Samsung’s Founding Family Faces a $7 Billion Estate Tax

(Bloomberg Businessweek) -- The lives of the rich and famous are news fodder everywhere. But in South Korea it’s an expected death that has the country enthralled. The country’s wealthiest person, the 77-year-old chairman of tech giant Samsung Electronics Co., has been incapacitated since a 2014 heart attack, and the local press frequently speculates about his health: “He’s Breathing,” “Death Rumor,” “Who Has the Details?” In court two years ago his son said, “When the chairman was alive,” then corrected himself: “When the chairman was healthy.”.The reason for the obsession? When Lee Kun-hee dies, his heirs will face an estate tax of almost $7 billion, and paying it may complicate the family’s control of the Samsung conglomerate. Lee’s net worth is about $15 billion, according to the Bloomberg Billionaires Index, and his beneficiaries would likely have to sell some of the inheritance to cover the tax—diluting their stake in Samsung. The company dismissed rumors about the chairman, saying he is in stable condition and not on life support, and that when he dies the family will pay all the taxes it owes..South Korea’s levy of 50% on estates of more than $2.5 million is the second-highest in the Organization for Economic Cooperation and Development, after Japan. (In the U.S. the rate is 40%, but it kicks in only above $22 million.) The Samsung empire includes 62 companies valued at more than $300 billion. Although Lee owns large chunks of some of the businesses—including 4.2% of Samsung Electronics—they’re not big enough to give him control of the conglomerate. The family depends on informal ties to executives who run related companies, and a lot of that soft power may dissipate with Lee’s death. “The family is dragging their feet over what to do with his wealth and shares,” says Chung Sun-sup, chief executive officer of business researcher Chaebul.com..Lee’s son, Jay Y. Lee, is one of four vice chairmen at Samsung Electronics, but so far he lacks the stature his father earned over decades at the top table in Korean business. There’s no official corporate entity linking all the companies; they’re connected by a web of cross-shareholdings that Lee Kun-hee was masterful at using to keep a grip on the entire group..Critics say the Lees have overstepped in their efforts to maintain influence. In 2009, Lee Kun-hee was found guilty of transferring money to his children through illegal bond sales. And Elliott Management Corp. sued the South Korean government for backing a 2015 merger between two affiliates that increased family control over Samsung Electronics. A lower court ruling in a related case landed Jay Y. Lee in prison for a year. While he’s denied wrongdoing and is appealing the decision, the family remains controversial in Korea. “It’s just deeply rooted greed,” says Lee Sang-gyu, a leader of the pro-labor Minjung Party, who recently led dozens of protesters to a Samsung office carrying banners saying “Accounting Fraud Criminal” and “Lock Up Jay Y. Lee” and an effigy of the executive behind bars..The benefits of Korea’s miraculous growth in the second half of the 20th century went disproportionately to the chaebol, large family-run conglomerates, an issue inheritance taxes are meant to redress. But the Samsung case is about merit as well as money, says Ahn Chang-nam, a tax professor at Kangnam University. “Would it be fair if Jay Y. Lee started from 99 meters in a 100-meter race when you’re starting from zero?” Ahn asks. “Management should be left to professional managers.”.To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Pat RegnierBret Begun.©2019 Bloomberg L.P.

Samsung’s Founding Family Faces a $7 Billion Estate Tax

Lives of rich and famous are news fodder everywhere. But in South Korea it’s an expected death that has the country enthralled.

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