SEOUL—South Korea, which has one of the world’s toughest inheritance taxes, is unfazed by the way it calculates inheritance taxes on the families that run the country’s largest conglomerates.
A judge in Seoul on Thursday dismissed a lawsuit filed by LG’s founding family seeking to recover about 1% of the $735 million in inheritance taxes it paid to the government following the death of former chairman Koo Bong-moo in 2018. .
Inheritance tax is a hotly debated issue in many developed countries. But the issue has received increased attention in South Korea, where the ultra-wealthy have ties to dynastic conglomerates and pass on ownership and wealth to their heirs.
The wife, two daughters, and son of Mr. Koo, who succeeded his father as LG chairman, have filed a lawsuit challenging the way the South Korean government calculates the value of certain LG shares transferred to his family. According to the lawsuit, the tax bill was higher than it should have been, and after recalculation, the family was set to recover about $740,000.
The Seoul Administrative Court cited the local tax law and determined that the government’s assessment was justified. LG, one of South Korea’s largest business empires, makes electric car batteries, home appliances, and displays. LG, the conglomerate’s holding company, has not commented on the Inheritance Tax Court’s ruling.
When LG’s Mr. Koo passed away, his total assets were about 2 trillion won, or about $1.5 billion.
According to the Tax Foundation, a Washington-based think tank, South Korea has an inheritance tax rate of 50%, compared to only Japan’s highest rate of 55% among Organization for Economic Co-operation and Development countries. In contrast, the US and UK tax rates are 40%, compared to the OECD average of 15%.
Inheritance tax rates in South Korea can rise to up to 60% if the inherited assets are shares in a company in which the family holds a majority stake, which is a direct result of the family-owned conglomerates that dominate South Korea’s economy. That applies to many. Families must pay for up to five years.
After former chairman Lee Kun-hee passed away in 2020, Samsung’s founding family was hit with an inheritance tax bill of more than $10 billion. The payment was calculated after the late president’s family donated 23,000 pieces of art. Picasso and Dallis lowered the value of taxable assets. In January, a trust for some surviving members of the Lee family sold about $2 billion in shares in Samsung Electronics and other affiliates through a block deal to make the latest payments.
In recent years, the family of the late founder of South Korean gaming giant Nexon has paid about $3.5 billion in inheritance taxes, some of which was paid in company stock. The founding family of South Korean pharmaceutical giant Hanmi Pharmaceutical faces an inheritance tax bill of about $400 million.
Inheritance tax is a perennial issue in South Korea, where generational succession is the norm for the country’s largest chaebols. Supporters of the current level of inheritance tax argue that it is a necessary measure to prevent worsening wealth inequality and a principle that must be upheld.
However, there is a perception that lowering inheritance taxes, as proposed by some corporate lobbyists and tax experts, could benefit South Korea’s ultra-wealthy and upset a broad swath of the public. , Kim Kyung said, is a sensitive political issue for the South Korean government. -jun, president of CEO Score, a corporate research company in Seoul.
“Taxes are certainly necessary, but excessive taxation can make it very difficult for business owners to operate their businesses,” he said.
Please email Jiyoung Son at jiyoung.sohn@wsj.com.
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