Seocho 2013west 1331 (Law No. 1138, 2013)

The imposition of gift tax is illegal because justifiable grounds exist in the practice of transaction.

The acquisition corporation, instead of acquiring the instant shares, intended to acquire the shares of the non-party company that held the shares issued by the transferee corporation, was aimed at raising business funds by public offering through utilizing the transferee corporation, which is a listed company, while maintaining the management right, and it cannot be deemed that the acquisition corporation was merely based on management judgment and was abnormal.

Inheritance Tax and Gift Tax Act Article 35(1) of the Inheritance Tax and Gift Tax Act: Donations of profits from transfer at low prices

2013Guhap24402 Revocation of Disposition of Imposing gift tax

KimA

O Head of tax office

October 17, 2014

December 5, 2014

1. The Defendant’s imposition of OOO (including additional tax) of gift tax for the year 2007 against the Plaintiff on January 11, 2013 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On December 12, 2006, the Plaintiff, headB, DoB, DoCC, UD, EE, and KimF concluded a management right agreement on the shares issued by GG with HH Co., Ltd. (hereinafter “HH”) as shareholders of the unlisted company (hereinafter “GG”), who is an unlisted company that runs a sexual stem cell business, entered into an agreement on December 12, 2006 to transfer the shares issued by GG (10% of the total issued shares, and shares owned by the Plaintiff’s owner in the name of public II, who is his wife; hereinafter “the shares of GG transferred by the Plaintiff”).

B. On December 12, 2006, J Co., Ltd. (hereinafter referred to as the “JJ”) entered into a contract for acquisition of stocks and management rights (hereinafter referred to as “the acquisition agreement of this case, in addition to the acquisition agreement of acquisition of stocks of GG’s stocks”) between H and H to transfer OO(60% of the total issued stocks) issued by J to HOO(OO(the total issued stocks) as an unlisted company that is a shareholder of this KK (hereinafter referred to as “Plaintiff, etc.”) as an unlisted company that is a shareholder of the company engaging in the education robot business (hereinafter referred to as “the acquisition agreement of this case”).

C. On December 22, 2006, the Plaintiff received the transfer of the transfer price of the instant shares from H to the public account in Section II, and reported and paid the transfer income tax OOO as a result.

D. According to the supplementary assessment method stipulated by the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter the “Inheritance Tax and Gift Tax Act”), the director of the Central Regional Tax Office of China conducted a tax investigation on H, and then notified each tax authority of the relevant taxation data by deeming that HG purchased the stocks at a higher price, although the stocks value of the GG is not equivalent to the OOOO won per share and the shares value of JJ are not equivalent to the OOO won per share without good cause.

E. Accordingly, the Defendant decided to refund the gift tax paid by the Plaintiff on January 11, 2013, and decided and notified that the taxable value of the gift tax = (OO -OO x - 300 million won) under Article 35 of the Inheritance Tax and Gift Tax Act and Article 26 of the Enforcement Decree of the same Act should be OO(OO -O - 300 million won) as the taxable value of the gift tax paid by the Plaintiff (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 9, 11, 12, Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. The plaintiff's assertion

A. The Plaintiff et al. transferred the shares and management rights issued by GG and J to HH according to the RedM proposal, a shareholder of the HongM, who was working for resolving the financial difficulties of GG and J (hereinafter referred to as “LL”), while the Plaintiff et al. transferred the shares and management rights of LL to HH on November 16, 2006, and transferred the entire shares of H HG to OOO, and transferred part of JJ shares to H to OOOO,

B. The acquisition agreement of this case was concluded pursuant to the above MOU as well as the transfer price of stocks of this case, which was received by the Plaintiff, is merely merely an external amount created by HongM in a formal manner while promoting H-related restructuring, and cannot be deemed as a substantial transfer price.

C. Cruelly, even if the Plaintiff received the KRW OO as the price for the transfer of the instant shares, it is reasonable to deem that there exists a justifiable reason in light of transactional practice, since it is an amount agreed upon between unrelated parties through legitimate negotiations in accordance with the purpose of resolving the financial difficulties between GG and J and HJ and promoting H-related restructuring.

