Cho High Court Decision 2010Du0744 ( November 03, 2010)

A corporation purchases securities at a low price from an individual who is a person with a special interest.

It is legitimate to impose corporate tax on the inclusion of the difference between the market price and the purchase price in the gross income by deeming that the purchase of securities from an individual who is a specially related person falls under the case of purchase at a price below the market price. It is legitimate to impose corporate tax by including the difference between the market price and the purchase price. The acquisition

2011Guhap178 Revocation of Disposition of Imposing Corporate Tax

XX Industry Corporation

O Head of tax office

July 13, 2011

August 31, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of corporate tax of KRW 211,976,450 for the Plaintiff on January 8, 2010 shall be revoked.

1. Details of the disposition;

A. 1) On April 18, 2005, the Plaintiff purchased the total price of KRW 3,744,000,000 per share of the non-listed shares of the XXN (hereinafter referred to as the “instant shares”) owned by the EAA from the EA to purchase KRW 23,400 per share price, and completed the transfer procedure (hereinafter referred to as the “acquisition of the instant shares”).

2) When acquiring the instant shares, 23,400 won per share of the acquisition price of shares determined by an agreement between the Plaintiff and the Plaintiff at the time of acquiring the instant shares is equal to the assessed amount under Article 63(1)(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax and Gift Tax Act”) and Article 54 of the Enforcement Decree of the same Act.

B. At the time of acquiring the shares of this case, Jeong held 40,876 shares (2.724%) out of the total number of shares issued by the plaintiff in relation with the plaintiff and constitutes a specially related person under Article 52 (1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter referred to as the "former Corporate Tax Act"), not only Article 63 (3) of the former Inheritance Tax and Gift Tax Act in relation to the non-party company, Articles 53 (3) and 19 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18989, Aug. 5, 2005; hereinafter referred to as the "former Enforcement Decree of the Inheritance Tax and Gift Tax Act"), and the non-party company constitutes the largest shareholder under Article 63 (3) of the former Inheritance Tax and Gift Tax Act, Article 53 (6) of the former Enforcement Decree of the Income Tax Act, Article 1604(27).

C. Accordingly, the defendant assessed the market price of the shares of this case as 26,910 won per share (26,910 won per share (23,400 won per share plus 15/100 pursuant to Article 63(3) of the former Inheritance Tax and Gift Tax Act), Article 89(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891, Feb. 28, 2007; hereinafter referred to as the "former Enforcement Decree of the Corporate Tax Act"), and Article 63 of the former Inheritance Tax and Gift Tax Act (the amount agreed upon by the plaintiff and JeongA) (23,400 won per share) and calculated the difference between the value of shares of this case to be assessed as 15/100 per share and 200 won per share under Article 52(1) of the former Enforcement Decree of the Corporate Tax Act, and the value of shares of this case to be assessed as 200 won per share under Article 1605(160 of the former Corporate Tax Act).

D. The Plaintiff dissatisfied with the instant disposition and filed an administrative appeal with the Tax Tribunal on February 17, 2010, but was dismissed on November 3, 2010.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 5, 6, 7, 8, 11, Eul evidence Nos. 1 through 3 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Since the instant shares were not issued with stock certificates, it is merely a simple membership right, not a securities stipulated in Article 15(2)1 of the former Corporate Tax Act. Therefore, Article 15(2)1 of the former Corporate Tax Act cannot be applied to the acquisition of the instant shares.

2) In accordance with Article 89(2) of the former Enforcement Decree of the Corporate Tax Act, Article 63(3) of the former Inheritance Tax and Gift Tax Act, and Article 100-2 of the former Restriction of Special Taxation Act (amended by Act No. 8146 of Dec. 30, 2006; hereinafter “former Restriction of Special Taxation Act”), inheritance, gift shall be interpreted as including transaction, such as transfer, acquisition, purchase, etc. of shares. Therefore, in calculating the market price of the shares in this case, the premium increase under Article 63(3) of the former Inheritance Tax and Gift Tax Act shall not be assessed.

3) If the appraisal of the market price of the stock in this case is conducted under Article 63(3) of the former Inheritance Tax and Gift Tax Act when calculating the market price of the stock in this case, the transferee shall be deemed to have increased the market price of the stock in this case. As regards the transferor, the transferor shall be deemed to have increased the market price of the stock in this case, Article 101 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 167(6) of the former Enforcement Decree of the Income Tax Act, Article 52 of the former Corporate Tax Act, Article 89 of the former Enforcement Decree of the Corporate Tax Act, and Article 63(3) of the former Enforcement Decree of the Corporate Tax Act, the market price of the stock in this case shall be deemed to have been assessed as the evaluation amount before the increase in the market price of the stock in this case under Article 63(3) of the former Inheritance Tax and Gift Tax Act. In addition, the plaintiff shall not be deemed to have acquired the stock in this case as a capital transaction under Article 15(2) of the former Corporate Tax Act.

