National Tax Service Review Corporation 2007-0016 (Law No. 13, 2007)

Whether the disposition of capital gains accruing from the transfer of unlisted stocks is legitimate according to the supplementary assessment method under the Inheritance Tax and Gift Tax Act

Considering that the transferor and transferee are merely those who are in the position of joint buyers and joint buyers under one contract, the transfer value of the shares is difficult to be considered as the price continuously traded with many and unspecified persons or the price generally traded with third parties.

The contents of the decision shall be the same as attached.

Article 24 (Non-Inclusion of Donations in Deductible Expenses)

Article 60 (Principles, etc. of Appraisal)

1. The plaintiffs' claims against the defendants are all dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

On November 1, 2006, the director of the tax office North Incheon District Office imposed corporate tax of KRW 122,190,820 for the Plaintiff ○○ Construction Co., Ltd. for the year 2003, and corporate tax of KRW 121,985,090 for the year 203 for the Plaintiff ○○○ Construction Co., Ltd. for the same day, and imposed corporate tax of KRW 232,15,60 for the year 203 for the Plaintiff ○○ Construction Co., Ltd. for the year 203, and the imposition disposition of KRW 122,153,450 for the corporate tax of KRW 122,153,450 for the Plaintiff ○○ Construction Co., Ltd. for the year 203 on the same day by the director of the tax office, respectively, shall be revoked. The imposition disposition of KRW 121,862,120 for the corporate tax of KRW 203 for the Plaintiff ○ Construction Co.

1. Details of the disposition;

A. The plaintiffs and workers were shareholders of ○○○○○○○-dong 000-0, 000, an unlisted corporation (hereinafter referred to as “○○○○○-dong 00-0”), and ○○○○○○cocococococococococo share (hereinafter referred to as “the total number of shares per share 10,000, the par value per share 5,000) after acquiring ○○○cocococococo, Ltd. on January 1, 2002, respectively, acquire 10-20% of shares, respectively. As of October 15, 2003, the status of ownership of the plaintiffs and ○○○○○○○○○-dong shares (the total number of shares 1,00,000 per share, and KRW 5,00 per share) as indicated below (hereinafter referred to as “the plaintiff’s stock company”).

○ Ownership status of shares of Scocoa

Name of shareholders

Number of Stocks

○ Development of the La industry

100,000

00 ○ Annbdi

100,000

○ Kud Construction

200,000

○ Territorial Construction Industry

100,000

○ Original Construction

100,000

○○ Port Korea

200,000

Dominate ○

200,000

Total

1,000,000

B. On November 18, 2003, the plaintiffs and the Mai (hereinafter referred to as "the transferor") assigned 1,000,000 shares (the total number of shares of ○ Maico's; hereinafter referred to as "the shares of this case") of ○ Maico's owned by them, and the plaintiffs determined 5,768,750 won per share, and Mai (hereinafter referred to as "the shares of this case") as listed below 5,000 won per share, and Mai (hereinafter referred to as "the transfer value of each plaintiff's shares of this case") as listed in the table below (hereinafter referred to as "the transfer value of each plaintiff's shares of this case").

The current status of transfer of shares of this case

transferor

A transferee

Number of Stocks

1. Par value per share

○ Development of the La industry

○ Mana

100,000

5,768,75

576,875,00

00 ○ Annbdi

○ Mana

100,000

5,768,75

576,875,00

○ Kud Construction

○○ System

200,000

5,768,75

1,153,750,000

○ Territorial Construction Industry

○○ System

100,000

5,768,75

576,875,00

○ Original Construction

○ Mana

100,000

5,768,75

1,153,750,000

○○ Port Korea

○○

200,000

5,768,75

1,153,750,000

Dominate ○

○○

200,000

5,000

1,000,000,000

C. In assessing the normal price of the instant shares, the Defendants assessed the market price of KRW 38,459,00,000 on the instant land at KRW 38,917 per share, based on the officially assessed individual land price in 2003, based on the land price of KRW 38,459,00,000 owned by ○○○-dong 00-0, 526.7 square meters (hereinafter “instant land”). The Defendants assessed the market price of the instant shares at KRW 30% per share, and assessed KRW 9,041 per share, based on the said market price at KRW 30% per share.

