[Opinion] Is the 'Korean Version of Wallenberg' Too Far-Fetched?

원본보기 아이콘

There was a notable business news story last week: ‘The second son of the Hyosung family establishes a public interest foundation and donates inheritance assets… with the consent of co-heirs.’

This article concerns former Hyosung Vice President Cho Hyun-moon, who is currently in conflict over succession issues with his co-heirs?his older brother Cho Hyun-joon, Chairman of Hyosung, and his younger brother Cho Hyun-sang, Vice Chairman of HS Hyosung.

Some interpreted that Cho Hyun-moon is pushing this move to receive inheritance tax relief. However, he clarified, “Even if the cooperation of co-heirs is not achieved and I cannot receive inheritance tax relief, the foundation will be established as planned.”

Cho Hyun-moon inherited 3.37% of Hyosung TNC shares, 1.50% of Hyosung Heavy Industries, and 1.26% of Hyosung Chemical from the late Honorary Chairman Cho Seok-rae, who passed away in March. The inheritance tax burden must have been significant. Moreover, there are numerous cases where difficulties arise due to limits on inheritance and gift tax exemptions even when donating to public interest foundations.

Representative cases include that of the late Dr. Hwang Pil-sang, founder of Suwon Gyotcharo, who donated 90% of Suwon Gyotcharo shares (market value 18 billion KRW) and about 22 billion KRW in cash to a scholarship foundation around 2003, but was imposed 14 billion KRW in gift and additional taxes; and the late Honorary Chairman Ham Tae-ho of Ottogi, who donated 30,000 Ottogi shares (0.87%) to welfare foundations, museums, and churches in 2015, but was later imposed 32.4 billion KRW in gift tax because the donated shares were not aggregated with 170,000 Ottogi shares (4.94%) previously donated to another public interest foundation.

Currently, the inheritance and gift tax exemption limits for public interest foundations are set at 5% of contributed domestic corporation shares for foundations affiliated with mutually invested business groups, 10% for general public interest foundations, and 20% for public interest foundations with charitable, scholarship, or social welfare purposes. The problem is that these limits are an ‘old suit and hat’ established to prevent indirect corporate control during a time when there were no voting rights restrictions under the Fair Trade Act. The body (donation scale) and head (donation purpose) have grown, but we are forced to wear ill-fitting clothes and hats.

Therefore, South Korea ranked 79th last year in the World Giving Index (WGI) published annually by the UK’s Charities Aid Foundation (CAF). This is a decline over ten years since ranking 45th in 2013.

To promote donations, ensure legal system consistency, and prevent the emergence of second and third cases like Suwon Gyotcharo and Ottogi, why not actively consider raising the inheritance and gift tax exemption limits for public interest foundations?

Specifically, I propose unifying the exemption limit to 15% when public interest foundations (whether general or affiliated with mutually invested business groups) exercise voting rights on contributed shares, and 30% when they do not. For foundations affiliated with mutually invested business groups, the voting rights limit is already 15% under the Fair Trade Act, so this aligns with legal system consistency. Also, when voting rights are not exercised, there is no risk of indirect corporate control or governance distortion, so the limit should be progressively raised and unified.

Of course, there is the original sin of chaebols abusing public interest foundations for indirect corporate control purposes. Instead of tightening preemptive controls, I also suggest strengthening post-management such as resource usage, committee composition, and operation. Public interest foundations can be a vital channel for promoting donations and healthy business succession. Examples include the Wallenbergs (Sweden), Rockefellers (USA), and Volkswagens (Germany), who have caught two rabbits with one stone through foundation establishment. Is dreaming of a ‘Korean Wallenberg’ too far-fetched?

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