Evolving Art and Empire as Samsung’s Lee family faces $ 12 billion inheritance tax bill

Jean-Michel Basquiat was inspired by black boxers, African sculpture and racial discrimination when he produced “Untitled (Black Figure)” in 1982, one of the many masterpieces in which he innovated in art.

That same year, Lee kun-hee steered Samsung’s top engineers to mastering how to transfer millions of metal-oxide-semiconductor transistors onto a single computer chip, a new process that would help support major advances in modern technology.

If the American painter and the Korean industrialist, who died in October 2020, were worlds apart, they have become inextricably linked. The striking canvas of Basquiat is part of the movable property of a large estate, Lee’s wife and three children plan to separate as they make plans to pay an estimated $ 12 billion inheritance tax bill.

The bill, which stems from South Korea’s 60% inheritance tax, the highest in the OECD, exposes the rapidly growing divide between the country’s ultra-rich and ordinary citizens.

“They took advantage of society to get so rich,” said Chang Sung-ja, 56, in the southern city of Suncheon who, with her husband, drives people home after drinking. “People like us can’t even imagine the amount of their wealth.”

Lee, the son of the founder of Samsung who ran South Korea’s largest company, has long been revered as a coxswain whose successes helped lift an impoverished nation from the ashes of brutal warfare and turn it into a technological powerhouse. .

But for many South Koreans today, the wealth of the Lees – and that of others chaebol the families that dominate the county’s business landscape and wield strong political influence – have become divisions. The elite life of privilege and excess stands in stark contrast to the continuing battle of most workers who are struggling to make ends meet.

Despite the impending tax deadline, neither the family nor Samsung have commented on how the tax will be paid – beyond privately insisting that money owed will be accounted for in full and on time. The imprisonment in January of Lee jae-yong, the son of the late president who now runs Samsung, on bribery charges linked to his own estate has further complicated the family’s public relations problems.

The most likely scenario is that the payments will be spread over five years under a complex structure that will reshape the family fortunes, analysts and commentators say.

Park Ju-geun, director of CEO Score, a research firm, said the upfront payments were to be made through large bank loans using their holdings in Samsung units as collateral.

Since the wealth of the late patriarch is mainly tied to a network of holdings in Samsung group companies, different listed units are also expected to pay higher dividends to help consolidate the family’s cash position.

But towards the end of the five-year period, the family will likely have to divest some of its stakes in the Samsung companies, a prospect that increases the risk that its rock-solid hold on the conglomerate could be loosened.

Bar chart of top 10 OECD rates (%) showing impending inheritance tax for wealthy Koreans

The sale or donation of the art collection and the restructuring of family interests held through charitable foundations are also under discussion, according to Park and others familiar with the situation. The collection, estimated at 13,000 pieces and valued at $ 2.7 billion, includes works by Pablo Picasso, Andy Warhol and Mark Rothko, as well as works by Korean artists Park Soo-keun and Lee Jung-seob.

Chung Joon-mo, head of the country’s Art Assessment Center and former chief curator of the National Museum of Modern and Contemporary Art, favors granting tax breaks if works of art are donated to state museums.

“They are already in talks with the museums and they have almost made the decision,” Chung said, adding that the donation would be welcome given the “limit on buying expensive works of art with the budgets of the ‘State”.

Others, however, oppose the use of art donations by the family to reduce their tax bill. “Why can’t they pay the bill in cash? They have a lot of money, ”said Im Han-kyu, a 55-year-old housekeeper. “It wouldn’t make a big difference to their livelihoods, because money makes money.”

Inheritance tax regimes vary across the world, but South Korea’s highest rate higher end of the scale internationally.

The Lee family’s tax woes are part of a larger shift underway as succession and inheritance battles threaten to transform markets in parts of Asia.

In Japan, for example, generational changes in business ownership and control are causing a private equity boom which attracted all the biggest funds in the world to settle in Tokyo.

Japan is not only the fastest aging large economy in the world, but also has the highest concentration of business founders reaching their late 1970s and seeking a structured exit from the companies they have spent decades building. .

The profile of companies and their leaders is critical to this boom, which private equity firms believe will eventually be replicated across Asia as individual economies, like South Korea, catch up with the demographics of the world. Japan.

Back in Seoul, however, Samsung still enjoys a strong fan base. People from business leaders to monks have demanded in recent days that Lee Jae-yong be released from prison thanks to a presidential pardon. The family hope the donation of works by artists such as Basquiat will serve as a reminder to the public of his contributions to society and cement the acceptance of a third generation of Lee leaders.

Additional reporting by Emma Agyemang in Copenhagen

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