The transfer value shall be calculated according to the actual transaction details not divided for each equity share when at least two stockholders transfer their shares collectively.

The transfer value shall be determined according to the substance of the transaction, not by the method of calculating the transaction document separately by the seller, but by the substance of the transaction.

Article 96 of the Income Tax Act

Article 7 of the Securities Transaction Tax Act (Tax Base)

1. The Defendant’s imposition disposition of KRW 116,166,60 for the transfer income tax belonging to the year 2004 against the Plaintiff on September 14, 2005 and KRW 6,416,660 for the second period of February 2004 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the instant taxation disposition

A. The Plaintiff and ○○○○ Bank (hereinafter “○○○ Bank”)’s shareholders of Nonparty 1, ○○○○○ Bank (hereinafter “○○○ Bank”) held 50,000 shares of the Plaintiff among the 600,000 shares of the said company, and ○○ Bank owned 10,000 shares of the said company.

B. On January 28, 2004, the Plaintiff and ○○ entered into a contract with Nonparty ○○○○○○ Co., Ltd. (hereinafter “○○○○○○”) under which the entire shares and management rights of ○○○○○○○ Bank were transferred to KRW 5 billion (hereinafter “instant contract”). The Plaintiff voluntarily paid KRW 1,834,650,00 as capital gains tax and KRW 15,000 as securities transaction tax after filing a tax return on the following details.

Table 1

Transfer Value (won)

Acquisition value (cost)

Necessary expenses (won)

Transfer margin (won)

Details of reports (won)

3,000,000,000

(6,000 per share)

2,699,615,000

(5,399 per share)

277,500,000

2,885,000

Transfer income tax 1,834,650

Securities Transaction Tax 15,000,000

C. However, after the Defendant denied both the above transfer value and acquisition value as reported by the Plaintiff, the transfer value is calculated as 4,166,66,666 won ( = 5,00,000 won X5/6) multiplied by the Plaintiff’s shares in total transfer value of 5 billion won, and the acquisition value is calculated as 5,000 won per share with face value of 5,000 won, and each of the following items is calculated as follows:

Table 2

Transfer Value (won)

Acquisition value (cost)

taxation

4,166,66,667

(500,600,000 note X5 million)

2,500,000,000

Transfer income tax: 136,128,160 won

(Amount obtained by deducting 1,834,650 won)

Securities Transaction Tax: 6,416,660 won

D. Accordingly, the Plaintiff filed a request to the National Tax Tribunal for the revocation of the above taxation disposition. On June 30, 2006, the National Tax Tribunal decided that the transfer value shall be calculated by multiplying the entire transfer value by the Plaintiff’s shareholding ratio, such as the position of the Defendant’s disposition agency. However, it decided that the acquisition value should be calculated by adding the amount equivalent to the shares related to the new shares out of the subscription price of ○○ Bank’s shares, which ○○ Bank had been previously owned by

E. Around July 2006, the Defendant corrected the acquisition value according to the above decision of the National Tax Tribunal, reduced capital gains tax to KRW 19,961,50, and revised each taxation disposition as follows (in the case of capital gains tax due to the correction of reduction, 116,166,60 among the disposition of September 14, 2005, hereinafter referred to as the “instant taxation disposition”).

Table 3

Transfer Value (won)

Acquisition value (cost)

taxation

4,166,66,667

(500,600,000 note X5 million)

2,699,615,000

(Freely reduced shares)

39,923 Acceptance Price of Shares

199,615,00 won, including

Transfer Income Tax: 116,166,660 won

(Reduction of 19,961,500 won)

Securities Transaction Tax: 6,416,660 won (Maintenance)

[Basis] Facts without dispute, Gap evidence 1-1, 2, Eul evidence 1-2, Eul evidence 2-1, Eul evidence 2-2, Eul evidence 3-4, the purport of the whole pleadings

2. Whether the instant taxation disposition is legitimate

A. The parties' assertion

The plaintiff, along with ○○○, sold all the shares and managerial rights of the instant ○○○ Bank to ○○○○○○, and during that period, the plaintiff and ○○○○ Bank agreed to receive KRW 3 billion and KRW 5 billion in total as the purchase price was determined after consultation with the purchaser, taking into account all the amount invested in the instant ○○○ Bank. Thus, the plaintiff asserted that the transfer price should be recognized in accordance with the above actual transaction details. On the other hand, the defendant argues that the sales contract of this case (Evidence A) is a share acquisition agreement, and the total purchase price is stated as KRW 5 billion, and it is not stated separately by each seller, and that the purchase price was distributed in accordance with the share of stock ownership.

