Plaintiff (Law Firm LLC, Attorneys Jeon Young-young et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

November 8, 2013

1. The plaintiff's claim is dismissed.

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

Each disposition of imposition of additional tax as stated in the attached Table No. 4 of August 4, 2010, imposed by the Defendant on the Plaintiff, and (2) October 10, 2013, is revoked.

1. Details of the disposition;

(a) Paid-in capital increase;

(1) On April 17, 2007, the Energy Protection Act for Young Children Co., Ltd., a KOSDAQ-listed corporation, held a board of directors meeting on April 17, 2007, and passed a resolution to issue new shares for the purpose of allocating 10,000,000 common shares (e.g., face value: 50 won) to the shareholders (hereinafter “first subscription for new shares”). The issue price per share was determined as 4,440 won on May 28, 2007 by applying the discount rate of 10% to the value calculated pursuant to Article 57(2)1 of the Regulations on the Issuance, Public Notice, etc. of Securities (amended by the Financial Supervisory Commission Notice No. 2005-18, Apr. 27, 2005; hereinafter “securities Issuance Regulations”).

On June 4, 2007, according to the resolution of the board of directors by young children, the Plaintiff accepted 745,267 shares and 747,729 shares in total, each of 2,462 shares as 4,440 won per share.

(2) On June 5, 2007, an infant decided to hold a board of directors to provide that “the Plaintiff shall provide a third party’s third party’s capital increase.” On June 28, 2007, an infant passed a resolution to “the partial change of the beneficiary of the third party’s capital increase” (hereinafter “the second capital increase”) as follows (hereinafter “the second capital increase,” and the total capital increase, including the first and second capital increase, “the instant capital increase”).

The types and number of new shares ○○ and the par value per share included in the main sentence: The issue value of the new shares ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ per year at a discount rate of 10% (in cases where the value is below par value, the face value shall be the Plaintiff 1,870,00 and the number of shares per share): The representative director of the infant 1,870,00, and 460,000 shares for young children.

The Plaintiff allocated 1,818,139 shares in excess of the ratio of the number of shares held by the second capital increase.

(b) Disposition, etc.;

(1) From March 8, 2010 to July 3, 2010, the director of the Seoul Regional Tax Office conducted a tax investigation with respect to the Plaintiff. From March 8, 2010 to July 3, 2010, the Plaintiff was notified of the Defendant of the difference between the market price and the issue price [1:1; 206; 31; hereinafter “Inheritance Tax Act”); 63(1)1 of Article 39(1) of the Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Inheritance Tax Act”); 29(3)1, and 52-2 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; 3: 4,07; 4,070; 2.4.75 won per share x 96,475 won per share x 975 won per share [2.4,75 won per share]

8,642 won 7,520 won (the average closing price from the date two months have elapsed before the payment date to the date before the payment date of stock price) per share prior to the capital increase for the second capital increase included in the main sentence ± (the value of evaluation per share 】 the total number of outstanding stocks 】 the number of stocks increased by the capital increase x the number of stocks increased by the capital increase) ± (the total number of outstanding stocks issued before the capital increase x the number of stocks increased by the capital increase) ± (the number of stocks increased by the capital increase) calculated by the formula of "the total number of stocks issued before the capital increase x the number of stocks increased by the capital increase)" 7,391, 7, 449.9527 won per share after the capital increase.

(2) On August 4, 2010, the Defendant imposed and notified the Plaintiff a total of KRW 1,772,733,200 on the gift tax (including additional tax).

(3) On October 6, 2010, the Plaintiff filed an appeal on October 6, 201, but was dismissed by the Tax Tribunal on November 14, 201.

(4) After the filing of the instant lawsuit, the Defendant ex officio revoked the imposition of penalty tax, and on October 10, 2013, notified the Plaintiff of the imposition of penalty tax by specifying the type, rate, amount of tax, etc. of penalty tax as indicated in the attached Table (each disposition of imposition of penalty tax and penalty tax stated in the attached Table).

