Whether the low price of shares between persons with a special relationship should be transferred

It is justifiable to levy gift tax on the transfer of stocks at a low price when the largest shareholder transfers stocks at a low price to the existing shareholder who is a person with a special relationship and pays the price under the pretext of benefits, etc.

Article 35 (Donation, etc. of Profits from Transfer at Low or High Price)

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The decision of the first instance court is revoked. On February 12, 2007, the imposition of the gift tax of 644,140,000 won belonging to the year 2003 by the head of the distribution tax office against the Plaintiff ○○○ concurrently, and the imposition of the gift tax of 681,105,60 won belonging to the year 2003 by the head of the Sungnam Tax Office against the Plaintiff ○○○○ on March 1, 2007 and the imposition of the gift tax of 422,346,40 won belonging to the year 203 against the Plaintiff ○○○.

The court's explanation on this case is the same as the reasoning of the judgment of the court of first instance, and thus, citing this as it is in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act

Therefore, the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit, and it is so decided as per Disposition.

[Seoul Administrative Court 2007Guhap4310, 2008)]

1. The plaintiffs' claims against the defendants are all dismissed.

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

Defendant ○○ Head of the Tax Office’s imposition of KRW 644,140,00 on February 12, 2007 on gift tax of KRW 644,140,00 on gift tax of 203 owed to Plaintiff ○○○○○ on March 1, 2007, and the imposition of KRW 681,105,60 on gift tax of 2003 owed to Plaintiff ○○○○○○○ on March 1, 2007 and KRW 422,346,40 on gift tax of 203.

1. Details of the imposition;

가. 주식회사 ○○○○○(상호변경 전 주식회사 ●●●●●, 이하 '소외 회사'라 한다)은 1999. 8. 5. 광고대행업, 옥외 광고업 등을 목적으로 설립되었는데, 소회 회사의 대표이사인 장○○은 2003. 7.경 소회 회사의 발행주식 총수 20,000주(자본금 1억원)의 79%인 15,800주를 소유하고 있었고, 장□□은 4,000주, 장△△은 200주를 각 소유하고 있었다.

A transferee

Status of a sub-company at the time of transfer

Number of shares (number of shares)

Stock price (cost)

Equity ratio (%)

Maap○

Directors

5,000

135,000,000

25

○ ○

Executive Officers

5,200

140,400,000

26

○ Kim

Staff members

3,800

102,600,000

19

Doz.

Staff members

1,800

48,600,000

9

Total

15,800

426,600,000

79

B. On July 8, 2003, the head of ○○ transferred 15,800 shares owned by the Plaintiffs and this account, to KRW 27,000 per share as follows (hereinafter “instant transfer”).

C. On December 3, 2006, the director of the Seoul Regional Tax Office: (a) notified the Defendants of taxation data, such as the taxable amount of gift tax assessed as the market price per share by applying the supplementary evaluation method in accordance with Article 54 and Article 56 of the Enforcement Decree of the Act (amended by Presidential Decree No. 18177 of Dec. 30, 2003), on the ground that the employees of a sub-committee controlled by the Plaintiffs through investment by the head of ○○○ (79%) fall under the case of acquiring from a person in a special relationship at a lower price than the market price under Article 35 of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003; hereinafter referred to as the “Act”); and (b) by applying the supplementary evaluation method in accordance with Article 63 of the Act and Articles 54 and 56 of

D. Accordingly, the Defendants imposed each gift tax on the Plaintiffs as stated in the purport of the claim (hereinafter “instant disposition of imposition”).

[Reasons for Recognition] Facts without dispute, Gap evidence 1 to 3, Gap evidence 1 to 5-1, 2, Eul evidence 2-1 to 3, Eul evidence 5, 6-1 to 4, the purport of the whole pleadings

2. Whether the disposition of imposition is lawful.

A. The plaintiffs' assertion

(1) The special relationship under Article 35 of the Act is limited to the case where the special relationship continues to exist before and after the point of time of transaction and it can have abnormal influence on the transaction price between the parties to the transaction, and where the special relationship cannot be affected by transferring the entire shares owned by one of the parties to the transaction, such as the transfer of this case, and by liquidation of the special relationship itself

(2) 27,00 won per share that the plaintiffs acquired is higher than the market price or higher than the market price at the time of stock transfer, and thus, it cannot be deemed as a lower price than the market price.