4) On March 30, 2005, the Plaintiff confirmed the contents of the established rules of the Income Tax Act (written 4 team-467) (written 4 team-467) in which the market price does not increase in the case of acquiring shares of this case, and acquired shares of this case, the National Tax Service revised the established rules (established rules of the Income Tax Act (written 4 team-1326) in relation to the acquisition of shares of this case) in comparison with the established rules of the Income Tax Act on July 27, 2005, and verified the amount of the established rules (written 4 team-1326) in relation to the acquisition of shares of this case. In addition, the Plaintiff confirmed the established rules of the Income Tax Act (written 4 team-467) and tried by tax officials belonging to the Defendant to verify the established rules of the Income Tax Act (written 4 team-467) and did not verify the acquisition of shares of this case. Accordingly, in accordance with the principle of trust and good faith, the Defendant cannot assess the market price of shares of this case.

5) In addition, the Plaintiff assessed the market price of the instant shares under the trust of the tax authority’s public opinion statement that the Plaintiff did not make such a statement. As such, there is a justifiable reason that the portion of the instant disposition on imposition of additional tax cannot be attributable to the Plaintiff’s

6) Therefore, the instant disposition should be revoked as it is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) As to the Plaintiff’s assertion

Unless otherwise provided in the special articles of incorporation or other Acts, shares refer to the status or qualification of an employee who forms the capital of a representative physical company whose capital and management are separated, and such shares may be freely disposed of at any time, unless otherwise provided for in the said articles of incorporation or other Acts. Accordingly, the Commercial Act provides that the company shall issue the share certificates without delay after the establishment or the date of payment of new shares (Article 355(1) of the Commercial Act provides that the company shall issue the share certificates if the shares are issued in violation of the said provision, and that such shares shall be subject to an administrative fine not exceeding five million won (Article 635(1)19 of the Commercial Act).

Furthermore, in the case of unlisted companies with less than the size and number of shareholders, and the relationship between shareholders, and strong combined shares as partners, the legal justification of securing free disposal of shares is not effective against the company. However, the transfer of shares before the issuance of share certificates shall not be effective against the company. Article 2 (4) of the former Securities Transaction Tax Act provides that the shares before the issuance of share certificates shall be regarded as share certificates in the application of the Securities Transaction Tax Act. In addition, in light of the above legal principles and the legislative intent of the law, it shall be deemed that there is no reason to treat the shares before the issuance of share certificates differently from the shares before the issuance of share certificates. In addition, in the case of the issue of this case, Article 63 (1) of the former Corporate Tax Act provides that the shares before the issuance of share certificates and the shares after the issuance of share certificates shall not be deemed to be the shares before the issuance of share certificates and the shares before the issuance of share certificates.

In addition to the above interpretation, it is reasonable to view that the acquisition of the instant shares constitutes a case where the instant shares was purchased under Article 15 (2) 1 of the former Corporate Tax Act, in view of the fact that the acquisition of the instant shares was made at the time six months have elapsed since the establishment of the non-party company or after the issuance of the pre

2) As to the Plaintiff’s assertion

Article 15(2)1 of the former Corporate Tax Act provides that where securities are purchased from an individual related to a special relationship under Article 52(1) of the former Corporate Tax Act at a price below the market price under Article 52(2) of the former Corporate Tax Act, the amount equivalent to the difference between the market price and the relevant purchase price shall be deemed as gains. Article 52(4) of the Corporate Tax Act and Article 89(2) of the former Enforcement Decree of the Corporate Tax Act provide that where the market price is unclear as non-listed stocks that are not listed on the Stock Exchange as in the instant shares, the amount assessed according to the supplementary assessment method stipulated in Article 63 of the former Inheritance Tax and Gift Tax Act shall be deemed as market price. Article 63(1)1(c) 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 provide that the special taxation method for non-listed stocks shall be deemed as 0. The former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that 200% of the total amount of shares shall be inherited or 200.

In light of the principle of no taxation without the law, the interpretation of tax laws and regulations shall be interpreted in accordance with the law, barring any special circumstance, and it shall not be permitted to expand or analogically interpret the said provisions without any reasonable reason (see, e.g., Supreme Court Decision 97Nu4173, Oct. 24, 1997). In particular, it would be consistent with the principle of fair taxation with the principle of fair taxation (see, e.g., Supreme Court Decision 97Nu20090, Mar. 27, 1998); and the special provision of this case under the Restriction of Special Taxation Act, which provides that the special provision of this case, which provides that the special provision of this case shall apply to cases where a corporation purchases stocks of its largest shareholder, etc., as in the instant case.

