Plaintiff (Attorney Kim Hyun-do, Counsel for the plaintiff-appellant)

Defendant (Law Firm C&S, Attorney Shin Young-chul, Counsel for the defendant-appellant)

March 16, 2018

Gwangju District Court Decision 2017Gahap50817 Decided July 21, 2017

1. Of the judgment of the court of first instance, the part against the defendant in excess of the amount ordered to be paid below is revoked, and the plaintiff's claim corresponding to the revocation part

The defendant shall pay to the plaintiff 10,164,686 won with 5% interest per annum from March 14, 2017 to March 30, 2018, and 15% interest per annum from the next day to the day of full payment.

2. The defendant's remaining appeal is dismissed.

3. Of the total litigation costs, 90% is borne by the Plaintiff, and the remainder is borne by the Defendant, respectively.

1. Purport of claim

The defendant shall pay to the plaintiff 231,027,396 won with 15% interest per annum from March 14, 2017 to the day of complete payment.

2. Purport of appeal

The part against the defendant in the judgment of the court of first instance shall be revoked, and the plaintiff's claim corresponding to the revocation shall be dismissed.

1. Facts of recognition;

A. Title trust of the instant shares

The Plaintiff entered into a title trust agreement with the Defendant and Nonparty 1 (hereinafter “the Defendant, etc.”) from 1999 to 2003, and held title trust with the Defendant, etc. on 52,000 shares (total 130,000 shares, hereinafter “instant shares”) out of the shares of Hanerdi (hereinafter “ Hanerdi S”) owned by the Plaintiff, as described in paragraph (d) below.

B. Progress of the relevant civil case

1) The Plaintiff filed a lawsuit claiming transfer of ownership for the instant shares on the ground of termination of title trust with respect to the instant shares, and received a favorable judgment (Seoul District Court Decision 2010Gahap2383, Gwangju High Court Decision 2010Na4997, and Supreme Court Decision 2011Da47343).

2) Meanwhile, the defendant et al. filed a claim for damages against the plaintiff on April 10, 2007 for violation of the obligation stipulated in the share transfer agreement and received a partial favorable judgment against the plaintiff et al. that "the plaintiff shall pay the defendant et al. for damages amounting to 165,450,000 won each as damages compensation and delay damages therefor" (Seoul District Court 2010Gahap4396, Gwangju High Court 201Na4499).

C. The instant agreement

On May 27, 2014, the plaintiff and the defendant agreed to the following terms (hereinafter referred to as the "agreement of this case") with respect to civil cases, etc. described in the above paragraph (b).

As the share transfer contract as of April 10, 207, which is the premise for the above damage compensation case, is null and void, the Plaintiff does not need to pay the damages to the Defendant, and the Defendant cannot raise an objection to the Plaintiff. 2. Although the Plaintiff won in the above transfer case, the shares of this case are owned by the Defendant, and the Defendant pays KRW 100,000 to the Plaintiff up to May 30, 2016 as compensation for the costs of lawsuit. 3. Otherwise, the Defendant pays to the Plaintiff the share price of KRW 4,80,000 as of the remaining shares of the Plaintiff 78,000 as of July 23, 2008, the share price of KRW 80,000,000 payable to the Plaintiff until May 30, 2016.

D. Payment of gift tax by the defendant

1) After the instant agreement, the director of the Gwangju District Tax Office, around August 2014, notified the Defendant, etc. of the following schedule 2) 43,700 shares among the shares of this case, despite the duty to report and pay gift tax under Article 41-2 (State 3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003); thus, the director of the Gwangju District Tax Office notified the Defendant, etc. of the following return and payment based on gift tax.

2) Accordingly, on August 20, 2014, the Defendant reported and paid KRW 161,413,840 on the Defendant’s gift tax on August 20, 2014, and KRW 27,014,840 on August 29, 2014 on the gift tax paid by Nonparty 1, respectively (hereinafter “instant gift tax”).

Plaintiff 1, 166,66,00 14,666,00 14,00 14,700 147,000 147,000,000 52,632,200 7,000 68,726,000 35,529,960 12,000 149,940,940 73,251,680 33,70 366,666,00 168,40 1666,413,840 9,000 9,000 120,004,46840 168,408,408 209,9408,000 1204,6840,000 840,008 209,408,0004

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 4 (including each number), the purport of the whole pleadings

2. Determination as to the cause of action

According to the above facts of recognition, the Defendant is obligated to pay to the Plaintiff the sum of KRW 900,000,000,000, including the share price, as stipulated in the instant agreement, and damages for delay from May 31, 2016, which is the following day after the due date for payment (hereinafter “agreement claim”).

