Cho Jae-2018-China-2517 (O2, 2018.02)

The quantitative income tax rate applicable to the shares transferred by large shareholders of non-standing small and medium enterprises.

If the requirements of Article 157 (4) of the former Enforcement Decree of the Income Tax Act are met even if non-listed stocks are transferred, it shall be subject to the application of 20% of the capital gains tax rate under Article 104 (1) 11 (b) of the former Income Tax Act as a major stockholder.

Article 104 (1) of the Income Tax Act

2018Guhap52240 Revocation of disposition of refusal to correct capital gains tax

AA

a) the Director of the Tax Office

March 19, 2018

April 10, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

Defendant’s revocation of a disposition rejecting to rectify capital gains tax for the year 2016, which belonged to Plaintiff on February 26, 2018.

section 3.

1. Details of the disposition;

A. On December 20, 2016, the Plaintiff, as a shareholder of BBP Co., Ltd. (hereinafter referred to as “instant company”), transferred CBP shares 27,500 (hereinafter referred to as “instant shares”) to CBP Co., Ltd. (hereinafter referred to as “the instant company”), totaling KRW 23,835 per share, KRW 655,462,50 per share.

B. On February 28, 2017, the Plaintiff reported and paid KRW 100,959,400 for the transfer income tax for the year 2016 by applying the tax rate of 20% under Article 104(1)11(c) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) on the premise that the transfer price of the instant shares falls under the “stocks of small and medium enterprises transferred by a major shareholder”.

C. On December 27, 2017, the Plaintiff asserted that the “large shareholder” who is exempted from the application of 10% tax rate under Article 104(1)1(b) of the former Income Tax Act refers to the “large shareholder of a stock-listed corporation,” and that the Plaintiff is not a large shareholder of a stock-listed corporation, and that the tax rate of 10% under Article 104(1)11(b) of the former Income Tax Act should be applied to the transfer of stocks of this case.

Among the transfer income tax accrued in 2016, 50,479,700 won was claimed for correction.

D. On February 26, 2018, the Defendant rendered a disposition rejecting capital gains tax correction against the Plaintiff on the ground that “the 20% tax rate prescribed in Article 104(1)11(b) of the former Income Tax Act shall apply to the shares transferred by a major shareholder of a small and medium enterprise as of February 26, 2018 (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on May 17, 2018, but was dismissed on August 2, 2018.

Facts that there is no dispute over the basis of recognition, entries in Gap evidence 1 and 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Article 94(1)3(a) of the former Income Tax Act and Article 157(4) of the former Enforcement Decree of the Income Tax Act (amended by Act No. 26982, Feb. 17, 2016; hereinafter the same) mean a shareholder who holds stocks of a listed corporation under the Financial Investment Services and Capital Markets Act (hereinafter referred to as a "listed corporation") and holds stocks of at least a certain ratio among the shareholders who hold stocks of a listed corporation. Therefore, the concept of a major shareholder cannot be applied to the shareholder of the instant company who is a corporation that is not a listed corporation (hereinafter referred to as a "listed corporation"). Thus, 10% of the capital gains tax rate should be applied to the Plaintiff who transferred stocks of an unlisted corporation (hereinafter referred to as "non-listed stocks").

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

In full view of the language, structure, legislative intent, amendment history, etc. of the following relevant statutes, it is reasonable to view that the transfer of non-listed stocks is subject to 20% of the transfer income tax rate pursuant to Article 104 (1) 11 (b) of the former Enforcement Decree of the Income Tax Act as the "large stockholder" under Article 157 (4) of the former Enforcement Decree of the Income Tax Act if he/she satisfies the requirements of Article 157 (4) of the former Enforcement Decree of the Income Tax Act. Therefore, the instant disposition made on such premise is lawful,

1) Article 94(1)3(a) of the former Income Tax Act provides that income generated from the transfer of stocks, etc. of stock listed corporations, which are transferred by major shareholders prescribed by Presidential Decree in consideration of the ratio of stocks owned, total market value, etc., and transfer of stocks not through transactions on the securities market under the same Act shall be subject to taxation.

