Cho High 2012Gu4985 (Law No. 17, 2013)

(1) in the case of transfer at a very low price without good cause in the practice of transaction.

Inasmuch as there is no reasonable ground to believe that the transaction value of this case is a normal price that properly reflects the objective exchange value, it is reasonable to view that the transaction of this case is considerably low without justifiable grounds under Article 35(2) of the Inheritance Tax and Gift Tax Act.

Inheritance and Gift Tax Act Article 35 of the Inheritance and Gift Tax Act, donation of profits from transfer at low price and high price

2013Guhap2312 Revocation of Disposition of Imposition of Gift Tax

ParkA and three others

Head of Dong Daegu Tax Office

August 13, 2014

September 19, 2014

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

Each disposition taken by the Defendant on August 1, 2012 on the gift tax of 000 ○○○○○, the gift tax of 2009 for Plaintiff ParkB, and the gift tax of 2009 for Plaintiff ParkB, respectively, on the gift tax of 00 ○○○, and the gift tax of 2009 for Plaintiff ParkCC.

1. Details of the disposition;

A. DD Co., Ltd. (hereinafter referred to as "DD") established a direct product manufacturing and sales business for its business purpose. On January 10, 2006, DD Co., Ltd. organized a consortium with EE, FF Co., Ltd. (hereinafter referred to as "E", "FF") and GG Co., Ltd. (hereinafter referred to as "GG"), and entered into an investment contract for ○○○○○○○○ (○○○○○, Co., Ltd., Ltd.) with the reorganization company (hereinafter referred to as "G"), and the details of the acquisition of new shares are as follows.

B. On September 26, 2006, GG reduced its 612,000 shares out of the above 680,000 shares (90%) at the rate of 10:1, and D returned its 208,080 shares owned in GG, and collected its 00,080 shares (=208,080 shares x 080 shares).

C. Since then, on December 20, 2006, GG divided salt processing business and parking lot operation business into two existing business sections, and established HH (the trade name was changed to and from February 2007, hereinafter referred to as “II”). DD, a shareholder of GG, acquired 19,720 shares of II (hereinafter referred to as “instant shares”) according to the division plan, and FF acquired 19,140 shares, respectively.

(d) On January 23, 2007, DD and F transferred all of their respective II shares to EE, and EE transferred to D and F each of the two shares to D and F until January 25, 2007 (hereinafter referred to as the “instant agreement”). E did not pay D the said payment even after the expiration of the above payment period. D and E transferred the instant shares to the Plaintiffs, who are the children of J’s representative director, on June 24, 2009, as follows:

F. On April 25, 2012 to June 5, 2012, the commissioner of the Daegu Regional Tax Office: (a) deemed that the instant transaction, etc. constitutes a low-price transfer under Article 35(2) of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”); (b) pursuant to the supplementary assessment method stipulated in Article 63(1)1(c) of the Inheritance Tax and Gift Tax Act and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter the same), the value per share of the instant shares at the time of the instant transaction was assessed as an OOO, etc.; and (c) deemed that the Plaintiffs were to have acquired shares at a lower price than the market price, and thus, (c) notified the Defendant of the taxation data.

G. Accordingly, the Defendant deemed that the instant transaction, etc. falls under a low price transfer on August 1, 2012, and deemed that the instant transaction constituted a difference between the said appraised value and the amount of the instant transaction, and deemed that the Plaintiffs received donation from D, thereby having determined and notified the gift tax ○○○○○○○○○, and the Plaintiff Park GambCC of the determination and notification of the gift tax ○○○○○○○○, and the gift tax ○○○○○○ (including additional tax) on the instant transaction (hereinafter referred to as “each disposition of each disposition of each disposition of each disposition of each of the instant case on the gift tax ○○○○○○, the Plaintiff ParkB, and ParkCC on the instant transaction) (including additional tax).

H. The Plaintiffs were dissatisfied with each of the instant dispositions and requested for adjudication on November 5, 2012, but the Tax Tribunal decided to dismiss the request on June 17, 2013.

Facts without any dispute, Gap's 1 through 7, 9, 19, Eul's 1 through 6 (including each number), the purport of the whole pleadings.

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

1) The OOO members, the transaction value of the instant case, in light of the following circumstances:

It cannot be said that DD transferred the stocks of this case to the plaintiffs at a price lower than the normal price because it falls under the market price that properly reflects the objective exchange value at the time. Nevertheless, the Defendant’s disposal of this case by applying the supplementary evaluation method without recognizing the transaction price at the market price is unlawful.

