Whether a donation related to the sunset cycle between the related corporations is deemed to be a donation;

The controlling shareholder of a beneficiary corporation refers to an individual with the highest ratio of direct and indirect ownership by aggregating the ratio of direct and indirect ownership in the regulations on deemed donation during the period of sunset.

Inheritance and Gift Tax Act Article 45-3

Incheon District Court 2016Guhap50123 Revocation of Disposition Rejecting Gift Tax Correction

Seo Jin

OO Head of the tax office

November 29, 2018

January 10, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition rejecting to rectify gift tax made on December 9, 2014 by the Plaintiff shall be revoked.

1. Details of the disposition;

(a) Co., Ltd.**** Liion (hereinafter referred to as "****) is a company that produces medicine***********care (former trade name Co., Ltd.**, hereinafter referred to as "**care) is a company that exclusively purchases and sells medicines produced ****.

B. As of December 31, 2012 and December 31, 2013, the Plaintiff as the representative director***care and*care.

In addition, ********************(hereinafter referred to as “*****”)'s shares indirectly, and **care's shares directly were owned.

December 31, 2012 (as of December 31, 2013, Mano-ho)

C.** Liion and**** on Aug. 8, 2008 * Liion ***** under a basic contract for granting exclusive marketing rights to drugs to *** on August 22, 2012 ** Liion ******* C*06(* cancer treatment), C***3(***) of medicines, at a price as mutually agreed in the future. Accordingly, ******* in the business year from 2012 to 2013* in the C* in the C*-06,****3, etc., in the C* in the C-06, in the C-****33, etc.,* in the sales of drugs* in the business year * in which the sales of drugs are supplied ** in the business year 2015.35% of the sales of Liby * in the business year * in the business year 2015.

D. On July 31, 2013, the Plaintiff reported and paid KRW 11,674,828,630, gift tax on the profit deemed donated through the instant transaction pursuant to Article 45-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013) to the Defendant on July 31, 2013; and on June 27, 2014, the Plaintiff reported and paid KRW 1,541,02,620 on the profit deemed donated through the instant transaction pursuant to Article 45-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015) to the Defendant.

E. On October 14, 2014, the Plaintiff did not constitute a controlling shareholder under Article 45-3 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013) and Article 45-3 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 13557, Dec. 15, 2015) and did not constitute a donation under Article 2(3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 1357, Dec. 15, 2015); thus, the Plaintiff asserted that the Plaintiff did not bear a duty to pay gift tax under each of the respective statutory provisions of the instant case and filed a claim for the correction of gift tax by refunding the gift tax reverted to the year 2012 and the year 2013.

F. On December 9, 2014, the Defendant rendered a disposition rejecting the Plaintiff’s claim for correction on the ground that the Plaintiff is liable to pay gift tax on the constructive gift through the instant transaction pursuant to each of the instant legal provisions (hereinafter “instant disposition”).

[Grounds for recognition] The entry of Gap evidence Nos. 2, 3, 8 through 10, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) Violation of the Constitution of each of the legal provisions of this case

Each provision of this case, which is the basis of the disposition of this case, violates the principle of no comprehensive delegation without considering the nature and contents of the transaction when the transaction exceeds a certain ratio. The disposition of this case, which is based on each provision of this case, violates the principle of no excessive prohibition and equality, is unlawful, since it violates the principle of no comprehensive delegation by wholly delegating the matters concerning the normal transaction ratio to the Presidential Decree, without considering the nature and content of the transaction, by deeming that the controlling shareholders, etc. of the beneficiary corporation deemed to have received a donation of certain profits, without giving an opportunity of counter-proof to the ordinary transaction which is not a transaction during the sunset period. The disposition of this case, which is based on each provision of this case, violates the principle of no excessive prohibition and freedom of contract by referring exclusively to the matters concerning the normal transaction ratio to the Presidential Decree.

