Donation for allocation, etc. of real rights under Article 31-4 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

The costs of lawsuit shall be borne by the plaintiffs.

Cheong-gu Office

The disposition of imposition of gift tax of KRW 73,522,780 on June 15, 2005 by the head of the tax office of ○○○○○ on the part of the plaintiff Lee○○○ on the part of June 15, 2005, by the head of the tax office of ○○○○○○○○ on June 15, 2005 on the gift tax of KRW 13,51,380 on June 15, 2005, by the head of the tax office of ○○○○○○○○○○○○ on the part of the plaintiff Lee○○○○○○ on the part of June 15, 2005, on the gift tax of KRW 9,853,840 on June 15, 200, by the head of the tax office of ○○○○ on the part of the plaintiff ○○○ on the part of the plaintiff 1,80

A. “○○○○○○○○○○ 2, ○○○ 2, 00, 370-92, and business registration number: ○○ 2, 00, 370, and 300, respectively, were established to carry on food manufacturing, processing, and trade business. ○○ 3,00, 302-4, and 4: 00,000, 30,000, and 7,000, 30,000, and 4,000, owned shares of 7,00,000, and 7,000,000, 3,000, and 4,00,000, and 3,000,00,000, and 7,000,00,000,000,000,00,000,00,00,00,00.

D. In applying Article 42(2) of the Inheritance Tax and Gift Tax Act (amended by Act No. 6301, Dec. 29, 2000; hereinafter “Act”) and Article 31-4(1)1 of the Enforcement Decree of the Act (amended by Presidential Decree No. 17039, Dec. 29, 200; hereinafter “Enforcement Decree of the Act”), the Defendants’ acquisition of forfeited stocks of this case by ○○○○○ Fund’s offering of forfeited stocks is deemed to have acquired the forfeited stocks of this case at a high price, and thereby, the Plaintiffs were deemed to have gained profits. In addition, the Defendants deemed to have received the forfeited stocks of this case by ○○○ Fund’s acquisition of 40,00 won per share and the appraised value per share after ○○○ Fund’s acquisition of forfeited stocks of 227,908 won to be subject to imposition of gift tax from 518,6307,707,790 and 3708 of the newly issued stocks of this case (hereinafter “O○ Fund”).

Year

Amount deemed as gift;

Amount of gift tax

○○ Head of tax office

○ ○

June 15, 2005

200

Reversion

312,581,369 [2,034X (40,000-227,908) X89.3%];

73,522,780

○ Head of tax office

Ma-○

June 15, 2005

200

Reversion

96,509,882 [628X (40,000-227,908) X89.3%]

13,511,380

○ Head of tax office

○ ○

June 15, 2005

200

Reversion

70,384,595 [458X (400,000-227,908) X89.3%]

9,853,840

○ Head of tax office

○ ○

June 15, 2005

200

Reversion

12,908,965 [84X (40,000-227,908) X89.3%)

1,807,250

E. The plaintiffs appealed and filed an appeal with the National Tax Tribunal on July 2005, but received a decision of dismissal on June 30, 2006.

[Ground of recognition] Facts without dispute, Gap 2 through 5 evidence, Gap 6-2, Gap 9, 10, 11 evidence, Eul 3 to 8 evidence, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

(1) A person who is not a related party

"(A) The plaintiff who renounced the acceptance of the forfeited stocks of ○○○○○ and the ○○○ Fund that accepted the forfeited stocks of this case are not specially related persons provided for in the Act and the Enforcement Decree of the Act." (b) Nevertheless, the instant disposition of taxation, which held that the ○○ Fund in which the ○○○ Fund, having a special relation with the plaintiff, acquired the forfeited stocks of this case, is identical to the acquisition of the forfeited stocks of this case, is unfair as it violates the legal principle of taxation requirements." (2) The illegality of evaluation by supplementary evaluation methods is unjust.

"The value of the property on which the gift tax is levied is stipulated to be the market value as of the donation date." (A) The market value under the provisions of the law refers to the value deemed ordinarily established when free transaction takes place between many and unspecified persons; (b) ○○○○○○○○○○○○○○○○○○ Fund is an association established by joint investment of ○○○○ Fund and ○○○○○○○○ Investment Fund (hereinafter referred to as “○○○○○○○ Investment”)." (c) Even though it is deemed that ○○○○○ Fund acquired the forfeited stocks of the instant ○○○○○○○○○○○○○ Fund, a partner, was not the same as ○○○○○○○○○○ Fund’s acquisition of the forfeited stocks, and thus, it constitutes an acquisition price of ○○○○○○○○○○○’s shares, which constitutes an acquisition price of the pertinent ○○○○○○○○○ Fund, which is one having no special relationship with the relevant party.

