Suwon District Court-2017-Guhap62861 ( August 24, 2017)

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Although the instant shares were held in title trust with the Plaintiff, they cannot be deemed to have the purpose of tax avoidance.

Article 41-2 (Presumption of Donation of Title Trust Property)

Seoul High Court-2017-Nu7203 Disposition to revoke the imposition of gift tax.

AA

O Head of tax office

Suwon District Court Decision 2017Guhap62861 Decided August 24, 2017

January 16, 2016

January 30, 2016

1. Revocation of a judgment of the first instance;

The Defendant’s imposition of gift tax of KRW 485,001,750 against the Plaintiff on May 19, 2016 is revoked.

2. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. From February 2, 2009 to March 19, 2010, the Plaintiff served as an employee in GGtech Co., Ltd. (hereinafter “instant company”). At that time, SS served as the representative director of the instant company.

B. As a result of the consolidated investigation of the corporate tax of the instant company listed on the KOSDAQ market, the director of the Central District Tax Office confirmed that the Plaintiff acquired and held 764,900 shares issued by the said company (hereinafter “instant shares”) in its name as of December 31, 2009, and notified the Defendant of taxation data to the effect that the source of the Plaintiff’s funds to acquire the instant shares is unclear.

C. As a result of the investigation into the source of funds to acquire the instant shares from February 25, 2016 to April 7, 2016, the Defendant determined that the Plaintiff was under title trust with SSS, and decided on May 19, 2016 to impose gift tax of KRW 485,001,750 on the Plaintiff on December 31, 2009 (hereinafter “instant disposition”).

D. On August 13, 2016, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on August 13, 2016, but was dismissed by the Tax Tribunal on January 16, 2017.

[Ground of recognition] Unsatisfy, Gap evidence 1, 2, Eul evidence 1, 2 and 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff was instructed to the effect that it would open and change an account for securities transaction under the Plaintiff’s name as an employee of the instant company, in order to allocate shares to the Plaintiff from SS or pay shares as piece-based rates, and did not follow the instructions, and did not have concluded a title trust agreement with SS on the instant shares.

2) Even if a title trust agreement is recognized, SS was merely a title trust agreement to avoid the obligation to report the acquisition of stocks to the Financial Supervisory Commission and to make the stock price volume through price manipulation, and thus, there was no tax evasion tax or a minor tax reduction incidental to the title trust. Thus, S did not have an intent to avoid taxes at the time of the title trust to SS.

3) The Defendant did not individually specify the donation date for each share of 764,900 shares, and the Defendant erred by deeming that the entire shares were donated on December 31, 2009, without excluding the shares purchased again with the price sold in the Plaintiff’s name from the subject of gift tax.

B. Relevant statutes

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

C. Determination

1) Determination on whether a title trust is held

A) The title trust relationship is not necessarily established by an express contract between the truster and the trustee, but may also be established by implied agreement. Whether there has been an implied agreement on the title trust should be reasonably determined in light of social norms by comprehensively taking into account all the circumstances, including the relationship between the truster and the trustee, the motive and circumstances leading up to the trustee’s custody of the property, and the transaction details and mode between the truster and the trustee (see Supreme Court Decision 2007Do6463, Oct. 23, 2008). Furthermore, the provisions on deemed donation of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “former Inheritance Tax and Gift Tax Act”) Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (hereinafter “former Inheritance Tax and Gift Tax Act”) apply to the case where the de facto owner and the nominal owner register the property in the future, regardless of their intent or communication, where the nominal owner unilaterally uses the name of the nominal owner and the actual owner, etc.

B) Comprehensively taking account of the overall purport of the pleadings in the statement Nos. 4 and 6, the fact that SS has paid the Plaintiff’s share acquisition fund. As such, the nominal owner of the instant shares is the Plaintiff, and the actual owner is the SS. However, it is insufficient to recognize that the acquisition of the instant shares was made by the unilateral act of SS regardless of the Plaintiff’s intent, and there is no other evidence to acknowledge otherwise.

