Cho Jae-2017-China-3646 (Law No. 29, 2017)

The scope of a person with a special relationship includes an employee of a corporation controlled by investment.

The scope of persons with a special relationship includes the employees of a corporation that controls by investment, and the stocks acquired by exercising preemptive rights based on the stocks acquired from the initial largest shareholder shall be subject to gift tax based on the listed profits.

Donation of profits from the listing, etc. of stocks or equity shares under Article 41-3 of the Inheritance Tax and Gift Tax Act.

2018Guhap50080 Revocation of Disposition of Imposition of Gift Tax

OO

○ Head of tax office

December 06, 2018

oly 17, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of gift tax (including penalty tax) of 198,90,180, 180 won on the Plaintiff on May 2, 2017 and the imposition of gift tax (including penalty tax) of 30,117,170 won on the Plaintiff on June 2012 shall be revoked.

1. Details of the disposition;

(a) The relationship between the parties;

○○○ Co., Ltd. (hereinafter “instant corporation”) is a company that runs software and telecommunications technology service business established on July 23, 2008. The Plaintiff worked as an employee in the instant corporation from July 29, 2008 to January 31, 2016, which is the date of the establishment of the instant corporation. The Plaintiff worked as an employee in the instant corporation from July 29, 2008 to January 31, 2016, and ○○ was the largest shareholder of the instant corporation from the date of the establishment of the instant corporation to September 26, 2017.

B. The Plaintiff’s acquisition of corporate shares and listing on the KOSDAQ of the instant corporation

1) On June 25, 2010, the Plaintiff acquired 110,000 new shares by a third party allotment method pursuant to Article 418(2) of the Commercial Act at the time of issuing new shares by issuing new shares by the instant corporation, and purchased 110,000 shares from ○○ on May 30, 201 (hereinafter referred to as “one shares”) in KRW 720 per share.

2) On June 9, 2012, the Plaintiff acquired KRW 1,520 per share of 22,00 new shares by exercising shareholder’s preemptive rights pursuant to Article 418(1) of the Commercial Act (hereinafter “22,00 shares”) from KRW 1,520 per share by exercising shareholder’s preemptive rights pursuant to Article 418(1) of the Commercial Act at the time of issuing new shares, and acquired KRW 17,476 shares forfeited by other shareholders at KRW 1,520 per share.

3) Of the Plaintiff’s above acquisition of shares, the part at issue in this case is as follows.

Meanwhile, the instant corporation was listed on the KOSDAQ on February 11, 2015.

C. Defendant’s disposition imposing gift tax

On May 2, 2017, the Defendant imposed a disposition of imposition of KRW 198,90,180 on the listed profits of the first stocks (including additional taxes) and KRW 30,117,170 on the listed profits of the second stocks (including additional taxes) in May 201, on the Plaintiff on May 2, 201, with the profits accruing from listing stocks on the KOSDAQ within five years from the date of acquisition as the value of property pursuant to Article 41-3(1) of the Inheritance Tax and Gift Tax Act (hereinafter “instant disposition”).

[Reasons for Recognition] Evidence Nos. 1 through 11 (including paper numbers), Evidence Nos. 1 and 3, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) The part concerning the first disposition of this case

The Plaintiff did not have a special relationship under Article 41-3(1) of the Inheritance Tax and Gift Tax Act with Cho○ at the time of May 30, 2011, which was the largest shareholder of the instant corporation, as of May 30, 201, and thus, the instant disposition that the Plaintiff deemed as having a special relationship with Cho○○ was unlawful.

2) The second disposition part of the instant case

Since the Plaintiff participated in the offering of new shares by the third party allotment method of the instant corporation and acquired the shares from the instant corporation, the instant disposition was unlawful, deeming that the Plaintiff acquired the shares No. 2 from ○○, the largest shareholder of the instant corporation. Moreover, the Defendant expressed public opinion that no gift tax should be imposed on the acquisition of the second shares by failing to impose gift tax thereon after the Plaintiff’s acquisition of the first shares. Since the Plaintiff trusted this and acquired the second shares by participating in the offering of new shares of the instant corporation and participating in the offering of new shares, the instant disposition No. 2 was unlawful since it violated the principle of trust protection.

As the Plaintiff is merely an employee of the instant corporation and did not know that the listed profits of the second stocks fall under the subject of gift tax, there exists a justifiable reason to not report and pay gift tax. Therefore, the portion of penalty tax in the second disposition of this case is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Whether the first disposition in this case is lawful

Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 2011) provides that where a related party prescribed by Presidential Decree, such as the largest shareholder, etc., who is deemed to be in a position to use undisclosed information on the management, etc. of a company, has acquired stocks, etc. of the relevant corporation with compensation from the largest shareholder, etc., within five years from the date of acquisition, if the person who has acquired the stocks, etc. for compensation due to an increase in the value of the stocks, etc., obtains a certain amount of profits in excess of the initial acquisition value, such profits shall be deemed as the value of the property donated to the person who has acquired such profits. Article 31-6(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23040, Jul. 25, 2011) provides that "a person who has a special relationship under each subparagraph of Article 19(2)2 shall be an employee and a person who maintains his livelihood as property.

