early 2014west629 ( October 21, 2014)

It is difficult to see that the taxation provisions of sunset are in violation of the Constitution.

The provision on taxation during the period of sunset does not violate the Constitution because it is possible to take measures such as recognizing the legitimacy of the legislative purpose and the application of the provision or reducing the burden of gift tax, and it cannot be viewed as an illegal provision.

The legal fiction as donation of profits through a transaction with a special relation corporation under Article 45-3 of the Inheritance Tax and Gift Tax Act and Article 34-2 of the Enforcement Decree of the Inheritance

2015Guhap51484 Revocation of Disposition of Revocation of Gift Tax

Gangwon A

BB Director of the Tax Office

April 6, 2016

August 19, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s decision on gift tax of KRW 0,00,000 (including additional tax) in the aggregate of the tax amount in attached Table 1, which the Plaintiff rendered on November 13, 2013, and the disposition on gift tax of KRW 0,00,000,000 in the aggregate of the tax amount in attached Table 2, which the Plaintiff rendered on November 18, 2013, shall be revoked.

1. Details of the disposition;

A. The Plaintiff, directly and through CCC (the name of a stock company other than DDD) and EEEEE, holds the shares of DDD Co., Ltd. (hereinafter referred to as "DDDD") belonging to DD group nine companies. The share structure of DD group is as follows. B. The Plaintiff, on the ground that the Plaintiff received economic benefits from the transactions between DD group companies in a mutually related relationship, under Article 45-3 (hereinafter referred to as "the Inheritance Tax and Gift Tax Act") of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter referred to as "the Inheritance Tax and Gift Tax Act"), filed a return on the said amount of penalty tax, plus the said amount of penalty tax.

C. Pursuant to Article 76 of the Inheritance Tax and Gift Tax Act, the Defendant: (a) determined the amount indicated in the aggregate of the tax amount stated in the separate sheet 1 on November 13, 2013; and (b) determined the amount indicated in the aggregate of the tax amount stated in the separate sheet 2 on November 18, 2013 as the gift tax attributed to the Plaintiff in 2012; and (c) notified the Plaintiff thereof (hereinafter “instant disposition”).

D. On November 29, 2013, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but was dismissed on October 21, 2014.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The provision of this case contains several problems as follows. If the provision of this case and the provision of Article 34-2 of the Enforcement Decree based on the provision of this case (hereinafter referred to as "the provision of this case, etc.") are interpreted simply in accordance with its language and text without considering these problems, the provision of this case, etc. violates the provision of property rights under the Constitution, and is contrary to the concept of "donation" under Article 2 (3) of the Inheritance Tax and Gift Tax Act. Therefore, the provision of this case, etc. should be interpreted in the direction that is constitutional and consistent with the concept of donation, and the disposition of this case in this case is contrary to the provision of this case, etc. (the plaintiff applied for the proposal of unconstitutionality that the provision of this case

1) The issue of self-donation

Even if the shares of both subsidiaries owned by the LADD and a holding company, are equal to or different from those of the subsidiaries, there is no profit from donation that the Plaintiff does not have to pay gift tax (hereinafter referred to as “self-donation”). Nevertheless, Article 34-2(12) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act amended in 2014 provides that the gift tax shall be imposed if it can be seen as self-donation, but it shall be excluded from the gift tax if it is revised to the effect that the self-donation is confirmed and resolved. Thus, in interpreting the provision of this case, self-donation should be excluded from the gift tax assessment.

2) The issue of imposing taxes not on the controlling shareholder but on losses incurred to the controlling shareholder

If the share ratio of the two subsidiaries owned by the Dispute Resolution DD is different, if a lower share ratio is transferred to a subsidiary with a lower share ratio, it would result in only a part of the profits distributed by a subsidiary with a higher share ratio to the company with a lower share ratio, and it would result in a transfer of only a part of the profits distributed by the subsidiary with a lower share ratio to the company, and only can it be evaluated that the Dispute Resolution DD and its controlling shareholder have never received any donation profit and suffered losses. Accordingly, the interpretation of the provision of this case, etc., should be excluded from gift tax assessment.

(iii) problems in calculating the profit deemed donated;

The instant provisions, etc. stipulate that gift profits shall be calculated based on the global operating income, and there is a problem of imposing gift tax if there are only the global operating income even if the current net operating income occurs due to the reasons such as non-business losses. In addition, there is a problem of imposing excessive gift tax because the current operating income occurs in the current business year, and the method of adding up the current operating income is not prepared in preparation for the case of the occurrence of the subsequent business loss

4) The issue of unrealized profits and double taxation

The instant provision is not a profit gained by the controlling shareholder but a taxation of gift tax based on the tax revenue of the recipient corporation close to the unrealized profits from the controlling shareholder. In addition, when the controlling shareholder pays gift tax and receives dividends from the recipient corporation thereafter, there is a problem of double taxation of gift tax and income tax without deducting gift tax when calculating dividend income.

