The Future of Samsung's Governance... Variables Including 10 Trillion Won Inheritance Tax and Insurance Business Act Amendments

Lee Jae-yong->Samsung C&T->Samsung Life Insurance->Samsung Electronics Governance Structure
Astronomical Inheritance Tax and Insurance Business Act Amendments as Variables

On the morning of the 26th, reporters are covering mourners visiting the funeral hall of the late Chairman Lee Kun-hee of Samsung Group at the entrance of Seoul Samsung Hospital in Gangnam-gu, Seoul. Photo by Joint Press Corps

[Asia Economy Reporters Oh Hyung-gil and Lee Chang-hwan] With the passing of Samsung Chairman Lee Kun-hee, interest in changes to Samsung Group's governance structure has increased. The business community expects that a significant portion of Chairman Lee's shares will be inherited by Samsung Electronics Vice Chairman Lee Jae-yong. However, massive inheritance taxes and amendments to the Insurance Business Act remain variables.

According to Samsung on the 26th, Chairman Lee held 249,273,200 shares of Samsung Electronics (4.18% stake), 619,900 preferred shares of Samsung Electronics (0.08%), 9,701 shares of Samsung SDS (0.01%), 5,425,733 shares of Samsung C&T Corporation (2.86%), and 41,519,180 shares of Samsung Life Insurance (20.76%). The valuation of Chairman Lee's shares, based on the closing price on the 23rd, amounts to approximately 18.22 trillion KRW.

During the six years and five months Chairman Lee was bedridden, Samsung simplified its governance structure centered around Vice Chairman Lee. Currently, Samsung's governance structure is led by Vice Chairman Lee, following the chain Samsung C&T → Samsung Life Insurance → Samsung Electronics. The business community believes Chairman Lee likely drafted a will to stabilize the management rights that Vice Chairman Lee inherited.

Although the existence of a will has not been disclosed, the scenario that Vice Chairman Lee will inherit a significant portion of Chairman Lee's shares is gaining traction. Even without Chairman Lee's shares, Vice Chairman Lee's control over the group’s governance structure is already somewhat established, and if Chairman Lee's shares are passed on to Vice Chairman Lee, the governance structure could become even stronger.

However, the enormous inheritance tax is a burden. Chairman Lee is the largest shareholder or a special related party of the largest shareholder in four affiliated companies in which he holds shares. All are subject to a surcharge for largest shareholders under the inheritance tax law.

Therefore, the total inheritance tax on the shares of these four affiliates is calculated by applying a 20% surcharge on the total stock valuation, then multiplying by a 50% tax rate, and finally applying a 3% deduction for voluntary reporting, resulting in approximately 10.6 trillion KRW. This means that the heirs, including Vice Chairman Lee, must pay an astronomical inheritance tax exceeding 10 trillion KRW to inherit Chairman Lee's shares.

The business community expects the heirs to utilize the installment payment system for inheritance tax. This system applies an annual interest rate of 1.8%, requiring payment of one-sixth of the amount at the time of reporting and payment, with the remainder paid in installments over five years. LG Group Chairman Koo Kwang-mo also paid 921.5 billion KRW in inheritance tax on assets inherited from Chairman Koo Bon-moo using this method.

Another variable that could change Samsung Group's governance structure is the amendment to the Insurance Business Act being pushed by the ruling party. The current law allows insurance companies to own shares of major shareholders or affiliates up to 3% of total assets based on the 'acquisition cost' to prevent asset loss risks.

However, the partial amendment to the Insurance Business Act proposed by Park Yong-jin of the Democratic Party of Korea in June aims to change the evaluation standard for insurance companies' holdings of other companies' shares from 'acquisition cost' at the time of purchase to 'market value.' Similar amendments were proposed in the 19th and 20th National Assemblies but did not pass. The 21st National Assembly, with a strong ruling party majority, is eager to pass the bill.

If the bill passes, Samsung Life Insurance would have to sell the excess shares exceeding 3% of Samsung Electronics stock it holds, which is 8.5% (508.16 million shares). Including Samsung Fire & Marine Insurance's 1.5%, the total sale volume is expected to exceed 20 trillion KRW.

In this case, the group's governance structure could be shaken. Currently, Samsung Life Insurance is the largest shareholder of Samsung Electronics excluding the National Pension Service. A major reorganization of the governance structure from Vice Chairman Lee to Samsung C&T, Samsung Life Insurance, and Samsung Electronics would become inevitable.

This content was produced with the assistance of AI translation services.