They're paying over 5 years, so assuming equal payments, roughly $2.16 billion per year. The 2021 national budget is estimated at $469.8 billion[1], so about 0.5% of the budget.
I see another comment here questioning whether the South Korean government can really be trusted to be good stewards of that much money. I don't know. Samsung has certainly done a lot for the country. Maybe the kids would do just as much good as the father. Let's not pretend government has done nothing for them, though. The Samsung family today hasn't starved in a famine or been executed by a despot because of the actions of governments. My old battalion, the 3/8 CAV, was nearly completely wiped out in a single day back in 1950 in Unsan trying to ensure South Korea was able to exist at all.[2] This was the single bloodiest day in 1st CAV history.
While this link is getting traffic there are no written details in it (you have to watch the video). For those curious here are some more informative articles:
Last time I heard about this, there was some south koreans explaining this is very not nice, that the laws are silly, and can be weaponized.
For example you can gift someone a expensive building right before your death, because when you do die, they will be forced to pay so much inheritance tax, that they would have to sell the building, since selling the building is quite hard, it is likely the person will just go bankrupt, or go to jail.
EDIT: I misremembered something. The gift wasn't before death, it was on the will. ie: person die, and "target" inherits some expensive crap he can't sell.
That seems very far-fetched. For one, you can refuse gifts. Furthermore, I'd assume that the tax is based on fair market value, and if they can't sell the building because no one wants to buy it, doesn't that mean that the market value is $0?
I don't know how it works in South Korea but in the US, appraisals don't require having to sell the building. Similarly, for insurance purposes, they need to determine a value without having to sell the building.
The idea is that you'd have to pay inheritance tax on the value of the building. The only way for someone without wealth to pay that would be to sell the building. The sale of an industrial site could take years, during which you'd owe a bunch of taxes.
The tax man will put a lien on the building and get their money when the building sells. This idea that being given billions of dollars (as the Lee family was) is somehow a bad thing or has downsides is just ludicrous propaganda.
For any billionaires out there, if you have unwanted buildings or want to punish me with a large tax bill, I will accept the punishment. Call me maybe!
Oh I see. I think I misunderstood what the original comment was saying. There shouldn't be a need to sell the building to appraise its value but right, the new owner might have to sell it to be able to pay the tax if they have no other means to pay it.
The Samsung family have been engineering this for about two decades. Lee Kun-hee was convicted twice for stuff relating to this.
The issue they have is retaining control over Samsung whilst having to pay inheritance tax. This is why the stock price rose significantly when Lee actually "died", he obviously legally died before that point the coverup was to maintain control over Samsung, because it looks like they have finally lost control.
So yes, these laws are taken pretty seriously.
Btw, the thing about the gift is true in most countries. The reason why should be obvious: if you could just gift before someone dies then no-one would pay inheritance tax. It is usually a few years: so if you receive a gift and the granter dies within a few years then it is subject to inheritance tax.
I don't know about other countries, but this is one area where the US tax code makes sense. Gifts beyond a certain value ($15,000/recipient-year) are reported. You then have an $11.5M lifetime exception for paying taxes on further gifts (2020 number). When your estate goes to pay the estate tax, it also has the same exemption as the lifetime gift tax, and anything you filed against the lifetime gift tax exception is deducted from what you are allowed to claim against the estate tax exemption.
In other words, the only (federal) tax benefit gift giving can provide is $15,000/recipient annual exemption, which is inherently limited.
But that doesn't make any sense. The building should have to be sold first before appraising its value. Non-withstanding the difficulty of timing your own demise, I think you could at least reject the very dubious gift at least?
Generally the gift tax rate is comparable to the estate tax rate to avoid this loophole. From a quick Google search it seems the gift tax in South Korea can be up to 50%.
Seems excessive, how well is the Korean government in stewarding public resources and identifying areas of the economy to direct capital? Do they have a history of being the proper stewards of this money than a private person?
I have no idea how efficiently the Korean govt distributes capital, but there are other reasons inheritance taxes are a good thing. Primarily because they limit the concentration of generational wealth in the 0.1%.
The aggregate outcome of government taxation is as a deterrent to sitting on piles of cash that year. Most fiscal policy via taxation is incentivizing the private property owner to create certain kinds of transactions in the economy, and if they fail to do so then the government runs a calculation on the remainder.
Thats the outcome whether any individual representative or tax policy expert would say that. The private persons operate within the existing world and have no utility in making an opinion on the purpose of tax, only reacting and playing within the system.
As such, it is surprising then that this family has not created transactions that would mitigate or nullify the state’s claim on their property.
