[Request Number] Trial Decision 2016bu0707 ( August 4, 2016)

[P] Revocation of a Certificate of Inheritance (Types of Decision)

[Determination] Article 35 of the Inheritance and Gift Tax Act differs from the market price in a transaction between unrelated parties, not between related parties, and where there is no justifiable reason for such transaction, that is, where the tax authority establishes the fact that the transaction was made for collusion or other improper means, the gift tax is imposed only on the case where there is no special relation, and there is no reason for economic benefits. This transaction is deemed to have been made between unrelated parties, and it is difficult to conclude that the instant stock transaction was made through a series of consultations between the parties, and that there is no normal price reflecting objective exchange values from a reasonable economic point of view. In light of the above, since the Plaintiff does not intentionally manipulate the transaction of the stocks at issue or lack of economic rationality, it does not appear that the transaction does not constitute an abnormal transaction that reflects objective exchange values from a reasonable economic

[Related Acts] Article 35 of the Inheritance Tax and Gift Tax Act

[Determination following Decision] OOOOOOO

On July 9, 2015, the head of the OOO head of the tax office issued an applicant the disposition of imposition of the gift tax on December 20, 2012 shall be revoked.

1. Summary of disposition;

A. On December 20, 2012, the claimant acquired (i) 2,756 shares of non-listed stocks issued by (ii) OOO (hereinafter “OO”) from (iii) OO (hereinafter “OO”) as the trading value per share as the OO.

B. From February 23, 2015 to March 20, 2015, the head of the OO head of the tax office conducted an investigation of stock movement with OO and notified the disposition authority of gift tax assessment by deeming that the claimant has taken over the gift tax assessment data at a price significantly lower than OO won per share by supplementary assessment method under the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Act”) by the OO, a non-specially related person, without justifiable grounds.

C. On July 9, 2015, the disposition agency determined and notified the applicant of the gift tax OO on December 20, 2012.

D. The claimant raised an objection on September 30, 2015 and filed an appeal on February 15, 2016.

2. Opinions of the claimant and disposition agency;

A. The claimant's assertion

(1) The claimant has been aware of the introduction of the OO, the representative director of the OO, and three OOOO, who had been aware of the introduction of the OOO as a school, have been doing business for more than 200 years, and the OO was aware of the construction of the OOO's main office in 1986. The claimant acquired the 918 shares of the OOO's shares from the OO on December 20, 200 while acquiring and holding the 1918 shares of the OO operated by the OO.

In 201, SOO intended to obtain and take over information that the former owner of a corporation (OO) that issued stocks of 2001 has transferred at a price lower than the market price in a lawsuit due to inheritance or dispute. However, SOO has solicited the claimant who is the head of his high school and the UOO to take over the OO on the condition of large-amount dividends, and the claimant acquired 918 shares and UOOO 2,756 shares, respectively, and the OO 7,416 shares and 5,510 shares (OO 100 shares ownership) acquired each of the OOO 5,510 shares (OO 100 shares ownership).

The representative director of the OO from the time of acquisition to the time of the establishment of the golf course in 2003, and due to the lack of funds, it was inevitable to increase the distribution of the OO for the purpose of securing the funds. As the golf course management stability, it was not possible to expect the distribution by disclosing that the company is investing in the old oil station without distributing the profits of the OO since 2013, and there was no reason for the claimant to pay high amounts and acquire the stocks.

(2) The disposition agency is misunderstanding the purpose of legislation under Article 35(2) of the Inheritance and Gift Act.

The issue of whether there is a justifiable reason for the transaction practice of the stocks at issue shall be determined by examining the specific facts, such as the situation of the transaction in question, the relationship with the transaction party, the process of determining the transaction price, etc., and whether the transaction can be deemed to have been made by reflecting the proper value. However, the disposition agency does not have any content of the investigation. The "justifiable reason for the transaction practice" as referred to in Article 35(2) of the Inheritance and Gift Act means that the transaction price determined through reasonable consultation with the unrelated purchaser is reasonable in light of the transaction practice if the transaction price determined through reasonable consultation with the related purchaser is ultimately sexual intercourse in accordance with the principle of private autonomy and freedom of contract under the Civil Act. In order to prove that the disposition agency has no justifiable reason for the transaction practice, it is reasonable to deem that there is a justifiable reason for the transaction price determined through reasonable consultation with the related purchaser. In order to prove that the transaction practice of the stocks at issue has to be transferred without any tax burden, namely, the transaction price at issue, the transaction agency has to prove through objective and detailed data that the transaction had been transferred without any

(3) The claimant has determined the value per share by reasonable negotiations.