① D and EE calculated the sales price of the instant shares as the sum of the sales price of the instant shares to ○○○○○ upon the basis of the liquidation value in II, taking into account the following: (a) there is a strong labor union in II at the time of the preparation of the instant agreement; (b) there are many non-performing assets and restricted uses; and (c) it seems difficult to continue to operate under a

② However, after the formation of the instant agreement, the J requested D to postpone the payment of the instant transaction price due to the aggravation of the liquidity of EE due to the aggravation of health and international financial crisis, and the representative director of DD knew of the same industry for a long time and could not refuse the request of the J, thereby delaying the payment of the share price.

③ The instant transaction is based on the instant agreement. Since the seller and the purchaser were made on an equal footing to maximize their respective economic interests, the instant transaction price is the normal transaction price, and the sales price was received in full in accordance with the terms and conditions of the agreement.

④ Examining the case of trading II shares, FF’s share transfer as of January 24, 2007, FL’s share transfer as of June 16, 2009, EM’s share transfer as of December 1, 2009, and EM’s share transfer as of December 1, 2009. Similar to the amount of the instant transaction, the instant transaction was conducted between OOO or OOO won per share.

2) Even if the transaction value of this case is somewhat different from the market value, if there is an objective reason that cannot be seen as abnormal from a rational economic person’s perspective, there is justifiable reason in light of the transaction practice. However, the Defendant did not specifically assert and prove what does not constitute justifiable reason in addition to the fact that the transaction value of this case is lower than the tax assessment value.

3) Even if the instant transaction constitutes a low-price transfer of shares, the Defendant did not consider the fact that the calculation of net asset value per share of the instant shares was conducted by the Ministry of National Defense in part of the land, which is the property of II, the use of the pipeline for the construction of a new building, etc. is limited, the book value of the instant land is approximately KRW 00 billion corporate tax, the building’s new construction in 1981, the 00 billion corporate tax, the 00 billion corporate tax, the 1981, the 1981, and the 18% official loss ratio, and the 18% official loss ratio, and the Daegu CF CFR’s combined power plant value and the Daegu CFD method value are de facto nature of the charge, and thus, the disposition that assessed the market value of the instant shares in accordance with the net asset value calculated unreasonably is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

1) The contents of the instant agreement signed by D, F, and E on January 23, 2007 are as follows.

The Agreement of this case (A No. 7)

1. The entire GG shares and HH shares. F, and D shares.

(2) Sales proceeds: Each set of KRW OO.

(3) Payment terms: To be fully paid upon receipt of a registration of equity:

(4) The transfer price: B (E) shall be paid the daily gold ○○○○○○○ (F, D) as the share transfer price until January 25, 2007: Provided, That the above amount is the amount determined under an agreement with B without any separate appraisal procedure, and as at the time of transfer transfer, A shall bear various taxes, such as transfer tax, and as at the time of transfer transfer, and all kinds of taxes (property tax, and transfer tax) incurred due to changes in the price of stocks, etc. after transfer, and both A and B shall not raise any objection thereto.

2) The details and books of calculation of the value per share of the second shares at the time of the preparation of the instant agreement

The difference in value, etc. shall be as follows (No. 16 evidence):

3) On January 24, 2007 following the date of the drawing up of the instant agreement, F: (a) on an OOO on January 24, 2007, F determined II shares as OOO; and (b) assigned 9,860 weeks to PJ (J’s relative); (c) 8,700 weeks to MJ (J’s wife); and (d) 580 weeks to J (hereinafter referred to as “J’s first transaction”).

4) Thereafter, on June 16, 2009, the 00 LL transferred 36,000 won per transfer value to EEdives Co., Ltd. (hereinafter referred to as “Edives”) operated by J (hereinafter referred to as “Edives”) at 36,00 won per transfer value (hereinafter referred to as “Secondary 2”), and MaM set the transfer value of 8,700 shares as OOO per share on December 1, 2009 and transferred 2,320 shares to JJ, 2,90 shares to Plaintiff LbB, and 3,480 shares to Plaintiff LbCC, respectively (hereinafter referred to as “third transaction”).

5) From December 20, 2006 to December 31, 2009, from December 20, 2006 to December 31, 2009, the details of changes in the composition of the II shareholders and the status of the acquisition of shares are as follows (which is based on J).

6) The total assets, sales, and net income from December 20, 2006 to December 31, 2009 of II are as follows. The accumulated earned surplus at the time of the settlement of accounts in 2009 is ○○○○○.