According to the Korean economist Ha-Joon Chang, the Korean government (or rather the dictator Park Chung Hee) is directly responsible for a lot of the success of the large Korean companies like Hyundai and Samsung.
It's been a while since I read the book (Bad Samaritans I think it's called), but I believe he offered them large government backed loans to move out of palm oil production and into more profitable areas like semiconductors.
I'm not sure about the current situation, but I believe the loans were maintained for a long time to ensure a certain level of government control over the large Chaebols.
Most of the early stuff probably would have been wound down during 1998 when the Asian Financial Crisis brought down Daewoo and the IMF had to stabilize the government’s spending.
I would look at what the Lee family has done at Samsung. How well did they steward capital? So well, that the share price rose significantly when Lee Kun-hee actually died, and it looked like they would finally lose control.
Kun-hee seemed like a very odd guy (there are videos online, people who posted this in SK got picked up by the NIS, of him having orgies with prostitutes). Jae-yong is less offensive but has a reputation as an incompetent. Success came in spite of their leadership, not because of it (the mobile business, in particular, seemed totally accidental...central office actually tried to stop the US mobile business growing).
Inheriting wealth doesn't mean you inherit talent.
Thanks! Is there any percentage of tax to the Korean government where your answer would change? It seems everything you wrote is true whether the tax is 1%, 10%, 30%, or the 50% that occurred here, let alone greater amounts.
Is there a different outcome of the distribution of this money that you would support as well?
It seems the primary constant is that this family of directors should not steward it.
As an outside observer, not from Korea, I'm the opposite of bothered that a wealthy person had orgies with prostitutes. That wouldn't be an example of odd to me, it wouldn't be a euphemism for another stronger word, and it would have no bearing on my opinion of whether they get a haircut on their estate.
This is useful context as nobody else has replied yet.
No, my point is that having a high inheritance tax leads to improved efficiency of capital markets. The Lee family have relied on literally illegal manoeuvres (they rigged a shareholder vote on an subsidiary acquisition) to maintain control, it is best that a company is guided by economic motives and not dictatorship by minority groups (again, the cost to Samsung has been substantial, that is why the company has pretty much always traded at a heavy discount).
I would read more about Kun-hee...the issue with the orgies is not moral judgement, the issue is that it paints a picture of someone who has a lot of other stuff going on: he spent almost no time at work (reportedly, he was obsessed with films and spent 95% of his waking time comatose watching films), he made others treat him as essentially a God...which, tbf, he basically was in SK...he was convicted of serious crimes twice, he oversaw massive political corruption (he gave literally tens of millions to individual politicians, his total bribes are probably in the billions), he gave impromptu incoherent rants that lasted multiple days that senior execs had to attend, no-one was allowed to make eye contact or look at him whilst their eye level was higher than his, factory workers weren't allowed to park within eyesight of his office, anyone who met him had to eat a mint before they spoke to him...this is just a small subset of the crazy shit...it is always funny to me that people will abandon all logic in order to reflect in their own self-regard (the reason why people say having prostitutes with orgies doesn't matter is because they want other people to know they are very liberal and forward-thinking...if you actually care about making money, it is difficult to think of a worse sign).
His comatose film obsession is just as detrimental to his ability to make money as spending too much time with illegal sex workers. The commonality would be addiction, or more specifically neglecting other obligations. If neither of those things caused one to neglect other obligations, then there is nothing liberal and forward-thinking about not caring about the activity.
...I have come across quite a few execs with a prostitute habit...in no cases has it been unrelated to their job performance (and btw, I live somewhere where it is legal...it is usually correlated to either sex addiction and/or other addiction/compulsive behaviour).
Not sure why the assumption is that governments are incompetent until proven otherwise. Capital allocation inside corporations is more opaque and byzantine; I don’t know where this idea of corporations being more efficient comes from because I don’t think anyone that’s worked at one would say it’s efficient.
This is a drop in the bucket compared to their national budget, which is 493 billion this year. Billions are peanuts at the scale of a national government.
I see another comment here questioning whether the South Korean government can really be trusted to be good stewards of that much money. I don't know. Samsung has certainly done a lot for the country. Maybe the kids would do just as much good as the father. Let's not pretend government has done nothing for them, though. The Samsung family today hasn't starved in a famine or been executed by a despot because of the actions of governments. My old battalion, the 3/8 CAV, was nearly completely wiped out in a single day back in 1950 in Unsan trying to ensure South Korea was able to exist at all.[2] This was the single bloodiest day in 1st CAV history.
[1]: https://www.koreatimes.co.kr/www/nation/2020/09/367_295260.h...
[2]: https://1cda.org/history/history-8cav/