2017Du60741 The revocation of revocation of the rectification of global income tax

1. A;

2. B

Head of the tax office

Seoul High Court Decision 2016Nu75779 Decided August 16, 2017

February 28, 2018

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 14(1) of the Framework Act on National Taxes provides, “If the ownership of the income, profit, property, act or transaction subject to taxation is nominal and there is another person to whom such ownership belongs, the person to whom such ownership belongs shall be subject to the application of tax-related Acts.” Article 14(2) provides, “The provisions on the calculation of tax base in tax-related Acts shall apply according to the substance regardless of the name or form of the income, profit, property, act or transaction, regardless of the name or form of the income, profit, act or transaction,” and Article 14(3) provides, “Where it is deemed that it is deemed that it would unfairly receive benefits in this Act or other tax-related Acts by indirectly or through two or more acts or transactions through a third party, it shall be deemed that the party directly engaged in such transaction, or that one act

The principle of substantial taxation is a practical principle for realizing the principle of equality, which is the basic ideology of the Constitution, in a tax law relationship. In a case where unreasonable form or appearance that is distinguishable from the substance of the facts requiring taxation is taken for the purpose of evading the burden of taxation, the main purpose of this principle is to regulate unfair acts of tax evasion and to realize tax justice by enhancing equity in taxation by imposing tax at a place where the taxable capacity exists, regardless of the form or appearance, regardless of the form or appearance. This is not in conflict with the principle of no taxation without law, which is the basic principle of tax law, but rather, in applying economic and living relations changing various tax laws to the extent that predictability and legal stability are not undermined (see, e.g., Supreme Court en banc Decision 2008Du8499, Jan. 19, 2012).

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

A. In around 2009, H (hereinafter “H”) and J Co., Ltd. purchased from the Korea Land Corporation (Korea Land and Housing Corporation after its merger with the Korea Land and Housing Corporation on October 1, 2009; hereinafter “Korea Land and Housing Corporation”) a FF large of 4,640 meters (hereinafter “instant land”) in Sungnam-si, Sungnam-si Branch of Land (hereinafter “Korea Land and Housing Corporation”) together with a neighboring land already purchased by J Co., Ltd. to promote the project of newly constructing and selling officetels on that ground.

B. H et al. participated in the bid of the instant land under the supervision of the Korea Land Corporation, but on September 21, 2009, Plaintiff B, C, D, and E jointly sold the instant land in the amount of 44 billion won and paid down KRW 4.4 billion (after that, Plaintiff A entered the joint purchaser of the instant land on behalf of Plaintiff E; hereinafter referred to as “Plaintiff et al.”). H attempted to succeed to the purchaser status of the instant land including the right to purchase the instant land from the Plaintiff et al. (hereinafter referred to as “instant right to purchase”). Since the Plaintiff et al. demanded excessive purchase price, the Plaintiff et al. concluded a contract for vicarious purchase of the instant land with C&C construction company to purchase the instant right to purchase the instant land at a reasonable price on November 5, 2009, and continued negotiations with the Plaintiff et al.

D. On December 12, 2009, the Plaintiff et al. jointly established G Co., Ltd. (hereinafter “G”), held shares issued in G at the ratio of Plaintiff A12%, Plaintiff B20%, C43%, and D25%, and transferred the instant sales right to G on December 18, 2009.

E. On January 8, 2010, the Plaintiff, etc. and G entered into a “land sale right and a contract for transfer and acquisition of shares” with the purport of transferring the entire G shares owned by the Plaintiff, etc. to KRW 10 billion (a separate capital of G; hereinafter “instant issues amount”); KRW 4.4 billion in total; and KRW 1.4 billion in total, which were held by G.

F. On April 7, 2010, the Plaintiff, etc. and H changed the transfer price of G stocks from KRW 10 billion to KRW 10.15 billion, and the Plaintiff, etc. received KRW 10.15 billion from H on April 7, 2010 and May 28, 2010.