【Ground of recognition】 The fact that there has been no dispute, Gap 1, 3 through 6, Eul 1, 2, and 4 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Market value corresponding to Article 60 of the Inheritance and Gift Tax Act

(1) According to Articles 192(1) and (2), 193, and 9-3 subparags. 2 through 6, 84-25(1), and 84-26 of the Securities and Exchange Act (amended by Presidential Decree No. 2051, Jan. 18, 2008; hereinafter the same shall apply), the Financial Supervisory Commission set standards for financial management with respect to the matters concerning the requirements for capital increase. Such matters include mandatory provisions on capital increase. ② Article 57(2) of the Regulations on Issuance of Securities provides that “The value of new stocks issued after the issuance of the market price is ＋ the value of capital increase ＋ the value of capital increase 】 (1 + the value of capital increase ＋ the value of new stocks issued after the issuance of the new stocks ? the value of the new stocks issued after the issuance of the new stocks is 10% or less of the value of the new stocks issued after the issuance of the new stocks / 100 or less of the value of the new stocks issued after the issuance of the new stocks.”

(2) Taxation on unrealized profits

Since shares acquired through secondary capital increase was subject to restriction on disposal for one year under the application of the protection period, the instant disposition is unlawful as taxation on unrealized profits.

(3) Existence of “justifiable cause” as an element for non-taxation of gift tax

① Articles 35(2) and 42(3) of the Inheritance and Gift Tax Act provide that “No gift tax shall be levied if a transactional practice is deemed to have justifiable grounds”; ② the Supreme Court recognizes non-taxation for justifiable grounds without any express provision; ③ the issue value calculated in accordance with the Securities and Exchange Act and the Securities and Exchange Act, which are mandatory provisions, and the issue value calculated in accordance with the Securities and Exchange Act, which is the provision on the issuance of securities, provides that “justifiable grounds” exists; and thus, the instant disposition is unlawful.

(4) Allocation of shares by means of a public offering of new securities

① The primary capital increase with new shares was implemented as a method of public offering of new shares under the Securities and Exchange Act; the forfeited share price was allocated to the Plaintiff along with the primary capital increase with the primary capital increase; ② the forfeited share price was solicited to be offered to less than 50 persons; but no deposit contract was concluded to have been withdrawn or sold for one year from the date of deposit; thus, the forfeited share may have been transferred to not less than 50 persons within one year from the date of issuance, and thus, the allocation of forfeited share constitutes a public offering of new shares under Article 2(3) of the Securities and Exchange Act, and thus, gift tax may not be imposed pursuant to Article 39(1)1 of the Inheritance and Gift Tax Act.

(v)the existence of non-taxable practice

① In a case where a listed corporation issues capital increase through a third party allotment, the requirements for taxation of gift tax are satisfied as a result of the difference between the issue price of new stocks calculated under the Securities and Exchange Act and the price calculated under Article 29(3)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. The requirement for taxation of gift tax is established. The fact that no gift tax is imposed is over a long-term period. ② In a case where a listed corporation issues capital increase through a third party allotment method, the issue price of new stocks necessary to calculate the gift profits, the payment date of stock price, the number of capital increase, etc. are publicly announced; thus, the tax authority is able to easily grasp the taxable objects of gift tax based on such data. As such,

(6) unconstitutionality of Article 39(2) of the Inheritance and Gift Tax Act

Article 39(2) of the Inheritance and Gift Tax Act provides that “In cases where there are not less than two minority shareholders, the profit shall be calculated by deeming that one of the minority shareholders has renounced or insufficiently received the allocation,” with respect to the calculation of the profit accruing from capital increase for the purpose of taxation convenience, the taxpayer shall bear more gift tax than the case of individually calculating the actual profit accruing from donation by donor with taxation pursuant to such provision, and the taxpayer has not selected a method of minimizing taxpayers’ damage, such as the method of imposing gift tax by deeming that the total amount of the profit accruing from donation is divided by the number of minority shareholders as each gift (violation of the Minimum Infringement Principle). Accordingly, Article 39(2) of the Inheritance and Gift Tax Act is unconstitutional, and the disposition of this case