D. In addition, the Defendants: (a) on the ground that the Plaintiffs transferred the instant shares to the non-related transferee of the instant case at low price; (b) the difference between the normal price (9,041 won per share) and the transfer price (5,768.75 won per share) of the instant shares constitutes non-designated donations by the Plaintiffs; and (c) on November 1, 2006, each of the said difference was included in the calculation of earnings, and (d) imposed corporate tax for the year 2003 on each of the Plaintiffs as indicated below (hereinafter “the instant disposition”).

Details of imposition

No.

Amount of tax (source)

1

○ Development of the La industry

The director of the North Incheon National Tax Office

122,190,820

2

00 ○ Annbdi

The director of the North Incheon National Tax Office

121,985,090

3

○ Kud Construction

The director of the North Incheon National Tax Office

232,155,600

4

○ Territorial Construction Industry

Deputy Director of the Tax Office

122,153,450

5

○ Original Construction

Deputy Director of the Tax Office

121,862,120

6

○○ Port Korea

Deputy Director of the Tax Office

176,604,300

[Ground of Recognition] Facts without dispute, Gap evidence 2-1, 2-3, Gap evidence 13-1 through 7, Gap evidence 14, Gap evidence 16-1 through 6, Eul evidence 16-1-7, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

The Defendants asserted that the instant disposition is lawful on the grounds of the above disposition grounds and relevant statutes, and the Plaintiffs asserted that the instant disposition was unlawful on the following grounds.

(1) The allegation of illegality in the application of supplementary assessment methods

Since the transferor of this case transferred the shares to the transferee of this case who is not a specially related party, there are several trades for each party. From the perspective of each party, the transfer value of the shares between the plaintiffs who are the transferor of this case and the transferee of this case can be deemed to be the market value, which is the normal transaction price reflecting the objective exchange value, with priority over the above transaction price under the Inheritance Tax and Gift Tax Act (hereinafter "the Inheritance Tax and Gift Tax Act"). Thus, the disposition of this case assessed the market value of the shares in accordance with the supplementary evaluation method under the Inheritance Tax and Gift Tax Act is unlawful.

(2) The claim that the transfer value of the instant shares is within the scope of normal price

Even if the value of the instant shares is assessed as a supplementary assessment method based on the Ordinance of the Inheritance Tax and Gift Tax Act, it shall not be assessed on the basis of the officially assessed individual land price in 2003, applied by the Defendants. On June 27, 2002, ○○co assessed the instant shares based on KRW 24,85,940,000, the appraised value and acquisition value, which are the appraisal value and acquisition value, when purchasing the instant shares from the Korea Land Corporation on June 27, 2002. Furthermore, when assessing the instant shares based thereon, 5,768.75 won per share transfer price of the instant shares within the scope of the normal value of the instant shares (± 30%).

(3) The assertion that there is a legitimate ground for the transfer of the instant shares

Even if the transfer value of the instant shares is lower than the normal price claimed by the Defendants, the Plaintiff purchased the instant land for the purpose of construction and operation of a golf range. However, due to the restriction under the public law, it is difficult to smoothly implement the construction of a golf range due to the restriction under the public law, and the burden of financial expenses, such as interest on loans, etc., would be increased, and thus, the value of the instant shares would have been easily reduced. The Plaintiff was an inevitable business situation where the instant land should be sold at a low price, and the acquisition value of the instant land can be deemed as the objective value of the instant land as of June 27, 2002, when there is no change in the land price from the acquisition date of the instant land to the date of the instant shares, under the circumstances where there is no change in the land price from the acquisition date of the instant land to the date of the instant land. Therefore, considering the fact that the transfer value of the instant shares can be seen as the normal price, there exists justifiable cause under Article 35 subparagraph 2 of the Enforcement Decree of the Corporate Tax Act.

