2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of KRW 00,00,000 (including additional taxes), the gift tax of KRW 000,000 for the year 2011, the gift tax of KRW 000,000 for the year 2012, and the gift tax of KRW 000,000 for the year 2014 (including additional taxes) shall be revoked.

A. The Plaintiff and the Plaintiff’s father-CC hold 60% and 40% of their respective shares in DDM Co., Ltd. (hereinafter “instant company”) engaging in real estate development and supply business, respectively.

B. From January 1, 2011 to December 31, 2014, UCC lent money free of charge to the instant company with losses in each business year of 2011, 2012, and 2014 (hereinafter “each of the instant loans”) as described below (hereinafter “each of the instant loans” in 2011, 2012, and 2014).

[Attachment 1] Details of free lending

(unit: source)

Business year

2011

2012

2013

2014

Lending Amount

0,000,000,000

0,000,000,000

0,000,000,000

0,000,000,000

C. As a result of the tax investigation of gift tax in 2010-2014 with respect to the Plaintiff from September 1, 2015 to October 10, 2015, the commissioner of the EE Regional Tax Office: (a) as to the instant gift to the instant company, the Plaintiff was notified of 10% of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; (b) with respect to the gift in 2012 before being amended by Act No. 12168, Jan. 1, 2014; (c) with respect to the gift in 2011, before being amended by Act No. 11130, Dec. 31, 2015; (d) without distinguishing it from convenience; and (e) with respect to the gift in 2014 x 160% of the total amount of the gift tax before being reported to the Defendant pursuant to Presidential Decree No. 20165160. /301.201.65 of the former Enforcement Decree

[Attachment 2] Details of donated property

(unit: source)

Date of donation

December 2, 2011

August 16, 2012

December 16, 2014

Total

Value of donated

00,000,000

00,000,000

00,000,000

0,000,000,000

D. Accordingly, on November 2, 2015, the Defendant decided and notified the Plaintiff of each disposition imposing gift tax of KRW 000,000,000 (including penalty tax) for the year 201, KRW 000,000 (including penalty tax) for the gift tax of KRW 2012, and KRW 000,000 for the gift tax of KRW 200,000 for the year 2014 (including penalty tax) (hereinafter collectively referred to as “each disposition”).

E. The Plaintiff filed an appeal with the Director of the Tax Tribunal on January 21, 2016, against each of the instant dispositions, but the appeal was dismissed on April 12, 2016.

2. Whether each of the dispositions of this case is legitimate

A. Summary of the plaintiff's assertion

1) At the time of each of the instant dispositions, the Defendant calculated the value of donated property by applying the interest rate publicly notified by the Ministry of Strategy and Finance (9% before November 5, 2010, and 8.5% thereafter) under Article 41-4 of the former Inheritance Tax and Gift Tax Act, and Articles 31 and 31-7 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. The said interest rate is considerably higher than 3 to 4%, which is the loan interest rate of financial institutions at the time. Accordingly, the Ministry of Strategy and Finance’s notice of interest rate exceeds the bounds of delegation legislation of higher-ranking statutes, which shall be determined by taking into account the distribution rate of the company’

2) For the business year 2014, the instant company’s losses under Article 41(1) of the former Inheritance Tax and Gift Tax Act

In other words, even though it is not a specific corporation, the defendant is against the plaintiff.

It is illegal to impose gift tax belonging to year 2014.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the interest rate publicly notified by the Ministry of Strategy and Finance goes beyond the bounds of delegation legislation of upper statutes because it failed to properly reflect the reasonable interest rate.

