National Tax Service Review Donation 2010-0109 ( October 21, 2011)

No profit may be deemed a donation of profit from a low price transfer of shares.

Where it is deemed unreasonable to regard the value under Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as the market price of unlisted stocks, the value under the above subparagraph 1 shall not be deemed the market price of unlisted stocks, and the unreasonable value shall not be deemed the market price because it does not constitute the requirements under subparagraph 2.

2011Revocation of revocation of disposition imposing gift tax, etc.

XX Kim

O Head of tax office

May 26, 2011

June 9, 2011

1. The Defendant’s imposition disposition of KRW 219,652,290 against the Plaintiff on September 29, 2010 is revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On July 24, 2007, the Plaintiff purchased shares 1,000 per share (referred to as “instant shares”) from KimA, his father, KimA, for KRW 10,000 per share, according to its face value.

B. The Defendant deemed that the sale and purchase of the instant shares constitutes a donation of profits from a low-price transfer as stipulated in Article 35 of the Inheritance Tax and Gift Tax Act, and assessed the market price of the instant shares as KRW 1,022,519 per share by the method of complementary assessment, and assessed the difference between the said purchase price and the said purchase price as the Plaintiff was donated to the Plaintiff on September 29, 2010, and imposed KRW 219,652,290 on the Plaintiff (hereinafter “instant disposition”).

C. Although the Plaintiff filed a request for review of the instant disposition with the National Tax Service, the Plaintiff’s request was dismissed on January 21, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1, Gap evidence 4-1, 2-2 and the purport of the whole pleadings

2. Determination

A. The plaintiff's assertion

The disposition of this case is calculated pursuant to Articles 54(1) and (2) and 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and where it is unreasonable to apply Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as it falls under Article 17-3(1)6 of the Enforcement Decree of the same Act, the disposition of this case is unlawful since Article 56(1)1 of the Enforcement Decree of the same Act is not applicable.

B. Defendant’s assertion

In order for Article 56 (1) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act to be applied, not only falls under Article 17-3 (1) 6 of the Enforcement Rule of the same Act, but also the requirements stipulated in Article 56 (1) 2 of the Enforcement Decree of the same Act, i.e., the standard date for calculating the estimated profit per share and the date for calculating the assessment standard and the date for preparing the assessment report belongs to the same year within the deadline for filing the assessment report, and the date for calculating the assessment and the date for filing the assessment shall belong to the same year. The requirements should also be satisfied. However, inasmuch as the Plaintiff did not report gift tax within the deadline for filing the gift tax base or submit a calculation report on the estimated profit per share, the Plaintiff cannot apply Article 56 (1) 2 of the same Act in calculating the value of the stocks of this case,

(c) Related statutes;

It is as shown in the attached Form.

D. Determination

The value of property on which gift tax is levied shall be based on the company as of the date of donation, and in cases where it is difficult to calculate the market price, it shall be calculated by the supplementary assessment method (Article 60(1) and (3), Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act), and in cases of unlisted stocks, the net profit or loss (the weighted average amount of net profit or loss per share for the last three years ± the net profit or loss exchange rate per share ± the net profit or loss per share ± the net profit or loss exchange rate) and net asset value, respectively, according to the weighted average value of 3 and 2 degrees (Article

In addition, "The weighted average amount of net profit and loss for the last three years" under Article 54 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be the value under subparagraph 1 (the weighted average amount of net profit and loss for the last three years per share), but in cases prescribed by the Ordinance of the Ministry of Finance and Economy as unreasonable to be based on the value under subparagraph 1 due to a temporary contingent case such as an abnormal increase in the amount of net profit and loss for the last three years, it may be the value under subparagraph 2 (average value of presumed profit and loss per share) (Article 56 (1) 1 and 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 56 (1) 1 and 6 of the Inheritance Tax and Gift Tax Act, and Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act).

In this case, according to the overall purport of evidence No. 2-1 to No. 5 of the Plaintiff’s purchase date of the instant shares, ① the aggregate of the profits from disposing of tangible assets of the relevant company XX for the last three years is KRW 756,69,882, and ② this exceeds KRW 84.81% of the weighted average amount of KRW 892,090,549, which is the weighted average amount of the profits and losses for the preceding three years, prior to the corporate tax deduction of the relevant company, and exceeds KRW 50% of the above amount. Thus, the weighted average of the net profits and losses for the last three years per share of the instant shares shall not be based on “value No. 1” unless there are special circumstances.

In this regard, the defendant asserts that Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act should apply since the plaintiff failed to meet the requirements of the main sentence of Article 56 (1) 2 of the same Act. However, as seen above, if it is deemed unreasonable to apply the value under Article 17-3 (1) 6 of the Enforcement Decree of the same Act because it falls under Article 17-3 (1) 6 of the same Act, the above value under Article 56 (1) 1 of the Enforcement Decree of the same Act should not be recognized as the market price of unlisted stocks, and the above unreasonable value cannot be recognized as the market price because it does not meet the requirements of the main sentence

Therefore, in calculating the value of the shares of this case, the disposition of this case that the defendant applied to the calculation cannot be applied under Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, should be revoked as it

3. Conclusion

If so, the plaintiff's claim is justified and accepted.