G. On May 28, 2010, H entered into a contract on succession of rights and obligations with G and Korea Land Corporation to succeed to all rights and obligations under the G sales contract with respect to the instant land, and paid the remainder of the purchase price of the instant land to Korea Land Corporation in total of KRW 39.6 billion, and completed the registration of ownership transfer in the H.

H. The director of the Central Regional Tax Office: (a) deemed the instant issue amount as a premium for the instant sales right, and deemed that it constituted G’s asset transfer income for the business year 2010, G included KRW 10 billion in G’s gross income; (b) as bonus for C and D, KRW 4.3 billion received by C; (c) as bonus for Plaintiff A received; and (d) KRW 1.2 billion received by Plaintiff B as a dividend to the Plaintiffs; and (b) notified the Plaintiffs of the change in income amount on March 7, 2014.

I. On March 31, 2014, the Plaintiffs filed a revised return and payment of the comprehensive income tax for the year 201 according to the notice of change in the amount of income. On September 2, 2014, the Plaintiffs filed a request for correction to the effect that the tax base and tax amount of the global income tax for the year 2011 would be reduced, but the Defendant rejected the request on October 22, 2015.

3. Examining the following circumstances revealed through the above facts and the record in light of the aforementioned provisions and legal principles, it cannot be deemed that some of the key issues of this case constitute G’s asset transfer income, and it does not change solely on the ground that the transfer of G shares by the Plaintiff et al. and the transfer of the sales right by G are closely related to the transfer of G’s assets.

A. In a case where a corporation or an individual intends to acquire real estate owned by another corporation, the legal form of transaction can be both the method of acquiring the pertinent real estate directly from the corporation and the method of acquiring stocks that can acquire control over the corporation itself which owns the said real estate. Therefore, the mere fact that the transfer of G stocks by the Plaintiff et al. and the transfer of the instant sales right by G was conducted for the purpose of transferring the instant sales right to H with respect to the instant transaction at the same time, the mere fact that the transfer of the instant sales right by the Plaintiff et al. was conducted for the purpose of transferring the

B. The premium of this case’s sales right can be traded by reflecting the property value of the G stocks held by the Plaintiff, etc. in accordance with the form of transaction. Since it is difficult to view that H had no value in fact since H acquired G stocks from the Plaintiff, etc., the key issue amount of this case is the same as the premium value of the sales right of this case, the economic effect of the sales right of this case cannot be deemed to have been actually attributed to G. In addition, there is no specific circumstance to deem that the Plaintiff, etc. received a proposal to sell the sales right of this case from H before the establishment of G, and that at the time, it was necessary to implement the development project of the land of this case by transferring the sales right of this case to G. Considering the situation that the key issue amount of this case was actually paid directly by H to the Plaintiff, etc., it is difficult to view that the issue amount of this case’s sales right was reconverted as a single transaction acquiring only the sales right of this case from G, and it is again difficult to view that the issue amount of

D. Rather, in the event that the transfer of the Plaintiff’s G shares and the transfer of the sales right in the instant case were simultaneously conducted as the instant transaction, there may be cases where the Plaintiff, etc. are deemed to have the same substance as the transfer of the sales right in the instant case to H as it was merely a means to achieve the purpose of tax avoidance from the beginning. However, there is no change to the effect that such a case does not belong to G.

4. Nevertheless, solely on the grounds indicated in its reasoning, the lower court rejected the Plaintiffs’ assertion seeking revocation of the instant disposition on a different premise, deeming that the instant issue amount received by the Plaintiff, etc. as the share transfer price constitutes a premium of the instant right to sell shares, which ought to be attributed to G in economic substance. In so determining, the lower court erred by misapprehending the legal doctrine on the principle of substantial taxation, thereby failing to exhaust all necessary deliberations. The allegation contained in the grounds

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.

The presiding judge shall keep the record of the Justice

The Chief Justice Park Jae-young

Justices Kim Gin-young

Justices Cho Jae-chul