Seoul Administrative Court 2009Guhap8311 ( October 17, 2010)

National High Court Decision 2006Du3643 ( December 05, 2008)

Donation as to the transfer of low prices of unlisted stocks of a private teaching institute

In light of the fact that shares are transferred between the representative and employees of a corporation and the fact that the transaction value is difficult to reflect the objective exchange value, etc., it is legitimate to calculate the market price of low-price transferred shares by supplementary evaluation methods.

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance is revoked, and the defendant revoked the disposition of imposition of KRW 1,212,926,120 on August 10, 2006 against the plaintiff on August 10, 2006.

1. Circumstances of the disposition;

The following facts may be acknowledged either in dispute between the parties or in accordance with Gap evidence Nos. 1, 9, Eul evidence No. 1, Eul evidence No. 2-3, Eul evidence No. 3-1, and Eul evidence No. 3-5.

A. From January 15, 1999 to December 31, 2003, the Plaintiff, who was in office as the representative director of the AAB corporation located in Seoul Special Metropolitan City, Nowon-gu, 693-2 (hereinafter “AAB”), acquired 19,500 shares of non-listed shares of AB 10,50 won per share (hereinafter “instant shares”) from a person who held 30,000 shares of AB 30,000 shares of the total issued shares of AB 30,000 shares of the AB 30,000 shares (hereinafter “instant transaction”).

B. The head of the Nowon-gu Tax Office conducted a consolidated investigation of the AAB’s corporate tax for the business year 2002. It considers that the above transaction is an employee of the AAB’s private teaching institute under the control of the Plaintiff by investment, and thus, falls under the category of “the transfer of property at a price lower than the market price from a person with a special relationship under Article 35 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the “Act”) and Articles 26 and 19(2) of the Enforcement Decree of the Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; hereinafter referred to as the “Enforcement Decree of the Act”) and Article 63(1)1 (c) of the Act and Article 54 of the Enforcement Decree of the Act: The net asset value at the time of the transaction in this case’s net asset value at the time of 2,301,86 won per share value per share

C. Accordingly, on August 10, 2006, the Defendant calculated the market value as indicated below based on the market value at AAA Institute at the time of the instant transaction, and imposed a disposition of imposition of KRW 1,212,926,120 on the Plaintiff on August 10, 2006, on the ground of gift tax donation as of December 2, 2002 (hereinafter “instant disposition”).

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) The assertion that KimB does not constitute a specially related person

In light of Article 35(1)1 of the Act, in cases where the transferee of the property takes over the property at a price lower than the market price from a person having a special relationship, the "person having a special relationship" under Article 35(1)1 of the Act refers to a person having a relationship under each subparagraph of Article 19(2) of the Enforcement Decree of the Act with the transferee (Article 25(4)1 of the Enforcement Decree of the Act). Thus, in cases of a transfer at a low price under Article 35(1)1 of the Act as in this case, it should be determined whether the transferor is in a relationship under each of the above subparagraphs, i.e., a person having a special relationship, based on KimB, the "transferr", and thus, the disposition of this case is unlawful.

(2) The assertion that the value of the shares of this case must be calculated according to the market price at the time of the transaction of this case, not a supplementary assessment method.

As examined below, the value of KRW 10,00 per share of the Plaintiff’s acquisition of the instant shares is that the transaction was conducted in a general and normal manner, and it constitutes the market price that adequately reflects the objective exchange value at the time. However, the Defendant’s disposition of this case by applying the supplementary evaluation method is unlawful.

(A) The Plaintiff, while serving as an English instructor of the AAA Institute, demanded a substantial participation in management and acquired the instant shares at a price of KRW 10,000 per share from KimB, a major shareholder. As such, since the Plaintiff acquired shares in a conflicting relationship with KimB, whether the Plaintiff constitutes a specially related person does not constitute a factor to be considered in determining the standards for calculating the value of shares.

(B) The Plaintiff acquired the instant shares and transferred the instant shares at a price of KRW 10,000 per share as at the time of acquisition after the lapse of one year. The instant shares were traded at KRW 13,000 per share around 205.

(C) Even if the above purchase and sale case of the Plaintiff’s shares was conducted after the lapse of a reasonable period from the date of acquisition of the Plaintiff’s shares, considering the fact that the market price of the Plaintiff’s shares was rarely changed from the date of acquisition of the Plaintiff’s shares, the above purchase and sale case supported that the market price of the instant shares was KRW 10,000 per share at the time of the instant transaction.

(3) The assertion that the amount deemed donated cannot be calculated on the basis of net profit and loss which would normally increase due to a false return of corporate tax.

