2012Divisions0763 (2012.09.06)

A disposition imposing gift tax on the profits accrued from the acquisition and exercise of preemptive rights is legitimate.

In full view of the fact that bonds with warrants are issued through private placement, not through public offering, and that there is no reasonable ground for business practice in acquiring stocks through acquisition and exercise of preemptive rights.

Gift, etc. of other profits under Article 42 of the former Inheritance Tax and Gift Tax Act

2012Revocation of disposition of revocation of gift tax assessment

LAA

BB Director of the Tax Office

July 23, 2013

August 27, 2013

1. The plaintiff's claim is dismissed.

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

On November 9, 2011, the Defendant revoked the taxation disposition by the OOOO of the gift tax imposed on the Plaintiff.

1. Details of the disposition;

The following facts may be recognized, either in dispute between the parties, or in combination, by taking into account the types of evidence 1, and evidence 3 to 6, and by the whole purport of the pleadings:

A. On May 16, 2007, CCC Co., Ltd. (hereinafter referred to as "CC") concluded a contract to underwrite bonds with EE Investment Securities Co., Ltd. (hereinafter referred to as "EE Investment Securities") and bonds with warrants for the purpose of acquiring the shares of the major shareholders of DD (hereinafter referred to as "DD"), as listed below, and transferred 609,137 shares in total to OOOOO as the three major shareholders of DD and the representative director of DD as of May 18, 2007, respectively.

Types of bonds;

Bonds with non-registered non-guaranteed private placement and bonds with warrants;

The total face value of bonds shall be the face value of the bonds

OOO

Interest Rate of Bonds

The surface rate of 0% / the maturity guarantee profit rate of 4.00%

The maturity date of bonds

May 18, 2010

Method of issuance of bonds

Private placement

The value of the event (won/State)

4,925

Whether to separate preemptive rights

Separation

Period of Time

From May 18, 2008 to April 18, 2010 (23 months)

Re-Adjustment (Re-Adjustment) Clause

When a stock price lowers than the price of the event, the amount of the event price shall be adjusted every six months.

(for up to 70 per cent, i.e. 30 per cent discount)

B. On November 19, 2008, when the exercise price per share was adjusted to 30% as an OOO on November 19, 2008, while the Plaintiff held the above preemptive right 72,463 weeks (the price per share, OOO, and the period for exercise from May 18, 2008 to April 18, 2010), the Plaintiff exercised 72,463 shares for preemptive rights, and converted and acquired the entire amount into stocks by exercising OOO under 72463 shares on February 23, 2010.

C. From September 5, 201 to September 29, 2011, a regional tax office conducted an investigation on the change of shares with the Plaintiff, and the Plaintiff received benefits under Article 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “Inheritance Tax and Gift Tax Act”) in relation to the exercise of the said preemptive right, and notified the Defendant of the calculation of the benefits as the OOO personnel and the Defendant as the taxation data on November 9, 201, and the Defendant notified the Plaintiff of the determination and notification of the OO personnel of the gift tax (hereinafter “instant disposition”).

D. On January 6, 2012, the Plaintiff dissatisfied with the Defendant’s instant disposition, filed a request with the Tax Tribunal on January 6, 2012, and the Tax Tribunal dismissed the Plaintiff’s said request on September 6, 2012.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff’s acquisition and use of the instant preemptive right is a transaction that obtains subsequent investment gains from the acquisition of preemptive rights, and is a legitimate investment in convertible bonds according to the trading practices in the stock market. As such, there is a reason to be determined according to the transaction practices as stipulated in Article 42(3) of the Inheritance Tax and Gift Tax Act. Moreover, the Plaintiff cannot be deemed as a gift because it does not apply to the said transaction with DD, etc. under Article 42(1) of the said Act. Nevertheless, the instant disposition that determined the Plaintiff as a gift is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

In light of the following circumstances, CCC issued bonds by means of private placement instead of public offering, e.g., whether EE investment securities have acquired bonds with warrants from CCC and transferred them to 5 members of the Plaintiff, and the reasons why the Plaintiff purchased the above bonds by recommendation for acquisition of DaDF (which is the third shareholder of DD and professional management before the merger between DD and CCC) who was employed as the third shareholder of DD and professional management before the merger between DD and CCC, it seems that there was no evidence to acknowledge that there was a justifiable reason for the future acquisition of the preemptive right, and it is difficult to view HFF as a legitimate reason for the Plaintiff’s acquisition of the preemptive right after consideration of the fact that HF had been employed as the representative director of CCC’s exercise price on November 19, 2008, and that it is difficult to view the Plaintiff’s exercise of the preemptive right as a favorable OF’s exercise of the preemptive right after the merger of D and CCC’s stocks as the Plaintiff’s exercise of the preemptive right.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.