[2] Requirements for the transaction example of unlisted stocks to be recognized as the market price, and whether the transaction price can be deemed as the market price where the stocks issued by the company are transferred together with the management right (negative)

1. Regarding the plaintiffs' grounds of appeal

A. The plaintiffs' ground of appeal No. 1

1) Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Gift”) provides that “in case where a person, other than a shareholder of the relevant corporation, obtains profits by directly obtaining new stocks from the relevant corporation as a corporation issues new stocks at a price lower than the market price, the amount equivalent to such profits shall be deemed to have been donated to the relevant corporation” (hereinafter “instant overall provision”) under Article 39(1)1(c) of the same Act provides that “Where a person, other than the shareholder of the relevant corporation, obtains profits by directly obtaining the new stocks from the relevant corporation as a result of issuing the new stocks at a price lower than the market price, the comprehensive title under Article 39(1)1(a)(a) of the same Act (hereinafter “instant comprehensive provision”) shall be excluded from cases where a stock-listed corporation or an Association-registered corporation (hereinafter “listed corporation”) under the Securities and Exchange Act combined with the stock exchange method under

Meanwhile, Article 2 (3) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007; hereinafter “former Securities and Exchange Act”) provides that “public offering of new securities shall be solicited under the conditions as prescribed by the Presidential Decree.” Article 2-4 (1) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 2051, Jan. 18, 2008; hereinafter “former Enforcement Decree”) provides that “public offering of new securities shall be 50 or more persons who are solicited to acquire new securities,” and Article 2-4 (3) of the former Securities and Exchange Act provides that “public offering of new securities shall be 10 or more persons who are subject to public offering of new securities from the date of solicitation under the provisions of paragraph (3) and 4 of the former Securities and Exchange Act (amended by Presidential Decree No. 50 or more persons who are subject to public offering of new securities shall be deemed to be 50 or more persons who are subject to public offering of new securities”.

2) citing the reasoning of the judgment of the court of first instance, the court below rejected the Plaintiffs’ assertion that the Plaintiffs would not be subject to gift tax in accordance with the instant provision, even if the Plaintiffs obtained profits from the allocation of new shares on April 16, 2005 to the 15,000,000 won per share, and the 9,756,098 shares on October 31, 2005 to the 1,025 shares issued by each third party (hereinafter “each of the instant shares issued”) with the allocation of new shares, on the grounds that the “public offering method of securities” under the instant provision does not include the deemed public offering method under Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act.

3) However, it is difficult to accept the above determination by the lower court for the following reasons.

Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act provides that when a listed corporation issues new stocks in accordance with the method of public offering of new stocks under the former Securities and Exchange Act, the issuance price shall be determined at a price close to the stock price formed at the securities market, etc. in principle (Articles 53 and 57, etc. of the Securities and Exchange Act). In addition, considering the fact that it is inevitable for the listed corporation to raise funds through public offering of new stocks in the securities market, etc., it shall not impose gift tax on a listed corporation even if the purchaser gains profits by determining the issue price of new stocks under the method of public offering of new stocks under the former Securities and Exchange Act. In light of the fact that the deemed public offering of new stocks under Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act is subject to various regulations on the procedure and issue price of new stocks, it is reasonable to interpret Article 2-4 (1) of the former Enforcement Decree of the Securities and Exchange Act as one of the general public offering methods under Article 2-4 of the former Securities and Exchange Act.

4) Nevertheless, the lower court rejected the Plaintiffs’ assertion without further proceeding to examine whether the Plaintiffs received the allocation of new shares from each of the instant capital increase securities through deemed public offering, deeming that the “public offering method of securities” as referred to in the instant general provision is not included in the method of deemed public offering. In so determining, the lower court erred by misapprehending the legal doctrine on the interpretation and application of the instant general provision, etc., thereby adversely affecting the conclusion of the judgment, and the allegation contained in the grounds of appeal on this point is with merit.