On April 24, 2006, the AAAH decided to issue a revised tax return to be exempted from criminal punishment after receiving a prior notice of tax investigation from the Head of the Labor Relations Office. On May 2, 2006, 2001, it received a revised tax return from 2005 to 2005, a day before the commencement of the tax investigation. In this process, it was treated as an omission of income of KRW 80 million for the business year 2001 without reflecting all necessary expenses, such as related expenses, because it did not properly examine the remaining documents or evidence, and thereby, the net profit and loss amount for the business year 2001 increased normally. This constitutes a case where the net profit and loss amount increases normally due to a temporary and rapid increase under the latter part of Article 56(1) of the Enforcement Decree of the AA, and thus, it cannot be calculated in accordance with Article 56(1)13 of the AAA, by applying Article 56(1)16(1) of the AA.

(4) A claim that deduction shall be made for the overlapping part of the Sales Calculation Company's Calculation System.

Even if the Defendant’s application of the supplementary assessment method pursuant to Article 63(1)1 of the Act was lawful in rendering the instant disposition, the value of the instant shares should be calculated by deducting KRW 221,926,270, which is the duplicate amount of revenue for the business year 2001, which was recognized as the result of the tax investigation, from the following amount of KRW 800,278,00 as the omission amount of revenue for the business year 201: (a) the person in charge of AA Teaching Institute reported the corporate tax for the year 201, around March 2002; and (b) reflects the amount of revenue on the account book.

(A) From January 1, 2001 to December 31, 2002, AAAAAD opened an account under the name of Kim Jong-deok with respect to the expenses for teaching materials and the number or expenditure of a mother’s death, and managed the money for entering and leaving the account. In other words, the sales proceeds of teaching materials sold to students with the above non-financial passbook, and paid the money for purchasing teaching materials supplied by clients such as the publishing company, etc. by withdrawing the funds in the above passbook.

(B) However, most of the transaction parties, such as publishing companies, have issued a tax invoice and claimed for teaching material costs, and thus, AAAAAAA did not have any tax return on each amount corresponding to the amount of each tax invoice that is paid to the transaction parties, such as publishing companies, and thus, AAAAA had no tax return. As to the amount corresponding to the transaction for which a tax invoice can be issued, the AAAA had reflected it at the regular corporate tax return for each pertinent business year, and even in the case of a tax return for a 2001 business year, the time when the tax invoice was reverted out of the transaction for which a tax invoice was issued was issued, was reflected in the expenses on the settlement of accounts in the name of teaching material expenses.

(C) Meanwhile, despite the occurrence of the costs incurred in purchasing the above teaching materials, AAAAAA had no record of sales from the sales of the corresponding teaching materials, and thus, the amount of 192,979,370 won belonging to the business year 2001 was 15% sales profit of 221,926,270 won (=192,979,370 won x 1.15) was reflected in the sales revenue at the time of settlement of accounts under the pretext of the revenue of the teaching materials.

(D) However, during the process of filing a revised return of corporate tax on May 2, 2006 on May 2, 2006, AAAH filed a revised return without considering the address of the amount of KRW 221,926,270, which was originally reflected in a regular corporate tax return for the business year 201. Since the total amount of KRW 800,278,000 deposited in a non-financial passbook is recognized as an omitted sales amount, 221,926,270 out of the amount omitted sales overlap.

(b) Related statutes;

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

C. Determination

(1) As to the assertion that KimB does not constitute a specially related person

(A) Article 35 (1) 1 of the Act provides that "a person who acquires property from a person in a special relationship at a price lower than the market price shall be deemed as a transferee of the property; a person who transfers the property to a person in a special relationship at a price higher than the market price shall be deemed as a donee; and a person who is in a special relationship with a transferor or transferee (hereinafter referred to as "transferr, etc.") and an employee (including an officer of a corporation controlled by investment) shall be deemed as a transferor or transferee (hereinafter referred to as "transferr, etc.") in relation to the scope of "a person in a special relationship under Article 35 (1) 1 of the Act." (Articles 26 (4) 1, 19 (2) 2 and 13 (6) 2).

(B) In light of the purport of Article 26(4)1, Article 19(2)2, and Article 13(6)2 of the Enforcement Decree of the same Act, the term "special relationship" refers to "a relationship between a transferor, etc. and an employee (including an officer of a corporation controlled by an investment)," and it means that a person who has a special relationship with an employee (including an officer of a corporation controlled by an investment) is deemed a person who has a special relationship with a transferor, as alleged by the plaintiff, and the employer is only the person who has a special relationship from the transferee's position, and the transferee is not deemed a person with a special relationship from the employer's standpoint.