(7) The existence of “justifiable cause” for which an additional tax may not be imposed

Even if gift tax can be imposed, considering the following: (a) the issue value of new shares is legally calculated in accordance with the Securities and Exchange Act and the Securities Issuance Regulations, (b) the issue value is determined in accordance with the Securities and Exchange Act and the issuance value of new shares; and (c) it is difficult to expect the Plaintiff to pay gift tax by calculating the gift income pursuant to Article 29(3) of the Enforcement Decree of the Inheritance and Gift Tax Act; and (d) there is a justifiable reason not to cause any negligence in the duty to report the gift tax; and (e) the imposition of penalty tax in the instant disposition

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) Plaintiff’s statement in the process of investigating the Seoul Regional Tax Office on April 5, 2010

The first new shares issued in the main text were allocated to shareholders, and thus, the first new shares offered to shareholders were offered to shareholders, and among them, 747,729 shares that were forfeited were allocated to the shareholders by the resolution of the board of directors. Before allocating the forfeited shares to the shareholders, there was a fact that the pre-existing shareholders and other third parties were solicited to subscribe to the forfeited shares. In addition, the first new shares issued by an infant was allowed to subscribe to the pre-existing favorable shareholders, but he could not be solicited to subscribe to other third parties, etc. on the ground that only the pre-existing favorable shareholders were assigned to the shareholders. The first new shares issued by the ○○, Nonparty 1, and Nonparty 2, etc. were not allowed to subscribe to the 10 shareholders. The fact that the forfeited shares occurred and the intention to subscribe was expressed orally. The 747,729 shares that were acquired by the forfeited shareholders was not required to be protected. The third party shares that had been obligated to be protected for 1 year was not solicited at the time of the second subscription.

(2) Conclusion of a security deposit contract

(A) The Plaintiff did not conclude a deposit contract with the Korea Securities Depository on forfeited shares.

(B) On July 18, 2007, an infant entered into a deposit agreement with the Korea Securities Depository to the effect that “I do not withdraw or sell 1,870,000 shares that have been allocated with secondary capital increase for one year from the date of deposit.”

[Ground of recognition] The fact that there is no dispute, Eul's evidence No. 3, fact-finding results on the Korea Securities Depository of this Court, the purport of whole pleadings

D. Determination

(1) As to the market value corresponding to Article 60 of the Inheritance and Gift Tax Act

(A) Article 39(1)1 (a) and (c) of the Inheritance and Gift Tax Act provides that where new stocks are issued by a corporation at a price lower than its market price in order to increase its capital, the corporation shall be deemed to have donated the amount equivalent to the benefits obtained by obtaining new stocks by obtaining such stocks from the corporation. Paragraph (3) of the same Article provides that the method of calculating the benefits under paragraph (1) and other necessary matters shall be prescribed by the Presidential Decree. Accordingly, Article 29(3)1 of the Enforcement Decree of the same Act provides that the benefits received by the purchaser of new stocks shall be determined by the Presidential Decree. Article 29(3)1 of the same Act provides that the profits received by the purchaser of the new stocks [in case of a person to whom new stocks are allocated in excess of the number of forfeited stocks or new stocks to whom new stocks are allocated: (1) + (the total number of new stocks issued before increase x the number of stocks increased by capital increase] calculated by the formula of “the total number of issued stocks before increase + the number of new stocks issued.”

In addition, Article 60(1) of the Inheritance Tax and Gift Tax Act provides that the value of property on which inheritance tax or gift tax is levied shall be based on the market price as of the date the inheritance commences or the date of donation (hereinafter “date of appraisal”) and that the value assessed according to the method of appraisal stipulated in Article 63(1)1 (a) and (b) shall be deemed the market price. Article 63(1)1 (a) and (b) shall apply mutatis mutandis to the method of appraisal of stocks of an association registered with the Association as prescribed by the Presidential Decree and publicly announced for two months before and after the base date of appraisal: Provided, That in calculating the average value, where it is inappropriate to determine the average value on the basis of a capital increase or merger during two months before and after the base date of appraisal, the average value of the period calculated as prescribed by the Presidential Decree among two months before and after the base date of appraisal shall be determined to be based on the last day of each two months before and after the base date of appraisal if a cause such as capital increase or merger occurs before the base date of appraisal.

