National High Court Decision 2007J2844 ( December 27, 2007)

No gift tax may be imposed on the title trust shares with no tax avoidance purpose.

The title trust shares shall not be subject to gift tax on the title trust shares, because it is difficult to view that there was a tax avoidance purpose since the shares acquired by investing in the specialized restructuring company were subject to cumulative taxation on capital gains

The contents of the decision shall be the same as attached.

1. The Defendant’s disposition imposing gift tax of KRW 448,00,000,00, which was imposed on the Plaintiff on April 1, 2007, shall be revoked.

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

The same shall apply to the order.

1. Basic facts

A. On March 29, 2002, the Plaintiff acquired 180,000 shares issued by AAAAA Korea Corporate Restructuring Advisory Co., Ltd. (hereinafter “AAAAA Korea”) in its name, and on May 10, 2002, acquired 60,00 shares of AAAF from Nonparty F.

B. The director of the Seoul Regional Tax Office determined that the aggregate of 240,000 shares of the above shares acquired under the name of the plaintiff (hereinafter referred to as "share shares") was acquired by the trust of the plaintiff in the name of the non-party KimE, and notified the defendant thereof. The defendant applied Article 41-2 of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003; hereinafter referred to as "the Inheritance Tax and Gift Tax Act") to the plaintiff on April 1, 2007 by applying Article 41-2 of the Inheritance Tax and Gift Tax Act (hereinafter referred to as "the disposition of this case").

[Reasons for Recognition] Facts without dispute, Gap evidence 1, Eul evidence 1, Eul evidence 2, and 3-1, and the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The parties' assertion

1) The plaintiff's assertion

A) The KimE lending KRW 100 million to the Plaintiff in order to enable the Plaintiff to receive dividend income from the profit accrued at the time of the completion of the company’s restructuring instead of giving up his high-amount annual salary, and the Plaintiff acquired the key shares with the funds. Therefore, the key shares do not constitute a title trust from KimE to the Plaintiff.

B) Even if the Plaintiff received a title trust from KimE, the instant disposition, etc. was unlawful on the ground that the Plaintiff did not have the intent to evade taxes.

B. Applicable statutes

It is as shown in the attached Form.

C. Determination

1) Whether the issue shares are nominal trust

Pursuant to Article 41-2 (1) of the Inheritance Tax and Gift Tax Act, where the actual owner and the nominal owner are different in cases of property which requires a transfer of rights or a registration for the exercise thereof, the value of such property shall be deemed donated to the actual owner and the gift tax shall be imposed on such nominal owner on the date (where the property is subject to a transfer of ownership, referring to the date following the end of the year following

The following reasons are as follows: (a) no dispute exists between the parties between the parties, or (b) Nos. 5, 6-2, 8-2, 8-4 of the evidence Nos. 3, 4, 9-1, 2, and 9-4 of the evidence Nos. 5, 6-2, 9-1, 2, and 9-4 of the transfer price, and (c) KimE obtained a loan from the financial company as security to acquire the outstanding shares, and paid the purchase price of the outstanding shares directly to the AAE Korea; (b) the issue was transferred to the BB Partnership on September 18, 2002; (c) the decision of the transfer and the transferee were all the negotiations with the Plaintiff; and (iv) the vice president DoD of the BB Partnership's business was in contact with the Plaintiff; and (d) the transfer price was all accepted by KimE; and (e) the transfer profit was not granted to the Plaintiff, in light of the fact that the transfer profit was not granted to the Plaintiff.

2) Whether the taxation has been reduced or avoided due to the title trust of the shares in question

According to the proviso and subparagraph 1 of Article 41-2(1) of the Inheritance Tax and Gift Tax Act, in a case where the title trust of shares does not have any purpose of tax avoidance, the title trust of shares is deemed a gift, and thus, if the Kim E-E and the Plaintiff’s tax burden have not been reduced due to the title trust

However, according to Article 55 (4) of the Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003), where a resident transfers stocks first acquired by investing in a corporate restructuring company on or before December 31, 2003, Article 94 (1) 3 of the Income Tax Act shall not apply to the dividend income received from a corporate restructuring company on or before December 31, 2003, and Article 14 (4) of the Income Tax Act shall not apply to the dividend income received from a corporate restructuring company on or before December 31, 203. According to the evidence No. 22, AA Korea can recognize the fact corresponding to the corporate restructuring company, and the issue is that KimE acquired by investing in AAA Korea. Accordingly, the income tax is not imposed pursuant to Article 55 (4) of the Restriction of Special Taxation Act with respect to the transfer margin of the stocks, and the dividend income is excluded from the subject of comprehensive taxation on global income tax and is not subject to a progressive tax rate.

In addition, Article 39 of the Framework Act on National Taxes (amended by Act No. 7008 of Dec. 30, 2003) and Article 22-4 of the Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005), where the shareholders of the Extraordinary Law hold more than 50% of the total issued shares, they shall be liable to pay secondary tax for the portion of their corporate tax liability which is not paid out of their corporate tax liability. According to Article 105 (6) of the Local Tax Act, they shall be deemed to have acquired corporate property in proportion to their shares pursuant to subparagraph 22, subparagraph 3-1 through 6, and the total number of shares issued by AAE Korea at the time of May 10, 200, Kim E and its related shareholders shall not be deemed to have been 260,0000,0000,0000,0000,000,000,000 shares issued by 16,360.

Since other securities transaction tax, acquisition tax, and registration tax are not subject to the progressive tax rate, even if shares are divided due to title trust, the tax burden is not reduced, and there is no other tax evaded due to title trust of the shares.

Therefore, since the title trust of the shares at issue cannot be deemed to have avoided the tax burden of KimE and the Plaintiff, the instant disposition imposing gift tax on the Plaintiff by deeming the title trust as a donation is unlawful.

3. Conclusion

The plaintiff's claim is reasonable, and it is so decided as per Disposition.