Seoul Administrative Court 2010Guhap19447 ( October 12, 2011)

Cho High Court Decision 2008Du2075 (Occ. 10, 2010)

If the value of shares in the share swap and transfer ratio written by the accounting corporation is significantly wrong, it shall not be deemed as the market price.

(As in the case of an all-inclusive share swap, it is reasonable to apply the gift of profits from a merger rather than the gift of profits from a merger. If the value of shares in the share swap ratio prepared by an accounting firm is considerably erroneous, it shall not be deemed as the market price if it is considerably erroneous.

2011Nu17273 Revocation of Disposition of Imposition of Gift Tax

XX

Head of Yongsan Tax Office

Seoul Administrative Court Decision 2010Guhap19447 decided May 12, 2011

January 11, 2012

February 8, 2012

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's disposition of imposition of gift tax of KRW 15,914,329,530 against the plaintiff on February 11, 2008 shall be revoked.

1. cite the judgment of the first instance;

The reasons why this Court is used for this case are as follows, and except for addition to the corresponding part of the judgment on the matters alleged by the plaintiff in the trial, it is identical to the reasons for the judgment of the court of first instance. It shall be cited in accordance with Article 8(2) of the Administrative Litigation Act and the main sentence of Article 420

The following amounts shall be added to the 12th part of theO(the third part).

On January 4, 2008, the director of the Seoul Regional Tax Office applied Article 52 of the Corporate Tax Act with respect to the instant shares 647,300 shares exchanged with the Plaintiff in a special relationship with the non-party company in accordance with the comprehensive share swap contract between XX, in addition to the calculation of the wrongful calculation amounting to KRW 20,382,50,06,050, and disposed of them as other outflow.

O 1 to 3, 5, and Eul l to 3, 5, 6, 8, 15, respectively in the following five-4th [based on recognition] below the third.

O's testimony of the RedA witness of the trial shall be added to the 7-8th [based grounds for recognition] of the 11st day.

From the fourth to the third third day below the third day, the following shall take place:

Meanwhile, even if the parties to a transaction have concluded an exchange contract through an appraisal by a specialized appraisal institution in accordance with the method, procedure, etc. prescribed by the relevant provisions, such as the Securities and Exchange Act, even if they were to have concluded an exchange contract in the form of a comprehensive share swap contract, if the assessment is calculated without due consideration of the circumstances based on false data or should be considered, so if the value or exchange ratio was significantly erroneous, the price based on

After the 15th "predicting", ① if it was found that the sales revenue of the non-party company in the first quarter of January 2006 due to the non-party company's failure to present false sales statements, was rapidly reduced, the OO accounting firm will confirm the cause of the decrease even if the accounting data was not yet completed the settlement of accounts and then reflect the decrease in sales in an appropriate way after confirming the cause of the decrease and confirming the fact that the sales amount was reduced due to the suspension of transactions with the customer, and ④ the same reduction 5.

From the 11th day of the 16th day to the following 2th day:

(4) As to the market price

(A) In case where the property is transferred to a lower-class third party under Article 35(1)2 of the Inheritance Tax and Gift Tax Act at a higher price than the market price, the transferor of the property shall be deemed the value of donated property equivalent to the profits prescribed by Presidential Decree. According to Article 26(2) and (3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, “the higher price” under Article 35(1)2 of the Inheritance Tax and Gift Tax Act refers to the value calculated by subtracting the market price from the transferred property at a higher price than 30/100 or more if the market price is at least 300 million won, and “the profits prescribed by Presidential Decree” refers to the amount calculated by subtracting the smaller of the market price from the difference between the price calculated pursuant to paragraph(2) and the market price at a higher price

In full view of these provisions, the market price of the relevant property must be determined first in order to determine whether it falls under high-priced transfer and the value of donated property due to high-priced transfer, and the liability for proving the market price lies on the Defendant, who is the tax authority. The Defendant determined that the amount of KRW 50,000 per share sold 131,100 to 37 persons from April 26, 2006 to May 30, 2006, considering that the Plaintiff’s title trustee, BB, etc., sold 37 persons over 37 times during the period from April 2