(B) The “value per share before capital increase” and the “value per share before capital increase” are calculated as the “average closing price from the two months before the date of the payment of stock price to the date of the payment of stock price. At the time of the resolution of the board of directors for capital increase, the “value per share before capital increase” may not be known. In a case where the stock price sharply rise after the date of the resolution of the board of directors or the date of the public announcement on the capital increase, there may be a need to bear gift tax unexpected at the time of the resolution of the board of directors. In addition, Article 57 of the Securities Issuance Regulation provides that the base value shall be calculated based on the date preceding the date of resolution of the board of directors for capital increase

① However, the legislative intent of Article 39 of the Inheritance and Gift Tax Act is to issue new shares at a price lower than the market price assessed pursuant to Articles 60 and 63 for capital increase. Thus, the difference between the payment amount of new shares and the market price shall be deemed to be a donation. Thus, determination of whether to issue new shares shall be based on the amount of share payment. ② Therefore, Article 60(1) of the Inheritance and Gift Tax Act provides that the value of the property subject to gift tax as of the date of donation shall be determined based on the market price as of the date of donation. It cannot be deemed as a provision for calculating only donated profits. ③ Even if the purchaser of new shares fails to make payment on the date of payment, it shall be deemed that the value of the new shares is realized by the resolution of the board of directors only because there are no reasonable reasons for calculating the market price of the new shares after the date of issuance of new shares. ④ Even if the regulations for issuance of new shares is calculated based on the method of calculation after the date of issuance of new shares, it shall not be deemed that there are no basis for calculating the market price of the new shares.

(2) As to the taxation of unrealized profits

① Article 29(4) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that the basic date for calculating benefits from donation is the date of payment of stocks (where a person to whom forfeited stocks have been allocated prior to the date of payment of stocks, referring to the date of issuance thereof), and does not provide any exceptions otherwise; ② The donation benefits from capital increase by issuing new stocks is the capital gains accruing from the issuance of stocks at low price; thus, it is not deemed that it has already been realized at the time of issuance of new stocks; ③ the protection deposit is aimed at protecting minority shareholders due to a decline in the value of stocks; ③ the purpose of the protection deposit is to protect minority shareholders; and if the date of expiration of the protection deposit period is the evaluation date, the value of donated assets may vary depending on the intention of the parties. Thus, the instant disposition imposing gift tax after calculating the donated benefits as of the date of payment of stocks cannot be deemed a taxation on unrealized profits, the Plaintiff’s above assertion is without merit.

(3) As to the existence of “justifiable cause” which is a requirement for non-taxation of gift tax

① Articles 35(2) and 42(3) of the Inheritance and Gift Tax Act provide that “No gift tax shall be levied if a transactional practice is deemed legitimate.” However, Article 39 of the Inheritance and Gift Tax Act, which is the basis provision for the disposition of this case, does not provide for such provision. ② Article 48(1) of the Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter the same shall apply) provides that “In imposing penalty tax pursuant to this Act or any other tax-related Act, the Government shall not impose penalty tax if the ground for the imposition of penalty tax falls under the extension of the due date under Article 6(1) of this Act or if the taxpayer has justifiable reasons for failing to perform his/her duty, the pertinent penalty tax shall not be imposed.” However, the interpretation of the tax law shall be interpreted as a legitimate provision, barring any special circumstances, in light of the principle of no taxation without the law, or the expansion or analogical interpretation of the tax law without any justifiable reason.”