7) In the course of the tax investigation into II with respect to this case, the D representative director, EEJ, II existing audit Z, J’s prone Z, J’s prone YL, and J’s HammM, etc. The main contents of the instant agreement are as follows: (a) the basis for calculating the value of shares under the instant agreement; and (b) the details of the instant transactions, etc. are as follows.

8) On April 25, 2012 to June 5, 2012, the Daegu Regional Tax Office investigated D’s corporate tax, gift tax, etc., together with D’s gift tax, etc., and the main contents of the findings are as follows.

Facts without any dispute arising in recognition, Gap's 7, 10 through 13, 15, Eul's 5, 7, 9, 11, 13, 14, 16 (including each number), and the purport of the whole pleadings.

D. Determination

1) Determination on the first argument

A) Under the provisions of Article 60 of the Inheritance Tax and Gift Tax Act, the calculation of the value of donated property according to the supplementary method of assessment as stipulated in Articles 61 through 65 of the same Act is limited to cases where it is difficult to calculate the market price as of the date of donation of donated property, and it is difficult to calculate the market price. Under Article 60(2) of the Inheritance Tax and Gift Tax Act, the tax authority bears the burden of proof to the Defendant, who is the Defendant. The market price refers to the value that is ordinarily established when free transactions are conducted between many and unspecified persons, i.e., the objective exchange price formed through a normal transaction. Thus, even if a transaction is held in the actual manner, if the transaction price cannot be deemed to be formed by a normal transaction that properly reflects the objective exchange value of donated property, it shall be deemed difficult to calculate the market price (see, e.g., Supreme Court Decision 2004Du2271, May 13, 2004).

B) In light of the following circumstances revealed by the above facts and the evidence as seen earlier, it is difficult to view that the transaction value of the instant shares (OOO per share) claimed by the Plaintiffs as market price properly reflects the objective exchange value of the instant shares at the time of the instant transaction, and the transaction value of the instant shares cannot be deemed as an example of sales that adequately reflects the objective exchange value of the instant shares at the time of the instant transaction, and it is reasonable to view that it is difficult to calculate the market value of the instant shares by any other means. Therefore, the Plaintiffs’ assertion that the instant transaction value is illegal, without recognizing the transaction value as market value and applying the supplementary assessment method,

① On January 23, 2007, D agreed to transfer 19,720 shares of this case to EE at the price of ○○○○○○○ (1 OOO per share) and on the 25th day of the same month as the due date. D had delayed payment for a long period of time on June 24, 2009, D traded to transfer 8,120 shares to ○○○○○, Plaintiff ParkCC, and ParkB each of 5,80 shares to each of OOOB on June 24, 2009.

② Although the Plaintiffs asserted that the instant transaction is merely a mere implementation procedure of the instant agreement, the parties to the agreement, the transaction price, the unit price per share, and the timing of the agreement are different, both are deemed separate contracts not to be one contract, and the instant transaction cannot be deemed to be merely a mere implementation procedure of the instant agreement. In calculating profits, etc. accruing from a low-price transfer of property, the base date for calculating the market price, etc. shall be deemed to be the date of settling the price of the pertinent property in principle pursuant to Article 26(8) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. As such, whether the instant transaction value falls under the market price shall be determined based on the balance payment date of the instant transaction which

③ On December 20, 2006, Section II was established by dividing dial processing business and parking lot operation business from among the existing business sections of GG on December 20, 2006. Examining the major indexes of the business year 2006-2009, it is confirmed that the total assets of GG, ○○○○, ○○○○, ○○○, ○○○○, ○○○, and ○○○, ○○○, ○○○, ○○, ○○, ○○, ○○, ○○, ○○○, ○○○, ○○○, ○○○, ○○, and II, have been rapidly growing for the same period. In addition, the cumulative cumulative earned surplus of II in the business year 2009.

④ According to the accounting firm’s audit report on the financial statements in II for the business year 2006, even though the value of shares in II for each stock has already reached KRW OO. However, D was determined as KRW OO that does not reach 1/3 of the above appraised value, while engaging in the instant transaction with ParkA, etc. around June 2009 after about three years have already passed since it was about KRW 3 years. This is difficult to view it as a normal price that reflects objective exchange value, and rather, it seems that the Defendant calculated by the supplementary assessment method under Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act as of June 2009, the market price of the shares in this case is more appropriate.