(3) Therefore, the instant disposition by the Defendants, based on the premise that the Plaintiffs acquired shares at a price below the market price by applying Article 35 of the Act, is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Article 35(1)1 of the Act provides that “When acquiring property from a person in a special relationship at a price lower than the market price, when acquiring or transferring the pertinent property, the amount equivalent to the difference between the price and the market price shall be deemed to have been donated as an amount equivalent to the benefits prescribed by the Presidential Decree” and does not require that the parties have a relationship that may exert abnormal influence on the transaction price between the parties. In addition, if appointed from a person in a special relationship, such a relationship is the same as at the time of the occurrence of taxation in accordance with the legal principles of taxation, such as substantial taxation or fair taxation (see, e.g., Supreme Court Decision 92Nu546, Jul. 28, 1992). At the time of transfer, the Plaintiffs at the time of transfer, which is the cause of taxation, are employees of a sub-company controlled by ○○○, the largest shareholder, and the Plaintiffs’ assertion on this premise is justifiable, and that this part of the Plaintiffs’ assertion is groundless.

(2) The "market price" under Article 60 (2) of the Act refers to an objective exchange price formed through a normal transaction in principle, and there should be circumstances to deem that the transaction price objectively reflects the general and normal exchange price in order to fall under the market price at the time of donation, and there should be no changes in the price between the time of donation and the date of the above transaction (see Supreme Court Decision 99Du2505, Feb. 11, 200).

However, according to the evidence Nos. 4 and 6 of this case, considering the following circumstances: (a) ○○○ donated 3,800 shares of the non-party company from the non-party company on July 13, 2001, the husband of the non-party company on July 13, 2001 (the ownership status of shares of the head of the △△△△△△△△△△ was not changed until December 31, 2005); (b) the transfer to this △○○ on July 8, 2003 constitutes a transfer between related parties; and (c) there is no evidence to prove that the shares of the company of the non-party company were traded at an objective market price in addition to the above transactions; (d) the transfer of this case constitutes a case where it is difficult to calculate the market price; and (e) the Defendants’ measures to assess the market price of shares are also justifiable by applying a supplementary evaluation method

Therefore, it cannot be deemed that the value per share that the plaintiffs acquired was higher than the market value or higher than the market value. This part of the plaintiffs' assertion that differs from this premise is without merit.

(3) Therefore, the disposition of this case by the Defendants based on the supplementary evaluation method is lawful, by applying the provisions of Article 35 of the Act.

3. Conclusion

Therefore, the plaintiffs' claims against the defendants are without merit, and all of them are rejected, and it is so decided as per Disposition.

* Note *

3. Net asset value: 2,203,456,59 won, net asset value per share: 110,173 won, and net profit and loss per share by weighted average amount for the latest three years: 310,488 won, appraised value per share: 310,488 won, and appraised value per share of the largest shareholder: 357,050 won;

* Note *

4) Plaintiff ○○○: 1,550,250,000 won [357,050 won-27,000 won) X5,00 won-1,616,260,000 won [357,050 won-27,000 won]-1,616,260,000 won [357,050 won-27,000 won] X5,200-10,000 won], Plaintiff Kim○○: 1,54,190,000 won [357,050 won-27,000 won]

* Note *

5) Meanwhile, according to the statements of Eul evidence 7-1 to 10-1 to 3 of Eul evidence 7, it is recognized that ○○ received benefits from the sub-committee on 1,042,786,065 won and 1,821,410,398 won on 2004, which was after the transfer of this case, from the sub-committee, and that the audit report by the external auditor on the sub-committee was written with a specially related person.