(b) Related statutes;

Article 24 (Non-Inclusion of Donations in Deductible Expenses)

Article 52 (Dispudiation of Wrongful Calculation)

Article 35 (Scope of Donations)

Article 89 (Scope of Market Price, etc. of Corporate Tax)

Article 60 (Principles, etc. of Appraisal)

Article 61 (Appraisal of Real Estate, etc.)

Article 63 (Appraisal of Securities, etc.)

Article 49 (Evaluation Principles, etc.)

Article 54 (Appraisal of Unlisted Stocks)

(c) Fact of recognition;

(1) On June 27, 2002, ○○○coin entered into a sales contract to purchase the instant land from the Korea Land Corporation to 24,85,940,000 won, which is the base appraisal value on June 27, 2002 (294,000/m2), and paid all remainder to the Korea Land Corporation on February 27, 2003, and completed the registration of ownership transfer on the instant land on July 14, 2003.

(2) From the time of acquisition of the instant land by ○ Indonesco, there are restrictions under public law, such as the following: (a) the land category of the instant land continues to exist; (b) the land category of the instant land is a sports site and a specific use area is a natural green area; (c) the building-to-land ratio is 20%, floor area ratio is 80%, and 40% or more of the site area should be used as a natural landscape green belt.

(3) On the instant land, ○○ Coina applied for a building permit for a sports facility on March 2003 to build a golf practice range. However, on the instant land, the golf practice range alone did not satisfy the requirements for the form of a sports facility under the relevant laws and regulations, and revoked the said building application on May 20, 2003.

(4) From March 20, 2003 to May 20, 2003, 2003 before and after the application for the above building permit, ○ Indonesia laid down the instant land without permission for the creation of sports facilities, and received an order to restore the land to its original state without permission from the head of Seocheon-si, Busan. 22 May 22, 2003.

(5) On November 14, 2003, when entering into a contract for the transfer and acquisition of the instant shares with the instant transferee, all of the instant transferor determined the acquisition price of KRW 30,800,000. The specific payment method of the acquisition price is as follows: the instant transferor pays KRW 5,615,00,000 to the instant transferor; KRW 7,785,000,000 to the instant transferor’s short-term loan of KRW 7,785,00,000 to the instant transferor; and the instant transferee succeeds to the instant transferor’s loan obligations of KRW 17,40,000 to the National Agricultural Cooperative Federation of ○○co.

(6) The officially assessed individual land price as to the instant land is KRW 434,000/m2, and KRW 455,000/m203/m204/m2004.

(7) There was no objection against the officially assessed individual land price of this case to the head of Seocheon-si, the decision-making agency of the officially assessed individual land price. However, the request for correction was made on the ground that the assessment of the assessment standard of the aggregate land tax imposed on the land of this case was erroneous, but the above application was not accepted.

(8) From the business year 2000 to the business year 2002, ○○coa continued to cause losses as follows.

Details of deficit (unit: million won)

Classification

200 business year

201 Business year

202 Business year

Sales

5

0

0

net income

△△58

△△36

△61

(9) In assessing the value of the shares of this case, where the acquisition value of the shares of this case is to be based (the plaintiff's assertion) and the officially assessed individual land price at the time of the transfer of the shares of this case (the defendant's assertion), and the assessment value per share of each shares of this case are as follows:

Value per share of the stock of this case

(unit, unit, less than source is omitted)

Evaluation Method

Market Price

Scope of Normal Price

Application of the acquisition value of the land of this case (the plaintiffs)

4,435

Above 105 up to Above 5,766

Application of the officially assessed land price of the instant land (Defendants)

12,917

Above 9,041 Above 16,792

[Ground of Recognition] Facts without dispute, Gap evidence 1-2, Gap evidence 4-8, Gap evidence 10, 11, Gap evidence 12-1 through 3, Gap evidence 15, Eul evidence 7-1 through 6, the purport of the whole pleadings

