[Expectations for the 22nd National Assembly] 94% of Companies Say "Inheritance Tax Should Be Eased for Stable Business Management"

Highest Inheritance Tax Rate in Korea, Ranked 1st in OECD
Government Plans to Reform as Estate Acquisition Tax
Legislative Process Required in National Assembly... Preliminary Discussions Possible

It has been confirmed that our companies are 'absolutely in favor' of reforming the inheritance tax. In a survey conducted by Asia Economy targeting 50 major companies in connection with the 22nd general election, 9 out of 10 respondent companies (94%) answered "in favor" when asked whether they supported the reform of the inheritance tax. Only 6% opposed it. This survey revealed that inheritance tax is one of the biggest concerns companies face and an important issue in our society.

The most common reason for needing to reform the inheritance tax was 'for the stable management of companies,' accounting for 72%. This is interpreted as companies recognizing the need for change in the reality where they make decisions that can affect company ownership and management, such as selling shares to pay large inheritance taxes. Following this, 28% expressed the opinion that inheritance tax should be reformed to 'strengthen shareholder returns,' and 2% had other opinions, such as 'improving the application of punitive taxation and ensuring equality under the law.'

Under our tax law, the highest inheritance tax rate is 60% of the total estate, mainly applied to large business owner families with substantial remaining assets. This inheritance tax rate has been criticized as too high. It is also the highest among OECD member countries, which some view as inconsistent with global trends. The country with the second-highest inheritance tax rate after South Korea is Japan, at 55%.

The highest inheritance tax rate inevitably places a heavy burden on business owner families. Sometimes, it even affects shareholding structures and acts as a significant variable in overall company management. Business owners actively use the 'installment payment' system, which allows inheritance tax to be paid over a certain period, and pay the tax with funds raised by selling shares of their own or affiliated companies. The shares held by business owners are generally substantial in volume and are often sold through block deals, which are large-volume trades outside regular trading hours.

Recently, it drew attention that Lee Boo-jin, CEO of Hotel Shilla, sold 5,247,140 shares of Samsung Electronics through a block deal via Hana Bank to pay inheritance tax. Earlier in January, she also sold shares of Samsung Electronics and affiliates such as Samsung C&T, Samsung SDS, and Samsung Life Insurance through block deals for a total of 558.6 billion KRW. On the 4th, LG Group's chairman Koo Kwang-mo and other family members lost a first-instance lawsuit against the tax authorities seeking a reduction of part of their 990 billion KRW inheritance tax. At the end of last month, following the passing of Cho Seok-rae, honorary chairman of Hyosung Group, the Hyosung family, including eldest son Cho Hyun-joon and his brothers, is estimated to have to pay at least 400 billion KRW in inheritance tax. The business community is showing interest in how they will make the payments.

Reforming the inheritance tax is desired by economic organizations and is also one of President Yoon Suk-yeol's election pledges. However, since reform must pass through the National Assembly, the burden on companies is inevitably significant. Given that the opposition party, which views inheritance tax relief as wealth inheritance, won a landslide victory, it is expected that accommodating corporate demands will not be easy.

The government’s specific plan has not yet been announced. The Ministry of Economy and Finance announced last June that it would reform the tax law by changing the current inheritance tax system, which applies estate tax methods, to an inheritance acquisition tax system, and is currently collecting information on overseas advanced countries and gathering social opinions. Estate tax calculates tax by applying the rate to the entire inherited property and then the heirs pay the tax divided by their shares. In contrast, inheritance acquisition tax calculates and collects tax by applying the rate only to the portion inherited by each heir. The Ministry of Economy and Finance is expected to prepare detailed provisions of the bill and submit it to the National Assembly during the tax law revision announcement in July, proceeding with the legislative process. There is also a possibility of prior consultation with opposition parties, including the Democratic Party, which holds the most seats.

Kim Tae-hoon, honorary chairman of the Lawyers for Human Rights and Unification of Korea (Hanbyun) and a lawyer, said, "(The inheritance tax rate) is one of the improvement tasks facing South Korea and is a very urgent issue as it is a form of punitive taxation," adding, "It is a matter that should be discussed at the national level in the National Assembly regardless of political factions."