(b) Fact of recognition;

(1) ○○○ was a major shareholder and the representative director holding 450,151 shares (a total face value of 2,250,75,000) equivalent to 42.61% of the total outstanding shares of 1,056,400 shares of the instant ○○○○○ Bank (a total face value of 5,000 shares). The Plaintiff owned 39,923 shares of the instant ○○○ Bank (a total face value of 199,615,000 shares) as an external third village of ○○○○○○.

(2) However, the above ○○ Bank was designated as an insolvent financial institution by the Financial Supervisory Commission and received an order to improve its business management, and accordingly, the business was suspended from February 20, 2002 to May 30, 2002, and on April 17, 2002, a resolution was passed to reduce its capital free of charge for 10% of the issued and outstanding shares by opening a temporary general meeting of shareholders on April 17, 2002, and a resolution was passed to newly increase its face value by opening a board of directors on the same day to 600,000 shares with a face value of 50,000 won, and 3 billion

(3) On April 29, 2002, the existing shares of the instant ○○○ Bank were retired by 100%, and 3 billion won was paid for capital increase. At the time of the above capital increase, all the remaining shareholders renounced the subscription of new shares. The Plaintiff invested KRW 2.5 billion in the Plaintiff, thereby acquiring KRW 500,000,000,000 from investing KRW 500,000,000.

(4) Afterwards, the Plaintiff and ○○○○ Bank sold the said ○○○ Bank to recover the investment amount and colors the purchaser. The Plaintiff and ○○○○○○○○ and the instant contract promoted a contract with Nonparty ○○○○, ○○○, ○○, and ○○○ prior to entering into the instant contract with ○○○○○○○, but the contract was terminated every time without

(5) During the above contract process, ○○○○○○○○○○ Bank consistently held that the Plaintiff’s share amounting to KRW 2,750,755,00,00, including shares of KRW 450,151 (total amount of KRW 2,750,755,000 = KRW 2,250,755,000 + KRW 500,000) should be assessed the price per share higher than the Plaintiff, and the Plaintiff accepted the ○○○○○’s demand and invested KRW 2,69,615,00 = KRW 199,615,000 + KRW 2,500 + KRW 000,000,000, KRW 199,000, KRW 2,5000,000, KRW 1000,000 was accepted in advance by the ○○○○○○○○○○○ Company.

(6) Even at the time of the instant contract, between ○○○○ and the Plaintiff and ○○○, the buyer, and the Plaintiff, the seller, set the purchase price of the Plaintiff’s shares as KRW 3 billion; and 2 billion shares as KRW 600,000,000 and KRW 5 billion in total of the purchase price of management rights; however, the acquisition of shares at the time was made did not separately enter in the agreement between the Plaintiff and ○○○’s respective purchase price.

(7) Meanwhile, the Plaintiff received the instant sales amount as one’s passbook, and then remitted 1.89 million won to ○○ immediately.

Each statement of evidence Nos. 3-1 through 8-2 of the evidence Nos. 3-2 of the grounds for recognition, witness ○○, and Kim○○, and the purport of the whole pleadings.

(c) Related statutes;

Article 96 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) (amended by Act No. 7837 of Dec. 31,

(1) The transfer value of assets referred to in Article 94 (1) 1 and 2 shall be the standard market value at the time of transfer of the assets concerned: Provided, That where the assets concerned fall under any of the following subparagraphs, the actual transaction value between the transferor and transferee (hereinafter referred to as “actual transaction value”) shall apply:

1. Where the relevant assets fall under the standard for expensive houses under the provisions of subparagraph 3 of Article 89 (including the land annexed thereto);

2. Where the relevant assets are rights to acquire real estates under the provisions of Article 94 (1) 2 (a);

3. Where the unregistered transferred assets under Article 104 (3) are transferred;

4. Where assets are real estate within one year after acquisition;

5. Where real estate is acquired or transferred by illegal means, such as preparation of a false contract or a false transfer of resident registration, which meets the standards as prescribed by the Presidential Decree;

6. Where the transferor reports the actual transaction price at the time of transfer and acquisition to the head of the tax office having jurisdiction over the tax payment place by the deadline for filing a final return under Article 110 (1

6-2. Where it falls under real estate prescribed by the Presidential Decree from among real estate located in an area designated by the Minister of Finance and Economy according to the standards and methods prescribed by the Presidential Decree, as the rate of increase in real estate prices in the relevant area is higher than the rate of increase in national consumer prices, taking into account the increase in real estate prices

7. Other cases prescribed by Presidential Decree in consideration of the types, period of suspension, number of assets held, scale of transactions, methods of transactions, etc. of the relevant assets.