(C) Therefore, the plaintiff is an officer of AAAA Institute, a juristic person the KimB controlled by investment, and the plaintiff and KimB are related parties. The disposition of this case on the premise that the plaintiff received property at a low price from KimB in a special relationship is legitimate. Thus, the plaintiff's allegation in this part is without merit.

(2) As to the assertion that the value of the instant shares should be calculated according to the market price at the time of the instant transaction, not the supplementary evaluation method

(A) In the case of unlisted stocks not listed on the Korea Stock Exchange, if there are actual examples of transactions that appear to properly reflect the objective exchange values thereof, such price shall be deemed the market price. However, if there is no such actual example or it is difficult to calculate the market price by any other means, the value shall be assessed in accordance with the supplementary evaluation methods under the law. Here, the market price refers to the objective exchange price formed through a normal transaction in principle. In order to meet the market price at the time of donation, there must be circumstances that the transaction price objectively reflects the general and normal exchange value at the time of donation, and there should be no changes in the price between the donation and the above transaction date (see Supreme Court Decision 9Du2505, Feb. 11, 200).

(B) On December 2, 2002, the Plaintiff, the representative director of the AA Institute, transferred the instant shares to KRW 10,000 per share of KRW 10,00. In full view of the overall purport of the pleadings, the Plaintiff acquired 24,500 shares per share of KRW 5,000 per share of KRW 5,00,00, KRW 35,000 shares of the AA Institute on March 26, 200. On January 9, 2004, the Plaintiff transferred the shares of KRW 15,00 per share of KRW 10,00 to 30,00 shares of the AA Institute ( KRW 15,00 per share to 20,00, KRW 100 per share) owned by the Plaintiff to 30,00 shares of the AA Institute, KRW 20 per share of KRW 20,00 per share of KRW 10,00 per share of KRW 305,201 shares.

(C) As to the instant case, the Plaintiff, the representative director of the AAB Institute, transferred shares up to 30% of the total number of shares issued to the Plaintiff, who is a major shareholder, with the management right, constitutes a transaction between the specially related parties. There are no circumstances to deem otherwise that the transaction price of the instant case does not constitute a specially related party due to conflict of interest between the Plaintiff and the Plaintiff and the KimB. There is a substantial difference between the value of shares calculated based on the management status, net asset value, and net profit and loss value, etc. of the AAA Institute, and the Plaintiff’s assertion after January 2004 that the transaction price of the instant case was made at the same price as the instant transaction was made on or after the date of the instant transaction. As long as there were no special circumstances that there was no price fluctuation between the said two points, the Plaintiff’s assertion that the sale price of shares expressed at the AAB Institute after L, 204 did not constitute the market price of the instant case in light of the circumstances that the Defendant calculated the market price of the instant case 10 billion won.

(3) As to the assertion that the amount deemed donated cannot be calculated on the basis of the amount of net profit and loss which would normally increase due to a false return of corporate tax.

As alleged by the Plaintiff, the circumstance that the person in charge of AAA in charge of the AA Institute recognized that there was an omission of import KRW 800 million in the process of filing a revised corporate tax for the business year 2001 and that the net profit and loss amount for the business year 2001 has been significantly increased is not that of the main sentence of Article 56(1) of the Enforcement Decree of the Act which provides that the weighted average amount of net profit and loss for the last three years per share, which is the basis for calculating the deemed donation amount, shall not fall under any of the reasons under the latter part of Article 56(1) of the Enforcement Decree of the Act and the main sentence of Article 17-3(1) of the Enforcement Rule of the Act (amended by Ordinance of the Ministry of Finance and Economy No. 288 of Dec. 31, 2002)

(4) A statement to the effect that the overlapping part of the calculation of sales should be deducted.

The Plaintiff’s assertion in this part is that the amount of money deposited in the account in the name of Kim Jong-deok and KRW 800,278,00 which was recognized as an omission of sales in the year 201 as a result of tax investigation and KRW 221,926,270 which was already appropriated as the amount of teaching material expenses belonging to the business year 2001 when the Plaintiff initially reported the corporate tax. It is premised on the fact that the amount of the teaching material expenses acquired in the year 2001 was deposited in the account in the name of Kim Jong-deok and managed the amount of the non-financial expense in the name of 2001. The Plaintiff’s assertion that there is no reason to report the amount of the money including the amount of the non-financial expense at the time of the regular report of the Plaintiff’s corporate tax, and there is no reason to acknowledge the amount of monthly expenses and the amount of teaching material expenses on the account president of the account, and there is no reason to acknowledge the Plaintiff’s testimony in the above portion No. 15 through No. 130, No. 31, and No. 3251.

D. Sub-committee

Ultimately, the imposition disposition of this case is a proper law.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.