[1] The meaning of the total amount of capital gains as stipulated in Article 95(1) of the former Income Tax Act / In a case where the stocks were transferred under a sales contract to reduce part of the previously agreed sales amount, whether the total amount of capital gains accruing from the transfer of stocks shall be deemed the reduced amount rather than the initial agreed sales amount (affirmative)

[2] In a case where the transferor reported capital gains tax based on the agreed purchase price at the statutory due date of return in the course of transferring stocks, but the transfer price of stocks becomes reduced after the ex post reduction of the purchase price, whether a request for correction pursuant to Article 45-2(1)1 of the former Framework Act on National Taxes may be made to correct the initial report (affirmative in principle), and whether such a legal principle likewise applies to securities transaction tax subject to transfer of stocks, etc. (affirmative)

[1] Article 95(1) of the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012) provides that “The transfer income amount shall be the amount calculated by deducting necessary expenses pursuant to Article 97 from the total income amount of capital gains pursuant to Article 94 (hereinafter “transfer value”) and subtracting the special deduction for long-term holding from such amount.” Here, the transfer value for calculating the transfer income does not refer to the objective value of the transferred property, but refers to the actual income amount in specific cases. Accordingly, if the transfer of shares by a sales contract is to partially reduce the agreed sales amount due to any reason, if the transfer of shares is to be made, the total income amount of capital gains accruing from the transfer of shares, which are transferred property, and that is, the transfer value shall be the reduced amount rather than the initial contract price.”

[2] Even if a transferor reported capital gains tax based on the agreed purchase price at the statutory due date of return in the course of transferring stocks, if the transfer price of stocks is reduced later, the initial report exceeds the tax base and tax amount, and barring any special circumstance, the transferor may file a request for correction pursuant to Article 45-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013) and correct the initial report. Such legal principle likewise applies to securities transaction tax subject to the transfer of stocks, etc.

[1] Article 95 (1) of the former Income Tax Act (Amended by Act No. 11146, Jan. 1, 2012) / [2] Article 95 (1) of the former Income Tax Act (Amended by Act No. 11146, Jan. 1, 2012); Article 45-2 (1) 1 of the former Framework Act on National Taxes (Amended by Act No. 11604, Jan. 1, 2013)

[1] Supreme Court Decision 81Nu415 Decided July 27, 1982 (Gong1982, 832) Supreme Court Decision 2010Du7970 Decided October 14, 2010

Plaintiff (Law Firm Squa, Attorneys Soh Byung-jin et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2014Nu40045 decided December 12, 2014

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 95(1) of the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012) provides, “The transfer income amount shall be the amount calculated by deducting necessary expenses pursuant to Article 97 from the total income amount of capital gains pursuant to Article 94 (hereinafter “transfer value”) and subtracting the special deduction for long-term holding from such amount.” Here, the transfer value for calculating the transfer income does not refer to the objective value of the transferred property, but refers to the actual income amount in specific cases. Accordingly, if a stock is transferred by a sales contract, if it is intended to partially reduce the agreed purchase price due to any reason, the total income amount of capital gains accruing from the transfer of the transferred property, i.e., the transfer value shall be deemed the reduced price rather than the initial agreed price (see, e., Supreme Court Decision 2010Du7970, Oct. 14, 2010).

However, according to Article 45-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013), a person who has filed a tax base return by the statutory deadline for filing a tax return by the statutory deadline for filing a tax return may request a correction, etc. of the tax base and amount reported within three years, if the tax base and amount recorded in the tax base return exceed the tax base and

Therefore, even if a transferor reported capital gains tax based on the agreed purchase price at the statutory due date of return in the course of transferring stocks, if the transfer price decreases later, the initial report exceeds the legitimate tax base and tax amount. Thus, barring any special circumstance, the transferor may file a request for correction pursuant to Article 45-2(1)1 of the former Framework Act on National Taxes on the grounds of the reduction of price, and correct the initial report. This legal doctrine likewise applies to securities transaction tax subject to the transfer of share certificates, etc.

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. On August 4, 2009, the Plaintiff entered into a contract for the transfer of the instant shares 2,455,783 shares issued by Polyplus Co., Ltd. (hereinafter “Pool”) to Nonparty 1, a KOSDAQ-listed company, for KRW 12,892,860,750, and received KRW 7,193,194,750 in total as the down payment and the intermediate payment on the same day, and received KRW 5,69,666,00 until July 30, 2010.

B. On August 13, 2009, the Plaintiff’s mother, Nonparty 2, Nonparty 3, Nonparty 4, the husband of Nonparty 3, and the Mailing scholarship association, the Incorporated Foundation, decided to transfer the total amount of KRW 1,150,167 shares issued by polyxus to Nonparty 5 and Nonparty 6 in KRW 6,038,376,750, and was paid the remainder 2,318,334,00 won until July 30, 2010.

C. Around that time, both the Plaintiff, etc. and Nonparty 1, etc. entered into a special agreement with the transferor to receive any balance under the share transfer contract, and to re-purchase the main business part of the business part of the company that produces and sells chemical products from polyploss from the assignee. However, the sales price for the business part can be later changed to the accounting firm's assessed value, and in this case, the balance under each share transfer contract is also automatically revised.

D. On November 30, 2009, the Plaintiff reported and paid capital gains tax and securities transaction tax based on the initial purchase price of KRW 12,892,860,750 as agreed upon in the instant share transfer agreement.

E. On December 26, 2010, the Plaintiff et al. and Nonparty 1 et al. concluded the instant settlement agreement to reduce the business portion that the transferor agreed to purchase from polysuss, thereby changing the sales proceeds to KRW 5.1 billion, and the total sum of the balance under each share transfer agreement was to be changed to KRW 5.1 billion. Accordingly, the sales proceeds of the instant shares were reduced to KRW 10,917,855,357, from KRW 12,892,860,750, supra.

F. On September 23, 2011, the Plaintiff reduced the transfer value of the instant shares to KRW 10,917,855,357 according to the instant settlement agreement, etc., and filed an application for rectification pursuant to Article 45-2(1) of the former Framework Act on National Taxes, but the Defendant rejected the application.

3. Examining these facts in light of the legal principles as seen earlier, although the Plaintiff reported capital gains tax and securities transaction tax on the basis of the initial purchase price stipulated in the instant stock transfer agreement, the legitimate transfer price due to the instant stock transfer becomes the price reduced not to be the initial purchase price, as the Plaintiff’s request for correction pursuant to Article 45-2(1)1 of the former Framework Act on National Taxes was made based on such circumstances.

4. Nevertheless, the lower court determined that the instant disposition rejecting the Plaintiff’s request for correction was lawful on the erroneous premise that the instant settlement agreement is merely a separate ex post facto agreement and does not constitute grounds for filing a request for correction under Article 45-2(1)1 of the former Framework Act on National Taxes. In so determining, the lower court erred by misapprehending the legal doctrine on the grounds for filing a request for correction under Article 45-2(1)1 of the former Framework Act on National Taxes, thereby adversely affecting

5. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)