(E) Nevertheless, the instant disposition, which was based on the value assessed by a supplementary assessment method under the statute, is unlawful.

(b) Related statutes;

The Act (amended by Act No. 6301 of Dec. 29, 2000)

Article 39 Presumption of Donation at the time of capital increase or decrease

(1) In the event that the capital or investment amount of a corporation is increased or decreased, the person who receives any benefits falling under one of the following subparagraphs, shall be deemed to have received such benefits as a donation:

1. In case where a shareholder of the relevant corporation (including an investor; hereafter the same shall apply in this Article) has renounced in whole or in part the right to receive new stocks for the purpose of increasing the capital or investment amount of the relevant corporation (hereafter referred to as “new stocks” in this paragraph), benefits under the provisions of the following items (in case where there are not less than 2 minor shareholders who have renounced in whole or in part the right to receive new stocks, it means the benefits which are calculated by deeming that one minor shareholder has renounced his right:

(a) In case where such renounced new shares (hereafter in this paragraph, referred to as the “actual shares”), are again allocated (excluding the case where allocating such forfeited shares by the method of public offering of securities under Article 2 (3) of the Securities and Exchange Act), the benefits as prescribed by the Presidential Decree from among the benefits acquired by a person who received by obtaining by allocation the forfeited shares;

○ Article 42 Other Donation Donation Donation

(2) In addition to the cases of paragraph (1) and Articles 33 through 41-4, where the property is transferred without compensation through the transactions as prescribed by the Presidential Decree among the related parties, the value of the property as prescribed by the Presidential Decree shall be considered to have been donated to the person in a special relationship at the time the person to whom the property is transferred.

(3) Matters necessary for the calculation of the special person and the property value under paragraph (2) shall be prescribed by the Presidential Decree.

○ Principles, etc. of assessment under Article 60

(1) The value of property on which an inheritance tax or a gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 6

(2) The market price as referred to in paragraph (1) shall be the value which is considered to be normal in the case of free trade between many and unspecified persons, and shall include the expropriation and public sale price, appraisal price, and others which are deemed to be the market price

(3) In applying paragraph (1), where it is difficult to compute the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, scale, transaction status, etc. of the relevant property.

(4) In applying the provisions of paragraph (1), the value of the donated property to be added to the value of the inherited property pursuant to the provisions of Article 13 shall be the market price as of

Article 63. Appraisal of Securities, etc.

(1) Securities, etc. shall be appraised by the following methods: < Amended by Act No. 5591, Dec. 28, 1998; Act No. 6043, Dec. 28, 199

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be appraised by the method as prescribed by the Presidential Decree in consideration of corporate assets and revenues

Enforcement Decree of the Act (amended by Presidential Decree No. 17039 of Dec. 29, 2000)

Article 19: Inheritance Deductions of Financial Property

(2) For the purpose of Article 22 (2) of the Act, the term “major stockholder or largest investor as prescribed by the Presidential Decree” means the relevant stockholder, etc. in case where the total sum of stocks held by one stockholder or one investor (hereinafter referred to as the “shareholders, etc.”) and persons having relations falling under any of the following subparagraphs is the largest: < Amended by Presidential Decree No. 16664, Dec.

1. Relatives;

2. Persons other than employees and employees, who maintain their livelihood with the property of such stockholders, etc.;

3. Person who is deemed to exercise de facto influence over the management of an enterprise group as determined by the Ordinance of the Ministry of Finance and Economy through the exercise of the right to appoint and dismiss the officers of the enterprise group (including persons who are officers of the enterprise), as determined by the following items, or through the determination of business policies:

(a) Other companies belonging to an enterprise group;

(b) A person who substantially controls an enterprise group;

(c) Relatives of the persons under item (b);

4. Non-profit corporations established by one stockholder, etc. and persons under subparagraphs 1 through 3 who form the majority of the directors or contribute assets;

5. Nonprofit corporations in which an officer of an enterprise under the main sentence of subparagraph 3 or (a) is the president.