2) Whether the controlling shareholder who is liable to pay gift tax satisfies the requirements

The provisions of each of the instant legal provisions stipulate the controlling shareholder, etc. of a beneficiary corporation as a gift tax obligor, and the controlling shareholder of this case assumes that the beneficiary corporation is a "shareholders who directly own the corporation's shares." Since the Plaintiff does not directly own the corporation's shares ******i because it does not constitute a controlling shareholder of Liuri's own shares, the disposition of this case by deeming the Plaintiff to be a shareholder of Liuri's own shares under each of the legal provisions

3) Non-existence of an increase in property value by contribution, which is a requirement for gift tax taxation

Article 2(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015) includes "an increase in the value of another person's property by stipulating donation." Since each of the provisions of this case provides for the calculation of the value of property on the premise that there is an increase in the value of property by contribution to the sunset cycle, in order to impose gift tax on the basis of each of the provisions of this case, it should be recognized that the special relation corporation has contributed to the sunset cycle on the beneficiary corporation. However, in order to impose gift tax on the basis of each of the provisions of this case, it should be recognized that the special relation corporation has made a contribution to the sunset cycle to the beneficiary corporation. However, the transaction of this case *** as the beneficiary status does not contribute to the decrease of the sunset cycle* as the beneficiary status, the benefit of this case does not meet the requirements for taxation of gift tax, and the disposition of this case made by

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Whether each of the provisions of this case violates the Constitution

A) Whether the taxation requirement is clear and substantial in violation of the principle of no taxation without the law

Each legal provision of this case provides for the calculation of the profit deemed donation by deeming that the controlling shareholder, etc. of a beneficiary corporation has received a donation of a certain portion of the tax revenue of the beneficiary corporation, and stipulates for the calculation of the profit deemed donation by deeming that the controlling shareholder, etc. of the beneficiary corporation has received a donation of a certain portion of the tax revenue of the beneficiary corporation, and clearly provides for the "controlling shareholder and the relatives of the controlling shareholder," "trade ratio of the special relationship corporation," "after-sales business profit of the beneficiary corporation," and "stock holding ratio" directly to the law (see, e.g., Constitutional Court Order 2016Hun-Ba347, Jun. 28, 2018). Thus, each of the legal provisions of

In the instant case, each of the legal provisions of this case provides that the controlling shareholders, etc. of the beneficiary corporation shall be deemed to have donated a certain portion of the operating income of the beneficiary corporation after the transaction between the beneficiary corporation and the beneficiary corporation, and it is very difficult to prove that the controlling shareholders, etc. have a separate transaction between the related corporation and the beneficiary corporation in excess of a certain ratio, since profits arising from normal transaction, profits arising from market conditions, and economic value of business opportunities provided by the related corporation, etc. are mixed, it is very difficult to prove that there is a separate transaction between the related corporation and the beneficiary corporation in excess of a certain ratio, the controlling shareholders, etc. shall be deemed to have received certain profits as a donation, and the general exception of the deemed donation is deemed to have been excluded from taxable objects in consideration of the nature of the transaction, etc. On the contrary, the method of prescribing the general exception of donation using the non- fixed concept such as the "justifiable reason" is likely to conflict with the interpretation and application of the exception reason, and thus, it cannot be deemed to violate the principle of no taxation without law (see, e.g., Constitutional Court Order 2016Hun-Ba374.

B) Whether the prohibition of blanket delegation violates the principle

The legal provisions of this case stipulate the calculation of the profit deemed donation by deeming the controlling shareholders, etc. of the beneficiary corporation as having donated a certain portion of the tax operating income of the beneficiary corporation, and delegate the normal transaction ratio to the beneficiary corporation in consideration of the type of business of the corporation.

The delegation of the provisions of each of the instant legal provisions to the Presidential Decree with respect to the above normal trading ratio is recognized in view of the need to be flexibly defined in tax policy by comprehensively taking into account the economic conditions, actual trading conditions, the nature of transactions, social norms, and various legal systems, etc. Furthermore, considering the legislative purpose of each of the instant legal provisions, the contents of the relevant tax-related provisions, and the standards to be prescribed in the Presidential Decree considering the type of business of the pertinent legal entity when determining the normal trading ratio, it can be predicted that the specific contents of the normal trading ratio will be prescribed by the Presidential Decree by comprehensively taking into account the corporate type of business or industrial characteristics, etc.

Therefore, each of the legal provisions of this case cannot be deemed to violate the principle of prohibition of blanket delegation.