(A) Upon receipt of a proposal to change the acquisition price of stocks at issue from UOO, the claimant refused to acquire the stocks at issue without meeting each other. However, the OO decided to arrange the business as a senior citizen over 80 years old, and continued to offer acceptance. The reason why OO intended to transfer the stocks at issue is to satisfy the provisions on the real capital registration standards under the Framework Act on the Construction Industry of OOO (hereinafter “OO”) operated by OOO, and according to Article 9 of the Enforcement Decree of the same Act and the guidelines for the examination of construction enterprises, a person who registered the construction business has reported the registration standards within three years for each of the registration standards. This is a provision to facilitate the withdrawal of disqualified companies, and the representative director has been examined each year by reporting whether the applicant meets the registration standards after the completion of the construction business, and that it has failed to meet the requirements for OO's own capital at issue because it has failed to meet the requirements for OO's short-term investment-oriented capital for the following year.

However, when it is difficult to move to close close to 20 years, it is thought that it is difficult to help OOO to take measures like investment, and it is thought that OOO will assist it when it is difficult for OOOO to deal with difficulties, and when OOO is actively aware of it, OO may take dividends once it is completed, other unlisted stocks owned by OO may be acquired on the condition that it is acquired, and OO entered into price negotiations.

Although the UOO intended to find a purchaser for a period of one year, such as a person who requested more than the OOO per initial one week but intends to obtain the same as the initial acquisition price, the OO did not meet the price, and the OO did not sell stocks, and the OO failed to obtain a loan to a financial institution as collateral because it did not meet the real capital under the Framework Act on the Construction Industry, but it was refused by the financial institution to obtain a loan for the unlisted stocks as collateral from the perspective of the OOO, and there was no need to purchase the outstanding stocks from the standpoint of the applicant.

In order to exercise all management rights, the representative director of the OO has 80%, and there was no reason to acquire shares of the OO in the position of the claimant who is not only 20% shares but also 20% shares, but the OO has obtained by presenting opinions again by lowering the price.

(B) The value of the OO’s business year 2000 and 2012 business year applying 186% on the acquisition value of the 2000 business year and the acquisition value of the 12-year acquisition value based on the annual interest rate of the financial institution, which is calculated by applying 6% of the annual interest rate of the financial institution to the acquisition value of the 12-year holding period of the 12-year small and medium enterprise. Thus, the lower value of the OO’s business year was determined as the OO’s acquisition of profits by taking advantage of a large amount of dividend income compared to the investment amount. However, the current situation of the OO’s business year and other unlisted

(b) Opinions of disposition agencies;

(1) The claimant and the UOO have long been in a very close relationship.

Although the claimant and the UOOO do not constitute a special relationship under the Inheritance and Gift Tax Act, as a shareholder has long been in a significantly-friendly relationship for business since it is not a special relationship under the contract, it is impossible to rationalize the transaction between shareholders, which is specified in the company situation, due to justifiable reasons in terms of transaction practices, and even if the case is recognized as a justifiable reason in the transaction of non-special stocks between unrelated parties, it is inconsistent with the reasons presented by the claimant.

(2) The claimant’s assertion is inconsistent.