D. In addition, the Plaintiff merely lent the accounts of public II pursuant to the above memorandum of Understanding, but did not belong to the Plaintiff from the beginning, and the Plaintiff does not actually enjoy economic benefits equivalent to the above money. Therefore, in relation to the transfer of shares of this case, it cannot be said that there exists a gift act or gift profit subject to gift tax, which is subject to gift tax.

E. Nevertheless, the instant disposition, which took place on a different premise, was unlawful as it was conducted without examining the overall developments and purposes of the transaction conducted between persons without a special relationship.

3. Relevant statutes;

Attached Form is as shown in the attached Form.

4. Determination

(a) Article 35 (2) of the Inheritance Tax and Gift Tax Act;

Article 35(2) of the Inheritance Tax and Gift Tax Act provides that where a property is transferred to a person other than a specially related person at a price substantially higher than the market price without any justifiable reason due to transactional practice, the transferor of such property shall be presumed to have received a donation of the amount equivalent to the difference between the price and the market price, and then the amount equivalent to profits prescribed by the Presidential Decree shall be deemed to be the value of donated property to the person who has acquired such profits. Article 26(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act of the same Act provides that the amount substantially higher than the market price is the value of donated property

The legislative purport of Article 35(2) of the Inheritance Tax and Gift Tax Act is to cope with and promote fairness in taxation by imposing gift tax on the profits earned by the other party to the transaction in cases where profits equivalent to the difference between the price and the market price are, in fact, gratuitously transferred for the benefit of the other party to the transaction by abnormal means that manipulates the transaction price for the benefit of the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other, it is difficult to view the difference as having been donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price, it is difficult to view that the transaction between the unrelated parties was donated to the other party to the transaction. In full view of these points, the taxation requirement of Article 35(2) of the Inheritance Tax and Gift Tax Act is added: “The transaction between the unrelated parties, unlike the transaction between the unrelated parties, must have no justifiable reason to believe the transaction price at a reasonable price reflecting the objective exchange value, and even if there was any objective reason to deem the transferee’s acquisition of property at the transaction price from a reasonable economic perspective, it is reasonable (see, supra.

In addition, in general, in light of the fact that the tax authority bears the burden of proving the fact of taxation requirement in a lawsuit seeking revocation of taxation and the language, content, and form of provision under Article 35(2) of the Inheritance Tax and Gift Tax Act, the tax authority should prove not only that the transferor transferred the property to a person other than the person having a special relationship at a significantly higher price than the market price, but also that there is no justifiable reason in light of transaction practices (see Supreme Court Decision 2011Du2075, Dec. 22, 2011).

B. Details of the instant acquisition agreement, etc.

As to the instant case, the following facts can be acknowledged in full view of the purport of the entire pleadings in the descriptions of health care units, Gap evidence Nos. 1 through 32, Gap evidence Nos. 36, Eul evidence Nos. 3 and 4 (including each number).

1) GG was established around July 2005 by the head BB, who is a financial director from the Plaintiff, UDD, DoCC, and securities company, as a biotechnology venture company that studies sexual stem cells. The Plaintiff and DoCC performed research as a science and engineering doctor’s degree, the representative director, U.S. director, U.D. was in charge of the company’s management, and supported BB-based DoD.

2) LL held approximately 26.07% of the shares issued by H around November 2006, and at the same time, redM secured management rights of H as one shareholder who holds 100% of the shares issued by LL.

Article 1 (Purpose) The purpose of this Agreement is to implement as a principle of mutual trust and good faith the memorandum of Understanding signed on November 16, 2006 between the largest shareholder of GG and redM.

Article 2 (Amount) Section BB shall pay a contract performance guarantee to the redM in order to faithfully implement a memorandum of understanding as follows:

1) The payer: the principal shareholder B of the GG;

(b) Receiving person: RedM in the largest shareholder of LL;

(c) Amount: OOO; and

(4) Date of payment: November 29, 2006

5) Other: The RedM provides, as security for performance guarantee, 380,000 shares of HH with the N Securities as loans of borrowing and lending.

