Cho High Court Decision 201Do3000 (2012.04.02)

It is reasonable to see that any defect in a duty payment notice has been supplemented or cured.

Although the basis for calculation of gift tax is not explicitly stated in a tax notice, it seems clear that the basis for calculation of gift tax is not clearly stated in the notice of prior notice of prior notice of taxation, and it does not interfere with the decision of objection or objection to the tax disposition. Therefore, it is reasonable to view that the defect in the tax notice was supplemented or cured.

2012Guhap13535 Revocation of Disposition of Imposition of Gift Tax

XX Kim

The director of the tax office.

November 20, 2012

December 6, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 000,000, which the Plaintiff rendered on May 11, 201, is revoked.

1. Details of the disposition;

A. On October 30, 2006, P Co., Ltd. (hereinafter referred to as “Nonindicted Company”) issued to the Korea Development Bank (Scho branch) a separate bond with the total issue value of KRW 000 (hereinafter referred to as “instant bond with the warrant”). Meanwhile, in the instant bond with the warrant, the right to acquire KRW 500,000 per common share (the face value of KRW 00) (hereinafter referred to as “instant bond with the warrant”) was granted to the instant bond with the general share of KRW 500 per share (hereinafter referred to as “instant bond”).

B. On December 22, 2006, the Plaintiff, the largest shareholder of the non-party company (20.11%) acquired all of the warrant certificates of this case from the Korea Development Bank in total from 000 won.

C. On September 24, 2008, the Plaintiff: (a) exercised both the warrant certificates of this case to pay KRW 000,000 to the Nonparty Company; and (b) acquired KRW 500,000 per share of new shares. Meanwhile, at the time, the assessed value per share of the shares of the Nonparty Company was KRW 000.

D. On May 11, 201, the Defendant, pursuant to Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9269, Dec. 26, 2008; hereinafter “former Inheritance Tax and Gift Tax Act”), as the largest shareholder of the non-party company, acquired all of the instant warrant certificates from the Korea Development Bank in excess of the number that the Plaintiff could have been allocated under equal conditions in proportion to the number of shares held, and determined and notified KRW 000 as gift tax (hereinafter “instant disposition”).

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on August 8, 2011, but the Tax Tribunal dismissed the appeal on March 30, 2012.

[Reasons for Recognition] Gap evidence Nos. 1, 2, 3, 5, Eul evidence Nos. 4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The defendant's assertion

A) The instant disposition that applied Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act by deeming the Korea Development Bank as an underwriter under the former Securities and Exchange Act (amended by Act No. 8985, Mar. 21, 2008; hereinafter the same) is lawful.

B) Even if the Korea Development Bank does not constitute an underwriter under the former Securities and Exchange Act, the Plaintiff issued the instant bonds with warrants to the Korea Development Bank in order to avoid the gift tax that would have been borne by Nonparty Company pursuant to Article 40(1)2 (b) of the former Inheritance Tax and Gift Tax Act, and the Plaintiff unjustly avoided gift tax by acquiring two or more warrant certificates from the Korea Development Bank. Thus, even under Article 2(3) and (4) of the former Inheritance Tax and Gift Tax Act, the instant disposition is lawful. In addition, the Plaintiff acquired the instant warrant certificates at low price and obtained enormous gains by acquiring stocks through the exercise of preemptive rights. This constitutes a benefit obtained by acquiring stocks through the exercise of preemptive rights, and thus, the instant disposition is lawful as it constitutes Article 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act.

2) The plaintiff's assertion

A) In issuing a tax notice for the instant disposition, the Defendant violated Article 23(1) of the Administrative Procedures Act and did not present the legal basis and reason for the disposition.

B) Since the Korea Development Bank cannot be deemed as an underwriter under the former Securities and Exchange Act, the provisions of Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act cannot be the basis for the instant disposition.

C) As the Plaintiff acquired the warrant certificates of this case with due consideration through transaction with the Korea Development Bank in accordance with business judgment, it does not constitute a case where the Plaintiff was transferred without compensation or at a significantly low price, nor does it be deemed that the gift tax has been unjustly reduced. Therefore, Article 2(3) and (4) of the former Inheritance Tax and Gift Tax Act cannot be the basis for the disposition of this case.

