President Lee Jae-myung on the 24th ordered a review of supplementing and overhauling the system, saying some large bakery companies are exploiting the current family business inheritance deduction to receive a "tricky tax cut." As he pointed out at the senior secretaries' meeting early this year that the law is being abused for illicit inheritance and gifts by corporate-style large bakeries, it appears this will lead to a sweeping government-level overhaul of the system, including by the National Tax Service.
According to Blue House Spokesperson Kang Yu-cheong, Lee at the Cabinet meeting that day again asked National Tax Service Commissioner Lim Gwang-hyeon about the validity of inheritance tax benefits for some large bakeries in the process of real estate inheritance. He then said, "Review the need for a full revision and supplementation of the relevant system and report back."
The family business inheritance deduction is a system that reduces the inheritance tax burden by deducting up to 60 billion won from the taxable base when a small or midsize company that meets statutory requirements is succeeded by an heir. Even if the decedent's management period is at least 10 years, a deduction of up to 30 billion won can be received. The intent is to prevent small enterprises that pass down skills from generation to generation from closing or facing a sale due to the tax burden.
◇Even corporate-style bakeries over 100 pyeong can cut inheritance taxes if they last 10 years
Under the current system, "coffee shops" are not included among the special industries, but the confectionery business is included among industries eligible for the family business inheritance deduction. The management requirement for family business inheritance is "10 years or more." Using this, cases have increased in which bakery cafés that sell bread and coffee together are opened to greatly reduce the tax burden. One example is establishing a bakery café on land worth around 30 billion won, operating it for 10 years, passing it to children, and if the children maintain the business for more than five years while meeting certain conditions, the inheritance tax is exempted.
The point is that the family business inheritance deduction is being abused as a tax-saving tool for giant bakeries. Before the last presidential election, Lim, then a Democratic Party of Korea lawmaker, raised related issues and pushed for a system overhaul. At the time, Lim said, "Large bakery cafés on the outskirts of Seoul have more than doubled in number in a bid to save 60 billion won in taxes," and noted that measures should be prepared to prevent some wealthy people from exploiting loopholes in the system.
Lee also, in a closed-door meeting that day, cited some large cafés in Seoul and the capital area as examples and then reportedly asked Lim, in essence, "Can you really call 10 years a 'family business'? If it is to be called a family business, it should be on the order of 20–30 years so it can be seen as a kind of craftsmanship, and it should be the kind of business whose lifeline is cut off if the person stops working, shouldn't it?"
He also said, "Isn't family business succession being misused as a way to reduce taxes through tricks?" and added, "Review whether it is necessary to completely revise the relevant system." In response, Minister of SMEs and Startups Han Seong-sook proposed, when supplementing the system, closely comparing "family business inheritance" and "corporate inheritance," Spokesperson Kang said.
Earlier, at the senior secretaries' meeting on Jan. 15, Lee said, "The family business succession support system is being exploited for illicit inheritance or gifts by large bakeries," and directed his aides to identify the situation and find countermeasures.