(4) As to the allotment of shares by means of a public offering of new securities

(A) Article 39(1)1 (a) of the Inheritance and Gift Tax Act provides that “where a stock-listed corporation or Association-registered corporation under the Securities and Exchange Act allocates securities through a public offering method under Article 2(3) of the same Act, no gift tax shall be levied on profits acquired by stockholders of the corporation acquired by allocation of forfeited stocks.” Article 2(3) of the Securities and Exchange Act provides that “public offering of new securities shall be made under the conditions as prescribed by the Presidential Decree.” Article 2-4(1) of the Enforcement Decree of the same Act provides that “The number of persons who are solicited to subscribe for the acquisition of new securities shall be 50 persons or more in case of conducting public offering of new securities pursuant to Article 2(3) of the same Act.” Article 2(5) provides that “Where the Korea Securities Depository makes an invitation to subscribe for the issuance of securities through newspapers, broadcasting, magazines, etc. or its public offering of new securities, it shall be deemed that there are no information about the purchase or sale of securities by the Korea Securities Depository or its public offering of new securities within 20 years from the date of subscription.”

Meanwhile, in order to constitute “distribution by means of public offering of securities” under Article 2-4(5) of the Enforcement Decree of the Securities and Exchange Act, which does not include profits arising from the issuance of low price at a lower price in the value of donated property, the distribution of printed matters, such as a notice and leaflet through newspapers, broadcasting, magazines, etc., holding a briefing session for investment, and electronic communications, etc., should not be limited to the method such as electronic communications, but there should be activities of notifying that the securities will be issued or sold, or providing guidance on the acquisition procedure (see Supreme Court Decision 2003Do7554, Feb. 13, 2004).

(B) It is recognized that the instant case was not entered into a deposit contract to withdraw or not sell the forfeited stocks for a certain period from the date of deposit with respect to the health bond and forfeited stocks. However, in light of the following circumstances, it cannot be deemed that the forfeited stocks were allocated by the public offering method of securities under Article 2(3) of the Securities and Exchange Act. Therefore, the Plaintiff’s above assertion is without merit.

(1) Purpose of legislation: Where a stock-listed corporation or Association-registered corporation issues new stocks in accordance with the public offering procedure under the relevant Acts and subordinate statutes, such as the Securities and Exchange Act, it is reasonable to view that even if a discount is issued, an unspecified number of people is determined again through a fair competition trading procedure in the Korea Stock Exchange or Association brokerage market, and that the public disclosure, public relations, etc. is permitted in a justifiable manner to protect the general public and third parties' investment, and that relevant Acts and subordinate statutes, such as the Securities and Exchange Act, such as the Securities and Exchange Act, are allowed to facilitate the raising of funds of the listed corporation

(2) The background of introduction of deemed public offering: The provision on deemed public offering of new shares in Article 2-4 (4) of the Enforcement Decree of the Securities and Exchange Act in the past is a system newly introduced at the time of partial amendment on February 24, 1998 in order to prevent the issuance and public notice for investor protection from being included in the concept of public offering, and thus, it does not include any allocation by deemed public offering to avoid regulation on issuance of new shares for the purpose of investor protection, and it accords with the purport of Article 2-4 (1) 1 (a) of the Enforcement Decree of the Securities and Exchange Act, which is an exceptional ground that does not include the benefit accrued from the low-price issuance in the value of the property, in the case of a distribution by means of securities offering, which is a ground for the exception that does not include the benefit accrued from the issuance of new shares in the value of the property to the value of the property. It is limited to general public offering that is 50 or more persons who have been solicited to acquire the new shares issued under Article 2-4 (1) of the Enforcement Decree of the Securities and Exchange Act.

(3) Solicitation for subscription: The Plaintiff stated that “A child, who is an existing shareholder, recommended 10 persons, including Nonparty 1 and Nonparty 2, etc. to make an offer for forfeited share.” On the other hand, there is no evidence to acknowledge that 50 or more persons have solicited to make an offer for forfeited share acquisition. Therefore, it cannot be said that an infant had undergone the procedure for “invitation” under Article 2-4(5) of the Enforcement Decree of the Securities and Exchange Act.

