LG’s ruling family loses bid to reduce 50% inheritance-tax bill

SEOUL—South Korea, home to one of the world’s stiffest inheritance taxes, isn’t budging on how it tallies the bill for the families running the country’s biggest conglomerates.

On Thursday, a Seoul judge dismissed a lawsuit filed by the LG founding family, who had sought to recoup roughly 1% of the $735 million paid to the government in inheritance taxes following the 2018 death of former chairman Koo Bon-moo.

Inheritance taxes are a hotly debated issue in many advanced economies. But the topic carries elevated scrutiny in South Korea, given its class of uber wealthy linked with dynastic conglomerates that pass ownership power—and wealth—to their heirs.

Koo’s wife, two daughters and son—who succeeded his father as LG chairman—filed a lawsuit disputing the way the South Korean government calculated the value of certain LG shares transferred to the surviving family. The tax bill was higher than it should have been, with a recalculation resulting in the family recouping about $740,000, according to their lawsuit.

The Seoul Administrative Court called the government’s valuation legitimate, citing local tax laws. One of South Korea’s biggest business empires, LG makes electric-vehicle batteries, home appliances and displays. LG Corp., the conglomerate’s holding company, didn’t have a comment on the inheritance-tax court decision.

LG’s Koo, when he died, had assets collectively worth around 2 trillion won, or roughly $1.5 billion.

South Korea boasts a 50% inheritance-tax rate, topped only by Japan’s 55% among members of the Organization for Economic Cooperation and Development, according to the Tax Foundation, a Washington-based think tank. By contrast, the U.S. and U.K. have rates of 40%, while the OECD average stands at 15%.

South Korea’s inheritance-tax rate can rise to up to 60% when the assets passed on are shares in companies where the family holds a majority stake—applicable to many of the family-owned conglomerates that dominate the country’s economy. Families have up to five years to pay.

Members of Samsung’s founding family were hit with an inheritance-tax bill of more than $10 billion, after former chairman Lee Kun-hee died in 2020. The payout was calculated after the family had donated 23,000 pieces of the late chairman’s art, including Monets, Picassos and Dalis, which lowered the value of taxable assets. In January, a trust for certain members of the surviving Lee family sold about $2 billion in shares of Samsung Electronics and other affiliates through block trades to make the latest payment.

In recent years, the family of the late founder of South Korean gaming giant Nexon has paid roughly $3.5 billion in inheritance tax, some of which was paid with company stock. The founding family of Hanmi Pharmaceutical, a major South Korean drugmaker, has faced an inheritance-tax bill of roughly $400 million.

The estate-tax issue has become a perennial issue in South Korea, where generational succession has been the norm for the country’s biggest conglomerates. Proponents of the current level of inheritance taxes say it is a necessary tool to prevent the exacerbation of wealth inequality and a principle that must be upheld.

But lowering the estate tax, as some business lobbyists and tax-policy experts have proposed, is a delicate political issue for any South Korean administration, due to the perception that it would benefit the country’s ultrarich and may upset the broader citizenry, said Kim Kyeong-jun, president of CEO Score, a corporate-research firm in Seoul.

“Taxes are certainly necessary, but excessive taxation can make it incredibly difficult for a company owner to run a business,” he said.

Write to Jiyoung Sohn at jiyoung.sohn@wsj.com