Article 3 (Implementation of Contracts) The Chapter BB and the RedM shall, when the payment of the price for transfer and the delivery of stock certificates pursuant to Article 4 of the Understanding as a smooth implementation of a memorandum of Understanding is carried out, settle the amount prescribed in the preceding Article by appropriating it as an intermediate payment, settle the amount from the transfer price, and settle it from the stock certificates transferred with a memorandum of Understanding giving 380,000 stocks of H offered by HongM to the head

3) On November 16, 2006, the date on which the Plaintiff asserted that the redM and the MO were written, UND and the headB paid KRW 100 million as a check, and on November 29, 2006, the headB drafted a contract with the redM as follows:

4) On November 29, 2006, H lent OOO to GG with respect to the performance guarantee of the said contract, and the head of HB withdrawn it as a check and paid all to redM on the same day.

5) After December 12, 2006, the Plaintiff, etc. entered into the instant transfer agreement with H to the effect that the entire shares of GG and the JJ’s shares will be transferred to OOE as seen earlier.

6) On December 13, 2006, H transferred the acquisition price under the instant transfer agreement to OOO and OOO and a total amount of OOO and a total account of EOOB to the account of EOO and EOOB. On the same day, EOO and EOB transferred the OO and a total amount of OOO and a total of EOOB to PP investment corporation (hereinafter “PP investment”).

7) On December 13, 2006, PP Chang Investment prepared a written agreement on a monetary loan for consumption of OOO members between LL and LL for one month, and remitted OO members to LL on the same day. LL transferred OO members out of the same day to H’s participation in H’s new shares offering (2.9 million shares), and the remainder OO members paid to HongM.

8) On December 21, 2006, H transferred the acquisition price under the instant transfer agreement to the accounts of OOO and OOB to the accounts of OOO and OB. The UDR and COMB paid OOOO as a check on the same day.

9) 유DD은 2006. 12. 22. 홍MM와 사이에 다음과 같이 LL 발행주식 전부인 10만 주 등을 225억 원에 인수하되 HH이 보유한 상장회사인 QQ 주식회사(이하 'QQ'라 한다)의 주식을 홍MM 등에게 165억 원에 양도하기로 하는 내용의 주식 및 경영권양수도 계약서를 작성하였다.

Article 2 (Limit on Transfer of Stocks)

1. Transferable shares: 4,125,722 shares of 100,000 LL issued common shares and H H issued common shares;

2. Transferor: redM; and

3. Transferee: D.

4. Transfer value: OOO.

5. 양도조건 : HH이 소유한 QQ의 보통주 3,083,333주를 홍MM 또는 홍MM가 지정한 자에게 165억 원에 양도

Article 4 (Payment of Transfer Price, Delivery of Stock Certificates, etc.)

1. SDR shall be paid to redM in full on the date of conclusion of this contract;

Article 5 (Matters Guaranteeed by RedM)

3.For the implementation of this Agreement, redM shall guarantee:

1) 홍MM는 대상회사의 양도를 위한 본 계약 체결시 HH이 소유한 QQ의 기명식 보통주 3,083,333주를 OOOO원에 인수한다.

10) In addition, UDR has made a monetary loan agreement between UDR and HongM on the same day with the effect that UDR will lend UDR to HongM for five months, but if HongM fails to repay the above amount, UDR will transfer all LL stocks and management rights in its possession to UDR to UDR.

11) The RedM did not repay the above loans OOOO Won to UDR. Accordingly, the Plaintiff, UDR, DuB, and DoCC acquired all LL from HongM under each borrowed name. Each borrowed shareholder’s shares in acquisition of RR (CC’s wife), U.S., and KimT are 21%, respectively, and the old U.S. (CB’s wife’s wife) is 37%.

