Cho High Court Decision 2009Du2414 ( October 31, 2010)

The propriety of a disposition that denies the transaction price of unlisted stocks and imposes tax by supplementary assessment methods;

The acquisition and sale of the Plaintiff’s shares is a transaction between related parties, there is no transaction between the corporation’s shares until the acquisition by transfer, and there is no appraisal price, and the disposition of calculating the market price of shares by the supplementary assessment method is legitimate because there is no appraisal price.

l. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of gift tax of KRW 65,990,400 against the Plaintiff on March 31, 2009 shall be revoked.

1. Details of the disposition;

A. The FF Housing Co., Ltd. (hereinafter “FF Housing”) is an unlisted corporation established on December 22, 1998, and the Plaintiff registered as a director on the corporate register of the non-party company as a director on June 24, 2003, transferred 600,000 shares of the non-party company (hereinafter “the shares of this case”) to 600,000,000 won (hereinafter “the shares of this case”).

B. However, at the time of the instant sales, the Plaintiff did not own the shares of the non-party company, but bothCC owned 491.000 shares of the non-party company (40.92%) among the 1.200,000 shares issued by the non-party company (40.92%) and leD, which was the husband of bothCC and the representative director of the non-party company, owned 596,00 shares (49.67%) respectively.

C. Between December 5, 2008 and January 6, 2009, the director of the Seoul Regional Tax Office assessed the shares of this case as the result of an investigation of stock change pursuant to Articles 60(1) and (3), 63(1)1(c) and (3) of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter the same shall apply), and Article 54(1) and (2) of the Enforcement Decree of the said Act (amended by Presidential Decree No. 18177, Dec. 30, 200; hereinafter the same shall apply) on the assessment of non-listed shares as the non-party company’s 985,680,00 won per share [17,140 won per share based on the weighted average amount of profit and loss during the last three years x 150% per share x 140% per share x 150% per share).

D. According to the result of the above stock change assessment, the defendant judged that "the plaintiff acquired the shares of this case at a low price from the YangCC in a special relationship provided for in Article 35 (2) of the Gift Tax Act" and determined and notified 385,680,000 won (60,000 won - 600,000 won) in difference between the above appraised value and the sales value pursuant to Article 35 (1) of the Gift Tax Act and Article 26 (3) 2 of the Enforcement Decree of the same Act, 285,680,000 won after deducting 10,000,000,000 won was donated to the plaintiff on March 31, 2009 (hereinafter referred to as "the disposition of this case").

E. On May 6, 2009, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but was dismissed on March 31, 2010.

[In the absence of any ground or dispute for recognition, Gap's evidence No. 1.2.4, 8 through 10, Eul's evidence No. 1 and 2-1.2, Eul's evidence No. 3-1 through 4, the purport of the whole pleadings]

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

For the following reasons, the instant disposition should be revoked as it is unlawful since the grounds for the disposition do not exist.

1) At the time of the instant sales, bothCC and the Plaintiff did not appear to be a controlling shareholder of the non-party company, and the Plaintiff was merely a nominal director on the corporate register even if they were not directors of the non-party company, and did not have a relationship of relationship with bothCC and leD. Therefore, the Plaintiff and bothCC did not have a special relationship under Article 35(1)1 of the Gift Tax Act, Article 26(4)1, Article 19(2)1, and Article 19(2)2 of the Enforcement Decree of the same Act.

2) The Plaintiff not only sold the instant shares to EE at KRW 5,000 per share, but also this BB acquired 7,000 shares of the non-party company from bothCC on the day of the instant sales to EE in total at KRW 5,000 per share, including the above 7,00 shares, and thereafter transferred 120,000 shares per share to E., in light of this, the value of KRW 5,000 per share constitutes the market price that reflects objective exchange values at the time of the transaction, and thus, the Defendant applied the supplementary evaluation method without applying the market price in the instant disposition.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) As to whether the Plaintiff and the YangCC had a special relationship

A) Article 35(1)1 of the Gift Tax Act provides that where a person having a special relationship takes over property at a price lower than the market price, the transferee of the property shall be deemed as a donee and shall be deemed as having received a donation equivalent to a certain amount of profit. In relation to the scope of the person having a special relationship, Articles 26(4)1, 19(2)2, and 13(6)2 of the Enforcement Decree of the same Act provide that "a person in a relationship with a adopted Doer or transferee (including an employee of a corporation under control by investment) or a relative or employee (including an employee of a corporation under control by investment)," and Article 13(8)1 of the Enforcement Decree of the same Act provides that "a shareholder, etc. and his/her relatives, etc. shall not be necessarily required to exercise the shareholder's right, but it shall be deemed that the controlling shareholder is sufficient if he/she is in a position to exercise the shareholder's right at the time of low acquisition of stocks.

B) However, according to the facts found above, as at the time of the sale in this case, bothCC and leD, their husband, owned about 90.59% [1,087,000 shares (491,00 shares + 596,000 shares)/1,200,000 shares] of the total number of shares issued by the non-party company, the twoCC controlled the non-party company by the investment in the non-party company. In full view of the arguments stated in Gap evidence Nos. 2, 3, 9, and Eul evidence Nos. 6 through 8, the plaintiff was registered as a director on the corporate register of the non-party company from January 7, 2002 to November 5, 2003; the plaintiff was 5,100,000 won for the total amount from the non-party company to October 1, 203 to 10, 2005, and the plaintiff was 300,000 won for retirement benefits from the non-party company's.

C) Therefore, the Plaintiff and the YangCC are persons with a special relationship at the time of the instant trade, and the Plaintiff’s above assertion is without merit without examining the remainder of the issue.

2) Whether the assignee is the assignee or not

A) In full view of the provisions of Article 60 of the Inheritance Tax Act and Article 49 of the Enforcement Decree of the same Act, the market price stipulated in the illegal provisions refers to an objective exchange price formed through a transaction which is a general and normal transaction. Thus, even if there is a transaction practice, it cannot be deemed as a price formed by a normal transaction that properly reflects the objective exchange value of the donated property, and if the subject matter of the gift is unlisted stocks, it is difficult to calculate the market price, and the value may be calculated according to the supplementary assessment method stipulated in Article 63(1)1(c) of the Gift Tax Act (see, e.g., Supreme Court Decision 2003Du5723, Oct. 15, 2004).

B) Comprehensively taking account of the purport of Gap evidence Nos. 4 through 7's arguments, this BB may recognize that the plaintiff transferred 7,000 shares of the non-party company to E on June 24, 2003, which were the date of the sale of this case, to 5,000 won per share, and that the non-party company transferred 120,000 shares of the non-party company to E on October 23, 203, the plaintiff also sold the shares of this case to E at 5,000 won per share. However, considering the fact that the non-party company's 9, Eul evidence No. 4, Eul's 5-1, and 20-B's shares, it is difficult to find that the non-party company's shares were purchased until the plaintiff acquired the shares of this case, and that the non-party company's appraisal price was 00,000 won per share, which was 00,000 won per share.

C) Therefore, it is lawful to calculate the market price of the instant shares according to the supplementary evaluation methods and to dispose of the instant shares. Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.