(A) In the case of 2012 year since the confirmation of the documents confirming the transfer of stocks from this case to the filing of a request for pre-assessment review and the filing of objections on the grounds that fall under justifiable reasons under Article 35(2) of the Inheritance and Gift Tax Act, the claimant, under the circumstances where the OO operated by the UOO, the transferor of the stocks at issue, is in a business crisis due to the decline in the construction business type, and it is difficult for the OO to meet the requirements for the real capital, the claimant and the OO acquired the stocks at least two times at the end of the negotiations with the OO on several occasions, and the OO alleged that the OO used the OO's provisional payment of the transfer price of the stocks at issue did not meet the real capital under the Framework Act on the Construction Industry, but it was difficult for the OOO to meet the requirements for the real capital in the event of loans by evaluating the loan of the OO as non-performing assets under Article 7(2) of the Guidelines for the Examination of Construction Business Entities.

(B) The premise requirement for attempted profits, deposits, amounts of construction accounts, and loans, which are stipulated as non-performing assets in the Guidelines for Business Diagnosis of Construction Enterprises, shall be clearly stated as the assets “unrefilled or unclear” assets. Therefore, if the amount of loans cannot be deemed as non-performing assets whose sources are unclear, and thus, it is confirmed that the amount of annual income of the OO is not changed in the amount of annual income of the 2010 business year because it is confirmed that there is no special change in the amount of income. Therefore, even if the total amount of capital of 2012 business year was in business crisis due to the decline in construction, it is difficult to deem that the acquisition of stocks of the claimant’s key stocks was in business customs due to such reason.

(3) The claimant asserts that the trading value per share of the stock at issue has been reasonably calculated by the OCO, but there is no justifiable reason in practice as follows.

(A) When the OO is supplied with gaseous fuel through OO and supplied it to gas stations and taxi companies, the OO maintains stable sales as above, and the weighted average amount of net profit and loss per share for the last three years as of the evaluation base date of OO is partially dilution, the claimant and UOO has a substantial business-friendly relationship, and the claimant's share ratio in 200 is 5.5%, the OO's share ratio is 16.6% since the OO's share ratio is owned by the parties who have been well aware of internal information, such as the value of assets of the OO, and the OO receives dividends in excess of the O's share value for several years from OOO, it is difficult to view that the annual average amount of net profit and loss per share for the last three years as the OO's share value can not be seen as a transaction based on an objective method of acquisition and sale of shares within 2% of the sales value of the OOO's shares, and it is difficult for the OOOO to view that there is an objective method of sale value.

(B) The claimant asserted that it is reasonable to compute the initial acquisition value by deeming that it is reasonable to compute the initial acquisition value after refusal several times without presenting objective and reasonable evidence in calculating the value per share until the filing of the objection. In this case, the claimant's assertion that the value of the OO's 2000 business year and the financial status in the financial statements of 2012 business year is 186% and that the asset increase rate is 186%, and that the value of the 12 years holding period based on the annual holding rate of 6% per annum of the financial institution is calculated retroactively by analyzing the financial status at a specific point of time and calculating the value of the 12 years holding period based on the annual holding rate of 6% per annum of the financial institution. Such assertion appears to be an arbitrary and arbitrary assessment method that is not prescribed under the Inheritance and Gift Act, and there is no fact that there is no accurate and objective accounting data provided to the reliable accounting corporation, etc., the trading value of the OO members per this case cannot be deemed a reasonable price calculation that reflects the objective exchange value.

3. Hearing and determination

A. Key issue

Whether the stocks in question have been acquired from the unrelated parties at a significantly low price under the transaction practice without justifiable reasons

(b) Relevant statutes;

(1) Inheritance Tax and Gift Tax Act;

Article 35 (Donation, etc. of Profits from Transfer by Dozer or High Price) ① When the relevant property is acquired or transferred to any of the following persons, the amount equivalent to the difference between the price and the market price, which is equivalent to the profits prescribed by Presidential Decree, shall be deemed the value of donated property:

1. Where a person takes over property from a third person at a price lower than the market price, the transferee of such property;

2. In case where the property is transferred to another person at a price above the market price, the transferor of such property;

(2) In applying paragraph (1), where property is acquired or transferred between persons other than persons having a special relationship without justifiable grounds, and where property is acquired or transferred at a price significantly lower than the market price in light of transaction practices, the amount equivalent to profits prescribed by Presidential Decree shall be presumed to have been donated with the difference between the price and the market price, and the amount equivalent to the profits prescribed by Presidential Decree shall