12) On December 22, 2006, H transferred the acquisition price under the instant transfer agreement to the account of this K to the account of OOwon and the Plaintiff’s wife, as the acquisition price. The headB withdrawn all of the funds on the same day, and paid OO0 won for the subscription price of convertible bonds to H in the name of a minority shareholder of GG.

13) On the same day H transferred the KRW 000 to the account of DoCC as the acquisition price under the instant transfer agreement, H transferred the KRW 00 and KRW 00 to the account of DoCC, EK, and KimF. On the same day, the headB withdrawn the KRW 00 as a check and paid it to redM.

14) On January 11, 2007, H remitted the acquisition price under the instant transfer agreement to the UDR account, and UDR withdrawn OOOO won on the same day and paid to EE.

15) On the other hand, the head of HB appeared as a witness of the relevant case where KR seeks revocation of the disposition of imposition, such as gift tax, against the director of the tax office, and the head of HB held that KR had been in custody of a U.S. as to the location of the memorandum of understanding claimed by the Plaintiff. While having entered HH, I died in March 2007 when he/she was receiving treatment from the hospital. Since then became complicated due to tax issues, I stated that KR’s denial was not subject to understanding as having left the United States.

C. Whether it is subject to gift tax

1) The existence and content of the memorandum of Understanding dated November 16, 2006

먼저 위 인정사실에 의하여 알 수 있는 다음과 같은 사정 즉, ① 장BB과 홍MM는 2006. 11. 29. 작성한 계약서에서 원고가 주장하는 양해각서의 성실한 이행을 담 보하기 위하여 계약이행보증금을 지급하기로 약정하였으므로 2006. 11. 16.자 이행각서가 존재하였음을 알 수 있고 그에 따라 실제로 같은 날 장BB이 홍MM에게 OOOO원의 이행보증금을 지급한 점, ② 유DD은 2006. 12. 22. 홍MM와 사이에 LL 주식 등을 OOOO원에 인수하는 대신 HH이 보유하고 있던 QQ의 주식을 OOOO원에 홍MM에게 양도하기로 약정하였는바, 이 역시 원고가 주장하는 양해각서의 내용과 일치하는 점, ③ 여기에 이 사건 양수도계약의 내용과 그 이행과정, PP창투와 LL의 금전소비대차약정의 내용과 뒤이어 이루어진 LL의 HH 유상증자 참여 등의 정황을 종합하여 보면, 비록 원고가 주장하는 양해각서가 제출되않았고, 홍MM의 행방 역시 확인되지 않았다고 하더라도 원고 등과 홍MM 사이에는 앞서 본 일련의 주식양수도 및 금융거래를 거쳐 HH이 GG 및 JJ가 발행한 주식을 인수하는 대신 원고 등이 HH의 주식을 보유한 LL의 주식을 취득하기로 하는 내용의 합의가 있었던 것으로 넉넉히 추단할 수 있다.

(ii) the existence of justifiable reasons for transaction practices;

Furthermore, in light of the following circumstances, the Plaintiff’s transfer of the instant shares to H was recognized as having no justifiable reason for transaction practices in determining the transfer price at the time of the transfer of the instant shares, and the fact that the Plaintiff was not aware of the transfer of the instant shares to H to H, and there is no other evidence to acknowledge that there was no justifiable reason in light of the transaction practices. Rather, in light of the following circumstances acknowledged by comprehensively taking into account the agreement between the parties involved in the transfer of the instant shares before and after the transfer of the shares, a series of transaction details, and the purport of the entire argument at the time of November 16, 2006, the facts recognized as seen earlier and the evidence revealed earlier, it is reasonable to deem that there was a justifiable reason in light of the transaction practices in which the Plaintiff transferred the instant shares to H to 10,765 won per week.

A) At the end of 2005, YV doctorate’s thesis manipulation case, which conducted a stem cell study, was known, and around 2006, YV doctorate’s research on the sexual stem cell, which was similar fields, was indicted due to fraud, embezzlement, etc., appears to have been difficult to attract investment. In light of the content of the MO’s memorandum of understanding that is inferred as above, the reasons why the Plaintiff et al. prepared the instant letter of understanding between the HongM and the RedM appears to be aimed at continuously managing the sexual stem cell research project by seeking ways to attract investment, and does not simply seem to have obtained profits by disposing of the instant shares.