In addition, as the Enforcement Decree of the Income Tax Act was amended by Presidential Decree No. 19327 on February 9, 2006, Article 167 (5) of the Enforcement Decree of the Income Tax Act applies mutatis mutandis to the provisions of Article 100-2 of the former Restriction of Special Taxation Act and Article 167 (2) of the same Act applies mutatis mutandis to the case of transfer. However, Article 167 (5) of the Enforcement Decree of the Income Tax Act applies only to the calculation of market price related to the calculation of wrongful calculation of transfer income under Article 101 of the former Income Tax Act, and thus, it cannot be considered in the calculation

Therefore, in evaluating the market price of the shares of this case that the plaintiff holds 40,876 shares (2.74%) of the total number of the plaintiff's total outstanding shares, it is legitimate to add 15/100 to the assessed value per share under Article 63 (1) 1 (c) 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. The plaintiff's above assertion is without merit.

3) As to the Plaintiff’s assertion

In the case of the acquisition of shares of this case, the appraisal of the premium under Article 63(3) of the former Inheritance Tax and Gift Tax Act should be made when calculating the market price of the shares, and it cannot be said that the inconsistency with the Plaintiff’s assertion may not be caused, and even if it appears to bring about a conflict of domestic affairs, it shall not be related to Article 15(2) of the former Corporate Tax Act, which is at issue in this case. In addition, there is no evidence that the acquisition of shares of this case constitutes capital transaction, such as the Plaintiff’s assertion.

4) As to the Plaintiff’s assertion

In general, in order to apply the principle of trust and good faith to the acts of tax authorities in tax law relations, first, the tax authorities must give taxpayers a public opinion that is the subject of trust, second, the taxpayer should not be responsible to the taxpayer when the taxpayer trusted that the expression of opinion is justifiable, third, the taxpayer should trust the expression of opinion and act in what manner it is, fourth, the tax authorities should make a disposition against the above expression of opinion, thereby infringing the taxpayer's interest. On the other hand, the provisions and contents of tax laws and regulations and administrative rules themselves do not constitute the public opinion of the tax authorities (see Supreme Court Decision 2001Du403, Sept. 5, 2003).

In this case, according to the statement of evidence Nos. 9 and 10, the acquisition value or transfer value shall be calculated based on the market price if it is deemed that the tax burden has been unjustly reduced because the market price is below the market price in trading with a person with a special relationship under Article 98 (1) of the Enforcement Decree of the Income Tax Act. In the case where the market price is unclear, the market price of shares shall be calculated according to the supplementary evaluation method under Article 63 of the Inheritance Tax and Gift Tax Act. In this case, "in the Enforcement Rule of the Income Tax Act of March 30, 2005 (Documents 4 team-467)", the "in the case of assessing unlisted shares by applying the provisions of Article 63 (1) 1 (c) of the Inheritance Tax and Gift Tax Act, the provision of Article 100-2 of the Restriction of Special Taxation Act provides that "in the case of assessing unlisted shares, it shall be exempted from the evaluation of the largest shareholder under the above provision of Article 60-13 of the Income Tax and Gift Tax Act."

Considering these circumstances, the provisions of the Income Tax Act (written 4 team-467) that the Plaintiff satisfy is merely an administrative rule that issued the standards and enforcement guidelines for tax law interpretation within the tax authority, and its own alone does not constitute a public opinion statement of the tax authority.

In addition, the National Tax Service's established rules claiming that the plaintiff is a public opinion statement shall apply the special provisions of this case to the tax payer's calculation of capital gains in the transaction with a related party under Article 98 (1) of the former Enforcement Decree of the Income Tax Act in the case of transfer of stocks in relation to the wrongful calculation of capital gains under Article 101 of the former Income Tax Act. Thus, the special provisions of this case are irrelevant to the market price calculation under Article 15 (2) 1 of the former Corporate Tax Act as in this case.

Therefore, in this case where there is no public opinion expressed by an administrative agency subject to trust, the principle of protecting trust cannot be applied to the plaintiff. Therefore, the plaintiff's above assertion is without merit.

5) As to the Plaintiff’s assertion

Under the tax law, additional tax is an administrative sanction imposed in accordance with the law in cases where a taxpayer violates a duty to report and pay taxes under the law without any justifiable reason in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim. It is not reasonable for the taxpayer to be aware of such duty. If there is a circumstance where the taxpayer can reasonably present his or her duty or it is unreasonable to expect the party to fulfill his or her duty, and there is a justifiable reason not to impose such duty. As seen earlier, even if the Plaintiff acquired the shares of this case by the purchase price calculated based on the market price of the shares of this case without any evaluation of trust and proof of the established rules of the National Tax Service without any justifiable reason (as seen earlier, there is no evidence that the Plaintiff was exempted from the application of the provisions on appraisal of evidence under Article 100-2 of the former Restriction of Special Taxation Act to the acquisition of the shares of this case by seeking a tax official belonging to the Defendant, and there is no reason to deem that the Plaintiff underreporting corporate tax to pay for the acquisition of the shares of this case cannot be applied to the Plaintiff.

3. Conclusion

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