D) Article 42(1)3 of the former Inheritance Tax and Gift Tax Act, which is a comprehensive example provision on the calculation of the value of donated property, is merely a ground for the method of valuation of value, and thus, the instant disposition cannot be conducted on the sole basis of

B. Relevant statutes

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

C. Determination

1) Determination on the assertion of procedural defect

Inasmuch as the principle of due process under the Constitution ought to be complied with not only criminal proceedings but also administrative actions that impose a burden on the people, the basic spirit of due process ought to be carried out as it is. Although the Administrative Procedures Act that requires a taxpayer to present the grounds for the disposition does not directly apply to a taxation disposition (Article 3(2)9 of the Administrative Procedures Act and Article 2 Subparag. 5 of the Enforcement Decree of the Administrative Procedures Act), the basic principle is the head of the taxation disposition. Therefore, in notifying a taxpayer of a gift tax base and tax amount, barring any special circumstance, if the tax authority did not properly state the tax base and the basis for calculating the amount of tax in the notice of tax payment (see, e.g., Supreme Court Decisions 88Nu7996, Nov. 10, 1989; 201Du1543, Nov. 13, 2002). Meanwhile, if a taxpayer’s necessary entry in the notice of tax payment sent to the taxpayer prior to such a disposition, it is clear that the taxation disposition was not affected by 970.

As to the instant case, comprehensively taking account of the purport of the argument in the statement Nos. 3 and 4, the instant tax notice includes the gift tax base, tax rate, and calculated tax amount. The following facts are stated that “the Plaintiff shall notify the said tax by filing a gift tax without any return on September 24, 2008 on the profits derived from the conversion profit of the non-party company’s preemptive right to new stocks.” On May 3, 2011, before issuing the instant tax notice, the Defendant notified the Plaintiff of the purport that the Plaintiff will levy gift tax pursuant to Article 40 of the former Inheritance Tax and Gift Tax Act on the excess allocation of the preemptive right and the profits arising from the excess of the per share conversion value through the notice of prior notice of taxation attached to the calculation statement of the revenue amount, tax base, and tax amount.

Examining these facts in light of the legal principles as seen earlier, although the tax notice of this case does not explicitly state the basis for calculation of gift tax (applicable law), it seems clear that the defendant notified the plaintiff of the basis for calculation of gift tax (applicable law) through the pre-announcement notice, thereby not hindering the decision on whether to object to the tax disposition and the appeal against dissatisfaction. Therefore, it is reasonable to deem that the above defect in the tax notice of this case was corrected or cured. Thus, the plaintiff's above assertion is without merit (or, the plaintiff did not state the preliminary tax notice of this case as to Article 2 (3) and (4) and Article 42 (1) 3 of the former Inheritance Tax and Gift Tax Act, which was asserted in the lawsuit of this case by the defendant, and therefore, the disposition of this case was not stated in the tax notice of this case. However, since the subject matter of the lawsuit of this case exists objectively, the tax office can add or change the grounds within the scope of maintaining the identity of the disposition until the closing of arguments in the fact-finding court, even if in the lawsuit, it can not be asserted as to the plaintiff's grounds for additional disposition.

2) Whether Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act is applicable

A) Facts of recognition

(1) The Plaintiff is the representative director of the non-party company since the incorporation of the non-party company up to now, and was the largest shareholder holding 20.11% of the non-party company’s shares at the time of issuance of the bonds with warrants of this case. Meanwhile, the shareholders holding 5% or more of the non-party company’s shares at the time areO Co., Ltd. (14.23%) and Y.9% (8.

(2) On October 2006, the non-party company requested the Korea Development Bank to acquire bonds with warrants to raise operating funds following the establishment of a Japanese subsidiary. The Korea Development Bank accepted the bonds with warrants in consideration of the excellent technical capabilities, personal guidance, sales growth rate, etc. of the non-party company, and subsequently accepted them for the purpose of exercising or disposing of them directly according to market conditions.

(3) The main contents of the instant bonds with warrants signed on October 30, 2006 between Nonparty Company and the Korea Development Bank are as follows.

Bonds with Warrants

Article 1 Conditions of Issuance

1. Name of the bond: Non-party company's first privately placed bonds with warrants;

2. The types of bonds: Registered, non-registered, privately placed, and bonds with warrants.

3. Total amount of the bonds: 00 won;

4. Types and quantities: 20 per face value of 000 won.

7. Issuance date of bonds: October 30, 2006

8. Maturity of bonds: October 30, 2008

Article II Conditions of Repayment

4. The amount of purchase: The non-party company may redeem all or part of the instant bonds with warrants from the date following the date on which three months elapsed from the date following the issuance date of the instant bonds with warrants, by paying the aggregate of the face value and interest during the period and the fees for repayment before the repayment date: Provided, That the preemptive right to new bonds is extinguished at the time of exercising six months prior to the date of issuance of the bonds.

