Plaintiff (Law Firm Jind, Attorneys Choi Weather-soo et al., Counsel for the plaintiff-appellant)

head of Dongjak-gu Tax Office

October 5, 2016

Seoul Administrative Court Decision 2015Guhap5059 decided January 21, 2016

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposing gift tax of KRW 4,037,771,950 (including additional tax) on the Plaintiff on October 16, 2013 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

This court's explanation concerning this case is identical to the corresponding part of the judgment of the court of first instance except for dismissal or addition as follows (as stated in the corresponding part of the judgment of the court of first instance (as stated in the second half to fourth upper end of the second half of the grounds). Thus, the meaning of the terms used in this case is citing it in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act (as stated in the judgment of the court of first instance).

○ 2-3 of the grounds for appeal are as follows.

A. The Plaintiff served as a representative director from September 201 to November 2013, 2012, and from the end of March 2014, the Plaintiff served as a representative director (67.63% of the equity ratio in 2009 business year, 69.09% of the equity ratio in 2012 business year), and from the date of establishment to November 2008, and from September 201 to November 201, the Plaintiff served as the representative director.

In addition, “the above court” was deleted from No. 3-4 of the 3rd page, and “the change of entry was made on December 30, 2009 with respect to the shares of this case,” was added after the last 13th page.

○○ Following the 4th gambling, the term “O. 22, 2013.10” of heading 2-3 below the 2-3th 201 and the term “Gift 4,037, 771,950” of heading 3 added “Gift 4,037, 771, 950” of heading 3.

2. Whether the instant disposition is lawful

A. The parties' assertion

1) Plaintiff

The Plaintiff did not have held title trust with the shares of this case. The Plaintiff was originally intended to control Mapotech’s social gathering electronic, and was invested from Mapotechs on the premise thereof. The Plaintiff had already held 3,516,971 shares issued by Mapotech’s social gathering electronic, which was a major shareholder of Mapotech, a listed company rather than acquiring the shares of this case in the name of the Plaintiff. The Plaintiff acquired the shares of this case from Mapotech by taking advantage of the trust that the number of shares owned by Mapotech’s social gathering electronic, a major shareholder of Mapotech’s social gathering electronic, a listed company, would increase the number of shares owned by Mapotech’s major shareholder rather than acquiring the shares in the name of the Plaintiff. Thus, even if the shares are evaluated as a title trust, the Plaintiff did not have the purpose of tax avoidance.

2) Defendant

Although the Plaintiff originally agreed to receive a payment in kind of the instant shares while lending funds to Nonparty 1 (Seoul: Nonparty) but agreed to receive a payment in kind, it was treated as having received a loan to Nonparty 1 by having Nonparty 1 transfer the instant shares in the name of Indianc controlled by the Plaintiff in the course of Nonparty 1’s lawsuit against Nonparty 1, and thus, the Plaintiff was in title trust with respect to the instant shares. In addition, the Plaintiff had a transfer income tax to have already been reported and paid before December 30, 2009, which was subject to the instant title trust. However, the Plaintiff avoided the execution of the said transfer income tax by acquiring the instant shares in the name of Indianc, and was able to avoid the dividend income tax and the transfer income tax in the case of re-transfer of the instant shares in the future. Therefore, it cannot be said that the Plaintiff did not have any purpose of tax avoidance.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) On March 28, 2008, Intetrac acquired shares issued by 3,516,971 shares issued by Manae Electronics. On December 30, 2009, upon Nonparty 1’s acquisition of the shares of this case from Nonparty 1, the total number of shares was 8,501,407 shares, and was publicly announced as the largest shareholder of Manae Electronics of Manae. The purpose of acquiring shares issued at the same time was “the stability of management rights, the expansion of new projects, and the management of the largest shareholder’s responsibility.”

2) However, India did not have any sales performance in the business year of 2008, and sales revenue in the business year of 2009 was merely about KRW 4777 million, and there was a net loss continuously from the business year of 2009 to the business year of 2012.

3) On January 25, 2008, at the time of lending funds to Nonparty 1, the Plaintiff agreed to the Plaintiff on October 29, 2007, which included an agreement that the ownership of new shares 2,304,148 shares of the already-established social gathering electronic subject to protection deposit application on October 29, 2007 is verified to the Plaintiff. On December 18, 2009 and the Seoul Central District Court 2009Gahap120714, at the time of adjustment, Nonparty 1 transferred the shares of this case to a third party and paid a loan to the Plaintiff, and on December 21, 2009, Nonparty 1 gave up a claim for interest other than the principal of the loan, 9.3 billion won, which was settled to Nonparty 1 at the time of the establishment of the above adjustment.

4) According to the statement made by Nonparty 1 in the course of the tax investigation, the fact that Nonparty 1 entered into a contract for acquisition of the instant shares with the Spoke was that the Plaintiff requested the purchaser to change the purchaser to Spotech.

5) In respect of the loan amount of KRW 9.3 billion borrowed from the Plaintiff while taking over the instant shares in its name, the Plaintiff did not pay not only the principal but also the interest thereafter.

6) Meanwhile, India appropriated the instant shares as “saleable securities” on the part of the assets on the balance sheet, and, as of December 30, 2009, KRW 9.3 billion, which was to be borne by the Plaintiff as of December 30, 2009, was appropriated as “short-term loan” on the part of the debt on the balance sheet. After that, India offered part of the instant shares as security for the obligation to Daewoo Securities Co., Ltd., and the remainder was distributed and managed in several securities companies’ name accounts, and was sold on November 2010, and used the amount as the repayment of the obligation to the Korea Investment Securities Co., Ltd., Ltd., and the acquisition price of Mapo Electronic C&C.