According to Article 60(1) of the Act, the value of property on which a gift tax is levied shall be based on the market price as of the date of donation. According to Paragraph(2), the market price under Paragraph(1) shall include the value which is generally accepted in cases of free transactions between many and unspecified persons and which is recognized as the market price as prescribed by Presidential Decree, such as expropriation, public sale price

Article 60 of the Act provides for the principle of valuation of the value of property on which a gift tax is levied (the principle of assessment of the protocol, etc.). In the event of a gift tax is imposed, the determination of whether a gift tax is imposed pursuant to this provision is based on the principle of the value of the property. Article 35 of the Act provides, “Where a person takes over property from another person at a price lower than the market price or transfers property at a price higher than the market price to another person, the transferee or transferor is deemed to have received an amount equivalent to the difference between the price and the market price without compensation and imposes a gift tax on an amount equivalent to the benefit therefrom.” Article 35 of the Act provides, “Where a gift tax is levied” rather than determining the value of the property,

Article 49 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "those recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public auction price, appraisal price, etc." under Article 60 (2) of the Act refers to the amount confirmed according to any of the following subparagraphs in cases of sale, appraisal, expropriation, auction, or public auction within six months (three months in the case of donated property) before the base date of appraisal, and one of them is the transaction value (Article 1) if there is a transaction fact in the relevant property, that is, transaction example.

Therefore, business example is for determining the value of the gift tax if the gift tax is imposed under the above law.

However, the market price is, in concept, the value that is generally deemed to be constituted if free transactions take place between many and unspecified persons, and 50,000 won per share, the value of which is 131,100 shares over 37 times from April 26, 2006 to May 30, 2006, falls under the price formed through normal transactions, which reflects an adequate objective exchange value among unspecified and unspecified persons who have no special interest. The Defendant’s deeming the market price of the instant shares as 50,000 won and deeming the instant shares transaction as a high-value transfer is reasonable.

(B) The share swap agreement with the Plaintiff and the Plaintiff 34 is based on the wrong valuation that cannot be viewed as reflecting the objective value at the time of share exchange, such as the transaction between XX and the Plaintiff, and thus is not an market price.

O-related Acts and subordinate statutes shall be replaced by attached statutes.

2. Matters to be judged additionally;

A. The plaintiff's assertion

1) Article 35 of the Inheritance Tax and Gift Tax Act applicable to a transaction of stock is not a transaction of profit and loss by comprehensively exchanging stocks under Article 360-2 of the Commercial Act. Therefore, Article 42(1)3 of the Inheritance Tax and Gift Tax Act applicable to a transaction of profit and loss cannot be applied. Article 28(1) of the Inheritance Tax and Gift Tax Act shall apply to the calculation of the value of donated property, which is a provision on a merger similar to the merger of stocks comprehensively exchanging stocks with other corporations. The gift tax under the proviso to Article 28(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act prescribing that a stock-listed corporation under the Securities and Exchange

2) Even if the proviso of Article 28(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act cannot be applied, and even if the value of the shares of the non-party company is KRW 50,000 per share, the calculation of the value of the shares of the non-party company should be made by taking into account the effects of dilution pursuant to Article 28 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Pursuant to the above method, the Defendant calculated the amount of donated shares belonging to the Plaintiff to KRW 5,494,143,144 [excluding the portion of 19.47% equity ratio corresponding to the shares acquired on June 1, 2006 by the Plaintiff, which was acquired on June 1, 2006, when calculating the actual gains from the previous shareholders, excluding the portion of 19.47% equity ratio, 5,494,143,144 won [ = 6,822,480,00 LJx (OO%).

