[The Editors' Verdict] The Lesson from AstraZeneca

Published 15 Oct.2021 13:02(KST)

There is now a company very well known in Korea for its COVID-19 vaccine. It is AstraZeneca, which succeeded in developing the COVID-19 vaccine in collaboration with the University of Oxford in the UK and commercialized it. However, AstraZeneca, a British company, was originally a Swedish company. In the late 1990s, Sweden's Astra merged with the UK's Zeneca, creating the company AstraZeneca in the UK.

The reason Astra was sold to a British company was because Sally Kistner, the wife of the founder and the largest shareholder of Astra at the time, passed away, resulting in inheritance taxes exceeding the inherited assets. To pay the inheritance tax, which was as high as 70%, the heirs had no choice but to sell the company shares they owned. IKEA, a famous Swedish furniture company that entered Korea, moved to Switzerland due to excessive inheritance taxes but returned to Sweden in 2014 after Sweden abolished inheritance tax.

Sweden was once known as the best welfare state, but to sustain it, high taxes had to be imposed. High tax rates caused companies to leave, leading to economic difficulties and crises. Eventually, Sweden changed direction to be more business-friendly by abolishing inheritance tax altogether. An analysis of the results 10 years after abolishing inheritance tax concluded that the tax revenue from corporate taxes paid by companies returning to or starting up in Sweden, as well as income taxes paid by workers in those companies, far exceeded the revenue from inheritance taxes. This realization came only after tremendous trial and error and costly lessons.

The situation in Korea is not much different. The highest inheritance tax rate for business succession in Korea is 60%, more than double the average of OECD countries. Although the nominal highest inheritance tax rate is 50%, when adding the 20% premium valuation on shares held by major shareholders, the actual inheritance tax rate rises to 60%, ranking first among OECD countries. Advanced countries encourage business succession through various support systems. Korea also provides deductions of up to 50 billion won when small and medium-sized enterprises pass on their businesses. However, strict conditions such as maintaining employment for seven years are imposed. It is said that after three successions in Korea, 100% ownership shrinks to about 7%.

In Germany, which has many long-established companies, the nominal highest inheritance tax rate is reduced to 30% for business succession. By utilizing business succession deductions, the actual inheritance tax burden can be lowered to 4.5%. Japan, which has the second most long-established companies, has also introduced systems to defer or exempt inheritance tax on business succession. Among OECD member countries, inheritance tax rates are 40% in the US, 30% in Germany, 20% in the UK, and 0% in 13 countries including Australia and Sweden.

In Korea, many view inheritance negatively as the passing down of wealth and believe that inheritance tax should be high and that management should be handled by professional managers rather than owners, but this is a misconception. In the past, Kia Motors was briefly praised for being managed by professional managers without an owner, but later it was revealed that the company's management condition was poor. In times like today, when the future is hard to predict and situations change rapidly, professional managers cannot make bold decisions requiring large-scale investments.

The shares inherited by the largest shareholders of companies are not strictly disposable income. Therefore, countries like Australia and Sweden do not impose any inheritance tax on inherited shares but tax capital gains when the shares are sold. Since abolishing inheritance tax actually benefits the national economy, Korea should actively consider introducing capital gains tax on the disposal of inherited shares rather than imposing heavy inheritance taxes.