Cho High Court Decision 201Do0501 (Law No. 105,06)

The scope of the largest shareholder when imposing gift tax on profits from listing stocks or equity shares;

It is difficult to see that all of the shareholders who are the largest shareholder and their specially related persons are subject to gift tax on the listing, etc. of stocks or equity shares, because the largest shareholder intends to prevent the transfer of stocks to children and other specially related persons by donating or transferring stocks for compensation.

2011Guhap19451 Revocation of Disposition of Imposition of Gift Tax

Kim XX et al.

Head of Yongsan Tax Office

September 23, 2011

October 14, 2011

1. The Defendant’s disposition of imposition of KRW 170,330,60 each of the gift tax imposed on the Plaintiffs on October 1, 2010 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

The following facts are not disputed between the parties, or can be acknowledged in full view of the purport of the entire pleadings in Gap evidence Nos. 1, 2, and 1 and 2.

A. On April 21, 2003, the Plaintiffs acquired 5,000 non-listed shares (hereinafter “instant shares”) from each of 50,000 won (10,000 won per share) for non-listed shares (hereinafter “instant shares”). The said shares were divided into face value 1/10 on January 25, 200, and the Non-Party Company was listed on the KOSDAQ on January 4, 2005.

B. The changes in the shares of the non-party company in 2003 following the above acquisition of shares by the plaintiffs are as follows.

C. From April 25, 2008 to May 26, 2008, the director of the Central District Tax Office: (a) conducted an investigation into the above stock acquisition transaction of the plaintiffs; (b) confirmed that the plaintiffs acquired 2,000 shares from KimA, a representative director of the non-party company, by gifting 20,000 shares from their father and KimA, the representative director of the non-party company; and (c) imposed and notified each of 356,615,000 won of listed profits on August 1, 2008 for each of 356,615,000 won of gift tax. The plaintiffs paid the above gift tax.

D. Around June 2010, the National Tax Service conducted a regular audit of the secondary regional tax office and pointed out that each of the remaining 3,000 shares the Plaintiffs acquired are subject to gift tax pursuant to Article 41-3(1)1 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”).

E. Accordingly, on October 1, 2010, the Defendant corrected and notified the Plaintiffs of KRW 170,330,600 each of the gift tax (hereinafter “each of the instant dispositions”) by deducting the amount of tax related to KRW 356,615,00 from the amount of tax on each of the listed marginal profits of KRW 831,40,000.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) Article 41-3 of the Inheritance Tax and Gift Tax Act shall apply where shares are acquired from the largest shareholder.

However, the plaintiffs did not acquire the shares of this case from KimA, the largest shareholder of the non-party company, but acquired the shares of this case from the non-party company, which is not the largest shareholder. Accordingly, Article 41-3 of the Inheritance Tax and Gift Tax Act cannot be applied to the acquisition of the shares of this case. Thus,

2) The legislative intent of Article 41-3 of the Inheritance Tax and Gift Tax Act is to prevent the acquisition of unlisted stocks from unfairly transferring the ledger through a stock listing after acquiring them from the largest shareholder. Thus, the above provision shall apply only to such cases. However, when the plaintiffs acquired the shares of this case, the financial investors requested the KimA to purchase the shares of this case, and the non-party company acquired the shares of this case due to the lack of financing capacity of KimA, but the problem of acquiring the shares of this case was the problem of acquiring the shares of this case, and thus, the plaintiffs did not intend to unfairly transfer the shares while acquiring the shares of this case. Accordingly, the above provision of this case is unlawful, since Article 41-3 of the Inheritance Tax and Gift Tax Act is not applicable.

