[1] Whether the provision of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act concerning deemed donation of title trust property violates the principle of substantial taxation without law and guarantee of property rights under the Constitution (negative)

[2] The elements for calculating the value of donated property according to the supplementary evaluation method under Article 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act

[3] The case holding that Article 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20148, Feb. 1, 201) of the same Act (amended by Presidential Decree No. 2010, Jan. 1, 201); and

[4] Whether gift tax may be levied on gratuitous shares allocated as a result of capital transfer of excess shares after a title trust of shares by applying the provision on deemed donation of title trust property under Article 41-2 of the former Inheritance Tax and Gift Tax Act, apart from the existing shares entrusted under the name (negative)

[1] Article 41-2 (1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002) / [2] Article 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002) / [3] Article 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002), Article 54 (1) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17828 of Dec. 30, 202) / [4] Article 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002)

[1] Supreme Court Decision 2003Du13649 Decided December 23, 2004 (Gong2005Sang, 211) Supreme Court Decision 2004Du7733 Decided May 12, 2006 (Gong2006Sang, 106Sang, 1063) Supreme Court Decision 2004Du11220 Decided September 222, 2006 (Gong206Ha, 2016) / [2] Supreme Court Decision 96Nu9423 Decided 296 decided October 29, 206 (Gong196Ha, 3612), Supreme Court Decision 2003Du5723 decided October 15, 2004 (Gong2004Ha, 1865 decided October 26, 208) / [209Du8469 decided Oct. 26, 2006]

Plaintiff (Law Firm Samsan et al., Counsel for the plaintiff-appellant)

Defendant (Attorney Cho Young-chul, Counsel for the defendant-appellant)

Busan High Court Decision 2006Nu1401 Decided March 23, 2007

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

(a) 1, 2, and 5 points;

Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter the same) provides that in case where 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 on the date when the registration, etc. is made to the nominal owner, notwithstanding Article 14 of the Framework Act on National Taxes.

After compiling the adopted evidence, the court below acknowledged the facts as stated in its decision, and determined that although the non-party 2 and the non-party 3 were in the form of transferring the shares Nos. 1 and 2 of this case to the plaintiff, it is reasonable to deem that the non-party 4 was in title trust with the non-party 1's capital increase after the above title trust, and that the non-party 4 acquired the shares with the shares issued by the non-party 1's capital increase, and that the non-party 4 was in title trust with the plaintiff after acquiring the shares with his own capital. In light of the relevant Acts and subordinate statutes and the records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the deemed donation of

In addition, Article 41-2(1) of the former Inheritance Tax and Gift Tax Act recognizes the exception to the substance over form principle to realize the tax justice by effectively preventing the tax avoidance act using the title trust system (see, e.g., Supreme Court Decision 2003Du13649, Dec. 23, 2004). Thus, the foregoing provision, which served as the basis for the instant disposition, does not violate the principle of no taxation without law and the guarantee of property rights under the Constitution.

The grounds of appeal are without merit.

(b) Type 3, 4;

Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that the value of the property shall be determined at the “market price” as of the date of donation, and the “market price” refers to the value that is generally established when free transactions take place between many and unspecified persons, i.e., an objective exchange price formed by a normal transaction. Thus, even if there is a transaction example, if the transaction value cannot be deemed to be a price formed by a normal transaction that reflects the objective exchange value of the property as above, or if the transaction value cannot be deemed to be a price formed by a normal transaction that reflects the objective exchange value of the property appropriately, or if the subject of donation is non-listed stocks, the market price shall be deemed to be difficult to be calculated, and the value thereof may be calculated according to the supplementary valuation methods stipulated in Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (see Supreme Court Decisions 96Nu9423, Oct. 29, 196; 2003Du5723, Oct. 15,

The court below, after compiling the adopted evidence, found the facts as stated in its decision. The value per share of the non-party 1 corporation, which is the shareholder of the non-party 1 corporation, was agreed upon between the parties at the time of the mediation of the lawsuit claiming compensation for damages against the third party, and it cannot be viewed as a "market price" because it was merely the price determined by mutual concession in the lawsuit to resolve the dispute smoothly. Further, the appraisal value of the shares of the non-party 1 corporation, the non-party 2, etc. (hereinafter "the shares of this case") by the appraisal commission of the court of first instance, in accordance with the regulations on the issuance and public notice of securities (hereinafter "the above regulations") and the evaluation methods in accordance with its detailed enforcement rules, while determining the discount rate applied at the time of calculating the profit-making value of the shares of this case, the court below determined that the price of the shares of this case without complying with the above regulations, and the other five companies selected to calculate the profit-making value of the shares of this case cannot be seen as legitimate in light of the objective market price of Article 16 (3).

In light of the above legal principles and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the market price recognition of unlisted stocks or in violation of the rules of evidence.

On the other hand, Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Article 54(1) and (2) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 17828, Dec. 30, 2002) concerning the method of supplementary evaluation of unlisted stocks cannot be deemed as a provision contrary to the principle of property rights guarantee under the Constitution, solely on the ground that the value of the stocks as at the time of the instant taxation based on the above supplementary evaluation method was assessed higher than the value at the time of payment in kind with the stocks, which are the pertinent donated property.

All of the grounds of appeal cannot be accepted.

2. As to the Defendant’s ground of appeal

In cases where free share is issued in accordance with the capital reserve under the Commercial Act, such as the amount of excess of issued shares, and the amount of revaluation reserve fund under the Assets Revaluation Act, etc., as a result of the increase of capital due to the increase of capital in excess of issued shares or the amount of revaluation reserve fund, etc., which are reflected in the property value of the existing shares, the amount of new shares issued and allocated to the existing shareholders in proportion to the number of shares held by them. As such, although the company’s capital is increased, there is no change in the net assets, and in principle, there is no difference in the ratio of the company’s total shares to the capital stock or the amount of actual property value (see Supreme Court Decisions 88Nu8548, Dec. 22, 1989; 2004Du11220, Sept. 22, 2006).

After compiling the adopted evidence, the court below found the facts as stated in its reasoning. After Nonparty 4 trusted the title trust of the shares Nos. 1, 2 of this case issued by Nonparty 1 Co., Ltd. in the name of the plaintiff, the non-party 1 Co., Ltd. issued the non-party 3 and 5 of this case, the non-party 1 Co., Ltd. issued the non-party 1 Co., Ltd. issued the non-party 1 Co., Ltd. in the name of the plaintiff, the non-party 4 transferred the revaluation reserve fund under the Assets Revaluation Act to the plaintiff as a title trustee of the non-party 1 and 2 of this case without compensation according to the stock holding ratio, and the non-party 1 Co., Ltd. was actually divided the shares under the former name, and thus it cannot be deemed that the plaintiff received a title trust from the non-party 4.

In light of the above legal principles and records, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to taxable objects of the provision on constructive gift of title trust.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)