(2) Enforcement Decree of Inheritance Tax and Gift Tax Act

Article 26 (Calculation Method, etc. of Profits from Transfer at Price or Price) (1) "low price" in Article 35 (1) 1 of the Act means the price where the value calculated by subtracting the price from the market price (referring to the value appraised pursuant to Articles 60 through 66 of the Act; hereinafter referred to as "market price" in this Article and Article 31) of the property acquired (excluding any of the following subparagraphs) is 30/100 or more of the market price, or the difference is 300 or more million won:

(3) "Profit prescribed by Presidential Decree" in the part other than the subparagraphs of Article 35 (1) of the Act means the difference between the price calculated pursuant to paragraphs (1) and (2) and the market price, minus the lesser of the following values:

1. Where the value obtained by subtracting the price from the market price is at least 30/100 of the market price or at least 30/100 of the market price, the value equivalent to 30/100 of the market price;

2. Three hundred million won.

(3) Framework Act on the Construction Industry

Article 10 The following matters which constitute the standards for registration of construction business under Article 9 (1) shall be prescribed by Presidential Decree:

2. Capital (for individuals, the amount of asset valuation; hereinafter the same shall apply);

Article 25 (Restrictions on Qualification of Contractors, etc.) (1) Any project owner shall contract a construction business operator who has registered the type of business corresponding to the details of construction.

Where a constructor falls under any of the following cases, the Minister of Land, Infrastructure and Transport may cancel the registration of construction business of the constructor (referring to the constructor and contractor in cases of a subcontract among subparagraph 10, and a person who further subcontracts with the constructor in cases of a re-subcontract) or order him/her to suspend construction business for a fixed period not exceeding one year: Provided, That where he/she falls under subparagraph 1, 2, 2, 2-2, 3-2, 3-2, 3-3, 4 through 8, 8-2, 12 or 13, the Minister shall cancel the registration of construction business:

3. Where he/she has fallen short of the standards for registration of construction business under Article 10;

(4) Enforcement Decree of the Framework Act on the Construction Industry

Article 9 (Examination of Application for Registration of Construction Business) (1) The Minister of Land, Infrastructure and Transport shall grant registration unless an application for registration under Article 9 (2) of the Act falls under any of the following cases:

1. Where he/she fails to meet the standards for registration under Article 13 (1) and (2);

2. Where the applicant for registration falls under any subparagraph of Article 13 (1) of the Act;

3. Other cases where restrictions under the Act, this Decree, or other Acts and subordinate statutes are violated.

(2) The Minister of Land, Infrastructure and Transport may require a person who has filed an application for registration of construction business under Article 9 (2) of the Act to verify the status of his/her capital stock, facilities and equipment holding or to submit the results of diagnosis of financial management status.

Article 13 (Standards for Registration of Construction Businesses) (1) The standards for registration of construction businesses under Article 10 of the Act shall be as follows:

1. It shall have technical capability, capital (referring to the appraised value of assets offered for the construction business in cases of individuals; hereinafter referred to as "property in cases of individuals");

C. Facts and determination

(1) In light of the conclusion report by the head of the OOO on the documents confirming the change of shares ( March 2015), the following is specified:

(A) On October 1, 1971, an OO was mainly established for wholesale and retail business of wholesale and retail/chemical fuels and related products. AnOO (OO) supplied gaseous fuels to gas stations and taxi companies, supplied them directly, and operated gas stations. The annual sales have been maintained by securing a fixed customer, and the annual sales have been stable sales have been conducted as OOO in 209. The appraised value based on the net asset value as of the trading date of the stocks in question and the weighted average amount of net profit and loss for the three immediately preceding years is the KRW OO per share.

