Inheritance tax could be lowered for noblesse oblige business owners

An event to celebrate the 350th anniversary of the foundation of Merck Group, a German science and technology company, was held in May 2018. As then-German Chancellor Angela Merkel finished her congratulatory speech, Frank Stangenberg-Haverkamp, the 11th generation of the founder and the-then president of the family committee, made a speech in response and asked the chancellor to lower inheritance tax. Over 900 attendees, including Chancellor Merkel, laughed at the half-joke.

The example of the Merck Group highlights the significant impact of high inheritance tax on family businesses. The Mercks, who have been operating their family business for 13 generations, face the risk of their company becoming vulnerable to outside attacks on its management rights as it sells securities to raise money to pay inheritance tax.

The inheritance tax in Germany is stricter than that in Sweden, the Netherlands, and France but is more lenient than that in South Korea. The highest inheritance tax rate is 30 percent, which is lower than 50 percent in South Korea. If certain requirements are met, such as holding stakes for several years after succession or maintaining existing employees, the tax amount is partially deducted through deduction for family business succession. While a smaller deduction is made as more is inherited, large companies are excluded from such a benefit as they are in South Korea. In 2021, 11,874 deductions for family business succession were granted in Germany, amounting to 2.476 trillion won.

One of the key advantages of a family-run business is its long-term perspective, which often takes precedence over short-term performance. A prime example is the Merck Group, which celebrated its 100th anniversary of LCD research in 2004. The company's continuous research in liquid crystal, which it discovered in 1904, led to the launch of the LCD market in the 1990s. This long-term approach allowed the company to invest in securing source technologies with the funds earned from its pharmaceutical business.

Some South Korean companies have been operated by four generations. As stable succession plans are needed for them to pursue research and development with a long-term perspective, inheritance tax cannot be disregarded. However, the efforts of family-run businesses are needed to ensure that the easing of inheritance tax doesn’t become a tool for inheriting wealth.

The Mercks have a few principles. Over 200 family members owned stakes through 13 generations. However, only 18 of them – 13 members of the family committee and five members of the partner committee – are involved in the company's management by hiring management executives. Most tasks are delegated to management executives except for issues such as large mergers and acquisitions or changing the company’s structural framework. Instead, the presidents of the two committees and five top executives have unlimited liability for the company up to five years after leaving the company.

Additionally, there is no automatic hiring of someone just because they are part of the family. The only way to join the company is to get recognized for their capabilities at other companies and apply for senior positions with a strict verification process. The retirement age for a president of the family committee is 75 in order to prevent an attempt to control ownership and management. Former president of the family committee, Stangenberg-Haverkamp, used to proudly say that no one drove a supercar among over 200 Merckes. It is in line with his response when Dong-A Business Review asked about the secret of the company’s longevity. He answered it was the values that the family members had, considering themselves as people in charge of the management of trust for future generations rather than the owners of Merck Group.

When the investment of companies dreaming of innovation and the sincerity of the owner family, which demonstrates noblesse oblige, are combined, discussions for reforming policies to ensure companies' longevity can earn social support.