3. Determination on set-off defense, etc.

A. The defendant's defense

The gift tax of this case occurred by the Plaintiff’s title trust to the Defendant 4). The gift tax arising under the title trust agreement ought to be ultimately borne by the Plaintiff, the title truster, and thus, the Defendant shall set off against the Plaintiff’s claim against the Plaintiff for reimbursement equivalent to the above gift tax and the damages for delay thereof, based on its automatic claim.

(b) relevant legal provisions;

1) The former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998 and enforced January 1, 1999; hereinafter “the Inheritance Tax Act of 199”)

(1) With respect to the property (excluding land and buildings; hereafter the same shall apply in this Article) which requires a registration, etc. for the transfer or exercise of the right, if the actual owner and the nominal owner are different, the value of the property shall be deemed to have been donated to the actual owner by the nominal owner on the date when it is registered, etc. as the nominal owner, notwithstanding the provisions of Article 14 of the Framework Act on National Taxes: Provided, That this shall not apply to cases falling under any of the following subparagraphs:

2) The former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002) and enforced January 1, 2003 (hereinafter “the Inheritance Tax and Gift Tax Act of 2003”)

(3) Where the donee falls under any of the following subparagraphs, the donee is jointly and severally liable to pay the gift tax that is to be paid by the donee: (2) Where it is difficult to secure a tax claim due to default and it falls under the provisions of paragraph (2) and the subparagraphs of Article 41-2, the donee shall be jointly and severally liable to pay the gift tax pursuant to this Act.

3) The former Framework Act on National Taxes [amended by Act No. 4810, Dec. 22, 1994 (amended by Act No. 4810, Jan. 1, 1995; hereinafter the same shall apply]

(1) Article 3 (Relation to Tax-Related Acts, etc.) (1) of the Table included in the main sentence of this Act shall take precedence over other tax-related Acts: Provided, That if the tax-related Acts provide special provisions on Section 1 of Chapter II, Sections 2, 3 and 5 of Chapter III, Section 1 of Chapter V, Article 51 (limited to refunds under the Regulation of Tax Reduction and Exemption Act) and Chapter VIII of this Act, such tax-related Acts shall apply. Article 25-2 (Application Mutatis Mutandis of the Civil Act concerning Joint and Several Liability for Tax Payment) of this Act or other tax-related Acts to the obligation to jointly and severally pay national taxes, surcharges, and expenses for disposition on default, Articles 413 through 416, 419, 421, 423, and 425 through 427 of this Act shall apply mutatis mutandis.

C. Determination

1) Whether to exercise the right to indemnity on the shares held in title trust in 2003

As seen earlier, Articles 4(1) and 41-2(1) of the Inheritance and Gift Tax Act of 199 provide that “The shares trusted after January 1, 1999 are deemed to have been donated to the title trustee and the title trustee bears the obligation to pay gift tax, barring any special circumstances.” Articles 4(1) and (4), and 41-2(1) of the Inheritance and Gift Tax Act of 2003 provide that “The shares trusted in title after January 1, 2003 shall be jointly and severally liable by the title truster and the title trustee to pay gift tax,” and Articles 3(1) and 25-2 of the former Framework Act on National Taxes provide that “Article 425 of the Civil Act on the right to indemnity shall apply mutatis mutandis to the joint payment obligation of national tax unless otherwise provided for in each tax law.”

However, in 2003, the Inheritance and Gift Tax Act does not stipulate any special provision regarding the duty to jointly pay the gift tax on the stocks held in title trust, and on the other hand, even if a title truster’s duty to pay tax is not determined by a taxation disposition, if the requirements for taxation on deemed gift of nominal trust property are satisfied, the title truster’s joint and several obligation to pay gift tax should be established (see, e.g., Supreme Court Decision 2015Du50290, Jul. 18, 2017).

Therefore, regarding the shares held in title trust in 2003 among the shares of this case, regardless of whether the tax authority imposed a tax disposition on the Plaintiff, the Defendant may exercise the right to indemnity against the Plaintiff’s share by paying the gift tax on the part of the Plaintiff. Therefore, this part of the set-off defense by the Defendant is justified.