3) If a transaction of stock in this case is deemed a transaction of profit and loss, the part corresponding to the transfer of stocks should be included in the corporation's gross income. Article 106 (1) 3 (i) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007) which was enforced at the time of the transaction of stock in this case stipulates that the amount to be included in the gross income pursuant to Article 88 (1) 8 (which was included in the calculation of profit through a merger, increase in capital, reduction in capital, etc.) and the amount to be imposed on a person to whom the ownership belongs must be disposed of as other outflow from the company, but Article 88 (1) 1 (the amount of profit from a provisional purchase) and 3 (the amount of profit from a transfer) did not stipulate that the amount of

In the event that the former Enforcement Decree of the Tax Credit Act (amended by Presidential Decree No. 19891, Feb. 28, 2007) applies to the stock transaction of this case, the sales of the shares of this case from the Plaintiff on August 17, 2006 is subject to the provision of the denial of wrongful calculation, and even if the provision of the denial of wrongful calculation is applied, the amount of KRW 25,056,335,70 ( =(88,709-50,00) included in gross income) plus X647,300) included in gross income should be disposed of as a bonus to the Plaintiff who is the representative director under Article 106(1)1(b) of the Enforcement Decree of the Tax Credit Act. Accordingly, in accordance with the Enforcement Decree of the Corporate Tax Credit Act, the gift tax shall not be imposed, apart from the imposition of the income tax on the Plaintiff

Meanwhile, Article 20 (1) 1 (c) of the Income Tax Act lists the amount that is disposed of as a bonus under the Corporate Tax Act as earned income, and Article 49 (1) 3 of the Enforcement Decree of the Income Tax Act provides that the receipt date of earned income shall be the date on which the labor is provided during the pertinent business year, and Article 21 (1) of the Framework Act on National Taxes provides that the time when the income tax liability is established shall be the end of the taxable period. Therefore, if the income is disposed of, the amount that is disposed of as a bonus under the Corporate Tax Act regardless of whether the notice of change in the amount of income to the corporation is served or not is served, falls under the amount that is disposed of as a bonus under the Corporate Tax Act,

However, Article 106(1)3 (i) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 22, 2008) (amended by Presidential Decree No. 20619), which was included in gross income pursuant to Article 88(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 2, 2008), was amended to the effect that the amount subject to gift tax is imposed on a person to whom such amount should be attributed, so income tax cannot be imposed. Article 19 of the former Enforcement Decree of the Corporate Tax Act provides that Article 106(1)3 (i) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619, Feb. 1, 2008) shall apply to the first disposal after this Decree enters into force. However, the above Addenda provisions are invalid since income tax liability becomes effective in violation of the principle of retroactive taxation prohibition, etc.

4) Article 42(3) of the Inheritance Tax and Gift Tax Act shall apply to the stock transaction of this case. Article 42(3) of the Inheritance Tax and Gift Tax Act provides that “The provisions of paragraph (1) shall not apply where there are justifiable reasons for transaction practice among unrelated parties.” Whether there exists such special relationship should be determined based on the date of conclusion of the contract. On June 1, 2009, the date of the conclusion of the comprehensive stock exchange contract of this case, which is the date of the instant comprehensive stock exchange contract, the Plaintiff is not a party with a special relationship. The instant stock transaction was conducted for business purposes between the Plaintiff and unrelated parties, such as XX, and thus, constitutes justifiable

B. Determination

1) As to the assertion that Article 42(1)3 of the Inheritance Tax and Gift Tax Act and Article 28(1) of the Inheritance Tax and Gift Tax Act shall apply

Article 35 of the Inheritance Tax and Gift Tax Act may apply to the case of an all-inclusive exchange of shares by comparing the value of shares issued by the parent company and the subsidiary company at the time of the exchange. Article 42(1)3 of the Inheritance Tax and Gift Tax Act may not apply to the case of an all-inclusive exchange of shares, as long as there is no provision in the same Act. Article 28(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act concerning the merger is different from the merger,

2) As to the assertion that the calculation of increase in earnings was erroneous without considering the dilution effect

Article 35(1)2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) provides that where property is transferred to a higher price than the market price, the amount equivalent to the difference between the price and the market price and the amount equivalent to the profits prescribed by Presidential Decree shall be deemed the value of donated property. Accordingly, Article 26 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008) provides that "high price" means, where the value calculated by subtracting the market price from the transferred property is at least 30 percent of the market price, or the difference is at least 300 million won (Article 2). The term "profit prescribed by Presidential Decree" means, as mentioned above, the amount calculated by subtracting 30 percent of the market price or 300 million won from the market price (Article 3(3)).