7) On December 31, 2015, the Defendant: (a) deemed that the business of Postec has been de facto suspended; and (b) closed the business of Postec ex officio.

[Reasons for Recognition] A without dispute, Gap evidence Nos. 2, 5, 8, 9, Gap evidence No. 10-1 through 20, Gap evidence No. 11, Gap evidence No. 12-1, 2, Gap evidence No. 14, 17, 18, Eul evidence No. 2, 8, 11, 12, Eul evidence No. 20-1 through 5, and Eul evidence No. 20-1 through 20, as a result of an order to submit financial transaction information to Daewoo Securities Co., Ltd. on December 2, 2015, the purport of the entire pleadings as a whole.

D. Determination

1) Whether title trust of the instant shares was held

A) Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that the legal fiction of donation shall apply in cases where the actual owner and the nominal owner agree or communicates with respect to the property that requires the transfer or exercise of the right, and the registration in the name of the nominal owner is made (see, e.g., Supreme Court Decision 2007Du15780, Feb. 14, 2008). The title trust relationship may be established not only by an express contract between the truster and the trustee, but also by implied agreement (see, e.g., Supreme Court Decision 2000Da49091, Jan. 5, 201); whether an implied agreement on the title trust was reached between the truster and the trustee; whether or not the nominal owner of the property is different from the actual owner of the property in light of social norms (see, e.g., Supreme Court Decision 2007Du494, etc.

B) However, the following facts revealed in the above facts: ① (a) the Plaintiff and Nonparty 1 agreed to transfer the instant shares to the Plaintiff when Nonparty 1 was unable to repay the loan; and (b) the acquisition price of the instant shares was actually borne by the Plaintiff in light of the series of processes, such as the agreement entered into between the Plaintiff and Nonparty 1 to take over management rights of the existing social gathering event; (c) the Plaintiff’s agreement to transfer the instant shares to the Plaintiff; and (d) the transfer of the instant shares in the name of Intec as a result of mediation formed in the process of resolving the dispute over the return of the said loan; (b) although Matec was in the form of borrowing KRW 9.3 billion of the acquisition price of the instant shares from the Plaintiff, even though Matec was in the form of borrowing KRW 9.3 billion of the acquisition price of the instant shares from the Plaintiff, it is reasonable to view the Plaintiff’s shares to have acquired the instant shares under the name of the representative director at the time of December 30, 2009.

2) Whether the purpose of tax avoidance exists

A) The legislative intent of Article 45-2(1) of the former Inheritance and Gift Tax Act recognizes an exception to the principle of substantial taxation to the effect that the act of tax avoidance using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, the proviso of the same Article shall apply only where the purpose of the title trust is not included in the purpose of the tax avoidance, and where it is recognized that there was an intention of the tax avoidance in addition to the other main purpose, it shall not be deemed that there was an intention of the tax avoidance. In this case, the burden of proving that there was no intention of the tax avoidance in the context of the title trust can be proved by the method of proving that there was an intention of the tax avoidance, not the purpose of the tax avoidance. However, the burden of proving that there was no intention of the tax avoidance in the title trust, to the extent that the title holder who bears the burden of proof, was not superior to the tax avoidance in the title trust, and that there was no tax avoidance in the future at the time of the title trust or in the future, it shall be proved to the extent that it does not have any doubt (see Supreme Court Decision 20136Du136.

B) According to the evidence evidence evidence evidence Nos. 2, the shareholders status of the 195.54% in total in the business year 2007, Nonparty 1 holds 85.54% in total, 10.78% in the 2008 corporate year, and 3.68% in the 2008 corporate year, the minority shareholders held 76.81% in total, 9.90% in the 2008 corporate year, 5.81% in the 199% in the 2008 corporate year, 5.7% in the 2009 corporate year, 6.99% in the roctic, 3.23% in the roctic, D01, 00, and 0.40% in the 2009 corporate shares acquired by Nonparty 2 in the 2009 corporate shares, it was recognized that the Plaintiff was able to hold shares in the name of the Plaintiff 10.5% in the Do201.

C) On the other hand, however, there is no other evidence to deem that the need for stability of management rights by the above method goes beyond normal level, and it is difficult for the Plaintiff to conclude that the Plaintiff entered into a contract on acquisition of shares of 39,50,270,000 won owned by the Plaintiff at the time of 125,338 on December 4, 207, and received all the above transfer proceeds until February 27, 2009. The Plaintiff did not receive capital gains tax and preliminary return until the end of the month in which the balance is settled pursuant to the pertinent provisions of the Income Tax Act (see, e.g., Supreme Court Decision 200Da14250, Apr. 30, 209). However, it is difficult to conclude that there was no difference between the Plaintiff and 200,000 won of capital gains tax and local income tax on the ground that there was no possibility of tax evasion and tax evasion by the Plaintiff’s 15th, supra, in light of the legislative intent of the former Tax Act.

3) Sub-decisions

Therefore, the Defendant’s disposition of this case is lawful, so long as it cannot be deemed that the Plaintiff trusted the instant shares in India and that there was no tax avoidance purpose at the time.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and since the judgment of the court of first instance differs from this conclusion, the defendant's appeal is accepted and the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed as per Disposition.

[Attachment]

Judges Cho Jong-tae (Presiding Judge)