6. The corporation in which one stockholder and persons under subparagraphs 1 through 5 own 30% or more of the total number of stocks issued;

7. The corporation in which one stockholder and persons under subparagraphs 1 through 6 own 50% or more of the total number of stocks issued;

8. Non-profit corporations established by one stockholder, etc. and persons under subparagraphs 1 through 7 who form the majority of the directors or contribute assets;

Article 26 (Scope of Person with Special Relationship and Low Price Transfer)

(4) The term “a person in a special relationship” as referred to in Article 35 (1) 1 and 2 of the Act means a person who is in the relationship falling under one of the following subparagraphs with a transferor or transferee (hereafter in this paragraph, referred to as a “transferee, etc.”): < Amended by Presidential Decree No. 15506, Nov. 10, 1997; Presidential Decree No. 15969, Dec. 31, 1998;

1. A person who falls under Article 19 (2) 1, 2, and 4 through 8. In such cases, "one stockholder, etc." shall be deemed "transferee, etc.";

○ Article 29 Capital increase. Method, etc. of calculating the value deemed donated upon capital reduction.

(5) The provisions of Article 26 (4) shall apply mutatis mutandis to the persons having the special relationship under paragraphs (3) and (4). In this case, "transferor, etc." shall be deemed "one stockholder, etc.".

○ deemed donation for allocation of forfeited stocks, etc. under Article 31-4

(1) In one of the following cases, the amount equivalent to the relevant benefits shall be considered to have been donated to a person having a special relationship or the largest stockholder, etc. under Article 42 (2) of the Act: < Amended by Presidential Decree No. 15969, Dec. 31, 1998>

1. Where, in allocating forfeited stocks under Article 39 (1) 1 (a) of the Act, a stockholder who renounced the relevant rights acquires profits by accepting the forfeited stocks by a person who has renounced all or part of the rights to receive new stocks: The amount calculated by the following formula:

(value under paragraph (2) 2 of Article 29 - Value under paragraph (2) 1 of Article 29, value under paragraph (2) of Article 29), X number of forfeited stocks

The number of forfeited stocks acquired by a person in a special relationship with forfeited stockholders;

X---------------- ------ ------------ each of the following categories:

Total Number of forfeited Stocks

○ Principle, etc. of Assessment under Article 49

(1) For the purpose of Article 60 (2) of the Act, the term “those recognized as the market price under the conditions as prescribed by the Presidential Decree, such as the expropriation, public auction price, appraisal value, and appraisal value, etc.” means, only in cases of sale, appraisal, expropriation, auction (referring to an auction under the Civil Procedure Act; hereafter in this paragraph, the same shall apply) or public auction, during a period of not more than 6 months before and after the standard date of appraisal (3 months in the case of donated property), the amount verified under one of the following subparagraphs: < Amended by Presidential Decree No. 159

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not include cases where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship as referred to in Article 26 (4);

Support for Small and Medium Enterprise Establishment

○ Article 2 Definitions

The definitions of terms used in this Act shall be as follows:

5. The term “small and medium enterprise start-up investment association” (hereinafter referred to as “small and medium enterprise start-up investment association”) means an association registered under Article 11, the main purpose of which is to invest in founders and distribute the results thereof;

○ Formation, etc. of an association

(1) When persons other than start-up business start-up business investment companies and start-up business investment companies establish a start-up business investment association, they shall register with the Minister of Trade, Industry and Energy.

(2) Any start-up business investment association shall consist of one general partner with unlimited liability for the association's obligations and limited partners with limited liability within the limit of their investments. In this case, the general partner from among investors shall be a start-up business investment company, and persons other than a start-up business investment company shall be limited partners.

(3) Members of the cooperative may invest the full amount of their investment in a lump sum or in installments as stipulated by the articles of association.

(4) Necessary matters concerning the requirements for registration, such as the amount of investment, number and duration of association shall be prescribed by Presidential Decree.

○ 15 Protection of partnership property

The creditors of members of any equity investment association may, notwithstanding the provisions of Articles 704 and 712 of the Civil Act, exercise their claims within the limits of the amount of contributions made by such members to such equity investment association.

Article 18 of the Civil Act shall apply mutatis mutandis

Except as otherwise provided for in this Act, the provisions governing associations in the Civil Act shall apply mutatis mutandis to start-up investment cooperatives.

(c) Fact of recognition;

"(1) ○○○ Fund was established under the Support for Small and Medium Enterprise Establishment Act on April 12, 2000 on which ○○○○ Fund (general partner) invested 89.3% of its total investment amount of KRW 2,350,000,000, and 10.7% of its total investment amount of KRW 2,350,000 (general partner) and ○○○○ Fund (general partner) invested 10.7% of its total investment amount as an investment association that is a partner, and was established under the Support for Small and Medium Enterprise Establishment Act on April 12, 200 (in accordance with the evidence evidence No. 9, ○○ Fund’s general partner was indicated as ○○○○○○, but the attached list of general partners was indicated as ○○○○-○-○○-○○○○○○○○ Fund’s business registration number, and the address of ○○○ Fund was also the principal office of ○○○ Fund’s general partner’s investment shares in proportion to remuneration 36.

