Seoul Administrative Court 201Gudan4810 ( October 15, 2011)

The disposition imposing capital gains tax on a large shareholder who owns 3% or more of the shares is legitimate.

If a person becomes a major shareholder in the relevant year, it is reasonable to view that all shares traded as a major shareholder by the last day of the relevant business year thereafter are traded as a major shareholder. Therefore, the disposition imposing capital gains tax is legitimate because a person owns 3% or more shares

2013Nu8105 Revocation of Disposition of Imposing capital gains tax

LAA

Head of the District Tax Office

Seoul Administrative Court Decision 2011Gudan4810 decided July 15, 2011

Seoul High Court Decision 2011Nu28303 Decided February 15, 2012

Supreme Court Decision 2012Du7400 Decided February 15, 2013

September 27, 2013

November 8, 2013

The plaintiff's appeal is dismissed.

The plaintiff shall bear the total costs of the lawsuit after the appeal.

The judgment of the first instance shall be revoked. The defendant shall revoke the imposition of the capital gains tax belonging to the plaintiff on January 14, 201, 2005.

1. Quotation of judgment of the first instance;

The reasons for this judgment are as stated in the reasons for the judgment of the first instance, except for the modification or addition of the corresponding parts of the judgment of the first instance as follows, paragraphs 2, 3 and 4.

2. Amending 4, 6, or 7 pages as follows:

5) Article 157 (4) 1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21301, Feb. 4, 2009; hereinafter “Enforcement Decree”) which was enforced on August 5, 2005 provides that major shareholders of a KOSDAQ-listed corporation shall own at least 5/100 of the total amount of stocks, etc. of the relevant corporation. However, since capital gains tax liability is established on December 31 of each year after the end of the taxable period, whether the Plaintiff is a major shareholder shall be determined by the Enforcement Decree after the amendment. Since the Plaintiff did not own at least 5/100 of the total amount of stocks, etc. of the non-party company as of December 31, 2005, it does not fall under a major shareholder as prescribed by the Enforcement Decree after the amendment. Even if the Plaintiff falls under a major shareholder as prescribed by the Enforcement Decree after the amendment, capital gains tax may not be imposed on the transfer of stocks after the enforcement of the Enforcement Decree after the amendment.

6) Article 162(5) of the Enforcement Decree after the amendment stipulates that the first in first in first in first in first in order shall be applied in cases where the acquiring time of the stock concerned is unclear. Therefore, the Defendant’s calculation of capital gains by means of the overall and overall method was

7) At the time of issuing new shares, Nonparty Company allocated 50 million shares out of 66 million shares to its insiders, etc.; however, most shareholders allocated 3% of the forfeited shares to avoid capital gains tax by allowing the avoidance of capital gains tax by allocating to most shareholders less than 3% of the forfeited shares. Unlike the inside shareholders, imposing capital gains tax only on the Plaintiff who became a shareholder of 3% of the forfeited shares as a general shareholder is contrary to the tax equity.

8) Since the Plaintiff did not intentionally refrain from filing a transfer income tax report, imposing penalty tax is contrary to the principle of excessive prohibition.

3. To add the following descriptions between Chapters 7, 5 and 6:

In the judgment of a higher court, the judgment of the lower court is binding on the relevant case (Article 8 of the Court Organization Act), so this court is examined as follows with respect to the plaintiff's assertion on the requirements of major shareholders subject to taxation according to the binding force of the judgment remanded in this case.

4. Modification of the seven pages 21 or less as follows:

(E) As to the Plaintiff’s assertion

The court of final appeal may reverse the judgment of the court below and remand the case to the court of final appeal, and the court to which the case was remanded is bound by the factual and legal judgment which the court of final appeal considers as the ground for reversal (Article 8 (2) of the Administrative Litigation Act and Article 436 (1) and (2) of the Civil Procedure Act). This court shall make a decision in accordance with the binding force of the judgment remanded as follows.

Article 4 (1) 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) provides that capital gains shall be the income accruing from the transfer of assets, and Article 94 (1) 3 provides that the scope of such capital gains shall include the transfer of stocks of a stock-listed corporation under the Securities and Exchange Act (hereinafter referred to as a "stock-listed corporation") by a major shareholder prescribed by the Presidential Decree (hereinafter referred to as a "major shareholder") in consideration of the ratio of stocks owned, total market value, etc., and transfer of stocks of an Association-registered corporation under the Securities and Exchange Act (hereinafter referred to as the "Association-registered corporation") not through trading in securities under the same Act, and transfer of stocks of an Association-registered corporation under the same Act (hereinafter referred to as the "Association-registered corporation") not through trading in the Association brokerage market (hereinafter referred to as the "Association-registered corporation").