C) Whether the property right was infringed

Each of the provisions of this case is deemed to have been donated by the controlling shareholders, etc. of the beneficiary corporation as a donation of a certain portion of the tax revenue of the beneficiary corporation when there is a transaction exceeding a certain ratio between the related corporation and the beneficiary corporation, thereby promoting the redistribution of appropriate income by imposing gift tax on the profits accrued to the controlling shareholders, etc. of the beneficiary corporation, and suppressing the forms of transaction likely to control the market and abuse of economic power. Therefore, the legitimacy of legislative purpose and the appropriateness of the means

In order to achieve the above legislative purpose as a means of less infringing upon the controlling shareholders, etc. of the beneficiary corporation, the controlling shareholders, etc. of the beneficiary corporation can be presumed to have received a donation and suggesting the method of allowing counter-issuance. However, since profits accrued to the controlling shareholders, etc. of the beneficiary corporation through transactions between the beneficiary corporation and the beneficiary corporation are mixed with normal transaction income, market conditions, and economic value of business opportunities provided by the beneficiary corporation, it is very difficult to prove the portion of donations and non-donations separately, such method is difficult to be considered as an appropriate means to achieve the above legislative purpose. In addition, even if the taxation of non-realizing profits does not conflict with the concept of tax in the Constitution or are inconsistent with those of the beneficiary corporation, taxation of non-realizing profits cannot be deemed as an appropriate means to achieve the above legislative purpose of 20% of the beneficiary corporation's profits more effectively than that of the controlling shareholders, etc. who exercise voting rights in the beneficiary corporation (see, e.g., Supreme Court Decision 208Hun-Ba6, supra.).

Meanwhile, in the event that each of the provisions of this case is a transaction exceeding a certain ratio between a special relationship corporation and a beneficiary corporation, it is uniformly deemed that the controlling shareholder, etc. of the beneficiary corporation has received a donation of a certain portion of the taxable income of the beneficiary corporation is to ensure the clarity and stability of the tax law relationship. Therefore, there is a reasonable reason to uniformly handle each of the provisions of this case regardless of whether the transaction is for the purpose of donation of profits.

Therefore, each of the legal provisions of this case is in violation of the excessive prohibition principle and the equality principle, and cannot be deemed as infringing on the property rights of the beneficiary corporation's controlling shareholder, etc.

2) Whether the Plaintiff constitutes a controlling shareholder who is a taxpayer of gift tax

(1) Paragraph (1) of this case provides that "the controlling shareholders and their relatives shall be limited to shareholders whose shareholding ratio directly or indirectly exceeds that prescribed by Presidential Decree" with respect to the total number of shares issued or total investment amount of a beneficiary corporation, and Article 34-2 Paragraph (1) 2 (b) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014) and Article 34-2 Paragraph (1) 2 (b) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015) provide that "the controlling shareholders and their relatives shall be limited to 20% of the total number of shares issued or outstanding shares of the beneficiary corporation." *20% of the total number of shares held by the controlling shareholders of the beneficiary corporation and those of the beneficiary corporation shall be included in 20% of the total number of shares held by the controlling shareholders as 13% of the beneficiary corporation.

3) Whether the profit deemed donated from the instant transaction satisfies the requirements for gift tax taxation

① With the amendment of the Inheritance Tax and Gift Tax Act by Act No. 7010 on December 30, 2003, the definition of donation was newly established and the so-called comprehensive gift taxation system was introduced, and then revised by Act No. 11609 on December 31, 201. The provisions of each of the instant legal provisions stipulate that where there are transactions between a special relationship corporation and a beneficiary corporation in excess of a certain ratio, the controlling shareholders of the beneficiary corporation shall be deemed to have donated a certain portion of the operating income of the beneficiary corporation after the taxation of the beneficiary corporation. ② Under the principle of no taxation without the law, the interpretation of the tax law is not allowed to expand or analogically interpret without any justifiable reason. The provisions of each of the instant legal provisions stipulate that the controlling shareholders of the beneficiary corporation shall be deemed to have donated profits from the special relationship corporation only if the transaction between the beneficiary corporation and the beneficiary corporation satisfies certain requirements, and that the transaction between the beneficiary corporation and the beneficiary corporation shall not be deemed to have been deemed to have been a donation of the benefits of each of the beneficiary corporation.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.