Attendees stand under a tunnel wall of LG OLED 4K TVs during the 2017 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S. (Photographer: Patrick T. Fallon/Bloomberg)

$630 Million Death Tax Keeps LG Heir Out of Billionaires’ Club

(Bloomberg) -- LG Chairman Koo Kwang-mo would be a billionaire in most countries.

The 40-year took the helm of LG Group, one of South Korea’s largest conglomerates, after his father died in May. He became the largest shareholder of LG Corp., the holding company of the global tech and chemical powerhouse that produces myriad products, including vacuum cleaners and smartphones, when he inherited his father’s 8.8 percent stake, according to a Nov. 2 filing. Koo now owns 15 percent of the company, valued at $1.55 billion.

$630 Million Death Tax Keeps LG Heir Out of Billionaires’ Club

But this is Korea, where the inheritance tax is among the world’s highest. And, in what is perhaps a rare occurrence for the nation’s moneyed elite, the family plans to pay the bill in full.

Death taxes can be as high as 50 percent in South Korea when inheritance exceeds 3 billion won ($2.7 million). An extra 20 percent tax follows when passing down shares owned by the largest stakeholder.

$630 Million Death Tax Keeps LG Heir Out of Billionaires’ Club

That means Koo faces an inheritance bill of more than $630 million, according to calculations by Bloomberg. Along with his two sisters, who got a 2.5 percent stake in LG Corp. from their late father, they’re collectively liable for more than 900 billion won.

The family plans to pay the full tax over the next five years, while the first payment will be made by the end of this month, LG Corp. said in a statement. The exact amount will be decided by the tax office, a spokesman said, declining to elaborate on how the Koos will afford the payment.

Koo is expected to get a loan against his stakes in the business, said Park Ju-gun, president at corporate research firm CEOScore in Seoul. There’s also a possibility that LG Corp. and its key affiliates such as LG Electronics Inc. and LG Chem Ltd. could raise dividends, he said.

The Koo family, in a move seen as preemptive ahead of the government’s strengthened rule on intra-group trading, released a plan last month to sell its 19.9 percent stake in Pantos Logistics, a closely held unit of LG Group. Chairman Koo will sell his 7.5 percent stake to Mirae Asset for about 100 billion won.

While the amount will mark the largest death-tax payment made in the country, it’s a rare move by the country’s chaebols to fully accept the burden. Some of the country’s wealthiest families have come under public scrutiny for the ways they’ve skirted inheritance taxes. Such maneuvers involve charity foundations and setting up new businesses in their children’s names.

As succession looms at major chaebols such as Samsung and Hyundai, the resulting inheritance tax is an immediate concern for heirs. Samsung Electronics Co. Chairman Lee Kun-hee, who has been incapacitated since a 2014 heart attack, owns Samsung shares worth almost $16 billion. His son, Jay Y. Lee, will be on the hook for billions of dollars in taxes in order to put his hands on the holdings. Euisun Chung, Hyundai Motor Group’s heir-apparent, faces a similar challenge.

“Unlike other chaebol groups, which increased founding families’ stakes through bypassing the law in restructuring process, there are no such options for LG, which established a holding company structure in the early 2000s,” said CEOScore’s Park.

©2018 Bloomberg L.P.