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Texas Tech Univ. School of Law

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Friday, August 22, 2014

New Law Urges Samsung to Spend

Samsung logo

Samsung Electronics Co. is sitting on a cash pile that is 58 percent larger than Apple Inc.’s treasure chest.  The message to South Korea’s biggest company is “use it or lose it.” 

The government of President Park Geun Hye published plans for a ten percent tax on what should be either spent on wages and investment or distributed to shareholders.  The levy could affect Samsung, which had the equivalent of $60 billion in cash and short-term investments compared to Apple that had $38 billion. 

Moon Chang Yong, head of Korean Tax Bureau, said “We’re trying to give a signal here . . .The aim is to create a virtuous cycle and recirculate corporate earnings back to households.”

Yet under the new rule, companies are unlikely to increase investments, dividends or wages significantly.  “Companies may prefer to use their internal cash reserves rather than sell bonds when they need capital expenditures and that’s what the government wants.”  As for now, it is uncertain whether the new law will lead to increases in investments and wages.

See Kyungji Cho and Cynthia Kim, Samsung Told by Korean Tax Man To Use Apple Topping Cash, Bloomberg, Aug. 20, 2014.

http://lawprofessors.typepad.com/trusts_estates_prof/2014/08/new-law-urges-samsung-to-spend.html

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