Plaintiff (Law Firm Han, Attorneys Lee Ho-ho et al., Counsel for plaintiff-appellant)

Head of Seoul Customs Office

October 18, 2006

Seoul Administrative Court Decision 2005Guhap4854 decided Nov. 22, 2005

1. Revocation of a judgment of the first instance;

2. On November 29, 2004, the disposition that the Defendant designated the Plaintiff as the secondary taxpayer and imposed the Plaintiff KRW 408,218,070 on the Plaintiff is revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. The non-party 1 corporation is a company established on July 15, 1998 and engaged in the export and import business of petrochemicals.

B. The relationship between the changes in stock ownership and the shareholders, including the plaintiff, indicated in the list of changes in stock after the incorporation of the non-party 1 corporation, is as shown in the attached list of stock ownership.

C. On April 9, 2001, Nonparty 1 Co., Ltd. completed the Plaintiff’s registration of appointment of director on April 6, 2004, and the Plaintiff’s registration of appointment of director on April 6, 2004. Of the shareholders of Nonparty 1 Co., Ltd, Nonparty 2, as Nonparty 4’s head, was appointed as the representative director of Nonparty 1 Co., Ltd. from October 24, 200 to the present.

D. The head of Ulsan customs office discovered the fact that the non-party 1 Company was unlawfully refunded customs duties from September 23, 2002 to April 16, 2004 and notified the defendant as taxation data. On September 8, 2004, the defendant imposed and notified the non-party 1 Company of the imposition of KRW 1,432,63,940 on the non-party 1 Company, but the non-party 1 Company paid KRW 87,576,750 out of the amount of tax imposed, and defaulted the remainder of KRW 1,345,057,190 (hereinafter "the duty in arrears in this case").

E. Accordingly, the Defendant: (a) deemed that the Plaintiff, Nonparty 2, and Nonparty 3, and Nonparty 5, who is the shareholder of Nonparty 1 Company, owned the shares of Nonparty 1 Company as of the date of establishment of each of the instant duty liability for arrears, as the oligopolistic shareholder, and was the secondary taxpayer under Article 39(1)2 of the Framework Act on National Taxes; and (b) on November 29, 2004, the Defendant paid and notified the Plaintiff KRW 408,218,070 (tariff 23,729,400 + traffic tax + KRW 320,030,440 + education tax + KRW 48,04,440 + additional tax + KRW 16,453,90 (hereinafter “instant disposition of imposition”).

F. The plaintiff, who is dissatisfied with the disposition of this case, filed an appeal with the National Tax Tribunal on February 11, 2005, and the National Tax Tribunal dismissed the plaintiff's appeal on September 13, 2005.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 3, Gap evidence 4, Eul evidence 3, Eul evidence 10-1 to 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) On June 1971, Nonparty 4, the father of the Plaintiff, established and operated the non-party 6 corporation, and liquidated the above company and established the non-party 1 corporation of the same kind as the non-party 6 corporation, in fact, as one shareholder company, on July 15, 1998, and registered the non-party 7, the managing director of the non-party 6 corporation, as the representative director in form, and the non-party 8 and the non-party 2, the vice president of the non-party 6 corporation and the non-party 2,5 million won out of the incorporated capital, as the non-party 6 corporation invested in the non-party 6 corporation. The remaining 25 million won out of the incorporated capital was created by the non-party 7 that the non-party 6 corporation invested in the non-party 6 corporation, and owned the non-party 50% shares in the name of the non-party 6 corporation, the non-party 7, the non-party 8, and the non-party 5%.

(2) On October 24, 200, Nonparty 2 took office as the representative director of Nonparty 1 corporation as a part of receiving business from Nonparty 4, and in fact took over the entire shares and the management right from Nonparty 4, who was a shareholder of Nonparty 1 corporation, but for the convenience of the management of the company, only 30% of the shares were owned in the name of Nonparty 2, and 30% of the remaining shares were owned in the name of Nonparty 2, the name of Nonparty 3, the name of Nonparty 2, and 15% in the name of Nonparty 3, the name of Nonparty 2, and 25% in the name of Nonparty 5.

(3) After that, on December 2001, when Nonparty 1 increased 50,000 shares for the convenience of bank transactions, all of the subscription price was borne by Nonparty 2. In the event of the increase of 60,000 shares around December 2003, the Minister of Accounting and Accounting terminated the deposit amount of KRW 30,000 which was subscribed in the name of the vice president Nonparty 10 through Nonparty 9, and then prepares the subscription price under the name of Nonparty 5, KRW 75,00,00 in the name of Nonparty 3, and KRW 45,00 in the name of Nonparty 1’s deposit account under the name of Nonparty 3, and the subscription price was made by paying the subscription price to Nonparty 1’s deposit account. The Plaintiff, Nonparty 5, and Nonparty 3, who did not have entirely borne the subscription price, acquired the subscription price for new shares according to the existing share ratio.