⑤ The Plaintiffs asserts that the instant transaction value is calculated based on the instant agreement. However, D, E, and F calculated the value of the instant shares only by the agreement of the representative without undergoing objective appraisal procedures, such as appraisal by the appraisal corporation or accounting corporation, at the time of the preparation of the instant agreement. Moreover, D, for about two years and five months from the date of the instant agreement on the payment of the transfer price, was not properly conducted with EE or representative director J for legal measures or performance demand, and it was clear that the value of the instant shares has increased significantly due to rapid growth in II, even though D, E, and F were to enter into the instant transaction with the Plaintiffs, who are their children of J on June 24, 2009, the instant one unit price per share of the instant shares was equal to the instant one unit price per share under the instant agreement.

6) The Plaintiffs asserted that, with respect to the course of the instant transaction with D, the relationship of friendship between the representative director of the said K and EE and the J’s economic difficulties, etc. However, it accords with the fact that the instant transaction value is not an objective exchange price formed by the ordinary transaction between many and unspecified persons whose interests conflict with each other.

7) Meanwhile, examining the first or third transactions asserted by the Plaintiffs as actual transaction cases of the second shares, MaM and 00 LL all acquired and transferred the second shares upon the recommendation of the JJ, and the decision of the transaction amount was fully identified by the J. In light of such transaction circumstances and the process of determining the transaction amount, each of the above transactions is a general and normal method, and it cannot be deemed that the objective exchange values at the time are properly reflected.

In addition, since the third transaction constitutes a transaction between related parties, it cannot be seen as a proper transaction practice.

8 With respect to the first transaction in the course of the tax investigation, the J stated that the takeover of the second shares held by FF by 00 L, other than EE, was an oligopolistic shareholder at the time of the acquisition of shares in EE, and that he/she has recommended investment in 00 L in the process of the tax investigation, with concerns over the occurrence of liability problems as an oligopolistic shareholder.

2) Judgment on the second argument

A) The legislative purport of Article 35(2) of the Inheritance Tax and Gift Tax Act is to: (a) in a case where profits equivalent to the difference between the price and the market price are actually transferred without compensation by abnormal means that manipulates the transaction price for the benefit of the other party to the transaction; (b) thereby coping with and promoting fair taxation by imposing gift tax on the profits earned by the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other; (c) it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price; (d) Article 35(2) of the Act added the taxation requirement that “for the transaction between the unrelated parties, there is no justifiable reason in light of the transaction practice.” Furthermore, in order for taxation disposition pursuant to Article 35(2) of the Inheritance Tax and Gift Tax Act to be lawful, the transferor has transferred the assets at a price significantly higher than the market price, and even if there is no justifiable reason in light of the transaction practice (see, e.g.

Meanwhile, it is reasonable to view that the value assessed by the method under Articles 61 through 65 of the Inheritance Tax and Gift Tax Act pursuant to Article 60(3) falls under not only the market price that is the basis for calculating the value of the property on which the gift tax is levied, but also the market price that is the basis for determining whether the property is subject to the gift tax pursuant to Article 35(2) of the Inheritance Tax and Gift Tax Act (see Supreme Court Decision 2012Du3200, Jun. 14,

B) In light of the following circumstances revealed by the above facts and each of the aforementioned evidence, DD traded the instant shares at a very low price. There is no reasonable ground to believe that DD and D had the transaction value of the instant shares properly reflected in the objective exchange value. In particular, since D and D have the objective reason to deem D and D transfer of the instant shares at a reasonable economic point of view from a reasonable economic person, it is reasonable to view that the instant transaction is a case where D and D transfer the instant shares at a very low price without justifiable reason under Article 35(2) of the Inheritance Tax and Gift Tax Act. Accordingly, the Plaintiffs’ assertion on the premise that there exists a justifiable reason for the transaction practice of the instant case is not reasonable.

① At least 30/100 (OOO) of the market price is the amount calculated by subtracting the amount of OOO per share, the transaction value of the instant shares, from the market price under the supplementary assessment method under the Inheritance Tax and Gift Tax Act (Article 26(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act). Since the trading value of the instant shares is considerably short of 30/100 of the market price or less than 30/100 of the market price (OOOO-O0 under the latter part of Article 35(2) of the former Enforcement Decree of the Corporate Tax Act), DD transferred the instant shares to the Plaintiffs at a price significantly lower than the market price (the price substantially lower than the market price).

② The D, E, and F calculated the value of the instant shares only by agreement of representatives without undergoing objective evaluation procedures, such as appraisal corporations or accounting corporations, at the time of the preparation of the instant agreement.

