Samsung heir Lee Jae-yong seeks to pay inheritance tax in 5-year installments

Inheritance of wealth from second-generation owner of Samsung Group to third-generation heirs centered on Samsung Electronics Vice Chairman Lee Jae-yong Lee is accelerating, ahead of the listing of Cheil Industries (formerly Samsung Everland) on December 18, after the recent listing of Samsung SDS. Amid this development, Samsung Group is reportedly seeking to find a way for Vice Chairman Lee to pay inheritance taxes in five-year installments, elevating the business community’s interest in details.

A source in the business community said on Sunday, “I understand that Samsung is considering transferring Samsung Electronics Chairman Lee Kun-hee’s stake in Samsung Electronics to Samsung Welfare Foundation and Samsung Culture Foundation, but shelved the plan,” adding, “We understand judging that annual levying and annual payment is the most practical alternative, the group contacted the National Tax Service early this year to inquire about the measure.” Annual levying and annual payment is a legal apparatus that is designed to ease excessive tax burden on the tax payer due to inheritance and wealth transfer.

Chairman Lee holds stakes in Samsung Electronics, Samsung Life Insurance, Cheil Industries, Samsung C&T, and Samsung SDS, and Vice Chairman Lee Jae-yong can secure control over the entire business group only when it takes over stakes in the conglomerate’s core affiliate Samsung Electronics, and Samsung Electronics’ majority stakeholder Samsung Life Insurance.

The senior Lee has 3.38 percent (4,985,464 shares) stake in Samsung Electronics and 20.76 percent (41,519,180 shares) in Samsung Life Insurance. Considering that the current real tax rate under the inheritance tax act and the transfer tax act is set at around 65 percent, the junior Lee will have to pay about 7 trillion won (6.36 billion U.S. dollars) to inherit Chairman Lee’s stakes in Samsung Electronics and Samsung Life Insurance, which are worth about 11 trillion won (10 billion dollars) under the current value. However, if the vice chairman pays the taxes over a five-year period, his tax burden likely be eased significantly.

Steady decline of Samsung Electronics shares in recent months is another factor that helps ease the junior Lee’ burden over inheritance tax. When the company’s stock was worth 1.5 million won (1,360 dollars) per share in December last year, the amount of inheritance tax on stakes in Samsung Electronics alone almost reached 4.5 trillion won (4.09 billion dollars), but as the share price fell to below 1.2 million won (1,095 dollars) lately, his inheritance tax alone declined by about 1 trillion won (910 million dollars).

Meanwhile, according to Chaebol.com on Sunday, the value of Vice Chairman Lee’s holding of listed shares amounted to 3.85 trillion won (3.50 billion dollars) at Friday’s close due to the listing of Samsung SDS, as he ranked atop in stockholding among third-generation of Korean chaebol (family controlled conglomerates) by beating over Hyundai Motor Vice Chairman Chung Ui-sun (worth 3.83 trillion won or 3.48 billion dollars).