(B) It is difficult to view that the transferor’s UOO and the claimant’s determination of the trading value per share of the stocks in this case is based on the valuation (amount assessed by accounting firms or appraisal agencies, etc.) reflecting the fair market value, and merely reflects the objective and fair value of the OO’s transaction as an OO member, which is twice the acquisition value per share of the OOO, without any basis for the valuation (amount assessed by accounting firms or appraisal agencies, etc.) reflecting the fair market value. There is a substantial difference between the supplementary appraised value (OO) and the specific negotiation process and objective pricing that lead to the transaction amount, and it is difficult to view that the value reflects the fair market value. In addition, examining the liquidation value of the OO’s stocks, it is determined that the net asset value per share of the transferor’s OO is reasonable, and even if the transferor’s OOO is able to receive a considerable amount of dividends each year, it cannot be deemed that there is no justifiable reason for free trade practices among many and unspecified persons, barring special circumstances.

(C) The revenue amount and total capital amount of the OO for the business year 2010, 2011, and 2012 are as shown in Table 1 and Table 2, and it is confirmed that there is no special change in the business crisis as presented by the claimant on the ground that the claimant constitutes justifiable reasons for transaction practice. It is difficult to view that the total capital amount has been continuously increased in each business year, and it is difficult to view that the OO has been in business crisis, and therefore,

The revenue amount of OO for each business year.

(unit: million won)

Table 2. The total capital of OO for each business year

(unit: million won)

(2) The claimant argued that this case’s transaction is not intentionally fabricated between unrelated parties, but is a normal transaction through several reasonable negotiations for the following reasons. Thus, this case’s gift tax imposition is unfair.

(A) The details of stock ownership by OO prior to and after the transfer of the shares in question are as follows:

Table 3

(unit: State)

(B) On December 20, 2012, the claimant sent the OO bank account (Account Number: 1760712***) to the OO bank account (Account Number: 17607.12***) as the seller, and presented a certificate of deposit without passbook in the OO bank.

(C) An OO is a corporation that has invested 100% by OO, the seller of the stocks at issue, and is a comprehensive construction company that mainly focuses on government-funded construction works, such as OOO capital, and OO capital based on the standard capital stock for civil engineering construction license under the Framework Act on the Construction Industry. OO transferred the shares at issue and the shares of three other corporations, including OOO, to the applicant on December 20, 2012, which is the date of the transfer of the shares at issue.

(D) Dividends on the issues of stocks paid by OO to OO are as follows:

Table 4

(unit: million won)

(E) On December 20, 2012, the claimant presented the head of the account in 2012 and head of the account in 2012 and head of the OO bank passbook in 2012 in relation to the anti-domination of the short-term loans of OO among the transfer proceeds that OO transferred issues shares, etc.

(f) The comparison of the OO’s financial status between 200 and 2012 is as follows:

Table 5

(unit: %; million won)

(G) On December 31, 2012, the claimant asserts that the following table 6 is the same if the applicant examines the fulfillment of the substance capital under the Framework Act on the Construction Industry as of December 31, 2012.

(3) Comprehensively taking account of the facts and relevant laws and regulations, Article 35 of the Inheritance and Gift Tax Act differs from the market price in the transaction between unrelated parties. In other words, the taxation of gift tax is imposed only when the tax authority proves the fact that the transaction was conducted for collusion or other unlawful means without justifiable grounds (see, e.g., Supreme Court Decisions 2013Du5081, Aug. 23, 2013; 201Du5081, Aug. 23, 2013). The claimant and UOOO appears to have no special relationship and there is no reason to reduce economic benefits between the parties. It is difficult to conclude that the instant stock transaction was conducted through a series of consultations between the parties, and it is difficult to conclude that there was no normal price reflected in objective exchange values from the perspective of a reasonable economic person. OOOO operated by UOOO, a seller of the pertinent stocks, because it falls short of non-performing assets under the Framework Act on the Construction Industry, such as loans, and it does not appear to have any economic rationality or any defect in the transaction.

Therefore, it is judged that the claimant's transfer of the outstanding shares from the UOO without any special relationship at a remarkably low price without any justifiable reason, and that the disposition imposing gift tax is erroneous.

4. Conclusion

This case shall be decided in accordance with Article 81 and Article 65 (1) 3 of the Framework Act on National Taxes because the petition for the trial results is well-grounded.