The acquisition price of shares does not appear to be an amount that properly reflects the general and objective exchange value of shares;

The market price of the shares shall be deemed to be the value calculated by the supplementary valuation method, and there is an objective circumstance sufficient to deem that there was no transaction of the shares of this case in the amount below 1/3 of the market price in a reasonable economic situation. Thus, the disposition of this case is legitimate.

Article 35 of the Inheritance Tax and Gift Tax Act

2015Guhap52494 Revocation of Disposition of Imposition of Gift Tax

AA

BB Director of the Tax Office

September 17, 2015

October 22, 2015

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of gift tax of KRW 00,000,000 against the Plaintiff on October 4, 2013 shall be revoked.

1. Details of the disposition;

A. On March 11, 2011, the Plaintiff acquired 25,080 shares of the EEEEE (hereinafter “instant shares”) in KRW 19,000 per share, which provides construction and supervision services from Nonparty DD, and took office as a director of the non-party company and a co-representative on October 31, 2012.

B. As a result of the investigation of changes in stocks conducted with respect to the non-party company from July 17, 2013 to August 5, 2013, the Commissioner of the National Tax Office: (a) deemed that the Plaintiff’s acquisition of the instant shares constitutes “low-price transfer between persons who are not in a special relationship under Article 35(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 111130, Dec. 31, 201; hereinafter “former Inheritance Tax and Gift Tax Act”); and (b) deemed that the Plaintiff’s acquisition of the instant shares constitutes “low-price transfer between persons who are not in a special relationship” under Article 63 of the former Inheritance Tax and Gift Tax Act and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”).

C. Accordingly, on October 4, 2013, the Defendant decided and notified gift tax of KRW 312,491,160 to the Plaintiff (hereinafter “instant disposition”).

D. On December 31, 2013, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal, but was dismissed on October 29, 2014.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Gap evidence No. 5-1, 2, Eul evidence No. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

At the time of acquisition of the instant shares as an architect, the Plaintiff was well aware of the fact that the construction competition was in satisfy, and the financial statements showed that the gains prior to the deduction of corporate tax in 2008 were continuously reduced to KRW 1.12 million in 2009, KRW 1.2 million in 2009, and KRW 82 million in 2010,000 in 207, and the balance of projects from 2007 to 2010 by the non-party company was also reduced to KRW 15,715,382,00 in 207, KRW 10,855,05,000 in 208, KRW 9,080,220,000 in 209, KRW 6,180,000 in 20 in 209, KRW 910 in 200 in 200 in 209. D19.

Therefore, the above acquisition price is not only consistent with the market price of the shares of this case, but at least there was a justifiable reason for the transaction practice to acquire the shares of this case to the plaintiff at least.

B. Relevant statutes

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

C. Determination

1) Relevant legal principles

In the case of unlisted stocks with low market value, the transaction value shall be deemed the market value and the stock value shall not be assessed based on the supplementary evaluation method stipulated in the former Inheritance Tax and Gift Tax Act. However, since the market value means the objective exchange value formed through the general and normal transaction, in order to be recognized as the market value, the circumstances that can be seen as properly reflecting the objective exchange value at the time of the donation date should be acknowledged (see Supreme Court Decision 2010Du26988, Apr. 26, 2012).

Meanwhile, the legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to: (a) where profits equivalent to the difference between the price and the market price are actually transferred without compensation by means of manipulating the transaction price for the benefit of the other party; (b) thereby coping with and promoting fair taxation by imposing gift tax on the profits earned by the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other; (c) it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price. Therefore, Article 35(2) of the former Inheritance Tax and Gift Tax Act added taxation requirement that “no justifiable reason exists for the transaction between the unrelated parties” as to the transaction between the unrelated parties. However, even if the transaction is between the unrelated parties, there is no reason not to adequately reflect the objective exchange value that can be formed between the unspecified parties in determining the transaction terms; and (d) where the transferor of the unlisted stocks is not able to easily obtain profits from the other party without any efforts to maximize one’s own interest, it is difficult.

In order for the taxation disposition under Article 35(2) of the former Inheritance Tax and Gift Tax Act to be lawful, not only the fact that the transferee acquired the property from an unrelated party at a significantly lower price than the market price, but also that there is no justifiable ground for transaction practice (see Supreme Court Decision 2011Du22075, Dec. 22, 2011). However, as seen earlier, if the tax authority is a reasonable economy, it can be verified that there is no justifiable ground for the transaction practice by submitting the data on objective circumstances, etc. that the taxpayer would not have made any transaction under such conditions as at the time of the transaction. If it is proved to a considerable extent, it is necessary to prove that there is a special circumstance that it is easy for the taxpayer to submit specific data on the transaction circumstances, reasons for determining transaction conditions, etc. in light of the difficulty of proof for reversal or the concept of fairness (see Supreme Court Decision 2013Du2495, Feb. 12, 2015).

2) In the instant case:

In full view of the following circumstances, “19,00 won per share, which is determined by the Plaintiff and DD as the price for the acquisition of the instant shares, is determined by a general and normal transaction, and the objective exchange value of the instant shares is not appropriate, and there are no other sales cases, etc. that can be recognized as the market price before and after the three months of the acquisition of the instant shares, the market price of the instant shares shall be deemed to be “67,820 won per share, which is calculated by the Defendant by the supplementary assessment method,” and if there is a reasonable economy, there is sufficient objective circumstance to deem that the Plaintiff and DD did not trade the instant shares in excess of 1/3 of the market price as above. Accordingly, the disposition of this case is legitimate, and the Plaintiff’s assertion against this is without merit.

① In order to determine the acquisition price of the instant shares, the Plaintiff and DD requested GGG to assess the said shares to a certified tax accountant who was on duty as an agent of the Nonparty Company. At the time, the price per share calculated by GG was at least 60,000 won.

② Nevertheless, the Plaintiff and DD confirmed that the acquisition price of the instant shares falls short of 1/3 of the above appraised value as KRW 19,000 per share. As alleged by the Plaintiff, it is difficult to obtain the above pricing solely on the ground that construction games were in a state of invasion or there was a decrease in the profits prior to the corporate tax deduction under the financial statements of the Nonparty Company, as alleged by the Plaintiff.

③ Furthermore, the number of the instant shares traded by the Plaintiff and DDD is 25,080 shares. As such, the difference between the Plaintiff and the Plaintiff and DD also 1 billion won. The Plaintiff and DD did not attempt to request the 3rd appraisal institution to assess the value of the instant shares (the Plaintiff asserted that it received a stock value assessment report (Evidence B No. 3 and 4) prepared by the H and JJ accounting corporation respectively from the non-party company in order to determine the acquisition price of the instant shares in the proceeding of the Tax Tribunal, but it was clearly stated that the said report was made retroactively.)

④ It is impossible to find out the circumstances that DD should dispose of the shares of this case rapidly as above, while the Plaintiff was in the position of the largest shareholder of the non-party company from 1992 to 1993, the early date of the incorporation of the non-party company. Although it was not a direct special relationship as determined by the law among the two parties, such a relationship may not be excluded from the possibility of affecting their trade.

⑤ The Plaintiff’s major grounds for determining the acquisition price of the instant shares are the annual balance of contracts (Evidence A No. 9-1 through 4) by Nonparty Company. However, the foregoing materials are arbitrarily prepared by Nonparty Company and are not consistent with the annual cumulative sales and balance.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so ordered as per Disposition.

shall be ruled.