A) Article 41(1) of the former Inheritance Tax and Gift Tax Act provides that "where a person with special interest in a shareholder or an investor prescribed by Presidential Decree, such as a corporation which has losses or is under suspension or closure of business (hereinafter referred to as "specific corporation") makes any of the following transactions with the specific corporation and thereby the shareholder or investor of the specific corporation obtains profits prescribed by Presidential Decree, the amount equivalent to such profits shall be deemed the value of donated property of the specific corporation." Article 41(1)1 of the former Inheritance Tax and Gift Tax Act provides that "the transaction that provides assets or services free of charge" is "the transaction that transfers or provides assets or services free of charge at a significantly low price in light of the ordinary transaction practices," and Article 31(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "where a person with special interest in the shareholder or an investor of the specific corporation obtains profits from the specific corporation, the amount equivalent to such profits shall be deemed the value of donated property guaranteed by the Minister of Strategy and Finance by the appropriate interest rate under Article 41-4 of the former Inheritance Tax and Gift Tax Act."

B) Comprehensively taking account of the overall purport of the statement and arguments in Eul evidence No. 6, the Ministry of Strategy and Finance maintained the distribution rate of the company's bonds with three-year maturity guaranteed by the financial company, etc. until November 4, 201, and applied the interest rate prescribed by the Ministry of Strategy and Finance from November 5, 201 to October 8, 201, according to the trend of changes in the distribution rate as to "interest rate applied when calculating the value of donated property pursuant to monetary loans" as above, according to the trend of changes in the distribution rate. The National Tax Service Notice No. 2001-31 of December 31, 2001, which was issued by the National Tax Service No. 2001-31 of Jan. 1, 2002, which was 9% from the annual interest rate from November 5, 2010, which was changed to the public notice of the Ministry of Strategy and Finance following the amendment of the Inheritance Tax and Gift Tax Act.

In light of the following circumstances revealed by the overall purport of the relevant statutes, the facts of recognition, and the pleading, namely, the Minister of Strategy and Finance appears to have determined an adequate interest rate by comprehensively taking into account not only the change in the distribution profit rate, but also the demand for the realization of tax justice through equitable tax burden on illegal donation, the tax policy and technical demand such as the efficiency of requisition, and the distribution profit rate of corporate bonds with maturity of three years guaranteed by the financial company, etc., other than issuing companies, the financial company, etc. guarantees repayment of principal and interest, and thus, it is inevitable to lower the ordinary interest rate determined by the financial company, etc. than the ordinary interest rate determined by the financial company, etc. upon receiving the loan from others without guarantee. Considering that the Minister of Strategy and Finance determined and announced an adequate interest rate of 9% per annum or 8.5% per annum at the time of calculating the value of property donated by cash lending in accordance with the purport of delegation by superior statutes, it cannot be deemed that the notice of the Ministry of Strategy and Finance deviates from the limit of delegated legislation

2) In the case of 2014 business year, whether the instant company constitutes a specific corporation under Article 41 of the former Inheritance Tax and Gift Tax Act

Since January 1, 2014, Article 41 of the former Inheritance Tax and Gift Tax Act was amended by Act No. 12168, Jan. 1, 2014, to ensure that gift tax may be imposed on a profit-making corporation, where the ratio of stockholding by the controlling shareholder and his/her relatives exceeds 50%, due to transactions with the specially related person, and where the shareholders of the specific corporation obtain profits prescribed by Presidential Decree.

As alleged by the Plaintiff, even though the instant company does not constitute a juristic person with deficits in the business year 2014, according to the facts acknowledged earlier, it can be seen that the Plaintiff (60%) and his father (40%) possess 100% of the company’s shares. As such, the instant company constitutes a specific juristic person under Article 41 of the Inheritance Tax and Gift Tax Act as amended, and thus, it is possible to impose gift tax on the Plaintiff, who is its controlling shareholder.

(On the other hand, the plaintiff asserts that Article 41 of the Inheritance Tax and Gift Tax Act, which provides for a profit-making corporation with 50% or more of the shareholding ratio of the controlling shareholder and his relatives as a specific corporation, is invalid because it violates the substantial principle of no taxation without law or excessively infringes the shareholder's property rights. However, since the above provision aims to strengthen the taxation on modified donations using a black profit-making corporation as well as a corporation with deficits, its legislative purpose is just, and there is insufficient ground to view the above provision as invalid). Therefore, the plaintiff's assertion on

D. Sub-committee

Each disposition of this case is legitimate.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.