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An Estate Tax Bill You Can’t Understand: $ 10.8 Billion

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SEOUL – Picasso, Monet and Dali are among the assets South Korea’s richest family is parting with as they prepare to pay one of the biggest inheritance tax bills in history.

The Samsung family announced on Wednesday that it will pay $ 10.8 billion in inheritance taxes after the death of Lee Kun-hee, the chairman of Samsung, last year. South Korea has one of the highest inheritance taxes in the world. The family is required to notify the tax authorities how they plan to pay the bill by Friday.

The answer will have profound implications for family control over the company, South Korea’s largest and most profitable family conglomerate.

Mr. Lee has been credited with turning Samsung into a global tech giant known for its semiconductors and smartphones. But the reclusive president has kept many secrets, including how he wanted to share his wealth between his wife and three children after his death.

Mr. Lee’s only son, Lee Jae-yong, is Samsung’s de facto boss. If he inherits his father’s stake in Samsung subsidiaries, it would tighten his control over the company. But it is still not clear how much he will inherit or how he will raise the billions of dollars needed to pay the inheritance tax.

Analysts expected Mr Lee to sell non-core Samsung shares and secure bank loans, hoping to repay them with dividend payments on his Samsung holdings.

“How to divide President Lee’s fortunes is at the heart of the question of who controls Samsung,” said Chung Sun-sup, editor of chaebul.com, which monitors South Korean family conglomerates, also known as from chaebol. “It looks like the family has yet to come to a full deal.”

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The Lees are the richest family in South Korea. The $ 10.8 billion in inheritance tax the family has to pay is more than half the value of the father’s total estate and more than three times the total inheritance tax the government collected last year , according to Samsung.

The family said they would donate Mr. Lee’s personal art collection of 23,000 works to national and provincial museums in South Korea as part of their plan to hand over Mr. Lee’s estate. The collection is estimated at $ 2.2 billion by some South Korean media. It includes the “Water Lilies” by Claude Monet and the “Portrait of Dora Maar” by Pablo Picasso.

The family has also pledged $ 900 million to fight the growth of infectious diseases and to help children with cancer and rare diseases. Half of the money will be spent on building the first South Korean hospital dedicated exclusively to infectious diseases.

The Lee family said the donations reflected Mr. Lee’s intentions to “give back to the communities.” But this sudden generosity comes at a time when the family has struggled to improve its public image.

In January, the son, vice president of Samsung, was jailed after being sentenced to two and a half years for corruption. In recent weeks, corporate lobby groups have called on the government to forgive Lee so he can lead Samsung amid growing uncertainty in the semiconductor industry.

“It is our civic duty and responsibility to pay all taxes,” Lees said in a statement on Wednesday.

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The family did not always respect this rule.

Samsung has long been accused of trying to secure a father-to-son transfer of power at all costs, even if it meant breaking laws, avoiding taxes and buying political influence. This is a problem that Lee Jae-yong, the son, recognized.

“All the problems basically started from this question of succession,” he said last year. “From now on, I will ensure that no controversy recurs regarding the issue of succession.”

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His father was given a three-year suspended prison sentence in 2009 for evading billions of dollars he secretly inherited from his father, Samsung founder Lee Byung-chull. He hid the money in stock accounts opened in the name of his collaborators. Samsung said at the time that Lee Kun-hee was keeping the funds secret to protect the company from hostile takeovers by foreign investors.

Lee Jae-yong’s legal problem stemmed from a similar problem. In January, he was convicted of bribing former South Korean President Park Geun-hye in order to gain government support for a merger of two Samsung subsidiaries in 2015. The merger was aimed at strengthening his control on Samsung.

Who will control Samsung has been the subject of much public curiosity since the father’s death last year. The company accounts for one-fifth of South Korea’s total exports. Samsung Electronics, the flagship of the group, alone achieved sales of $ 213 billion and operating income of $ 32 billion last year.

Lee Jae-yong has run the conglomerate since a heart attack rendered his father unable to operate in 2014. He only owns 0.7% of Samsung Electronics but owns 17.5% of Samsung C&T, a subsidiary created by the merger. from 2015. His siblings also hold smaller stakes, giving the family a majority stake in the business.

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Through a network of circular farms, the family continues to control the conglomerate. Samsung C&T owns 5% of Samsung Electronics and also controls 19.3% of Samsung Life. Samsung Life owns 8.5% of Samsung Electronics.

Lee Kun-hee owned 4.18% of Samsung Electronics, as well as 20.7% of Samsung Life. How these shares are distributed among the family will affect the son’s chances of running the business.

By law, the president’s widow, Hong Ra-hee, is entitled to one-third of the total inheritance, with the rest split equally between Mr. Lee and his two sisters. But chaebol families often come to a private agreement to ensure that the eldest son controls the business.

On Wednesday, some South Koreans were surprised to learn the amount of inheritance tax payable by the Lee family.

“Ordinary people like me can’t understand how much it costs,” said Park Soon-mi, a stay-at-home parent in Seoul. “It’s good for the president to leave so much money in taxes and to make such big donations for society.”

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Others weren’t so impressed.

This is not the first time the Lee family has pledged to use their wealth for the benefit of society as part of a larger agenda. In 2008, when Lee Kun-hee was charged with tax evasion, Samsung said Mr. Lee would use the money “not for the president or his family, but for certain beneficial causes.”

The family did not keep their word until Wednesday, said Kang Jong-min, a chaebol expert with civic group Solidarity for Economic Reform in Seoul. “He belatedly follows through on his old promise.”

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