Plaintiff (Law Firm Awon, Attorneys Park Jong-Un et al., Counsel for the plaintiff-appellant)

Goyang Tax Office (Law Firm Grandmark, Attorney Lee In-tae, Counsel for the plaintiff-appellant)

May 17, 2016

1. Of the instant lawsuit, the part demanding revocation of the disposition of gift tax of KRW 5,593,200, and the part exceeding KRW 66,159,948 in the disposition of KRW 70,60,540 in the imposition of gift tax of KRW 70,54,540 in the year 206, and each claim for revocation in the disposition of KRW 959,342,950 in the imposition of gift tax of KRW 994,874,210 in the year 209 is dismissed.

2. The plaintiff's remaining claims are dismissed.

3. The costs of lawsuit shall be borne by the Plaintiff.

On February 10, 2014, the Defendant revoked each imposition of KRW 5,593,200, KRW 70,604,540, and KRW 994,874,210, and KRW 994,874, and KRW 950, each imposition of KRW 1,071,071, and KRW 950, which was imposed on the Plaintiff on the Plaintiff in 1999 (the sum of each imposition of KRW 1,071,071, and KRW 950 as stated in the written complaint).

1. Details of the disposition;

A. The Plaintiff is the actual operator of ○ Engineering Co., Ltd. (hereinafter “instant company”) and the spouse of Nonparty 1, the present representative director, who was engaged in the manufacturing business of soundproof and heat exchangeers in the Siljin-si ( Address 4 omitted).

B. On March 24, 199, Nonparty 1 acquired 2,000 new shares in the name of the Plaintiff, upon establishing the instant company. On April 18, 2006, Nonparty 1 acquired 3,000 shares in total from Nonparty 2 and Nonparty 3, other shareholders, and on December 28, 2009, acquired 15,00 shares in the capital increase with new shares on December 28, 2009, thereby under title trusting 20,00 shares of the instant company (hereinafter “instant shares”).

C. On February 10, 2014, the Defendant: (a) deemed that Nonparty 1 trusted the instant shares to the Plaintiff for the purpose of tax avoidance; and (b) imposed and notified the Plaintiff of each gift tax of KRW 5,593,200, the amount reverted to the year 199, KRW 70,604,540, and KRW 994,874,210, which reverted to the year 2009.

D. The Plaintiff appealed and filed an appeal with the Tax Tribunal on April 28, 2014, but the appeal was dismissed on October 27, 2014.

E. After that, on the ground that the Defendant erred by failing to deduct KRW 500,000,00,000, which is the taxable value of the gift tax reverted to year 1999, the full amount of the gift tax reverted to year 199, ex officio on November 25, 2014, was revoked, and the gift tax reverted to year 2006 was revised to KRW 66,159,948, and the gift tax reverted to year 2009 to KRW 959,342,950, respectively (hereinafter “each disposition of this case”).

[Ground of recognition] Unsatisfy, Gap evidence 5-1, 2, 3, Gap evidence 6, Eul evidence 1-1, 2, 3, and the purport of the whole pleadings

2. Whether the revocation of the claim ex officio and reduced portion on November 25, 2014 among the instant lawsuit is legitimate

When an administrative disposition is revoked, the disposition becomes null and void due to the cancellation, and no longer exists, and a lawsuit seeking revocation against non-existent administrative disposition is unlawful as there is no benefit of lawsuit (Supreme Court Decision 2004Du5317 Decided September 28, 2006, etc.).

As can be seen through the background of the above disposition, the Defendant revoked the full amount of the gift tax reverted to year 199 ex officio on November 25, 2014, and corrected the gift tax reverted to year 2006 to KRW 66,159,948, and the gift tax reverted to year 2009 to KRW 959,342,950, respectively. As such, each disposition imposing gift tax corresponding to the revoked and reduced portion is no longer nonexistent, the part seeking the revocation of the said portion among the lawsuit in this case is unlawful as there is no legal interest in the lawsuit.

3. Determination on the lawfulness of each of the dispositions of this case

A. The plaintiff's assertion

Since Nonparty 1’s title trust of the instant shares to the Plaintiff cannot be deemed to have had the objective of tax avoidance, each of the instant dispositions is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) The legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) is to recognize an exception to the substance over form principle in order to effectively prevent tax avoidance through the title trust system, thereby realizing the tax justice. Thus, if the title trust was recognized to have been conducted for any reason other than the purpose of tax avoidance, and only a minor tax reduction incidental to the said title trust was generated, it cannot be concluded that there was such a purpose of tax avoidance. However, in light of the legislative intent as seen above, only if the purpose of the title trust is not included in the purpose of tax avoidance, it cannot be determined that there was a purpose of tax avoidance by applying the proviso of the said provision, and thus, it cannot be said that there was no purpose of tax avoidance if there was an intention of tax avoidance. In such case, the burden of proving that there was no purpose of tax avoidance exists a person who asserts it (see, e.g., Supreme Court Decision 2013Du9779, Oct. 17, 2017

Furthermore, as the nominal owner who bears the above burden of proof, there was an obvious objective irrelevant to the tax avoidance to the extent that it is deemed that there was no tax avoidance purpose in the title trust, and the fact that there was no tax avoidance at the time of the title trust or at the time of the future is proved to the extent that the ordinary person is not doubtful (Supreme Court Decision 2004Du11220 Decided September 22, 2006). Whether there was such tax avoidance purpose or not should be determined at the time of the title trust of stocks at the time of the title trust, and it should not be determined as to whether there was such tax evasion (Supreme Court Decision 2012Du546 Decided November 28, 2013).

2) The following circumstances acknowledged through the overall purport of evidence No. 4-1, No. 2, No. 6, and No. 2 through No. 5 of the evidence No. 4-1, No. 6, and No. 2 through No. 5, i.e., value-added tax related to the “○○ Industry,” which was previously operated by Nonparty 1 at the time of the establishment of the instant company, reaches KRW 30 million in total; ② the tax authority’s liability to pay approximately KRW 18 million out of the delinquent amount during which it failed to collect the pertinent delinquent amount due to Non-Party 1’s failure to discover property; ③ the tax authority’s attachment of the company bank account in the name of Non-Party 1 on April 21, 2010 and paid KRW 90,000,000,000,000, which were remaining only after Non-Party 1 had no evidence to acknowledge otherwise due to the title trust or the purpose of tax evasion.

4. Conclusion

Thus, the part of the claim for revocation and reduction ex officio on November 25, 2014 among the lawsuit in this case is unlawful. Thus, the plaintiff's remaining claims are dismissed as it is without merit.

[Attachment]

Judges Lee Jae-chul (Presiding Judge)