Analysts say inheritance tax issues will have an impact on the transfer of equity from Chairman Lee Kun-hee to son Lee Jae-yong

Samsung Life¡¯s May 12 IPO date is shifting attention to the effects this will have on the leadership structure at the Samsung Group and the succession of management rights. In particular, there is a good chance that the payment of taxes according to the succession by Samsung Electronics Executive Vice President Lee Jae-yong, the only son of Chairman Lee Kun-hee, will surface as a ¡°hot potato¡± in efforts to reorganize the ruling structure.

The crux of the matter is the way in which the 20.76 percent equity in Samsung Life currently owned by Lee Kun-hee is transferred down. Samsung Life functions as a central link in the group¡¯s circular cross-unit equity investment structure, connecting with Samsung Electronics, Samsung Card and Samsung Everland. In order to receive Samsung Group ¡°management rights¡± in the future, Lee Jae-yong must receive at least more Samsung Life equity from his father than the 19.34 percent currently owned by Samsung Everland. Otherwise, Samsung Life will have to sell off a considerable portion of the Samsung Electronics equity it possesses, according to the Financial Holding Companies Act, which forbids industrial capital control by a financial company.

The tax issue arises as a key variable here. Currently, the value of Samsung Life equity owned by Lee Kun-hee amounts to 4.57 trillion Won ($4.09 billion), based on the offering price. According to the currently operating Inheritance and Gift Tax Act, a 50 percent taxation rate applies in cases where the amount exceeds 3 billion Won. Even if certain deductions are taken into account, Lee Jae-yong will have to pay no less than 2 trillion Won in taxes for inheriting the Samsung Life equity, provided he does not employ any expedients.

Lee Jae-yong¡¯s assets are known to be just over 2 trillion Won. According to a list of the world¡¯s billionaires in 2010 released recently by U.S. finance magazine Forbes, his fortune is valued at $2.1 billion. If this is converted into Won based on the final exchange rate Tuesday of 1,115.50 Won to the dollar, this gives a value of 2.34 trillion Won. This also includes the assets he has to pay to his ex-wife following their divorce in early 2009. This is why the Samsung Group cannot help being deeply concerned.

One of the cards that the Lee family, including the chairman, may opt to play in the future would involve quickly increasing Lee Jae-yong¡¯s assets prior to the inheritance of equity. For this reason, particular attention inside and outside the group is focusing on the unlisted stocks he possesses. In particular, many say there is a strong chance that the unlisted Samsung SDS, for which Lee Jae-yong owns 8.81 percent of equity, will become a major ¡°cash warehouse¡± for him in the future during the management rights transmission process. Yeouido¡¯s securities market is already abuzz with rumors of a possible Samsung SDS listing next year.

Another method would be to pass down only the minimum equity that would allow maintenance of group control. Doing so would require a reorganization of the control structure prior to the transmission, including a shift to a holding company that would increase the Lee family¡¯s control over the group from its present level.

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