D. Determination

(1) As to the allegation that applying the supplementary evaluation method is unlawful

Article 35 (2) of the Enforcement Decree of the Corporate Tax Act provides that the amount of money which is deemed to have been actually donated out of the difference is determined as the scope of the donation which is not included in the calculation of losses, by transferring an asset to a person other than a person with a special relationship without any justifiable reason. In this case, the normal price shall be determined within the scope of the amount which is less than 30/100 of the market price at the market price. Article 89 (1) of the Enforcement Decree of the Corporate Tax Act provides that the market price which is the basis for the avoidance of wrongful calculation shall be the market price at the market price in a similar situation to the transaction in question. The "market price" here means an objective exchange price formed by a general and normal

As to the instant case, according to the health team and the aforementioned results, ① the transferor and transferee of the instant case traded the instant shares with KRW 5,768.75 (in the case of suspension, KRW 5,000) under one contract, and they are merely the co-sellers and co-Buyers. ② The transferor and transferee of the instant case’s shares of the non-listed corporation holding only the instant land without any business performance; ② The transfer value of the instant shares between the transferor and transferee cannot be deemed to be the market price because it is difficult to view the transfer value of the instant shares to be the objective exchange value because it is difficult to view it as the price continuously traded with many and unspecified persons or the price generally traded with third parties. Furthermore, this part of the Plaintiffs’ assertion is without any reason to view that the transfer value of the instant shares cannot be deemed to be the market price without any justifiable reason.

(2) As to the assertion that the transfer value of the instant shares is within the scope of normal price

Examining the provisions on the supplementary assessment method under the Inheritance Tax and Gift Tax Act, where it is difficult to calculate the market price, Article 60(3) of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter the same) provides that where it is difficult to calculate the market price, the assessment method under Articles 61 through 65 shall be based on the assessed value in consideration of the type, scale, transaction conditions, etc. of the relevant property. Article 61(1)1 of the same Act provides that the appraisal of real estate shall be based on the publicly notified and the publicly notified and the publicly notified individual land price under the Act on the Public Notice of Values and Appraisal of Real Estate (amended by Act No. 7010

However, according to the above, ○○co’s acquisition price or appraisal price of the land of this case from the Korea Land Corporation on June 27, 2002. On the other hand, the transfer and acquisition date of the stocks of this case differs in excess of one year and four months on November 18, 2003, and the land price of this case has been continuously increased during that period, so it is difficult to regard the acquisition price or appraisal price as the market price of the land of this case as of November 18, 2003, which is the base date of appraisal of this case, as the market price of this case is difficult to calculate because there is no other data to calculate the market price of the land of this case. Accordingly, in this case, since the defendants assessed the stocks of this case on the basis of the officially assessed individual land price of this case in 2003 under the above Inheritance Tax and Gift Tax Act, etc. (based on January 1, 2003), there is no reason to view any other unlawful grounds to view it as unlawful.

(3) As to the assertion that there exists justifiable grounds for the transfer of the instant shares at low price

In light of the following circumstances, i.e., ① the land of this case from the time ○ Roco acquired the instant land to the time when the Plaintiffs transfer the instant land, as a sports facility site, from the time of the acquisition of the instant land, until the time when the Plaintiffs acquired the instant land, there were restrictions under the public law on the instant land; ② the Plaintiffs, even if they were fully aware or could have been aware of such restrictions under the public law, were forced ○ Roco to acquire the instant land and forced her to implement a golf driving range business in an unreasonable manner, and have abandoned the instant land. In short, it is difficult to deem that the Plaintiffs have justifiable grounds on the part of the Plaintiff solely on the grounds alleged by the Plaintiff, such as: (a) the sale of the instant land from the time of the golf business construction plan to the time

3. Conclusion

Therefore, all of the plaintiffs' claims against the defendants are dismissed as it is without merit. It is so decided as per Disposition.