Pursuant to the above provision, the Defendant calculated the value of donated property to the Plaintiff as KRW 24,756,335,700 [=647,300 x (8,709 - market price of KRW 50,000] of the number of shares in this case. It is justifiable for the Defendant to grasp the stock transaction in this case as a gift by high-priced transfer under Article 35(1)2 of the Inheritance Tax and Gift Tax Act and to calculate the value of donated property under the above provision and the Enforcement Decree. The Plaintiff’s assertion that the dilution effect should be reflected on the premise that Article 28 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act applies to the stock transaction in this case is without merit.

3) As to the assertion that only income tax is subject to gift tax but is not subject to gift tax

The principle of retroactive taxation prohibition does not restrict the application of new Acts and subordinate statutes, etc. to the facts of taxation requirements that have been pending before or after the enactment or amendment of tax Acts and subordinate statutes, or to the tax authority’s interpretation or disposition guidelines on the Acts and subordinate statutes, where the pertinent Acts and subordinate statutes are not applicable to the taxation requirements that have been closed before the validity thereof, or to the facts of taxation requirements that have been accrued thereafter (see, e.g., Supreme Court Decision 96Nu9423, Oct. 29, 1996). Where the tax authority deemed that the amount of gross income that has been released from the taxation authority was reverted to an officer or employee and disposed of as bonus, unlike the fact that the tax authority deemed that the withholding agent is liable on the date when the notice of change in the amount of income was served on the corporation, the amount of income is deemed to fall under “the amount disposed as bonus under Article 20(1)1(c) of the Income Tax Act” and the amount of income is deemed to be subject to taxation when the amount of income was paid during the business year in which was imposed.

Article 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619 of Feb. 22, 2008) (amended by Presidential Decree No. 20619 of Feb. 28, 2007) provides that this Decree shall enter into force on the date of its promulgation, and Article 19 provides that Article 106 (1) 3 (i) shall apply from the first disposal after this Decree enters into force. The term "the first disposal" means "the first disposal of the property".

On January 4, 2008, the director of the Seoul Regional Tax Office applied Article 52 of the Corporate Tax Act with respect to the instant shares, thereby doing the wrongful calculation of KRW 20,382,50,050 to XX, and then disposing of the shares as other outflow from the company. As the disposition of the shares in this case was made after February 28, 2007, the date of promulgation of the Enforcement Decree of the Corporate Tax Act, the amended Enforcement Decree of the Corporate Tax Act applies to the said disposition of the shares.

The transitional provisions of the Enforcement Decree of the Corporate Tax Act stipulate that the revised provisions shall apply to income for which the requirements for taxation have not yet been met because of the lack of income disposal, and do not apply the revised provisions to income already disposed of.It is not invalid because it violates the principle of retroactive taxation prohibition.

With respect to the disposition of income with respect to the instant shares, the Plaintiff’s assertion that is premised on the applicable pumps by the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891, Feb. 28, 2007) is without merit.

3) As to the assertion that the Plaintiff and XX have no special relationship

Article 35(3) of the Inheritance Tax and Gift Tax Act provides that the scope of a person having a special relationship under paragraph (2) shall be prescribed by Presidential Decree. Accordingly, Article 26(4)1 of the Enforcement Decree provides that “employee of a company who becomes a complete parent company shall be one of the specially related parties.” Meanwhile, barring any special provision in the statutes, whether a special relationship exists shall be based on the date on which the taxation requirement is completed. Although the Plaintiff and the non-party company entered into the instant share swap contract on June 1, 2006, the Plaintiff was issued shares on August 17, 2006. Article 360-2(2) of the Commercial Act provides that “The shares of the company becoming a complete parent company through an all-inclusive share swap shall be transferred to the company becoming a complete parent company through the share swap on the date of the share swap, and the wholly owned subsidiary shall be a shareholder of the company upon receiving the shares issued by the company becoming the complete parent company upon the completion of the share swap contract, and thus, the Plaintiff shall also be determined based on whether the requirements for taxation exist.

However, at the time of August 17, 2006, the date of share swap, the Plaintiff was an employee as a representative director XX. Therefore, the Plaintiff’s assertion premiseding that the Plaintiff was not in a special relationship at the time of high-priced transfer is without merit.

3. Conclusion

The appeal is dismissed.