Rather, according to the evidence Nos. 2 and 2 evidence, the Plaintiff opened a securities account under the Plaintiff’s name (hereinafter “instant account”) upon the Plaintiff’s request of SS, and recognized the fact that the Plaintiff knew of the authorized certificate and its password connected to the instant account, and in light of the following circumstances, it can be known from the overall purport of the aforementioned recognition and pleading, the Plaintiff should be deemed to have concluded a title trust agreement with the Marama SS., so the Plaintiff’s assertion that there was no title trust agreement with the Plaintiff is groundless.

① The Plaintiff appears to have failed to verify the specific place of use of the Plaintiff, even though it was aware that stock transaction was made in the instant account, and it is reasonable to deem that SS has impliedly engaged in the act of trading stocks in its name.

② The Plaintiff appears to have delegated the trading authority through the instant account by informing SS of the authorized certificate and password. If the Plaintiff opened the instant account to acquire shares as a member of the employee stock ownership association or as a piece rate, it is unnecessary to inform SS of the authorized certificate and password connected to the said account.

2) Determination as to whether the purpose of tax avoidance exists

A) Facts of recognition

(1) On January 21, 2009, SS entered into a contract to acquire the shares and management rights of the instant company from DDR with 15.6 billion won, and received loans from the bond company in order to secure the acquisition fund, and provided 2,000,000 shares of the instant company acquired as collateral.

(2) When SS is anticipated to sell the shares offered as security through the counter-trade when the price decline of the instant company, it was anticipated that the bond company will sell the shares in large quantity. In order to prevent this, the SS held the share price of the instant company by means of market price manipulation.

(3) SS is the representative director and the major shareholder of the instant company, and when trading the shares of the instant company on their own account, they were obligated to report to the Exchange, etc., whenever there is any change in the number of the shares held. SS instructed the CCC, which was in charge of the instant company’s disclosure business, to avoid reporting obligation and avoid market price manipulation, to seek a borrowed account for market price manipulation.

(4) The CCC had 15 employees of the instant company, such as HH, KK, LL, and JJ, set up a securities account at the location of the securities company designated by SS, including the Plaintiff (at the time of 26 years of age), and received information necessary for transaction, such as ID (ID) and passwords of the relevant account, and authorized certificates. The SS borrowed shares purchase funds using the securities account received as such, and traded the shares of the instant company as the securities account from March 30, 2009 to August 31, 2010.

(5) On December 31, 2009, the National Bank of Korea, a transfer agent of the instant company’s shares, entered 764,900 shares out of the shares of the instant company (1.92%) in the name of the Plaintiff, 1,245,327 shares (3.13 percent shares ratio) in the name of HH H H H’s name, 815,684 shares (2.05 percent shares ratio) in the name of KK, and 611,437 shares (1.54 percent shares ratio) in the name of LL.

(6) From March 4, 2009 to November 27, 2009, SS conspired with CCC and artificially increased trading volume by repeating the sale and purchase of the shares of the instant company by using the account in the name of the Plaintiff and other employees, and thereby preventing the stock price decline of the instant company from falling. From December 1, 2009 to August 23, 2010, the Seoul Central District Court convicted the Defendant of the facts charged, in collusion with CCC, with the account in the name of employees such as the Plaintiff, etc., and the account in the name of the Plaintiff, etc., ○○○○, and ○○○, in the name of ○○○, in the name of ○○, in the name of the head of ○○○, in order to prevent the stock price decline of the instant company, and thus, was found guilty of the facts charged in violation of the duty to report the shares, and on violation of the duty to report the stocks held by executive officers, etc. (no criminal facts were included).

[Ground of recognition] Facts without dispute, Gap evidence 2 to 4, Eul evidence 2 to 6, the purport of the whole pleadings

B) Whether the purpose of tax avoidance exists

(1) In light of the legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, if the title trust was deemed to have been made for reasons other than the purpose of tax avoidance, and there is only a vague circumstance that only the occurrence of minor tax reduction incidental to the said title trust, or that there is a possibility that there is a possibility that there may be a result of a mere reduction of future taxes, the said title trust cannot be deemed to have a "tax avoidance purpose" under the proviso of Article 45-2(1) of the same Act, and the burden of proof as to the fact that there was no purpose of tax avoidance in the title trust is a nominal person

Seoul High Court Decision 2008Du2729 Decided October 23, 2008 and Supreme Court Decision 2007Du24180 Decided October 23, 2008, etc.

