Owner Family Needs Cash to Pay Inheritance Tax
Samsung Group affiliates are expected to increase their dividend payments to a record-high level with regard to Samsung Electronics’ three-year plan to that end and the inheritance tax after the death of chairman Lee Kun-hee. The three-year plan is scheduled to be finalized this year. Samsung Electronics is planning to release a new dividend payment plan in January next year.
At present, the late chairman owns 4.18 percent of Samsung Electronics, 20.76 percent of Samsung Life Insurance and 2.9 percent of Samsung C&T. The total equity value is approximately 18 trillion won and the inheritance tax is about 10.9 trillion won. This means the owners of the group need to keep as much cash as possible and more dividends from Samsung Group subsidiaries is essential.
How the shares will be bequeathed is currently the most important factor regarding the governance structure of Samsung Group. The owner family already handled the matter and is about to make an announcement. According to Samsung, he left no will. In that case, his spouse is supposed to receive one-third and his son and daughters, that is, Samsung Electronics vice chairman Lee Jae-yong, Hotel Shilla president Lee Bu-jin and Samsung Welfare Foundation director Lee Seo-hyun are supposed to receive two-ninths each. In any case, the largest portion of the late chairman’s Samsung Electronics shares is likely to go to his son, who is leading the most important subsidiary in the group.
In the National Assembly, an amendment to the Insurance Business Act is currently under discussion. If the bill is passed, affiliate companies’ shareholding in Samsung Electronics will become much lower. The family needs to increase its shareholding to keep its management rights and this is another factor that can lead to more dividends. Last year, the family received 750.3 billion won in dividends. The amount for the following year is likely to substantially exceed it.
According to the current law, the family can reduce the tax by partial contribution to a welfare foundation. Samsung Group has four such foundations, each can have up to 10 percent of issued shares and three out of the four currently own less than 5 percent of subsidiary shares each. Even the late chairman’s Samsung Life Insurance shares amounting to 20.76 percent can be divided with the foundations.
This is a less likely option, though. The vice chairman promised not to do so in as early as 2015. In addition, the South Korean government is working on an amendment to the Monopoly Regulation and Fair Trade Act so that no voting rights can be exercised with welfare foundations’ subsidiary shares.