However, Article 19(2)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23040, Jul. 25, 201) includes "employee of a corporation under control by investment" as the same concept as that of an employee under Article 13(10)2 of the above Enforcement Decree. Meanwhile, Article 13(12)1 of the above Enforcement Decree provides that "a corporation under control by investment" refers to "corporation falling under Article 19(2)6" and Article 19(2)6 of the above Enforcement Decree provides that "an employee of a corporation under Article 19(2)2 of the above Enforcement Decree (amended by Presidential Decree No. 23040, Jul. 25, 201) shall include 30% or more of the total number of stocks issued and outstanding." Thus, "employee" under Article 19(2)2 of the above Enforcement Decree includes an employee of a corporation whose largest shareholder, etc. invests in the company (see, e.g., Supreme Court Decision 201201Du1616.

In light of Gap evidence Nos. 13 and Eul evidence Nos. 13, and Eul evidence No. 3, the plaintiff is an employee of the corporation of this case at the time of acquiring the plaintiff's 1 shares, and Cho ○○ is an employee of the corporation whose largest shareholder held 71% shares of the corporation of this case at the time of acquiring the 1 shares. Thus, the plaintiff constitutes an employee of the corporation whose largest shareholder was 30% or more and who is an employee under Article 19 (2) 2 of the Enforcement Decree of the above Act and who is the largest shareholder of the corporation of this case at the time of acquiring the 1 shares and constitutes a person in a special relationship with Cho ○, who is the largest shareholder of the corporation of this case. Therefore, the first disposition of this case is legitimate.

2) Whether the disposition No. 2 of this case is legitimate

A) According to Article 41-3(1) and (6) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013) (amended by Act No. 11845, May 28, 2013), the legislative purport of Article 41-3(1) is to promote tax equality by imposing gift tax on the listed profits of unlisted stocks and by imposing it on them before the donation or transfer without compensation predicted for realization at the time of the donation or transfer. As such, “new stocks” under Article 41-3(6) includes not only new stocks based on the stocks originally acquired by donation or transfer from the largest shareholder, but also new stocks that are acquired or distributed without compensation from the largest shareholder, etc. (see, e.g., Supreme Court Decisions 2013Du14559, Oct. 29, 2015; 2016Du5926, Mar. 30, 2017).

As seen earlier, the Plaintiff acquired 22,00 shares, including 22,00 shares, as a shareholder of the instant corporation by exercising the preemptive right under 220,00 shares as a shareholder of the instant corporation on May 21, 2012 by issuing a resolution for capital increase with respect to new shares, which constitutes “new shares under Article 41-3(6) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013) since the 200 shares were based on 1 shares originally acquired from the largest shareholder ○○○ (amended by Act No. 11845, May 28, 2013) (the Plaintiff asserted that the 2 shares were acquired from the instant corporation, not Cho○, the largest shareholder ○, by capital increase with respect to which the Plaintiff acquired shares was the shareholder of the instant corporation. However, the Plaintiff’s acquisition of shares with respect to the 200 shares by preferentially taking over new shares according to its equity

Therefore, the instant disposition is deemed lawful [the Plaintiff is an employee of a legal entity whose largest shareholder, is the shareholder of the instant legal entity pursuant to Articles 31-6(1) and 12-2(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 24358, Feb. 15, 2013) that was enforced at the time of the instant disposition, and is under the control of investment by ○○○, the largest shareholder of the instant legal entity pursuant to Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013); and the instant disposition No. 2 of the instant case constitutes a specially related person of the largest shareholder under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013). Therefore, it cannot be deemed that the gift tax constitutes double taxation or is contrary to the essence of gift tax];

B) The gift tax under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013) requires that the stocks shall be listed on the Korea Exchange within five years from the date of acquisition of stocks. As such, the Defendant cannot make the first and second dispositions of this case before February 11, 2015, which was listed on the KOSDAQ by the instant corporation, and it is difficult to view that the Defendant issued a public opinion suggesting the Plaintiff not to impose the second disposition of this case solely on the ground that the instant corporation listed on the KOSDAQ and did not immediately issue the first and second dispositions. Thus, the second disposition of this case cannot be deemed to violate the principle of trust protection.

C) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed in accordance with the law in cases where a taxpayer violates a duty to report and pay taxes, etc. under the law without justifiable grounds, and the taxpayer’s intent or negligence is not considered, and the land or mistake of the law does not constitute justifiable grounds (see, e.g., Supreme Court Decision 2003Du10350, Sept. 24, 2004). The circumstances asserted by the Plaintiff are that the Plaintiff did not know of the content of the statutes on the taxation requirements of the instant disposition No. 2, and thus, it cannot be deemed that there is a justifiable reason to exempt additional tax.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

The presiding judge shall complete the judges