5) The issue of violation of fundamental rights and constitutional principles

The enforcement decree of the instant provision, without considering the characteristics of the type of business and industry, uniformly setting the normal transaction ratio of 30%, violates the principle of freedom of contract excessively and violates the instant provision. In addition, even if there are justifiable grounds for transaction between a related corporation and a beneficiary corporation, the instant provision, which stipulates that gift tax shall be imposed uniformly without recognizing such exceptions, is in violation of the principle of excessive prohibition and infringement of property rights guaranteed by the Constitution.

B. Relevant statutes

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

C. Determination

1) Whether the provision of this case is unconstitutional

A) The Plaintiff asserts that the provision of this case and the enforcement decree based thereon should be interpreted constitutionally. Thus, it is necessary to interpret the provision of this case constitutionally by examining whether the provision of this case violates the Constitution or not. To this end, first, we examine the outline of the provision of this case, legislative background, and whether the provision of this case violates the principle of excessive prohibition, thereby infringing on the fundamental rights of the Plaintiff, beneficiary corporation, special relation corporation, and then review the specific issues asserted by

By doing so, we examine whether the provision of this case is considerably unreasonable.

B) The instant provision (hereinafter “the so-called “the so-called “the so-called taxation”) was introduced in a situation where: (a) transactions between a beneficiary corporation and a corporation having a special relationship with the controlling shareholder of the beneficiary corporation, where the sales amount in excess of a certain ratio of the sales amount of the beneficiary corporation occurred; (b) gift tax is imposed on the beneficiary corporation deeming that the controlling shareholder of the beneficiary corporation and his/her relatives (hereinafter “controlling shareholder, etc.”) have received a donation of a certain portion of the three-year operating income of the beneficiary corporation; (c) the taxation of the day-to-day taxable period was implemented in such a situation where a person with a relationship that may have a significant influence on a certain company is able to accumulate individual parts by taking advantage of such status so as to enable him/her or his/her relatives to receive goods or services from the beneficiary corporation; and (d) the whole society deepens the concentration of economic power. The act of increasing the value of the controlling shareholder, etc. by taking advantage of the concept of donation under the private law or the existing regulations of the Inheritance Tax and Gift Tax Act was excluded from the scope of taxation.

C) Previous gift tax imposed on the premise that the donor’s property is reduced and the equivalent property is attributed to the donee without compensation. As a result, it was impossible to be subject to gift tax if the beneficiary corporation did not decrease the property of the related corporation, and the beneficiary corporation did not acquire the property without compensation. However, by using the gap in the taxation of gift tax, there was a phenomenon where a beneficiary corporation could enjoy excessive profits that could not be obtained only by the independent business ability of the beneficiary corporation itself, and the amendment of the Inheritance Tax and Gift Tax added the above profits to the amendment of the Inheritance Tax and Gift Tax subject to gift tax. Accordingly, in light of such amendment process or background, the benefits under the provision of this case cannot be determined in light of the previous concept of deemed donation, and it is reasonable to determine whether the benefits should be subject to gift tax in itself.

The plaintiff asserts that the transaction within the DD group was aimed at increasing efficiency through vertical separation, and it cannot be deemed as a gift because it was not for the benefit of the controlling shareholder, but for the benefit of the controlling shareholder. However, the issue of whether to impose gift tax on the benefit indirectly enjoyed through the DD group as a new type of donation is unconstitutional or not is followed. The circumstance that DD group has the holding company system or the purpose of increasing vertical integration or efficiency is merely an element to consider the unconstitutionality of the provision of this case, and it is difficult to deem the provision of this case as unconstitutional (in light of the reality that the whole DD group caused the deterioration of its business environment, it seems that the risk of vertical separation is considerably high, and therefore it is questionable whether to consider it as a positive element).