2) Whether the exercise of the right to indemnity against the shares held in title trust in 2000 and 2001 is the

In light of the circumstances acknowledged as above, the evidence mentioned above, and the following legal principles or evidence Nos. 5 and 6, and the purport of the entire pleadings, it is reasonable to view that the defendant can exercise the right to indemnity or right to claim a return against the plaintiff against the shares held in title trust in the year 200 and 2001 among the shares of this case. Thus, the defendant's defense of offset against this part is well-grounded.

① Article 41-2 of the Act on the deemed donation of title trust property newly established in the Inheritance and Gift Tax Act in 1999 is one of the exceptions to the substance over form principle, which prevents the title trust system from being abused as a means of tax avoidance, and does not change the ownership of the property under title trust to the extent necessary to realize tax justice. As such, the actual attribution of the property under title trust is still in accordance with the legal relations, such as the title trust, notwithstanding the aforementioned legal provisions (see, e.g., Supreme Court Decision 2014Du38491, Oct. 26, 2017). In determining whether a title trustee can exercise his/her right to indemnity against the title truster when the title trustee paid gift tax as in the instant case, the said legal provisions as well as the said legal provisions should apply.

② Generally, a title trust agreement is deemed to be established when a title truster entrusts a title trustee with the performance of affairs related to ownership and the title trustee approves the delegation. As such, the property tax, etc. borne by the title trustee in relation to the trust property under the name of the title trustee bears the duty of the title truster to repay it to the title trustee, as expenses incurred in performing the affairs under the name of the title trustee (see Supreme Court Decision 98Da6176, Oct. 12, 199, etc.).

However, the gift tax of this case was imposed on the Defendant as the cause of taxation on the title trust of the shares of this case. Since the Defendant paid it in the course of managing the affairs as the title trustee, the Plaintiff is obligated to return to the Defendant the amount equivalent to the necessary expenses for managing the delegated affairs (it can be deemed that the Plaintiff made unjust enrichment equivalent to the amount of the gift tax).

③ Ordinaryly, a title trust agreement is a title truster, who was concluded upon the necessity or request of the title truster and who actually enjoys economic benefits therefrom. The fact that the title trustee cannot receive a refund of the gift tax that was paid by the title trustee due to the title trust goes against not only the general economic concept, but also the intent of the party who concluded the

④ If the purpose of legislation under Article 41-2 of the Inheritance and Gift Tax Act of 1999 is to be fulfilled, an agreement between the title truster and the title trustee on the burden of gift tax imposed on the property held in the title trust may not be recognized as being valid on the ground that the said agreement has breached the purpose of legislation.

⑤ In 2003, Article 4(4) of the Inheritance and Gift Tax Act was newly established, and thereafter on January 1, 2003, the title truster is jointly and severally liable with the title truster to pay the gift tax on the property held in title trust. However, the said legal provision is merely an obligation to pay the gift tax to the title truster in order to realize the substance over form principle and to prevent the avoidance of gift tax, and thus, it cannot be deemed that the title truster’s obligation to return the amount equivalent to the gift tax on the title trustee

6. The Plaintiff asserts to the effect that it is not unreasonable even if the Defendant did not recognize the Defendant’s right to indemnity, since the Defendant acquired the instant shares by gift from the Plaintiff, but did not recognize the Defendant’s right to indemnity. However, the acquisition of the instant shares was based on the instant agreement made after the above title trust, while the payment of the instant gift tax was based on the Plaintiff and the Defendant’s title trust agreement

3) Shares to be borne

A) As seen earlier, with respect to the gift tax imposed on the shares held in title trust in 2000 and 2001, the Defendant may be reimbursed in full from the Plaintiff for necessary expenses or unjust enrichment for handling delegated affairs.

B) Furthermore, Article 25-2 of the former Framework Act on National Taxes does not apply mutatis mutandis to the gift tax imposed on the shares held in title trust in 2003, while Article 424 of the Civil Act, which presumed that the share of joint and several liability is equal, does not apply mutatis mutandis to the gift tax imposed on the shares held in title trust. Accordingly, the share of liability should be determined by taking into account the relationship between the Plaintiff and the Defendant, the developments leading up to the conclusion of the title

However, in light of the following circumstances acknowledged by the above facts and the evidence revealed earlier, namely, there is no evidence that the Defendant exercised the right of substantial shareholder with respect to the instant shares held in title trust or obtained profits from the receipt of dividends, ② there is no agreement between the Plaintiff and the Defendant on the share transfer; ③ the Plaintiff and the Defendant entered into the instant agreement under the circumstance that the gift tax should be imposed on the instant shares; rather, if they were aware of the fact, the agreement in this case would have been reached by reflecting the amount equivalent to the gift tax, it is reasonable to deem that the Defendant may claim full reimbursement of the gift tax on the shares held in title trust in 203.