2) In the past, the Income Tax Act stipulated the "income accruing from the transfer of stocks or investment shares listed in the Korea Stock Exchange, as prescribed by the Presidential Decree," under Article 94 subparagraph 3 of the Income Tax Act (amended by Act No. 5580 of Dec. 28, 1998) as capital gains, although the transfer margin is not treated as taxable income under the Income Tax Act even if the transfer margin accrues in order to promote the activation of the stock market, or in the case of the transfer of listed stocks, the "income accruing from the transfer of stocks or investment shares listed in the Korea Stock Exchange, which are prescribed by the Presidential Decree," as capital gains, has been included in the scope of taxable income in principle in the case of the transfer of unlisted stocks, until now the stockholders and persons with a special relationship own more

In other words, Article 94 (1) 3(a) of the former Income Tax Act provides that capital gains tax shall also be imposed on cases where listed stocks are traded in order to prevent any abnormal donation using listed stocks and transfer other assets, such as real estate, in order to ensure the equity in taxation. However, rather than for all listed stocks, in a lump sum, in order to alleviate the impact of the capital market and protect the interests of small-sum investors, it is subject to taxation, which reflects the legislative intent to gradually expand the scope when the capital market is developed in a sound manner (see, e.g., Constitutional Court Decisions 2004Hun-Ba32, Feb. 23, 2006; 2005Hun-Ba63,02,04,04,05 (combined)).

In full view of the language of the law and the legislative intent above, Article 94 (1) 3 (a) of the former Income Tax Act does not apply to the transfer of unlisted stocks subject to capital gains tax, in principle, unlike the transfer of unlisted stocks subject to capital gains tax, it is interpreted that the transfer of listed stocks is subject to capital gains tax only to ① transfer by the large shareholder prescribed by Presidential Decree in consideration of the ratio of owned stocks and the total market value, etc., and ② transfer of listed stocks not through transaction in the securities market; and ② transfer of listed stocks in excess of this, the provision for recognizing the concept of the large shareholder only in the case of stock-listed corporations is not construed as a provision for recognizing the concept of the large shareholder. Therefore, regardless of whether a listed corporation is a listed corporation, it is reasonable to regard the “large shareholder” as meeting the criteria under Article 157 (4) of the former Enforcement Decree of the Income Tax Act, which prescribes the requirements of the large shareholder, such as the total market value, regardless of whether it is a listed corporation.

3) In addition, Article 157 (4) of the former Enforcement Decree of the Income Tax Act provides that the requirements for falling under the "large stockholder" are different depending on the "stocks of a listed corporation with KONEX", "stocks of a listed corporation with KONEX", "stocks of a venture business" and "stocks of other corporations", and Article 157 (6) of the same Act provides that the criteria for calculating the total market price to fall under the large stockholder shall be divided into cases other than those of a listed corporation with the "large stockholder" and that of a listed corporation with the concept of "large stockholder" in the case of a non-listed corporation.

4) Meanwhile, the Plaintiff asserts that Article 104(1)11(a) of the Income Tax Act, amended by Act No. 14389, Dec. 20, 2016, separately defines the concept of “large shareholder, different from the previous one,” and accordingly, Article 167-8(1) of the Enforcement Decree of the Income Tax Act, amended by Presidential Decree No. 27829, which separates the major shareholder into “large shareholder of a stock-listed corporation” and “large shareholder of a stock-listed corporation,” the Plaintiff’s amendment of the said Act, which included the scope of the non-listed shareholder only after the amendment of the said Act.

① However, the purport that “in the legislative proposal for the amendment of the Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) newly introduced the criteria for major shareholders with respect to non-listed stocks” cannot be found. ② The reason for the amendment of Article 167-8(1) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27829, Feb. 3, 2017), “in the event of transfer of non-listed stocks, the criteria for share ratio of major shareholders who are not subject to preferential tax rates for small and medium-sized enterprises at the time of transfer of non-listed stocks shall be adjusted upward from 1/100 to 4/100. The total market value criteria shall be the same as the major shareholders of the listed stocks, from 2.5 billion won to 2.5 billion won after April 1, 2018, and from 1, to 1.0 billion won after April 2020 to 1 billion won respectively, it is reasonable to view that each of the above amendment criteria are separately prescribed.

3. Conclusion

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