Article 7 of the Securities Transaction Tax Act

(1) The tax base of securities transaction tax shall be as follows:

1. Where stock certificates are transferred pursuant to any item of subparagraph 1 of Article 3, the transfer value of such stock certificates;

2. Where stock certificates, etc. other than that referred to in subparagraph 1 are transferred:

(a) Where the transfer value of stock certificates, etc. is known: The transfer value of relevant stock certificates, etc.: Provided, That where it is deemed that the stock certificates, etc. have been transferred at a price lower than the market value pursuant to Article 101 of the Income Tax Act, Article 52 of the Corporate Tax Act or Article 35 of

(b) Where the transfer value of stock certificates, etc. is unknown: The value appraised by the transfer value appraisal method as prescribed by the Presidential Decree.

○ Tax Rate Article 8 of the Securities Transaction Tax Act

(1) The tax rate of the securities transaction tax shall be 5/1,00. The tax rate shall be terminated.

D. Determination

(1) The actual transaction price, which is the basis for calculating gains on transfer, is not the market price that reflects the objective exchange value, but the price actually traded by the transferred asset itself, i.e., the actual agreed amount as the price for the transfer of the asset at the time of the transaction.

(2) However, as seen above, ○○○○ Bank’s shares were owned at KRW 450,151 (a total face value of KRW 2,250,75,00) and all of them were reduced free of charge. In the process of transferring the shares of this case, ○○○○ Bank’s shares were purchased by asserting that the value of the old shares that have been reduced without compensation should be reflected in the price of the shares to be reduced without compensation according to the supervisory authority’s direction in the process of transferring the shares. 3 billion won is sufficient amount to recover the Plaintiff’s investment even if the Plaintiff was considered, ○○ was the representative director of the original ○○○ Bank. At the time of the contract of this case, ○○○ and the transferee of the Plaintiff○○○○ Bank were the representative director of the original ○○○○ Bank, and the Plaintiff and the transferee of the instant ○○○ Bank received the amount equivalent to KRW 2,00,000 from the purchaser, and thus, the Plaintiff’s shares were not separately owned by the Plaintiff and the Plaintiff’s shares.

(3) Furthermore, as to the legitimate tax amount to be imposed on the Plaintiff by the instant taxation, in the case of capital gains tax, the amount of tax to be paid by the Plaintiff under the instant contract shall be KRW 3,00,000,000, which is the acquisition value of KRW 2,69,615,000, and the necessary expenses initially reported to be KRW 27,50,000 (as for the Defendant, KRW 282,50,500,000, which is the tax base calculated by deducting the basic deduction of KRW 2,50,000,000, which is 20,385,000, which is 100,000, which is the tax rate of KRW 1,834,650, which is calculated by deducting the amount of tax to be paid by the Plaintiff from KRW 1,650,00,000, KRW 305,000, KRW 305,005, 205.

3. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the taxation disposition of this case is reasonable, and it is so decided as per Disposition by the assent of all participating Justices.

[Seoul High Court Decision 2007Nu31210, 17 June 2008]

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s imposition of KRW 116,166,60 on September 14, 2005 and KRW 6,416,660 on February 2, 2004 against the Plaintiff shall be revoked in entirety.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

The reasoning of the judgment of this court is that ○○○○○○○6,666 out of the first instance judgment was 60 billion won, which was 60 billion won or less, and that 60 billion won or more was 60 billion won or less, and that 60 billion won or more was 60 billion won or less, and that 60 billion won or more was 60 billion won or less, and that 60 billion won or more was 60 billion won or less, and that 60 billion won or more was 60 billion won or less, and that 60 billion won or more was 60 billion won or more, or that 60 billion won or more was 60 billion won or more, or that 60 billion won or more was 60 billion won or more, and that 60 billion won or more was 60 billion won or more, and that 1.6 billion won or more was 106 billion won or more, respectively.

Therefore, the plaintiff's claim seeking the revocation of the taxation disposition of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.