D) The instant provision aims to fairly impose gift tax by including the increase in the property value of the controlling shareholders, etc. who utilize the business opportunity of the special relationship corporation in the scope of donation, between other types of donation and to ensure fair taxation between other types of donation. Since the instant provision also functions such as protecting the interests of shareholders, etc. who are not the special relationship corporation or its controlling shareholders, and relaxing economic concentration

In addition, if a beneficiary corporation gains profits through a transaction between corporations, it can be deemed that the value of shares of the controlling shareholder, etc. has increased, and furthermore, if the controlling shareholder has a considerable influence on the corporation that provided such business opportunities, it can be evaluated as having been donated by the controlling shareholder, etc., and considering the background of introduction of the system that the method of imposing corporate tax on the beneficiary corporation or imposing dividend income tax on the controlling shareholder, etc., which is a normal taxation, can not be imposed on the gratuitous transfer through the above transaction behavior, it can be seen as an appropriate means to impose gift tax on the controlling shareholder,

Next, with respect to the minimum degree of infringement, the provisions of this case and the provisions of the Enforcement Decree based thereon do not have a way to escape from the subject of gift tax by proving the circumstances that transactions between the special relation corporation and the beneficiary corporation are based on justifiable grounds. However, in light of the fact that the controlling shareholder can take measures such as not subject to the provisions of this case or reducing the burden of gift tax by using influence, etc. over the beneficiary corporation and the special relation corporation (in this case, gift tax can not be imposed, but the incidental purpose can be achieved such as easing the concentration of economic power as seen earlier). The beneficiary corporation can conduct transactions with the special relation corporation for up to 30% of the sales amount, and the beneficiary corporation, etc. holding 50% or more of the sales amount, are allowed as being excluded from the sales amount of the special relation corporation (see Articles 34-2, 34-3, 44, and 7, etc. of the Enforcement Decree of the Inheritance Tax and Gift Tax Act).

In addition, it is difficult to view that the restriction on the freedom of business activities, which the controlling shareholder, etc. will incur, by imposing gift tax on the controlling shareholder, etc., is greater than the various effects such as the equity of tax burden, mitigation of concentration of economic power, and protection of interests of small stockholders, etc., which are expected by the introduction of the instant provision. Therefore, it is difficult to deem that the instant provision violates the principle of excessive prohibition, thereby infringing on fundamental rights such as the property right of the controlling shareholder, the related corporation, the beneficiary corporation’s freedom of contract, and

2) Determination on individual problems raised by the Plaintiff

A) As to the so-called argument of self-donation

The instant provision imposes a taxation on a beneficiary corporation on the basis of the profits gained by the beneficiary corporation through the transaction with the beneficiary corporation as a donation profit of the controlling shareholder, etc. The special relationship corporation provides an opportunity to trade with the beneficiary corporation and does not directly incur any loss as much as the profits gained by the beneficiary corporation through the transaction (where a special relationship corporation transfers profits through the transaction with the beneficiary corporation, the benefits are close to the traditional meaning donation profit rather than the beneficiary corporation if they are transferred through the transaction with the beneficiary corporation). This is because the profits gained by the beneficiary corporation through the transaction between the beneficiary corporation and the special relationship corporation should have been disbursed even if the transaction with the other party, not the beneficiary corporation, is made from the viewpoint of the special relationship corporation. Therefore, even if one corporation holds the shares of the beneficiary corporation and the special relationship corporation at the same time, it cannot be recognized that the special relationship corporation suffers any loss through the transaction with the beneficiary corporation, so long as it cannot be accepted (the second Plaintiff's profits to the effect that the beneficiary corporation is also a loss caused by the special relationship corporation, the same cannot be accepted).

The Enforcement Decree of the instant case revised on February 15, 2013, and revised on 100% by the controlling shareholders, etc. of the beneficiary corporation were excluded from the profit deemed donation (Article 34-2(10)1 of the Enforcement Decree of the said Act), and on February 21, 2014, "ratio of shares held by the controlling shareholders, etc. of the beneficiary corporation among the sales of the beneficiary corporation related corporations" was revised to be excluded from the sales of gift tax subject, and thus, the so-called self-donation was exempted from gift tax. However, considering that the instant provision does not directly transfer profits to the beneficiary corporation, it is difficult to conclude that the Enforcement Decree was amended to solve the problem of self-donation, and that it is difficult for the beneficiary corporation to interpret the amended Enforcement Decree of the instant case by comprehensively considering the legislative purpose of the State tax revenue and economic power, and the legislative purpose of the amended Enforcement Decree of the instant case should be excluded from the legislative discretion of the legislative institution.

(b) problems in calculating the profit deemed donated;

Unlike income tax or corporate tax that imposes tax on profits for a certain period, gift tax is, in principle, imposed on each gift, and thus, it should be calculated on the basis of the profits derived from individual gift. However, in the case of a gift that is continuously and repeatedly made between a donor and a donee for a certain period, gift tax may be calculated by adding up the profits from a certain period of time. This seems to be more desirable in terms of taxation and tax practice.