(4) The Plaintiff did not exercise the authority as a shareholder at a general meeting of shareholders, did not receive dividends, and did not have been or worked as an executive of Nonparty 1 Company.

(5) Therefore, during the process of Nonparty 4’s succession to Nonparty 2, the Plaintiff is merely a type shareholder who lent his title to Nonparty 2 for convenience, and cannot be deemed to fall under the “point shareholder” under Article 39(1) of the Framework Act on National Taxes. Furthermore, Article 39(2)2(a) of the same Act does not constitute “a person who actually exercises the rights to shares at least 51/100 of the total number of outstanding shares of the relevant corporation” under Article 39(1)2(b) or “a person who actually controls the management of Nonparty 1,” but the instant disposition imposing secondary tax liability against the Plaintiff is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Whether the Plaintiff constitutes a “excess shareholder” under Article 39 of the Framework Act on National Taxes

(A) Determination of whether a person is an oligopolistic shareholder under Article 39(1)2 of the Framework Act on National Taxes shall be based on whether the person is a member of a group of stocks owned by the majority. Specifically, even if there is no fact involved in the management of the company, it shall not be determined that the person is not an oligopolistic shareholder. The fact of ownership of stocks shall be proven by the tax authority based on the data, such as the shareholder registry, statement of stock transfer status, corporate register, etc. However, even if the person appears to be a single shareholder in light of the above data, if there are circumstances, such as that the person is stolen the name of the shareholder or is registered in the name other than the name of the real shareholder, it shall not be deemed a shareholder only in the name of the shareholder, but it shall be proved by the nominal shareholder who is alleged to be a shareholder (see Supreme Court Decision 20

(B) In this case, the relationship between the shareholders including the Plaintiff and the shareholders, and the details of Non-Party 1’s stock change indicated in the statement of stock change from the incorporation of Non-Party 1 Company to the taxable period of this case are identical to the details of the attached stock ownership. Thus, the Plaintiff should be deemed to hold shares equivalent to 30/10 of the total number of issued and outstanding shares, barring any special circumstance. The shareholders of Non-Party 1 Company including the Plaintiff hold shares as those of a relative under Article 20 of the Enforcement Decree of the Framework Act on National Taxes because the shares held as the shareholders of Non-Party 1 Company are more than 51/100 of the total number of issued and outstanding shares.

(C) On the other hand, it is difficult to believe that part of the testimony of Nonparty 9 by Nonparty 1 witness of the first instance trial, which appears to be consistent with the argument that the Plaintiff is a mere shareholder of Nonparty 1 corporation in the form of the company

In addition, in light of the facts that Nonparty 1, 2, 6, 7-1, 8, 11-1, 13, 14-1, 2, 15-20, and 9 of the first instance court witness testimony, the non-party 6 corporation was established on June 22, 197 and operated as the representative director of the Plaintiff’s 100 million won for the purpose of acquiring the shares under the name of 50 million won (the non-party 1 corporation’s 200 million won was closed on October 31, 201, the non-party 1 corporation’s 200 million won was closed on September 2, 2002, and the non-party 1 corporation’s 70 million won was closed on the non-party 1’s own shares issued under the name of 50 billion won, and the non-party 2 corporation’s new shares issued on the non-party 1’s own shares issued under the name of 50 billion won.

Therefore, the Plaintiff’s assertion that the Plaintiff is a type shareholder is without merit.

(2) Whether the Plaintiff constitutes “a person who actually exercises the right to shares held in excess of 51/100 of the total number of outstanding shares” or “a person who actually controls the management of a corporation”

(A) The legislative intent and amendment history of Article 39 of the Framework Act on National Taxes

1) Legislative intent of Article 39 of the Framework Act on National Taxes

Article 39 of the Framework Act on National Taxes intends to realize the principle of substantial taxation as a principle for the imposition of national taxes and the application of tax laws. In substance, even though property belongs to a third party, a third party with a special relationship that does not lose fairness even if such property rights are recognized as identical to the principal taxpayer, thereby denying the formal ownership of such property rights, thereby achieving reasonableness and feasibility in its content or equity in tax collection, while a system is intended to achieve the public interest of securing tax collection. In short, if the second tax liability of an oligopolistic shareholder uniformly recognizes the unlimited tax liability of all the oligopolistic shareholders as to the whole of the corporation without consideration as to the degree of ownership of the oligopolistic shareholder’s stocks, the substantial infringement of the principle of no taxation without law, and the excessive infringement of property rights, and the unreasonable discrimination between oligopolistic shareholders, the scope of the oligopolistic shareholder’s tax liability should be limited to the principle of no taxation without law (see, e.g., Supreme Court Decision 2008Du3250, Jul. 24, 201).

