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Governance structure of the Samsung Group
The final inheritance tax for the grieving family that inherited the stock ownership left by the late Samsung Electronics president Lee Kun-hee was confirmed to be 11 trillion won. In addition to the shares, considering the inheritance of real estate such as houses in Hannam-dong, Seoul under the name of former President Lee, the actual inheritance tax that the survivors must pay is expected to exceed 12 trillion won. It is the largest in history in terms of the national inheritance tax.
Who will pay 11 trillion won in inheritance taxes and take the bet?
According to the business community on the 22nd, the inheritance tax on President Lee’s stock, which bereaved family members, such as Vice President Lee, should pay, was set at 11.38.8 billion won. This is the result of assigning an effective tax rate of 58.2% to the ‘market average (18 trillion 9671 million won)’ calculated by balancing the flows from August 24 to December 22, two months before and after of the deceased’s death on October 25. All.
Chairman Lee owns 4.18% of Samsung Electronics (0.08% of preferred shares), 20.76% of Samsung Life Insurance, 2.88% of Samsung C&T and 0.01% of Samsung SDS . Based on the closing price for the day, Lee’s share value is 22.11 trillion won. . The maximum shareholder premium (20%) was added to the legacy of former President Lee, and a maximum tax rate of about 60% was applied.
The size of the estate has been confirmed, but details such as who will inherit the most shares among the legal heirs have not been established. Former President Lee’s legal heirs include his spouse, Hong Ra-hee, former director of the Leeum Museum of Art, his son Lee, vice president, Lee Bu-jin, Hotel Shilla’s eldest daughter, and second daughter, Lee. Seo-hyun, President of the Samsung Welfare Foundation. According to the legal inheritance, Hong Jeon heads up to 1/3 of the total shares of the inheritance and 2/9 children each. Considering the huge amount of inheritance tax and the change in the governance structure due to inheritance of shares, the children will have more shares. It is likely to be inherited. A Samsung official said: “Since the deadline for paying inheritance tax is until the end of April next year, we will consider various alternatives for the remaining period.”
How to pay inheritance tax
No matter how rich you are, it’s not easy to pay 11 trillion won in inheritance taxes at once. Some observers say it is possible to hand over inheritance shares to subsidiaries to reduce the inheritance tax burden, but the possibility is not high as equity issues may arise due to indirect ownership. In the end, there is a high possibility that the legal heir will inherit the participation even at the expense of the tax.
However, to reduce the tax burden, the inheritance tax annuity payment system will most likely be used, which is divided into five years after paying the first sixth of the inheritance tax. However, the amount of money to be paid each year amounts to 1,839.6 billion won. Various scenarios are emerging on how to pay this money, but the prospect that the decision to sell shares of some affiliates and expand dividends is driven by prospect.
The inheritance tax on the shares to be paid by the heirs of the late Samsung Electronics CEO Lee Kun-hee will be confirmed at the close of the stock market on the 22nd. As for the stock market situation on this day, it is expected that the inheritance tax alone exceeds 11 trillion won. The photo is a Samsung office building in Seocho-gu, Seoul. Photo = Yonhap News
Change in governance structure
In this process, it is expected to have considerable influence on the governance structure of the Samsung Group. Currently, Samsung’s governance structure has a link that leads to Vice President Lee Jae-yong → Samsung C&T → Samsung Life Insurance → Samsung Electronics. In fact, under Samsung C&T, which acts as a holding company, Samsung Life Insurance and Samsung Electronics have financial and non-financial affiliates.
The candidates for the sale of the share are Samsung Life Insurance and Samsung SDS. Currently, the largest shareholder in Samsung Life is Chairman Lee, and even selling a stake in Samsung Life does not affect its governance structure, as the position of the largest shareholder changed to Samsung C&T (19.34%). Samsung SDS can also maintain its dominance through Samsung Electronics (22.58%) and Samsung C&T (17.8%).
Efforts to increase dividends for Samsung Electronics and Samsung C&T, which are the largest inheritors, are also expected to continue. After the inheritance, the dividend income of the Samsung owner’s family is around 700 billion won, and if the dividend is increased, the tax burden can be reduced by that amount. In particular, Samsung C&T is expected to transfer its stake in Samsung BiLogics (43.4%) to Samsung Electronics to increase its dividend income and purchase a stake in Samsung Electronics (6.8%) as the product is sourced.
The photo shows Vice President of Samsung Electronics Lee Jae-yong in 2010, Hotel Shilla Lee Bu-jin and Lee Seo-hyun, President of Samsung Welfare Foundation, and President Lee Kun-hee at CES2010. Photo = Yonhap News
Samsung C & T’s status in the group is likely to grow
Above all, since Vice Chairman Lee controls the entire group through Samsung C&T, the status of Samsung C&T will inevitably increase in the future. It is said that there is a high possibility of change in the governance structure, centered on Samsung C&T. In addition, the revision of the insurance industry law currently being promoted by the ruling party is also a large variable. It is also known as the ‘Samsung Life Act’ because it is the key to reducing Samsung Life’s stake in Samsung Electronics. If this law exceeds the threshold of the National Assembly, about 6% of Samsung Life’s 8.51% stake in Samsung Electronics must be sold. As for Samsung, to maintain control over Samsung Electronics, one of its affiliates must own this stake, but Samsung C&T is the only one that is practically possible.
However, in this case, the ratio of Samsung Electronics’ share price to total assets exceeds 50%, which is subject to the requirement to become a holding company. Eventually, Samsung’s conversion to a holding company, which was closed in April 2017, is predicted to be able to resume. As Vice President Lee professed in May last year that he will not cede management rights to his children, there is also the possibility that, in the long run, it could be transformed into a decentralized decision-making system rather than a decision-making system decision-maker centered on the owner.
Kim Dong-wook reporter [email protected]
You can also watch the Naver Et news edited by Hankook Ilbo.
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