3) Article 41-3(2) of the Inheritance Tax and Gift Tax Act uniformly sets the base period of the listing marginal profits on the date three months from the date of listing. However, since the Plaintiffs imposed the duty of protection due to a special relationship with KimA, deeming them as a gift by calculating the listing marginal profits as of the date on which three months elapse from the date of listing is unfair. In other words, Article 41-3(2) of the Inheritance Tax and Gift Tax Act is unconstitutional to the extent that the right to dispose of acquired stocks is legally restricted, such as the duty of protection, to the extent that the listing marginal profits are calculated on the basis of the date on which three months from the date

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Determination on the first argument

In full view of Article 41-3(1)1 and Article 22(2) of the Inheritance Tax and Gift Tax Act, Article 19(2)1 and 6, and Article 31-6(1) of the Enforcement Decree of the same Act, and Article 22-19 and Article 41-3(1) of the Inheritance Tax and Gift Tax Act, the defendant asserts that the non-party company, the largest shareholder of the non-party company, and his related parties, are included in the largest shareholder under Article 41-3(1) of the Inheritance Tax and Gift Tax Act, and that the non-party company, the largest shareholder of the non-party company, constitutes the above largest shareholder, and the acquisition of the shares by the plaintiffs is subject to

However, in light of the following points, the defendant's above assertion cannot be accepted, and the plaintiff's assertion on this part is with merit.

Article 41-3(1) of the Inheritance Tax and Gift Tax Act provides that the person who has a special relationship with the largest shareholder under Article 22(2) of the same Act receives the donation of the corporation’s stocks or obtains them for consideration from the largest shareholder. In addition, Article 19(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “the largest shareholder under Article 22(2) of the same Act, who is delegated by Article 22(2) of the same Act, refers to one shareholder and one person who has a special relationship with the largest shareholder under Article 22(2) of the same Act (including one shareholder, one relative, and two employees and other persons who maintain their livelihood with the largest shareholder’s assets) together with the shares held by the person who has a special relationship with the largest shareholder under Article 22(2) of the same Act, shall be deemed to include only one shareholder in the case where the total number of shares held by the shareholder and his relatives or employees is the largest shareholder.” Thus, it violates the above provision.

The legislators use an expression different from Article 41-3(1)1 of the Inheritance Tax and Gift Tax Act by stipulating that the shareholder who is the largest shareholder under Article 63(3) of the Inheritance Tax and Gift Tax Act and his/her specially related person are both the largest shareholder and the shareholder who is a specially related person. Therefore, it is difficult to see that the largest shareholder under Article 41-3(1)1 of the Inheritance Tax and Gift Tax Act, which uses other expressions than the language and text under Article 63(3) of the Inheritance Tax and Gift Tax Act, refers to all the largest shareholder and his/her specially related person, as

The purpose of Article 41-3 of the Inheritance Tax and Gift Tax Act is to prevent the largest shareholder from spreading or transferring to another person with a special relationship such as his/her child or transferring stocks for the purpose of obtaining large profits from large market values based on the registration of the Korea Stock Exchange or the Korea Securities Dealers Association by using internal information of the company. However, when interpreting the largest shareholder as the defendant, the minority shareholder who is not in a position to use internal information of the company becomes the largest shareholder is also a minority shareholder, who is not in a position to use internal information of the company. This may result in a violation of the legislative intent

The general rule of the National Tax Service is merely an administrative rule that instructs the criteria for interpretation and enforcement of tax-related Acts within the tax authority, and is not a law that binds the court or the people, and thus, the general rule itself cannot be a legitimate basis for taxation (see, e.g., Supreme Court Decision 2005Du5611, Feb. 8, 2007) under the principle of no taxation without law (see, e.g., Supreme Court Decision 22-19, Feb. 8, 2007). Therefore, the general rule of the Inheritance Tax and Gift Tax Act cannot be viewed as a "large shareholder" under Article 41-3 (1) 1 of the Inheritance Tax and Gift Tax Act to the related party

In light of the holding of shares of the non-party company above, the majority shareholder of the non-party company is the father and the representative director of the non-party company, and the non-party company is not the "large shareholder" under Article 41-3 (1) 1 of the Inheritance Tax and Gift Tax Act at the time when the plaintiffs acquired the shares

2) Sub-committee

Therefore, without examining the remaining arguments of the plaintiffs, each of the dispositions of this case is unlawful.

3. Conclusion

Therefore, the plaintiffs' claims of this case are justified, and all of them are accepted, and it is so decided as per Disposition.