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South Korean Government to Institute Tax on Cash Piles

Samsung Electronics Co. is sitting on $60B in cash, that's 58% larger than Apple's cash pile, and the Korean tax man has sent a message to the country's biggest company: "Use it or lose it."

The South Korean government unveiled plans to institute a 10% tax on what it considers to be excessive piles of cash that should either be invested or returned to shareholders. The levy will require lawmakers' approval and could take effect as early as June.

"We're trying to give a signal here," Moon Chang Yong, the head of the tax bureau at Korea's Finance Ministry, said by phone on Aug. 19. "It's time to help stoke domestic demand. We want zero revenue from this. The aim is to create a virtuous cycle and recirculate corporate earnings back to households."

Investors eager for dividends support the tax on reserves as economic growth slowed to the weakest in a year last quarter. According to Moody's Investors Service, the new tax will be credit negative due to its ability to cut liquidity and spur capital expenditure which may undermine cashflow.

Source: Cho, Kyungji, "Samsung Told by Korean Tax Man to Use Apple-Topping Cash," Bloomberg, August 20th, 2014

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