Samsung heirs chalk out plans to meet inheritance tax running into billions

The heirs of late Samsung patriarch Lee Kun-hee, facing a huge inheritance tax bill, have chalked out a plan to make philanthropic donations worth billions of dollars and pay $11bn in tax.

Following Lee’s death, the family was facing a 60 percent inheritance tax bill on his $20 billion fortune. The South Korean government had given the family six months to thrash out a plan to deal with the estate.

The family noted that the tax bill was “equivalent to three to four times the [South Korean] government’s total estate tax revenue last year”. The philanthropic donations include hundreds of millions of dollars for child cancer treatment, an infectious diseases hospital and vaccine research. Lee’s collection of artworks and antiques will also be donated to South Korean museums. The personal collection includes masterpieces by Salvador Dalí, Claude Monet and Pablo Picasso as well as celebrated Korean artists such as Park Soo-keun, Lee Jung-seop and Kim Whan-ki.

Samsung Press Conference

Samsung Press Conference: Samsung Electronics Executive Vice President WonJin Lee addresses the press conference.

The Samsung group, which started life as a fish and vegetable vendor in the 1930s, is now a conglomerate dealing in electronics, computer chips and smartphones.

Lee was instrumental in turning the company into a global technology powerhouse. The donations will uphold the patriarch’s legacies and contribute to the betterment of the society, said the family. They will also pay the $11bn in taxes related to the inheritance in six installments over a period of five years.

 According to analysts, the payments are likely to be made under a complex structure that will reshape the family’s fortunes. The family and the company have assured that they will meet the liability and account for the payments made.

Park Ju-geun, head of CEO Score, a research firm, expects that the initial payments will be made through bank loans using their shareholdings in Samsung units as collateral. It is also expected that the different listed companies will pay out higher dividends to help the family boost up their capital.

“The family has been discussing, for a considerable period of time, stock-backed loans with several banks that mainly deal with Samsung companies,” said a financial company CEO.

Park Sang-in, an economics professor at Seoul National University, said the family had yet to reach an agreement on how to divide the inherited stockholdings because of the patriarch’s son, Lee Jae-yong’s imprisonment.

The Lee family might have to divest some of their holdings in Samsung companies, say analysts. However, control of Samsung Electronics is expected to remain with the son, Lee Jae-yong. “There will be no big trouble in paying the bill in installments. They can increase dividend payouts from Samsung companies, take out bank loans with their stock holdings as collateral and sell some stakes in minor companies, which won’t affect their grip over major units,” said the head of a local brokerage.

The conglomerate has been mired in scandals in the recent past, including Lee, who was indicted twice for white-collar crimes. The latest involves the jailing in January of Lee Jae-Yong, who now heads Samsung, on bribery charges, which has harmed the company’s image.

The riches and influence wielded by the powerful chaebol business families over South Korea’s politics is seen as detrimental to its progress.

Some people are questioning why the family cannot pay the taxes in cash rather than seeking tax rebates.

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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