Article 3 Matters relating to the preemptive rights of bonds

1. A holder of warrant certificates following the issuance of this bond has the right to take over the common shares of the non-party company's name.

(2) Conditions for exercise: The number of stocks to be issued following the exercise of preemptive rights shall be determined by dividing the face value of warrant certificates as of the date of exercise of preemptive rights by the exercising price, and the exercise price and the number of stocks to be issued due to the exercise

Total par value

Exercise Price

Total number of shares

00 won

00 won

500,000 Shares

(5) The period during which preemptive rights to new stocks may be exercised shall be from one year to one day before the maturity date of bonds.

(11) warrant certificates: The warrant certificates of this bonds shall be issued in real form stating the matters under Article 516-5 (2) of the Commercial Act in a separate form.

3. Prohibition of the division of warrant certificates: The division of warrant certificates shall not be recognized for one year from the date of issuance.

(4) Around December 2006, the Plaintiff requested the Korea Development Bank to sell the instant warrant certificates to itself, as concerns that its equity ratio would decline in the listing of Nonparty Company’s KOSDAQ. Accordingly, when the Korea Development Bank does not accept the Plaintiff’s above request, the Korea Development Bank exercised call options under the instant contract for acquiring the instant warrant certificates, thereby causing the situation where the instant warrant certificates can be extinguished, the Plaintiff sold all of the instant warrant certificates to the Plaintiff on December 22, 2006.

(5) From the end of October 2005, Nonparty Company newly listed the KOSDAQ market on July 1, 2008, and redeemed the instant bonds with warrants at maturity on October 30, 2008 with the subscription price for the KOSDAQ market.

(6) Meanwhile, the Plaintiff’s share ratio was lower than 18.1% upon listing the company’s KOSDAQ market. However, on September 24, 2008, by exercising the warrant certificates of this case, the share ratio was higher than 26.37%. At the time of exercising the warrant certificates of this case, the appraised value of the non-party company’s stocks was KRW 000 per share, but 000 per share was obtained as a result of acquiring KRW 00 per share.

[Reasons for Recognition] Gap evidence Nos. 1, Eul evidence Nos. 1, 2, 3, and 5, the fact-finding results of this court's fact-finding, the purport of the whole pleadings

B) Determination

According to Article 40 (1) 2 (b) of the Inheritance Tax and Gift Tax Act, where the largest shareholder of a corporation that issued bonds with warrants (referring to bonds with warrants, if they are separated) acquires and acquires (including cases of acquisition and acquisition from an underwriter under the Securities and Exchange Act) stocks from the relevant corporation in excess of the number that can be allocated under equal conditions in proportion to the number of stocks held by the relevant corporation and takes over the stocks in accordance with warrant certificates, the former Securities and Exchange Act provides that the profits accrued from the excess of the value of the value of the stocks issued by the company with warrant certificates shall be deemed the value of the assets donated to the person who acquired the profits accrued from the excess of the value of the value of the stocks issued by the person who acquired the stocks with warrant certificates. Meanwhile, Article 2 (6) and (7) of the former Securities and Exchange

The plaintiff accepted and acquired the warrant certificates of this case from the Korea Development Bank, which is not the pertinent issuing corporation, and the Korea Development Bank does not constitute an underwriter under the former Securities and Exchange Act. Thus, the disposition of this case by applying Article 40 (1) 2 (b) of the former Inheritance Tax and Gift Tax Act is alleged to be unlawful. Therefore, it is deemed that the Korea Development

In light of the following circumstances, i.e., the underwriter of the Korea Development Bank under the former Securities and Exchange Act (amended by Act No. 10303, May 17, 2010; hereinafter the same) stated that the Korea Development Bank's purchase and sale of securities under Article 18 subparagraph 4 and 5 of the former Securities and Exchange Act (amended by Act No. 10304, May 17, 2010; hereinafter the same) can not be viewed as the sale and purchase of securities under Article 18 of the former Securities and Exchange Act (amended by Act No. 1030, May 17, 2010; hereinafter the same)'s acquisition and sale of securities to the purchaser of the Korea Development Bank under Article 18 subparagraph 2 of the former Securities and Exchange Act (the former Securities and Exchange Act) that it would not be possible to request the purchaser of the securities under Article 18 subparagraph 4 of the former Securities and Exchange Act (the former Securities and Exchange Act) to acquire new and outstanding securities for the purpose of acquiring.

3. Conclusion

The plaintiff's claim is dismissed on the ground that it is without merit.