(3) Around 1999, ○○○ Investment acquired 14,90 shares of ○○○ (14.9%) and disposed of it around 2000.

After offering ○○○○○’s capital increase on June 20, 200, on September 25, 2001, ○○○○○○○○○ Company acquired and held 60,000 shares of ○○○○○○○○ Investment (2.73% of shares) from the Foundation, and sold all of the shares to ○○○○○○○ Investment Company, a related company of ○○○○○○○○ Investment; and

(4) Meanwhile, on June 20, 200, 200 and July 11, 200, 2000, ○○○○○○ issued capital increase without compensation (or 5.63 shares per old share). around August 2002, 200, ○○○○○ Fund sold 1,60 shares to ○○○○○○ to 65,860 shares per share. Around August 29, 2002, upon dissolution of the partnership, distributed ○○○ and ○○○○○ Investment, a partner, to ○○○○○○ Investment.

(5) On December 4, 2003, 2003, ○○○○○○○○○○○ shares acquired KRW 73,000 per share of KRW 73,00 per share.

(6) If the transaction value of ○○○○○○ shares was converted into one share price before capital increase without compensation in 2002, and 2003, the price per share in 2002 is 436,701 won, and 484,045 won in 203.

[Ground of recognition] Facts without dispute, Gap 2 through 5 evidence, Gap 6-2, Gap 9, 10, 11 evidence, Eul 3 to 13 evidence, and the purport of the whole pleadings

D. Determination

(1) Whether the transaction between the Plaintiffs and ○○ Fund constitutes a transaction between related parties

(A) ○○○ Fund is a small and medium enterprise establishment investment association under the Support for Small and Medium Enterprise Establishment Act, and except for the provisions of Articles 11 through 17 of the above Act, the provisions of the Civil Act on associations apply mutatis mutandis (Article 18 of the above Act). Thus, ○○ Venture Investment, which is a general partner, shall be deemed as an association under the Civil Act, which is a member of the association.

(B) However, according to the legal principles of the association agreement under the Civil Act, ○○ Fund is difficult to be deemed a third party, and since the property of the association is combined with that of the association, ○○ Fund’s acquisition of forfeited stocks of this case can be deemed as acquisition by each member of the association at the ratio of his share (see Article 711 of the Civil Act).

In particular, as seen in the above facts, ① ○○ Fund was established before 2 months prior to the time of capital increase with ○○○○ Fund’s capital increase (the June 20, 200), ② ○○ Fund was established in the absence of any partner other than ○○○ Fund, ③ ○○ Fund appears to have actually exercised ○○ Fund’s management right, ④ ○○ Fund acquired forfeited stocks as a member of the association, and ○○ Fund owned the forfeited stocks of this case, which are partnership property, in the form of collective ownership. It can be deemed that the Plaintiffs, who actually owned ○○○○ Fund’s stocks 9%, indirectly controlled the forfeited stocks of this case, and ⑤ ○○ Fund’s acquisition of ○○○ Fund’s stocks again with ○○○ Fund’s dissolution, cannot be seen as accepting the Plaintiffs’ assertion on the premise that ○○ Fund acquired ○○ Fund’s forfeited stocks separately from the Plaintiff’s special relation.

(2) Whether evaluation by supplementary evaluation methods is unlawful

“(A) The market price as stipulated in Article 60(2) of the Act refers to an objective exchange price formed through a normal transaction, and there should be circumstances to deem that the transaction price objectively reflects the general and normal exchange price at the time of donation in order to fall under the market price at the time of donation. Also, there should be no change in the price between the donation and the above trading date (see Supreme Court Decision 9Du2505, Feb. 11, 200). However, as seen earlier, ① acquired ○○○○○ Investment’s shares; ② ○○○○ and ○○○○ Investment are members of ○○○○ Fund’s relationship with the general partner, and there is interest in the distribution of profits and losses; ③ ○○○○○○○○ Investment’s acquisition of 00 shares at the time of exchange of 00 shares at the time of exchange of 00 shares at the time of exchange of 00 shares at the time of exchange of 00 shares at the time of exchange of 200 shares.

In conclusion, the disposition of this case based on the value assessed in accordance with the supplementary assessment method under Article 60(3) of the Act is legitimate by deeming the acceptance of forfeited stocks of this case as "trade between parties in a special relationship", and 3. Conclusion

Therefore, since the plaintiffs' claim against the defendants of this case is without merit, it is decided as per Disposition with the rejection of all of them.