(5) As to the existence of non-taxable practices

(A) In order to establish the good faith and non-taxation practices prescribed in Articles 15 and 18(3) of the Framework Act on National Taxes with respect to the tax and legal relations, a tax authority’s intent not to impose taxes on certain matters over a long-term period is required to be interpreted as having known that it would be able to impose taxes on certain matters, and that such intent would be externally and explicitly expressed externally or implicitly. The term “the interpretation of the tax-related Act or the practices in tax administration accepted by the taxpayers” in Article 18(3) refers to the extent that it is unreasonable for the taxpayer to believe that the erroneous interpretation or practices were accepted by the general taxpayer who is not a specific taxpayer, and that it is not reasonable for the taxpayer to trust such interpretation or practices (see Supreme Court Decision 2007Du19294, Apr. 15, 2010).

(B) The written evidence Nos. 7, 8, and 9 (including paper numbers) of this case is insufficient to recognize that the tax authority imposed no gift tax on the profits equivalent to the difference between the appraised value per share and the value of the value per share with respect to capital increase by the third party allocation method, and there is no other evidence to acknowledge it. Thus, the Plaintiff’s above assertion is without merit without need to further examine.

(6) As to the unconstitutionality of Article 39(2) of the Inheritance and Gift Tax Act

(A) Even if a tax-related law clearly provides for the taxation requirements in accordance with the principle of no taxation without law, which is declared in Articles 38 and 59 of the Constitution, the purpose or content of the law should be consistent with the constitutional ideology of guaranteeing fundamental rights and the principle of no taxation without law, such as the principle of no taxation without law (see, e.g., Constitutional Court Order 94Hun-Ba38, Jun. 26, 1997; Constitutional Court Order 90Hun-Ga69, Feb. 25, 1993). Thus, if a tax-related law violates the principle of no taxation without law, it shall not be permitted under the Constitution notwithstanding the citizens’ tax liability under Article 38 of the Constitution.

(B) In this case, it is difficult to calculate the gift tax for each donor in practice when minority shareholders renounce the subscription of new shares, and there is a problem that gift tax shall not be imposed because it falls short of the minimum taxable amount when calculating the donation amount for each minority shareholder. ② Rational limitation: Article 29(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act which was enacted pursuant to Article 39(2) and (3) of the Inheritance Tax and Gift Tax Act limits the scope of application to minority shareholders to "a shareholder who owns less than 1/100 of the total number of issued stocks, etc. of the relevant corporation and whose total amount of face value of stocks is less than 300 million won". Thus, considering the fact that the scope of application is minimum, ③ the fact that the law is in violation of the Constitution is not objectively obvious before the decision of unconstitutionality is made by the Constitutional Court, the plaintiff's above assertion is groundless.

(7) As to “justifiable cause” on which no penalty can be imposed

(A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under tax law is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates a return, tax liability, etc. as prescribed by the Act without justifiable grounds, and the taxpayer’s intention or negligence is not considered, and it does not constitute a justifiable cause (see Supreme Court Decision 2013Du1829, May 23, 2013).

(B) It is reasonable to determine whether to issue the price at low on the basis of the payment date of the stock price even in the case of capital increase with health class and third party allotment method. The provision on this issue (Article 29(4) of the Enforcement Decree of the Inheritance and Gift Tax Act) was effective January 30, 2002, and Article 57(2)3 of the Securities Issuance Regulation is merely a certain limitation on the standards, etc. for the issuance of new stocks in order to ensure fairness and transparency in the issue terms and procedures for the issuance of new stocks, and it differs from the provision on the calculation of donation profits under the Inheritance and Gift Tax Act and the Enforcement Decree of the same Act, so it is not possible to regard the issue price of new stocks under the above provision as the market price under the Inheritance and Gift Tax Act. In light of the above, it is difficult to report and pay gift tax as the land under the law, and it is difficult to view that there is any justifiable reason that the Plaintiff cannot be any negligence

3. Conclusion

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

[Attachment]

Judges Shin Ha-chul (Presiding Judge)