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| The late Samsung Group Chairman Lee Kun-hee visits the 2010 Consumer Electronics Show in Las Vegas with his family. Courtesy of Samsung Group |
By Baek Byung-yeul
Heirs of late Samsung Group Chairman Lee Kun-hee have until April 30 to pay an estimated 13 trillion won ($11.6 billion) in inheritance taxes and several scenarios involving the method of payment are considered possibilities by experts.
Samsung Group is declining to offer any details on the matter, but it has been reported that the conglomerate could make an official announcement as soon as next week about the tax payment. Samsung is also likely to announce a charitable donation totaling trillions of won to commemorate the late chairman.
Another point of interest is how the heirs will raise the money to pay the taxes and which changes will be made in the web-like governance structure of the country's largest conglomerate, linking Samsung C&T, Samsung Life Insurance and Samsung Electronics.
The chairman passed away last October, leaving behind 19 trillion won in stocks, plus around 3 trillion worth of artworks and real estate. His heirs are expected to opt to pay the inheritance tax over a five-year period after first paying one-sixth of it or around 2 trillion won.
Among his stock assets, the late chairman owned 4.18 percent of Samsung Electronics, 20.76 percent of Samsung Life Insurance, 2.88 percent of Samsung C&T and 0.01 percent of Samsung SDS.
According to law, Lee's widow, Hong Ra-hee, will inherit the largest share, but industry sources believe the chairman's sole son and Samsung Electronics Vice Chairman Lee Jae-yong is expected to take the largest portion to strengthen his grip over the group. Lee is presently serving a prison term for bribery.
The Samsung Electronics vice chairman only holds a 0.7 percent stake in the tech company, but controls the group through his grip over the conglomerate's construction and trading arm Samsung C&T with a 17.33 percent stake. Samsung C&T in turn owns 5.01 percent of Samsung Electronics and stakes in Samsung Life Insurance. Through stakes in those affiliates, Lee is able to exercise management control over Samsung Electronics.
Regarding the source of the funds to pay the inheritance tax, Park Sang-hyun, an analyst at Smartkarma, said the heirs could obtain money from their stock-dividend earnings. But it remains unclear what other sources of funding the heirs intend to tap into.
"The first funding source is an obvious one: dividend income from Samsung affiliates. The family owns a combined 43.2 trillion won worth of stocks in Samsung affiliates. The family received an estimated 1.3 trillion won in dividend income from these stocks last year," Park said. He added, "It is far short of meeting a 2 trillion won annual need."
"This April 30, they have to find an additional 1.3 trillion won. Then, starting next year for 5 years going forward, they will need to secure an additional 1.5 trillion won, depending on the size of Samsung Electronics' annual special dividends. That is why we are hearing that the family is reportedly seeking loans from local banks," he added.
With the late chairman's heirs set to pay the country's biggest-ever amount of inheritance tax, calls are also growing for the country to amend the current inheritance tax rate, which is among the highest for member countries of the Organization for Economic Cooperation and Development (OECD).
Under the law here, the maximum inheritance tax rate of 50 percent is applied when the inherited property is over 3 billion won ($2.7 million). If the deceased is a major shareholder of a large company, the rate rises to 60 percent, which is more than double the average inheritance tax rate of 25.3 percent among OECD member countries.
The government has imposed a higher inheritance tax rate to prevent companies from being privatized by their owner families, but the current system has been criticized for imposing huge pressure on companies and hampering continuity of business.
Industry watchers said the higher tax rate is also causing side effects that harm entrepreneurship.
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