Cho High Court Decision 201Do2362 ( December 07, 2011)

Grant due to the capitalization of earned surplus shall not be subject to the regulations on deemed donation.

In addition to the existing title trust shares, it is not subject to the provision on deemed donation allocated in proportion to shares held by the existing title trustee according to the capitalization of earned surplus, but it is difficult to view that there was an additional purpose of tax avoidance other than the original purpose

2012Guhap5305 Revocation of Disposition of Imposition of Gift Tax

StateAA 3 others

Samsung Head of Samsung Tax Office et al.

May 8, 2012

May 31, 2012

1. On May 2, 201, the head of Samsung District Tax Office imposed a gift tax of KRW 000 on Plaintiff HaF on March 28, 2005 and KRW 000 of the gift tax on March 20, 2008, and the gift tax on March 20, 2008, which was imposed upon Defendant HaB on Plaintiff HaF on May 2, 201, and the imposition of KRW 00 of the gift tax on March 28, 2005 and KRW 000 of the gift tax on March 20, 208, which was imposed upon Defendant HaF on Plaintiff HaF on May 2, 2011, and the imposition of KRW 00 of the gift tax on Plaintiff HaF on May 2, 201 shall be revoked.

2. The costs of lawsuit are assessed against the Defendants.

The same shall apply to the order.

1. Details of the disposition;

A. On August 13, 2004, LG established EE Co., Ltd. (hereinafter referred to as “E”) on the non-party company’s issued stocks (e.g., registered ordinary stocks of KRW 000,000, total par value of KRW 140,000), and each title trust was made on the non-party company’s issued stocks (hereinafter referred to as “non-party company”) of KRW 40,000 (ratio 28.57%, and total face value of KRW 000) with KRW 80,000 (ratio 57.14%, and total face value of KRW 0,000) with the non-party company’s issued stocks.

B. On March 28, 2005, the non-party company held a regular general meeting of shareholders and passed a resolution on the "case of approving the disposal of surplus earnings in the first period of interest" in subparagraph 2, and its main contents are as follows.

(Major Contents Omitted)

C. Accordingly, the non-party company transferred 000 won of the unclaimed earned surplus to its capital, and transferred 420,000 won of the face value free of charge in proportion to the number of existing shareholders' shares (hereinafter "the primary capital increase in this case"). Accordingly, the plaintiff state is 120,000 shares, and the plaintiff state is 240,000 shares, and the plaintiff HaF is allocated 60,000 shares without compensation (hereinafter "the first gratuitous share in this case").

D. Thereafter, on April 21, 2005, LG changed the title trustee in the name of Plaintiff KimD with respect to the total of 20,000 shares trusted to Plaintiff HF and the total of 60,000 shares received by Plaintiff HF through the primary capital increase in this case, and the total of 80,000 shares received by Plaintiff HF.

E. On March 20, 2008, the non-party company held a general meeting of shareholders and passed a resolution on the "case of approval of the fourth financial statements" in subparagraph 1, and its main contents are as follows.

(Major Contents Omitted)

F. Accordingly, the non-party company transferred 000 won of the surplus earnings not disposed of to its capital, and allocated and issued 1,200,000 won of the face value free of charge in proportion to the number of existing shareholders' shares (hereinafter referred to as "the second free of charge" in this case). Accordingly, the non-party company received 342,856 shares, and the non-party company received 685,715 shares, and the non-party KimD received 171,429 shares free of charge (hereinafter referred to as "the second free of charge of each of the above allocated shares").

G. The Defendants deemed that the first and second gratuitous shares allocated to the Plaintiffs constitute deemed donation of trust property under the name of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8852 of Jan. 1, 2009, and hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") separate from the existing title trust shares, and imposed the gift tax like the written order on the Plaintiffs (hereinafter referred to as "each disposition of this case").

H. Accordingly, the Plaintiffs were dissatisfied with each of the dispositions in this case, and Plaintiff HaF was asked to the Commissioner of the National Tax Service on July 26, 2011, and Plaintiff HaF was asked to the Tax Tribunal on May 31, 2011, and Plaintiff BB, and KimD on July 26, 2011, respectively, and Plaintiff HaF was dismissed on November 30, 201, and Plaintiff HaF was dismissed on December 7, 2011, and Plaintiff HaF was dismissed on December 2, 201.

I. Meanwhile, the shares and equity shares allocated to the plaintiffs through the first and second gratuitous contributors of this case

The following table shall be arranged:

(Entry in the following table omitted):

[Based on recognition] 1 and 2 , 1 through 4, 6, and 7 , and the purport of the whole pleadings, and 1 and 2 , and 7

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

The plaintiffs were allocated the second and second gratuitous shares through the stock dividends, and this is not different from the gratuitous share allocation according to the capital transfer of reserves under Article 461 of the former Commercial Act (amended by Act No. 10600, Apr. 14, 2011; hereinafter referred to as the "Commercial Act") in that they allocated the free share with the profits surplus as the source of the profits surplus, and the earned surplus is reclassification into the capital account, so it cannot be viewed as a title trust separate from the existing title trust shares, and there is no room to acknowledge the possibility of additional tax avoidance due to the first and second gratuitous share allocation. Accordingly, the first and second grants of this case are not subject to the provisions of the gift under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, and each disposition of this case is unlawful.

B. Relevant statutes

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

C. Determination

The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is one of the exceptions to the substance over form principle under Article 14 of the Framework Act on National Taxes, and is limited to the extent that it is intended to realize tax justice by preventing title trust from being abused as a means of tax avoidance, and, even if the actual owner and the nominal owner transfer the retained earnings to the nominal holder as the corporation issues the nominal holder without compensation, there is no change in the net assets or profits of the issuing corporation, and the actual shareholder’s equity ratio, so it cannot be said that there is no purpose of tax avoidance other than the purpose of tax avoidance under the title trust of the existing stocks, and barring special circumstances, the former provisions on deemed donation of capital under Article 45-2(1) of the Inheritance Tax and Gift Tax Act were applied to the existing title trustee without compensation, and thus, the latter is not subject to the said provision on deemed donation of capital stock under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, and the latter is not subject to the said provision on deemed donation of capital stock dividends under Article 25 of the former Commercial Act.

As seen earlier, the Plaintiffs were allocated with the stock dividends under Article 462-2 of the Commercial Act without compensation, but (i) stock dividends are partially transferred to capital, and are allocated in proportion to the number of new stocks issued at the par value of the stocks divided, and are allocated to shareholders at the same rate. Even if the stock dividends are allocated without compensation, there is no change in the net assets or profits of the non-party company that issued the company, and the existing shareholders’ share ratios before and after the stock dividends do not change any change in the actual value of the plaintiffs’ stocks, and there is no reason to view the first and second gratuitous share allocation by the stock dividends differently from the allocation of the reserve funds under Article 461 of the Commercial Act, and there is no possibility that the Plaintiffs were entitled to new stocks at the time of the allocation of the stock dividends to the existing trustee, and there is no possibility that there was any change in the existing stocks at the time of the allocation of the stock dividends (in reality, it is difficult to view that there is no possibility that there was any change in the previous stocks at the time of the allocation of the stock dividends without compensation, and there is no possibility that there was any change in the new stocks.

3. Conclusion

The plaintiffs' claims are justified, and all of them are accepted.