[비즈한국] The pharmaceutical industry is struggling to secure funds for inheritance taxes. South Korea’s top inheritance tax rate is quite high at 50%. At Hanmi Group, family conflict persisted last year over how to finance an inheritance tax bill amounting to 540 billion won. As most pharmaceutical companies have entered the era of second- or third-generation management, they are all burdened by inheritance tax obligations.
Boryung003850 Group has recently been accelerating succession efforts for third-generation owner and CEO Kim Jung-kyun by consecutively selling off assets. Last year, Boryung sold its subsidiary, Boryung Biopharma, to a private equity firm for 32.2 billion won and used a portion of the funds to push for a capital increase at Boryung Partners. Not stopping there, it sold its headquarters building in Jongno-gu, Seoul, for 131.5 billion won, and at the end of the year, it sold half of its stake in its subsidiary, Vaxcell-Bio. Boryung is expected to sell the remaining stake once the lock-up period expires this August.
Previously, the pharmaceutical industry primarily adopted the method of transitioning to a holding company structure during succession, as this offers inheritance tax reduction benefits. Dong-A Pharmaceutical transitioned to a holding company in 2013, splitting into Dong-A Socio Holdings000640, Dong-A ST, and Dong-A Pharmaceutical. In 2016, Ildong Pharmaceutical249420 established Ildong Holdings as a parent company and spun off its business divisions into new entities: Ildong Pharmaceutical, Ildong Bioscience, and Ildong HiTech. That same year, Huons also split into a holding company, Huons Global, and an operating company, Huons. Green Cross, Daewoong Pharmaceutical, JW Pharmaceutical, Hanmi Pharm128940, and Chong Kun Dang also transitioned to holding company systems.
Currently, there are many pharmaceutical companies managed by the second or third generation. Last year, promotions of third-generation owners continued at companies including Daewon Pharmaceutical, Samjin Pharmaceutical, Handok, and Dongkook Pharmaceutical, as well as at biotech firms like SK Biopharmaceuticals and Lotte Biologics. Celltrion068270 Chairman Seo Jung-jin drew attention at a group merger event in 2023 when he said, "Because of the inheritance tax, if I die, (the company) will become a state-owned enterprise." The scale of the inheritance tax Chairman Seo is expected to pay is estimated to be around 6 trillion won. Since the integration of Celltrion and Celltrion Healthcare in 2023, his son, CEO Seo Jin-seok, has been leading the company as co-CEO of Celltrion.
As a result, there is a growing movement toward professional management systems. A representative example is Yuhan Corporation. The founder, the late Dr. Yoo Il-han, transferred management rights to professional managers in 1969. His granddaughter, Yoo Il-ring, only participates as a board member of the Yuhan Foundation. The largest shareholder of Yuhan Corporation is the public foundation, the Yuhan Foundation. Hanmi Pharm, which recently experienced a management dispute, is also preparing to establish a professional management system. Attention is also on the choices of Celltrion Chairman Seo Jung-jin, whose term expires this coming March. While his son, CEO Seo Jin-seok, recently acquired Celltrion shares for the first time, Chairman Seo has expressed a negative stance on second-generation succession in the past due to the burden of inheritance taxes.
The pharmaceutical industry had hoped for inheritance tax cuts following the inauguration of the Yoon Suk-yeol administration. In June last year, the Presidential Policy Chief of Staff, Sung Tae-yoon, seemed to drive this initiative when he stated, "When trying to pass a business to children, if you pay the taxes, it becomes uncertain whether one can hand over the management rights or the company itself. It needs to be converted into a capital gains tax system, similar to the tax systems in most other countries." However, with strong opposition from the opposition party and the impeachment and investigation of President Yoon Suk-yeol, the momentum for tax reform has effectively been lost.