B) After a series of shares transfer and financial transactions in accordance with the memorandum of Understanding have been completed, the Plaintiff et al. acquired the LL’s share as the price for the transfer of the instant shares. Since the Plaintiff et al. was able to control GG by phase through LL and again through H, the Plaintiff et al. was able to easily raise the project fund by offering shares by utilizing H, a listed company, even while maintaining the management right for GG as it is. Ultimately, the purpose of the memorandum of Understanding seems to be not to transfer the instant shares possessed by the Plaintiff et al., but to facilitate the raising of funds through a change in corporate governance structure or a right transfer by the J and J.

다) 홍MM 역시 양해각서에 따른 일련의 거래를 통하여 자신이 보유한 LL의 주식을 원고 등에게 양도하는 대가로 HH이 보유한 QQ 주식과 OOOO원 정도의 현금을 취득할 수 있게 되었고, HH 역시 GG 및 JJ라는 두 첨단 벤처기업의 주식 및 경영권을 인수하였을 뿐 아니라, 그 대가로 지급한 주식대금 약 OOOO원 중 약 OOOO원(유상증자대금 OOOO원, 전환사채청약대금 OOOO여원, QQ 주식 양도대금 OOOO원) 정도를 다시 HH으로 환원시킬 수 있었으므로, 그와 같은 일련의 거래는 각 거래 당사자들의 경영상 판단에 따른 것으로 보일 뿐, 합리적인 경제인의 관점에서 비정상적이었다고 볼 만한 객관적인 사유가 있었다고 보기 어렵다.

D) As stipulated in the instant acquisition agreement, approximately KRW OOOOO was merely nominal and immediately withdrawn from the Plaintiff’s account and returned to H or HongM. The Plaintiff et al. received LL’s shares as the price for transfer of GG and JM’s shares through a series of processes set out in the written agreement. As such, since the Plaintiff et al. received LL’s shares as the price for transfer of stocks from HongM, the Plaintiff et al., and HongM et al. were to bring about the same effect as the Plaintiff et al. entered into an agreement to de facto exchange LL shares with GG and J with H via H.

E) Therefore, it is reasonable to deem that the actual acquisition by the Plaintiff, etc. as the price for the transfer of the instant shares is the only share of the LL and the transfer value of the instant shares is determined according to the value of the LL shares. However, since data to estimate the value of the instant shares in addition to the shares of H H owned by the LL was not submitted, it is difficult to readily conclude that the Plaintiff, etc. transferred the instant shares at a price significantly higher than the market price.

F) In addition, interpreting that there was no justifiable reason for the practice of transaction immediately on the ground that only the instant acquisition agreement, which is a part of the entire transaction, was transferred at a price significantly higher than the market price without examining the purpose and circumstances of the entire transaction in accordance with the awareness of understanding as above, is unreasonable as it goes against the legislative intent of Article 34(2) of the Inheritance Tax and Gift Tax Act, which requires that there is no justifiable reason in light of the transaction practice with respect to the transaction

G) More than anything else, redM or H did not have any special relationship with the Plaintiff did not find any reason or motive to transfer economic benefits from the date of free transfer to the Plaintiff, etc. In light of the actual transaction’s results, it does not seem that the Plaintiff was in the position of controlling the transfer price or enjoying its benefit since the amount transferred as the transfer price of the instant shares was anticipated to be returned to HH and HongM through a series of processes from the beginning.

3) Sub-determination

Therefore, it is reasonable to view that the Plaintiff’s transfer of the instant shares to H is justifiable in light of the transactional practice. Thus, the instant disposition different from the premise is unlawful, and the Plaintiff’s assertion pointing this out is with merit.

5. Conclusion

The plaintiff's claim is accepted, and the costs of lawsuit are assessed against the losing defendant. It is so decided as per Disposition.