the family announced today that they will be paying off an inheritance tax bill of about 11 billion dollars - it's one of the largest in the history of South Korea and globally - "equivalent to three to four times the Korean government’s total estate tax revenue last year."Big tax for big fortune.
So, naturally, it's kept us all wondering how the family members will split the patriarch's stockholdings.
Do we know how?

Unfortunately, no. Samsung Group did not provide details on how the family will split the fortune.
By law, his wife, Hong Ra-hee, will inherit the largest share -- one third -- and the three children will each receive two ninths.
But considering the leadership succession at the Samsung Group, industry sources expect most of the 17 billion dollars in shares to be inherited by Samsung Electronics Vice Chairman Lee Jae-yong.
The late chairman had stakes in four listed Samsung affiliates, including Samsung Electronics and Samsung Life Insurance
If handed over to his only son, it would help Lee Jae-yong get a stronger hold over Samsung Group.
In this case, the two daughters -- Lee Boo-jin and Lee Seo-hyun -- will split the remaining shares as well as part of their father's real estate, which includes half of the land under Korea's biggest theme park, Everland, and his pricey house in Seoul.

Korea has one of the highest rates of inheritance tax in the world. And there's a debate about whether it should be lowered. But there's going to be a massive tax bill due from Lee Kun-hee's heirs to the tune of about 11 billion dollars, which would be by far the most anyone has ever owed. So, Suk-hyen, do we know how they're going to pay it?

Yes. The family has decided to pay their bills in installments just like how LG Group Chairman Koo Kwang-mo chose to pay his inheritance taxes in 2018.
So under the current tax law, they will pay one-sixth of the tax by this Friday, and pay the rest over the next five years at an interest rate of 1.2 percent per year.
Take a listen.

"Where the inheritance tax exceeds 20 million won, upon application by the taxpayer, the tax office may grant permission for annual installments. In general, the installments shall be made within five years."

Even in instalments, this is expected to cost the family about 2 billion dollars every year.
Some industry watchers say that the massive tax bill could push the family to sell shares in Samsung units, but this is unlikely because that would weaken the family's ownership.
And so, a way for the family to pay the bill without having to sell is to use the dividends from their Samsung holdings.
They could make their payments with those and use their shares as collateral for loans to pay off the rest.

Now, tax time is often a chance to make a donation to charity if you want to reduce your tax bill. And it sounds like that's what the Samsung heirs have decided to do.

That's right. The family has decided to donate 9-hundred million dollars to the medical field.

About 600 million will be used to fight infectious diseases and the other 3-hundred million to treat children with cancer and rare diseases.
Also from Lee Kun-hee's art collection, 23-thousand pieces will be donated to state-run museums like the National Museum of Korea and National Museum of Modern and Contemporary Art.
The late chairman was an art enthusiast, and is believed to have owned over 2 billion dollars of artwork.
His vast collection includes national treasures like landscape paintings by the legendary Korean painter Jeong Seon
as well as paintings from renowned Korean artists like Lee Jung-seob and Park Soo-keun.
His more contemporary collection also includes Western artwork from Swiss sculptor Alberto Giacometti and the American painter Mark Rothko.

The art collection has prompted a bigger discussion of what becomes of important works of art and cultural assets in situations like these because people would very much like to see them stay in Korea.
Some artists want the government to make it so works of art themselves can be used to offset inheritance taxes to ensure they stay in the country. Tell us about that.

Well, under the current law, aside from cash, only real estate and securities can be used to pay tax.
And so, to reduce their overall tax liability, the Samsung family may have decided to donate a significant chunk of the art collection.
The art community is calling on the government to allow artwork as a means to pay inheritance taxes.
What they fear is that masterpieces might be sold overseas, and so by using them to pay tax, they would stay here for people to enjoy.
They are pushing to reform the tax law to make that happen.

"In principle, the current law prohibits overseas transfer of domestic works of art over 50 years old. So, it's unlikely that our artwork will be sold overseas. But, art by famous foreign artists may leave the country."

Some scholars and civic organizations, however, have doubted the idea, saying that art could be used as a means to evade taxes, and have also questioned the objectivity of the appraisals used to give them monetary value.

"The problem we have here is whether artwork can be fairly appraised in the country. I believe we should have a third party, like an overseas institute, to help appraise artwork."

In other counties, like France, the UK and Germany, inheritance taxes can be paid with heritage assets and artwork.
The Picasso Museum in Paris is a classic example of when the French government allowed the family to pay by donating thousands of works of art.

Thank you for today's report.

Thank you.
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