Therefore, Article 157 (4) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988 of Aug. 5, 2005, hereinafter referred to as the "former Enforcement Decree prior to the amendment") provides that, without distinguishing between a stock-listed corporation and an Association-registered corporation from the scope of its major shareholders, in the case of holding not less than 3/100 of the total sum of stocks, etc. of the relevant corporation as of the end of the fiscal year immediately preceding that whereto belongs the transfer date of stocks, etc. as of the fiscal year immediately preceding that whereto belongs the transfer date of stocks, etc., one shareholder and other shareholders, and in the case of holding not less than 3/10 by acquiring more than 3/10 as of the end of the immediately preceding fiscal year, one shareholder and other shareholders after the

However, after the amendment of August 5, 2005, Article 157 (4) 1 of the Enforcement Decree provides that the scope of major shareholders of a corporation listed on KOSDAQ, a corporation listed on KOSDAQ, and a corporation listed on KOSDAQ under Article 84-27 (5) of the Enforcement Decree of the Securities and Exchange Act shall be distinguished from the scope of major shareholders of other corporations, and that Article 157 (4) of the Enforcement Decree shall apply from the transfer of stocks, etc. after the amendment of Article 84-27 (2) of the Enforcement Decree of the Securities and Exchange Act to the cases of holding not less than 5/100 of the aggregate of stocks, etc. of the relevant corporation as of the end of the fiscal year immediately preceding the fiscal year in which the transfer date of stocks, etc. belongs.

Article 157 (4) of the Enforcement Decree of the Act shall apply, in principle, to this case where the transfer income tax for which tax liability is established upon the termination of the taxable period is in question at the time of December 31 of each year, barring any special circumstance. Thus, Article 157 (4) of the Enforcement Decree of the Act shall apply after the amendment of December 31, 2005, but Article 157 (4) of the Enforcement Decree of the Act before the amendment shall apply pursuant to Article 2 of the Addenda of the Enforcement Decree after the amendment of the stocks transferred before August 5, 2005.

Therefore, Article 157 (4) 1 of the Enforcement Decree prior to the amendment, which provides for the scope of major shareholders based on at least 3/100 of the shares holding ratio, does not distinguish the shares transferred by the Plaintiff before August 5, 2005 from the stock-listed corporation and the Association-registered corporation. On March 11, 2005, the Plaintiff, who owned 3.28% of the shares of the non-party company, constitutes a major shareholder, is subject to taxation for the shares transferred during the above period. On the other hand, with respect to the shares transferred by the Plaintiff after August 5, 2005, Article 157 (4) 1 of the Enforcement Decree provides for the scope of major shareholders based on at least 5/100 of the shares holding ratio. Since August 5, 2005, the Plaintiff did not own at least 5/100 of the shares of the non-party company, and thus, is not subject to taxation for the shares transferred during the above period.

Meanwhile, in a lawsuit seeking a revocation of a tax disposition, the determination of illegality ought to be made by whether the amount of tax recognized by the said tax disposition exceeds the legitimate amount of tax (see, e.g., Supreme Court Decision 98Du4993, Sept. 3, 1999). Thus, even where the tax authority erred in the course of calculating and determining the tax base and amount of tax, and the taxation disposition is unlawful, if the amount of tax imposed and collected does not exceed the legitimate amount of tax calculated, and the erroneous method does not vary between the scope of the taxable unit and the reason for the disposition, the disposition of imposition and assessment within the scope of the justifiable amount of tax is not unlawful (see, e.g., Supreme Court Decision 92Nu10180, Sept. 28,

In light of the above legal principles, the legitimate tax amount of the transfer income tax for the year 2005, which was calculated by excluding the stocks transferred after August 5, 2005 from taxable objects, shall be determined as follows: (a) the amount of the income tax for the transfer income tax for the year 2005, which is calculated by excluding the stocks transferred after August 5, 2005 from taxable objects, is clear that it exceeds the amount of the transfer income tax for the transfer income tax determined by the Defendant at the time of the disposition of this case. Therefore, the Plaintiff

(f) As to the Plaintiff’s assertion

If the purport of the entire argument is added to the statement Nos. 1, 2, 3, and 3 (including paper numbers), the Defendant can find the fact that the Defendant calculated the transfer profit of the shares sold by the Plaintiff at the time of the instant disposition. Thus, the Plaintiff’s assertion on the method of calculating transfer profit is without merit.

(G) As to the Plaintiff’s assertion

The Defendant imposed capital gains tax on the Plaintiff who falls under the major shareholder under the relevant laws and regulations and imposed capital gains tax on other shareholders who do not fall under the major shareholder as prescribed by the relevant laws and regulations does not go against the tax equity. Therefore, the Plaintiff’

(h) As to the Plaintiff’s assertion

In the judgment of a higher court, the judgment of the lower court is binding on the relevant case (Article 8 of the Court Organization Act), so this court shall make the plaintiff's assertion about additional tax in accordance with the binding force of the judgment of remanding the case as follows.

Under the tax law, penalty taxes are administrative sanctions imposed in accordance with the law in order to facilitate the exercise of the right to impose taxes and the realization of tax claims where a taxpayer violates the reporting and tax liability prescribed by the law without justifiable grounds, and the taxpayer's intention and negligence is not considered, and the land or mistake of the law does not constitute justifiable grounds.

In light of the above legal principles, the Plaintiff’s assertion is without merit, since the grounds alleged by the Plaintiff alone are not recognized as justifiable grounds for exemption of penalty tax.

5. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.