Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Will Samsung's governance structure be affected by inheritance tax payments?
Samsung family members are seen in this photo taken at CES 2010 held in Las Vegas. / Courtesy of Samsung Electronics
By Kim Bo-eun
By Kim Bo-eun
Attention is focusing on how the family members of the late Samsung Electronics Chairman Lee Kun-hee will pay inheritance taxes on stocks they will receive, after the amount was finalized at 11.04 trillion won, Tuesday. This is 12 times the amount of inheritance tax to be paid by family members of the late LG Group Chairman Koo Bon-moo.
The inheritance tax on the stocks is calculated based on the average price of the stocks over a period of four months ― two months prior to death and two months after. About a 60 percent tax rate is imposed on the calculated figure of 18.97 trillion won.
Legal heirs of Lee are his widow Hong Ra-hee, son and Samsung Electronics Vice Chairman Lee Jae-yong, oldest daughter and Hotel Shilla CEO Lee Boo-jin and younger daughter and Samsung Welfare Foundation Chairwoman Lee Seo-hyun.
Views are that family members will opt to pay the inheritance tax over a five-year period after first paying a one-sixth installment. This is the strategy taken by the LG Group owner family after Chairman Koo's death, as well as the family of the late Hanjin Group Chairman Cho Yang-ho.
Even if the amount is divided over five years, Samsung owner family members would have to pay 1.6 trillion won a year.
Family members could likely pay the tax with dividends. Given Samsung owner family members maintain their stock ownership over the next five years, they are estimated to receive over 3 trillion won in dividends. Meanwhile, about 500 billion won in dividend payments is estimated to be paid for stocks owned by the late Lee in 2020. Inheritance tax is not applied to dividend payments to the deceased in the year of death and fall rather to the inheritor.
The percentage of dividends paid by Samsung affiliates may be increased to assist family members to be able to pay the due tax.
The late chairman's shares in several Samsung affiliates may also be sold, as a means to secure funds.
Selling Lee's shares may change Samsung's governance structure. Under the current system, the junior Lee is exercising management rights at Samsung Electronics with 5.01 percent of the electronics unit's shares held by Samsung C&T and 8.51 percent of shares held by Samsung Life.
A variable that may play out is movements led by the ruling Democratic Party of Korea to pass revisions to the Insurance Business Act. The revisions seek to reduce Samsung Life's ownership of Samsung Electronics shares. The revisions seek to make this happen by stating that the stake an insurer holds in an affiliate company should be calculated according to market value instead of book value.
If the revisions are passed, Samsung Life will be required to sell about 6 percent of the 8.51 percent of Samsung Electronics shares it owns.
The stocks need to be sold to another Samsung affiliate, and the most likely entity to take over the shares is seen as Samsung C&T, which serves as a holding company governing the affiliates.
Along with the late Lee's shares of Samsung Life, those of Samsung SDS are cited as possibly facing sale. This is because this way, Samsung's current governance structure will see minimal change. Even if Lee's Samsung SDS shares are sold, Samsung Electronics holds 22.58 percent of SDS shares and Samsung C&T 17.8 percent, which will enable the two companies to retain their governance over the unit.
“It appears the Samsung owner family will be able to pay more than 50 percent of the inheritance tax with dividends. The rest could be paid by selling real estate or getting loans backed by real estate or stocks, or by selling the shares of Samsung affiliates that will not affect the group's governance structure,” said Oh Il-seon who heads the corporate tracker Korea CXO Institute.