4) Results of exercising the right of set-off

As seen earlier, the Plaintiff’s claim under the instant agreement was due on May 30, 2016, and the Defendant paid KRW 73,251,680 of the gift tax on the shares held in title in title in August 2014, 200, KRW 88,162,160 of the gift tax on the shares held in title in title in 2001, KRW 88,160 of the gift tax on the shares held in title in title in 2001, and KRW 27,014,840 of the gift tax on the shares held in title in title in 200, August 29, 200, and KRW 27,014,840 of the gift tax on the shares held in title in title in 201, which became due and due. Accordingly, the Defendant paid the amount set off on May 3

However, as of May 30, 2016, ① The principal and interest of the claim for indemnity on the gift tax on shares held in title trust in 2003 + KRW 79,76,276 [=73,251,680 + [5% + (1 year + 5%) x (285 days/36)]; ② the principal and interest of the claim for indemnity on the gift tax paid on August 20, 200; ② the principal and interest of the claim for the gift tax on 200; ② the amount of 30,02,81 [20, 88,162, 160 + 400 + (360%) + the amount of 360, 206, 207, 360, 207, 360, 208, 206, 364) x 460, 208, 206.

After March 13, 2017, the Plaintiff was a person who received KRW 712,00,000 from the Defendant on March 13, 2017, and until March 13, 2017, the Plaintiff’s principal and interest on the Plaintiff’s contractual deposit amount of KRW 722,164,686 [=69,846,739 won + (694,846,739 x 5% x 8%) + 287 days / 365 days] As such, the Plaintiff’s final claim for the agreed deposit amount of KRW 10,164,686 (i.e., KRW 72,164,686 - KRW 712,00,000) and damages for delay from March 14, 2017.

D. Sub-committee

Therefore, the defendant is obligated to pay to the plaintiff 10,164,686 won and damages for delay calculated by the ratio of 5% per annum under the Civil Act from March 14, 2017 to March 30, 2018, which is the date of the final judgment of the court of the first instance, and 15% per annum under the Act on Special Cases concerning Expedition, etc. of Legal Proceedings from the next day to the date of full payment.

4. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claims are dismissed without merit. Since the part against the defendant who ordered payment in excess of the above recognition amount among the judgment of the court of first instance which partially different conclusions is unfair, it is revoked and the plaintiff's claim corresponding to the revoked part is dismissed, and the remaining appeal of the defendant is dismissed as it is without merit. It is so decided as per Disposition.

Judges Park Byung-il (Presiding Judge) (Presiding Justice)

1) The contents of the written agreement (Evidence A No. 2) were arranged in line with the claims of the original and the Defendant.

2) The Plaintiff held title trust with the Defendant in 1999 that 8,300 shares were excluded from those subject to the reporting and payment of gift tax.

3) The “Report and Guidance on Payment after the due date of gift tax” sent by the director of the tax office on August 2014 to the defendant, etc. (No. 1-2-1 and No. 2-1 of the evidence No. 1-2) is stipulated under the relevant provision, but Article 45-2 of the Inheritance Tax and Gift Tax Act is stipulated under the relevant provision. However, the title trust of the instant shares was made between 2000 and 2003, so accurate applicable provisions of law are as above (see the above paragraph (b)).

4) As seen earlier, the parties to the title trust agreement on the shares of this case can be deemed to have acquired the right to indemnity against the plaintiff of this case by paying the gift tax to the plaintiff, the defendant, the plaintiff, the defendant's wife, or the defendant against the non-party 1. Thus, only the plaintiff is indicated as "the defendant" (e.g., the plaintiff seems not to dispute).

5) The days from August 20, 2014 to May 30, 2016, the Defendant’s gift tax payment date, are the days.

Note 6) For the purposes of each Note 5.

7) The days from August 29, 2014 to May 30, 2016, the Defendant’s gift tax payment date, are the days.

8) The number of days from May 31, 2016 to March 13, 2017, following the due date for payment of the Plaintiff’s contractual deposit.

9) Defendant’s KRW 10,247,890 on January 25, 2018 appears to be Osan.