B. Plaintiffs 3, 4, 5, 6, 7, 8, and 9’s grounds of appeal Nos. 3 and 4

Based on the facts indicated in its reasoning that are admitted by the evidence adopted, the lower court determined that: (a) Plaintiff 1 trusted the title of Plaintiff 3, 4, 5, 6, 7, 8, and 9 the total amount of 2,439,025 shares issued by the Flac; and (b) thereafter, Plaintiff 5 returned the total of 243,905 shares and 536,591 shares from Plaintiff 7, and re-titled the title of the title of the said shares to Plaintiff 9. Furthermore, the lower court determined that it was difficult to view that there was no tax avoidance purpose in the said title of the title of the said shares, on the ground that Plaintiff 1, who is a major shareholder of the Flac, could avoid the burden of capital gains tax on the said shares.

In light of the relevant legal principles and records, the above fact-finding and determination by the court below are just and acceptable. Contrary to the allegations in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles as to the purpose of tax evasion. The Supreme Court Decision 94Da29782 delivered on October 25, 1994 cited in the grounds of appeal are different from this case, and it is not appropriate

2. As to the Defendants’ grounds of appeal

Article 60 (1) (main sentence) and (2) of the Inheritance and Gift Tax Act provide that the value of donated property shall be based on the market price as of the date of donation, and such market price shall be the value which is generally deemed to be established in cases where transactions are freely conducted between many and unspecified persons, and shall include the value which is deemed to be the market price under the conditions as prescribed by Presidential Decree, such as the expropriation and public sale price and appraisal price. Article 49 (1) 1 (main sentence) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010) upon delegation, one of the items deemed to be the market price of the pertinent property, and in the proviso thereof, “if there is a transaction fact with respect to the pertinent property, such transaction price shall be excluded.”

Therefore, in the case of unlisted stocks with low market value, the value of the stocks shall be assessed by considering the transaction value as the market value, but the market value means the objective exchange value formed by the general and normal transaction. Thus, in order to recognize the transaction example as the market value, circumstances should be acknowledged that the transaction in question is made in a general and normal manner and properly reflects the objective exchange value as at the date of donation (see, e.g., Supreme Court Decision 2010Du26988, Apr. 26, 2012). Meanwhile, where shares issued by a company are transferred with management right, the transaction value cannot be deemed as the market value which reflects the objective exchange value in cases where only shares are transferred (see, e.g., Supreme Court Decision 2005Du5574, Aug. 23, 207).

Based on the adopted evidence, the court below acknowledged the following facts: (a) on January 2, 2006, immediately after the Plaintiff 1 and 2 purchased the instant shares issued by ELS Co., Ltd. (hereinafter “ELS film”), the unlisted corporation, and sold 10,000 shares to Nonparty 2 for KRW 78,815 per share of ELS issued stocks; (b) on January 16, 2006, Nonparty 2 sold ELS to Nonparty 2 at KRW 78,815 per share of ELS; (c) Nonparty 2 was the mother of Nonparty 3 who was the Mesian representative director; (d) the above transaction price was 250,000 shares issued by ELS, which was 250,000 shares issued by ELS; and (e) on January 16, 2006, the sale price was 200,0000 shares, which was 10,000 won and 26,015,08,00 shares.

In light of the above legal principles and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors of misapprehending the legal principles on the market price recognition of unlisted stocks

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal by the plaintiffs, the part concerning plaintiff 1 and 2 among the part against the plaintiffs and the part concerning the imposition of gift tax on the ground of low-price acquisition of new shares against the remaining plaintiffs are reversed, and this part of the case is remanded to the court below for further proceedings consistent with this Opinion. All remaining appeals by plaintiffs 3, 4, 5, 6, 7, 8, and 9 and appeals by the defendants are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

[Attachment] List of Plaintiffs: Omitted

Justices Kim Chang-suk (Presiding Justice)