Even in the case of taxation during the sunset, it is inappropriate to impose gift tax on each beneficiary corporation by calculating the profits earned by each beneficiary corporation in the ordinary and repeated transaction while the transaction between the beneficiary corporation and the beneficiary corporation is ordinarily and repeatedly performed. Accordingly, the calculation formula under paragraph (1) of the provision of this case provides that the profit deemed donation shall be calculated by using the sales ratio of the beneficiary corporation after the tax of the beneficiary corporation and the related corporation, and Paragraph (3) of the provision of this case provides that the profit deemed donation shall be calculated by calculating the profit deemed donation as the business year of the beneficiary corporation and the relevant business year of the beneficiary corporation shall be deemed the time of donation. The purport of the provision is to calculate the profit deemed donation by using the financial data ordinarily prepared by the beneficiary corporation and the related corporation in an easy

Therefore, the non-business profit of the beneficiary corporation is not appropriate to reflect it in the calculation of the profit of donation because it is not entirely related to the ordinary and repeated transaction with the related corporation. And since the loss incurred by the beneficiary corporation in a specific transaction with the related corporation is inevitably deducted from the profit acquired from the transaction with the related corporation in a simple manner, the provision of this case is not to be considered in the calculation of the profit of donation if the gift tax is imposed by each act of donation, but it is nothing more than that of the profit acquired from the transaction with the related corporation. Thus, it cannot be viewed that the operating profit of the different business year and the loss of the business should be offset as a matter of course on the ground that the profit of the beneficiary corporation in the same business year should be calculated by offsetting the operating profit and loss of the transaction with the related corporation (it is difficult to view that the provision of this case is a nature of taxation such as income tax or corporate tax, even if there is a nature of a fixed-term taxation such as income tax

C) double taxation issues

It is difficult to view that the profit gained by a beneficiary corporation as transactions with a special relationship corporation is completely realized from the perspective of the controlling shareholder of the beneficiary corporation. However, whether the scope of the gift income subject to taxation is limited to realizing income or includes unrealized gain is a matter of legislative policy that is determined in consideration of the purpose of taxation and the characteristics of taxable income and the problems of taxation techniques, etc., and cannot be viewed as any inconsistency or inconsistency with the concept of taxation under the Constitution (see Constitutional Court Order 92Hun-Ba49 delivered on July 29, 1994). As seen above, it is difficult to achieve the legislative purpose solely with the taxation of corporate tax and dividend income tax on the beneficiary corporation, etc. on the basis that it was difficult for the controlling shareholder, etc. to calculate the profit acquired indirectly through the beneficiary corporation, while it is extremely difficult for the controlling shareholder, etc. to consider the method of calculating the profit gained by multiplying the ratio of shares acquired by the beneficiary corporation by the controlling shareholder, etc. on the basis of the beneficiary corporation’s convenience, rationality, and controlling shareholder, etc. cannot be viewed that the beneficiary corporation should withhold the profit within discretion.

The gift tax paid by a controlling shareholder, etc. is not considered when calculating the dividend income tax, but it is considered when calculating the transfer income tax when disposing of the shares of a beneficiary corporation. However, the controlling shareholder, etc. is in a position to decide the distribution of a beneficiary corporation by exercising voting rights, etc. against the beneficiary corporation. Therefore, it is difficult to view that it is unreasonable even if the gift tax paid by the controlling shareholder, etc. is not considered when calculating

D) Violation of the constitutional principle, etc.

The provision of this case provides that gift tax shall be imposed if the transaction between the beneficiary corporation and the related corporation exceeds the "ratio prescribed by Presidential Decree in consideration of the type of business of the beneficiary corporation" (hereinafter referred to as "normal transaction ratio"), and Article 34-2 (4) of the Enforcement Decree provides that "the ratio prescribed by Presidential Decree" means 30/100.

In light of the legislative purpose, legislative background, etc. of the general trading ratio in the daily life cycle taxation system, it is anticipated that legislators would set the ratio set within the scope of the average internal trading ratio of the enterprise group in Korea, and thus, it is difficult to deem the provision of this case to be in violation of the principle of prohibition of comprehensive delegation, etc. merely because the scope thereof is not directly specified. Moreover, it is difficult to conclude that Article 34-2(4) of the Enforcement Decree of the Act setting the normal trading ratio in the single rate of 30% does not result in considering all the circumstances such as the business type of the corporation and the business reality of the company, etc. It is no more desirable to subdivide the normal trading ratio in consideration of the characteristics of the business type and industry

3. Conclusion

The plaintiff's claim is dismissed as it is without merit, and the costs of lawsuit shall be borne by the plaintiff who has lost. It is so decided as per Disposition.