1. Regarding the plaintiffs' grounds of appeal

Article 14(1)4 of the former Restriction of Special Taxation Act (amended by Act No. 6297, Dec. 29, 2000; hereinafter “former Enforcement Decree of the Special Taxation Act”) provides for the special taxation that excludes income accruing from the transfer of “stocks or equity shares as prescribed by the Presidential Decree first acquired by investing in a venture business from taxable objects of capital gains tax.” In the proviso of Article 14(1)4 of the former Enforcement Decree of the Special Taxation Act excludes “where another person’s stocks or equity shares are acquired by investing in a venture business by acquiring such stocks or equity shares,” and Article 12(1)4 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by the Presidential Decree No. 17458, Dec. 31, 2001; hereinafter “former Enforcement Decree of the Special Taxation Act”) from the date of investment in a venture business within 3 years or less from the date of investment in a special relationship with a venture business under the provisions of Article 14(1)4 of the Corporate Tax Act, which is within 17 years or less than 3 years from the date of investment in a venture business.

The capital gains tax system for investments in venture businesses under Article 14 (1) 4 of the former Special Provision of the Act on the Establishment of the Association is introduced to the purpose of promoting direct investments in venture businesses by granting an individual the same tax reduction or exemption as investments in venture businesses even in cases where an individual directly invests in venture businesses, taking into account the fact that the former gains from tax reduction or exemption only when an individual invests in venture businesses by establishing the association.

Meanwhile, Article 13 of the Restriction of Special Taxation Act (amended by Act No. 6297, Dec. 29, 2000; hereinafter “amended Special Taxation Act”) provides for the exemption of corporate tax on gains from transfer of stocks or equity shares acquired by an investment company, etc. in a venture business, etc., and provides for the exemption of corporate tax on such gains from transfer of stocks or equity shares. Paragraph (2) provides for the application of paragraph (1) of the same Article as “four methods prescribed by each subparagraph (i) payment of capital at the time of the establishment of a venture business; (ii) payment of capital increase with capital increase within seven years after the establishment of a company; (iii) payment of capital increase with capital increase; (iv) payment of surplus funds within seven years after the establishment of a venture business; and (v) payment of capital increase with capital increase within seven years after the establishment of a company; and (v) provision of Article 14 of the amended Special Taxation Act provides for the exemption of capital gains tax on the initial type of venture business subject to the exclusion of Article 14(1) of the former Special Taxation Act.

In light of the legislative purport of Article 14(1)4 of the former Act, the amendment history and structure of the relevant provision, etc., “where a person makes an investment by acquiring another person’s stocks or equity shares” under the proviso of Article 14(1) of the former Special Act is understood to have explained “where a person makes an initial acquisition of another person’s stocks or equity shares by acquiring such stocks or equity shares” ultimately, the term “stocks first acquired by making an investment in a venture business” under Article 14(1)4 of the former Special Act refers to “stocks directly acquired from a venture business in the position of an investor.” Therefore, it is reasonable to deem that “where an individual acquires stocks by making an investment in a venture business at the time of establishment of a venture business and acquires them by acquiring stocks by paying the capital, such free share constitutes stocks directly acquired from a venture business as an investor, and thus, is subject to the special taxation of capital gains tax as provided for in Article 14(1)4 of the former Special Act. Even if the issuance of stocks is made by capital increase, it is limited to 2000 or 20.

However, the lower court determined that the transfer income tax should be imposed on the transfer of the instant gratuitous share, which the Plaintiffs, who paid the capital, as the promoters of the telechip license for a venture business (hereinafter “comp license”) on the ground that the “stocks first acquired by investment” as referred to in Article 14(1)4 of the former Special Provision, refer to the stocks acquired by investment, and thus, they do not constitute gratuitous acquisition by capitalizing the excess amount of stocks, and thus, cannot be subject to the special taxation of transfer income tax as prescribed in the said provision.

In so determining, the lower court erred by misapprehending the legal doctrine on the scope of “the first stocks acquired by investment” subject to the special taxation of capital gains tax under Article 14(1)4 of the former Special Provision Act, thereby adversely affecting the conclusion of the judgment. The Plaintiffs’ ground of appeal assigning this error is with merit.

2. As to the Defendants’ grounds of appeal

After compiling the adopted evidence and recognizing the facts as stated in its holding, the court below rejected the Defendants’ assertion, namely, that there was a special relationship under Article 12 (1) 2 of the Enforcement Decree of the former Act between the Plaintiffs and the telechips as promoters, on the ground that the Plaintiffs’ payment of capital to the telechips and at the time of acquiring the stocks, there was no special relationship between the Plaintiffs and the telechips, and the Plaintiffs’ above investment was merely an exercise of de facto influence on the company’s management as an officer and the largest shareholder.

Upon examining the records in light of the above provisions and related legal principles, the above judgment of the court below is just and acceptable. Contrary to the allegations in the grounds of appeal, there is no error of law by misapprehending the legal principles as to the interpretation and application of "special relationship" under Article 12 (1) 2 of the Enforcement Decree of the former Enforcement Decree of the Special Act or the principle of substantial taxation.

3. Conclusion

Therefore, the part of the lower judgment against the Plaintiffs is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Defendants’ appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)