(2) Comprehensively considering the following circumstances admitted from the evidence prior to the above facts, the title trust of the instant shares was conducted for the purpose of avoiding market price manipulation when the SS intended to adjust the market price to prevent the price decline, not for tax avoidance, but for the purpose of preventing the stock price decline, but for the purpose of avoiding market price manipulation when performing the obligation to report under the former Financial Investment Services and Capital Markets Act (amended by Act No. 10924, Jul. 25, 2011; hereinafter the “former Financial Investment Services and Capital Markets Act”), and it was merely for the purpose of avoiding market price manipulation, and it was merely for the purpose of preventing the occurrence of minor tax reduction, or for the mere reason for the possibility of the occurrence of future tax reduction, in the title trust of the instant shares. Therefore, the Plaintiff’s assertion in this part is with merit.

① SS’s 2,00,000 shares are shares essential for SS to maintain management rights of the instant company acquired from DD. Inasmuch as SS would lose management rights of the instant company due to the decline in the stock price of the instant company, SS would have prevented the instant company’s stock price decline through market price manipulation to maintain management rights. However, Article 147(1) of the former Capital Markets Act provides that a person who has held stocks of a stock-listed corporation shall report to the Financial Services Commission and an Exchange the status of holding stocks and purpose of holding stocks within four days from that date, and Article 173(1) of the former Capital Markets Act provides that the officers or major shareholders of a stock-listed corporation shall file a report on the stock price decline with the Financial Services Commission and an Exchange within five days from the date on which they become executives or major shareholders on their own account to avoid any change in the ownership status of specific securities (securities issued by the relevant corporation) and the representative director on their own account, and thus, it is difficult to file a report on the stock price fluctuation under the name of the instant company and the Securities Exchange.

② According to the relevant criminal judgment, SS: (a) in collusion with CCC from March 27, 2009 to November 27, 2009, the price manipulation was made by submitting orders for participation in the market price higher than the anticipated concluded price at the time of time; (b) around November 23, 2009, the company of this case issued capital increase of KRW 20.3 billion to the company at issue; and (c) in collusion with the ZZ and CCC, the ZZ and the ZCC submitted each purchase order to the securities account under the name of another person, including the Plaintiff, and submitted each other for the purchase order.

③ SS was convicted of the instant company’s stock price manipulation, and the facts constituting the crime are to prevent the price decline by artificially expanding the purchase and sale volume through the Plaintiff’s account. As such, it is not recognized that SS had the intention to artificially support the company’s stock price and gain gains from transfer by artificially supporting the company’s stock price.

④ The instant shares are acquired through a loan from the Plaintiff’s account, and the price for the sale of shares is preferentially appropriated for the loan interest and the principal and redemption, and it cannot be readily concluded that the gains accrued from the sale of the instant shares belongs to SS immediately. Furthermore, in addition to the fact that SS was not submitted at all to specify the amount of the gains accruing from the sale of the instant shares, the fact that the transfer of the instant shares by the Plaintiff’s transfer of the instant shares to SS is the occurrence of the liability to pay capital gains tax or the reduction of the capital gains tax that occurred.

⑤ Article 14 of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010) provides that the total amount excluding the amount subject to non-taxation and separate taxation among interest income and dividend income shall be added to the global income tax base only if the total amount exceeds 40 million won. The Defendant asserts that SS reported global income tax in 2008, but failed to do so from 2009, the purpose of evading global income tax is recognized. However, considering that SS owned the stocks of this case, it is difficult to readily conclude that the total amount of the SS dividend income and interest income exceeds 40 million won solely on the ground that the SS owned the stocks of this case, and in light of the circumstances leading to the SS’s price manipulation, the company of this case seems to have never existed at the time of distribution, and thus, it is merely a situation that the result of reducing the global income tax due to the title trust of this case results in the reduction of the global income tax.

Therefore, the instant disposition on the premise that the SS and the Plaintiff are the purpose of tax avoidance should be revoked as it is unlawful without any need to further examine.

2. Conclusion

If so, the plaintiff's claim shall be accepted with due reasons, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance shall be revoked and the disposition of this case shall be revoked.