In the formula of Article 29(2) of the Enforcement Decree of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which provides for the value deemed donated based on the acquisition of forfeited stocks, whether “the value of the transaction made during the three months following the capital increase” can be deemed as “the appraised value per share before the capital increase” (negative)

Article 39(1)1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199) and Articles 29(2) and 49(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1660 of Dec. 31, 199) provide that the value of the relevant corporation’s stocks may vary due to the contents of the language, legislative purport, and capital increase, so it cannot be said that the “value per share before capital increase” and “value per share after capital increase.” Article 49(1)1 of the Enforcement Decree of the same Act provide that the value of the property on which gift tax is imposed is not changed by itself, so it is difficult to apply the “value before capital increase” of Article 29(2)1 of the Enforcement Decree of the same Act as the “value before capital increase cannot be deemed as the “value before capital increase” of Article 19(1)4 of the Enforcement Decree of the same Act.

Article 39(1)1(a) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 6048, Dec. 28, 1999); Article 29(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 16660, Dec. 31, 199); Article 49(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (see current Article 29(3)1);

[Plaintiff-Appellant] 2005Du2063 decided Jan. 25, 2007 (Gong2007Sang, 373)

Plaintiff (Attorney Jeong Byung-chul et al., Counsel for the plaintiff-appellant)

Head of the tax office;

Seoul High Court Decision 2006Nu15730 decided January 25, 2007

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

Article 39 (1) 1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199) provides that in issuing new stocks to increase the capital of a corporation, if a stockholder of the relevant corporation has renounced the right to receive new stocks and again allocated forfeited stocks, and thereby obtaining profits from the person who has received the allocation, the amount equivalent to such profits shall be deemed to have been donated. Article 29 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1660 of Dec. 31, 199; hereinafter referred to as the “Enforcement Decree”) provides that the amount equivalent to such profits shall be deemed to have been donated. Article 29 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199) provides that "in case of the issuance of new stocks to increase the number of stocks issued before and after increase the number of stocks issued by the person) 】

Article 49(1)1 of the Enforcement Decree provides that “The appraised value per share before capital increase may not be the same as “the appraised value per share after capital increase” and “the appraised value per share after capital increase.” In light of the language, legislative purport, and Article 29(2)1 of the Enforcement Decree, “the appraised value per share before capital increase” in the formula of Article 29(2)1 of the Enforcement Decree means the appraised value of shares as of the time before capital increase (see Supreme Court Decision 2005Du2063, Jan. 25, 2007). Article 49(1)1 of the Enforcement Decree provides that the value of the property on which the gift tax is imposed may be deemed as the market value of the property on which the gift tax is imposed in March after the capital increase can not be deemed as “the appraised value per share before capital increase.”

Nevertheless, based on the provision of Article 49 (1) 1 of the Enforcement Decree, the "evaluation value per stock before capital increase" in the above formula can also be evaluated by the sale price during three months after capital increase. The court below held that each of the gift taxes of this case is legitimate by considering the acquisition price per stock before capital increase in the first and the third capital increase in the first and the third capital increase in the next month from June 14, 1999, in calculating the constructive value of forfeited stocks that occurred during the first and the third capital increase in the second and the third capital increase in the next month from the 17th to the 26th of the same month, and with regard to the third capital increase on July 30, 199, the acquisition price per stock during the fourth capital increase in the second and the third capital increase in the second half of the same year from the 8th of the same year as the evaluation value per stock before the capital increase. In so determining, the court below erred and adversely affected by the interpretation and application of Article 29 (2) of the Enforcement Decree.

Therefore, without examining the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Hong-hoon (Presiding Justice)