2) The amendment history of Article 39 of the Framework Act on National Taxes (see the amendment history of the attached Form)

① With respect to the scope of oligopolistic shareholders liable for the secondary tax liability, Article 39 of the Framework Act on National Taxes provides that, at the time of the enactment of the Act, the secondary tax liability should be imposed in cases where “one shareholder or one partner with limited liability and his relatives or other persons having special relations with him as prescribed by the Presidential Decree, and whose total amount of stocks or investment is not less than 51/100 of the total amount of issued stocks or

② However, examining the history of the amendment of the above provision, the above provision was amended on December 31, 1993. The Constitutional Court, on May 28, 1998, required to have a position to substantially control the operation of the corporation as an oligopolistic shareholder, and merely because of the reasons registered as a shareholder in the register of shareholders of the corporation, cannot be called as an oligopolistic shareholder immediately. (See Supreme Court Decision 90Nu7821, Jun. 11, 1991). It seems that the provision was amended on May 28, 1998 to limit the secondary tax liability against the oligopolistic shareholder by reflecting the position that the nominal shareholder is not liable for secondary tax liability, and to limit the amount of tax liability against the oligopolistic shareholder under Article 39(1)2 (a) of the former Framework Act on National Taxes (amended by Act No. 4672, Dec. 31, 1993). 208.

③ In particular, on the grounds of the decision of the Constitutional Court rendered on June 26, 1997, which cited in the above Constitutional Court Decision 97Hun-Ba13, 93Hun-Ba49, etc., the Constitutional Court: “The legislative purpose of the second tax liability system for oligopolistic shareholders is to impose taxes on a third party who is not in fact related to the tax, and is a small-scale closed company in which a non-listed corporation is comprised of relatives, relatives, and relatives, etc., and which actually controls the management of the company; and thus, the substantial operator who actually controls the management of the company is likely to abuse the corporate personality of the company, thereby preventing it and achieve substantial equality in tax by preventing it. The scope of imposing the second tax liability is reasonable to impose the tax liability on the oligopolistic shareholder beyond the original legislative purpose and at the same time violates the principle of no taxation without law, since it is reasonable to impose the tax on the oligopolistic shareholder who is actually in fact in violation of the legal status of the oligopolistic shareholder.”

(B) Requirements for oligopolistic shareholders with secondary tax liability

1) In light of the legislative purport, amendment history, and contents of decision by the Constitutional Court under Article 39 of the Framework Act on National Taxes, it is reasonable to interpret that the secondary tax liability is the oligopolistic shareholder, only if the total number of stocks owned is satisfied with the formal criteria that is at least 51/100 of the total number of stocks issued by the pertinent corporation and the practical criteria that the rights to more than 51/10 of the total number of stocks issued by the pertinent corporation are actually exercised or actually controlled by the

2) In full view of the overall purport of the arguments in this case’s return to the instant case’s return to Dop, Eul evidence No. 1, Eul evidence No. 6, Eul evidence No. 24-1, part of Gap evidence No. 24-2, and witness Nonparty 9’s testimony of the first instance court, the plaintiff taken office upon Nonparty 2’s request, and the plaintiff took office as a director of the non-party 1 corporation. The minutes of the board of directors’ meeting held on December 15, 2003, the plaintiff’s name was stated in the minutes of the board of directors’ meeting on December 15, 200, and the seal of the plaintiff’s name was affixed thereto; the operation of the gas station was added to the purpose of the non-party 1 corporation as of December 14, 201 on the corporate register; and the plaintiff concluded a transaction relation with the non-party 1 corporation with the operation of the gas station from Chungcheongnam-gun (detailed number omitted) from October 14, 2002.

However, considering the overall purport of pleadings as to Gap evidence 1, Gap evidence 11-1-3, Eul evidence 21-1-3, Eul evidence 10-1-3, Eul evidence 1-1-1-2, Eul evidence 2-2, the non-party 2, who is not the plaintiff, takes office as the representative director of the non-party 1-2 as of October 24, 2000 to the present. The remaining shareholders except the plaintiff are their spouses or relatives by marriage, and their total share holding ratio is up to 70/10, and the plaintiff has been operating a main station located in Chungcheongnam-gun, Chungcheongnam-gun separately from the non-party 1-1-3, Eul evidence 10-3, Eul evidence 10-11-2, Eul evidence 11-2, and 2-2, it is difficult to view that the plaintiff did not actually own the rights to the non-party 1-2, 35-2, and 30-3.

Therefore, the plaintiff's assertion on this point is with merit.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and since the judgment of the court of first instance is unfair, the plaintiff's appeal shall be accepted, and the judgment of the court of first instance shall be revoked and the plaintiff's claim shall be accepted.

[Attachment List of Stockholding]

Judges Cho Yong-ho (Presiding Judge)