③ F was paid all the transfer proceeds under the instant agreement from EE, but DD did not take any legal action or demand for performance against EE or Representative DirectorJ during the lapse of about two years and five months from the date of the instant agreement for the payment of the transfer proceeds under the instant agreement. However, II continued rapid growth every year during the business year from 2006 to 2009, and as a result, cumulative earned surplus in the settlement of accounts for 2009 KRW 00 billion. If DD received the said earned surplus in accordance with its own share ratio, it is deemed that only that amount would exceed the amount of the instant stock transaction.

④ Although the Plaintiffs asserted that the EE representative director’s request for postponement of payment due to aggravation of the EE representative director’s financial standing, etc. after the formation of the instant agreement, in light of the circumstances in which EE paid all equity shares (distribution of retained earnings) to II owned by EE and equity transfer proceeds to F, etc., it is not deemed that EE (RepresentativeJ) has caused economic difficulties to D as much as it could not pay for a long period of time the acquisition price of stocks under the instant agreement.

⑤ EE delayed the implementation of the terms and conditions of the instant agreement for a long period of time, and during that period, the rise in the value of shares in II, and D has been well aware of the value and future prospects of B as the relationship with the manufacture and sale of direct goods for several hundreds. However, on June 24, 2009, D had not attempted or made any effort to reflect such circumstances in calculating the transaction value in the instant transaction with the Plaintiffs, who are children of J, and their children. This is recognized as an objective reason that D could be deemed to have been abnormal from a reasonable economic perspective to transfer the instant shares as the instant transaction amount.

6) The Plaintiffs asserted to the effect that D is taking into account the friendship between the representative director of D and DJ in performing the instant transaction, or the difficult circumstances of DJ between D and DJ by the representative director of D and DE. However, such circumstance is supported by the fact that D and D do not constitute a person with a special relationship under Article 26(4)3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, but it is difficult to view the instant transaction as an ordinary transaction between many and unspecified persons whose interests conflict.

7) The Plaintiffs asserted that DD had realized a full investment return based on the fact that D had already recovered the purchase price of stocks. However, a considerable period of time following the formation of the instant agreement was exceeded due to the delay in the performance of EE, and during that period, II was rapidly growing, and the Plaintiff newly traded the instant shares, and the market price of the instant shares should be determined based on the value at the time of the instant transaction. In full view of the fact that D had already recovered the investment amount, it is difficult to view the instant transaction value as a normal transaction value from a reasonable economic standpoint solely on the sole basis that D had already recovered the investment amount.

8) On the other hand, a number of shareholders, such as EE, J, DD, and F, were shareholders at the time of the establishment of II, but thereafter a number of shares transfer, including transactions, has been made in subparagraphs 1 through 3.

D. On December 31, 2009, only the Plaintiffs, who are the children of the J and J, and the specially related parties, were shareholders. In light of the details of changes in the shares and the fact that the J actually led the transfer of shares, the instant transaction, etc. is a process of transferring II shares to the Plaintiffs in a bypassing manner via D, F, and White L, which is not a specially related party by the J.

3) Judgment on the third argument

A) Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act provides that the unlisted stocks shall be appraised by the method prescribed by the Presidential Decree in consideration of the corporation’s assets, earnings, etc. In the case of unlisted stocks, the proviso of Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the net value of profits and losses per share (the weighted average amount of net profits and losses for the last three years per share ± the net value of net profits and losses per share ± the net asset value per share (the interest rate determined and publicly notified by the Commissioner of the National Tax Service in consideration of the rate of distribution of corporate bonds with maturity of three

B) The plaintiffs asserted to the effect that the defendant did not properly reflect the value of assets of Section II in calculating the net asset value of the shares of this case. In full view of the purport of the entire pleadings in the statement of Section II, the defendant, based on the total assets, total debts, and net asset value on the balance sheet directly prepared and submitted by DD (the evaluation base date: June 30, 2009), can be recognized as having calculated the value of the shares of this case as an OOOO based on the supplementary evaluation method of non-listed stocks stipulated in the Enforcement Decree of the Inheritance Tax and Gift Tax Act and the Enforcement Decree of the same Act, and there is insufficient evidence to acknowledge that there was an error of law such as not reflecting the actual condition of non-performing assets in the calculation process of the tax base as above, and there is no other evidence to acknowledge otherwise.

Therefore, the defendant is deemed to have lawfully assessed the value of the shares of this case.

The above assertion is without merit.

3. Conclusion

Therefore, all of the plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.