[EDITORIALS]Corruption and taxes

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[EDITORIALS]Corruption and taxes

Shinsegae Group made a surprising announcement last weekend, saying it would pay a sizable tax to legitimately transfer corporate management rights to Vice President Chung Yong-jin, the son of its current chairwoman, Lee Myung-hee. The country's third-largest retailer stressed that its management is ethical; it will pay about 1 trillion won ($1.05 billion) to demonstrate its ethics.
Such an attitude at a leading Korean conglomerate is welcome news. It could give the image of all conglomerates here a welcome boost among the Korean public.
But the reality, in which a business group takes pride in paying taxes it is supposed to pay and transferring management control in an above-board manner, leaves a bitter taste in the mouth.
The problem is that it is almost impossible for new generations of ownership at family-owned conglomerates to obtain control of the family businesses under the existing Korean tax system. Behind the controversies over illicit transfers of corporate shares to younger family members is the reality of Korea’s oppressive inheritance and gift taxes.
Under current law, heirs at companies should pay in taxes 50 percent of what they receive from the older generation. If controlling shareholders want to present their heirs with control, extra taxes are due, bringing the tax take to as much as 65 percent of the inheritance.
That means that corporate owners can transfer only about a third of their holdings to their families. Inheriting management rights is almost impossible under such circumstances, leaving the companies vulnerable to hostile takeovers. That is why many jaebeol are tempted to find illegal ways to transfer wealth.
If conglomerates are blocked from transferring their wealth to their founders’ descendants, they may lose the motivation to expand their businesses with an eye on the long term; that could lead eventually to a sluggish economy.
Some may argue that family succession should not be allowed and that management should be turned over to professionals. But that poses a considerable danger; ending family-led businesses does not guarantee good management. Korea’s conglomerates have set a successful example of family-run operations. But, undeniably, inheritance taxes are associated with social justice.
We need a public debate on appropriate taxes and levels that will not burden the economy and the companies.
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