Plaintiff (Law Firm Dakon, Attorneys Seo Jong-ho et al., Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

September 16, 2010

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposing gift tax of KRW 671,074,00 (including additional tax of KRW 291,807,586) on the Plaintiff on December 30, 2003 shall be revoked.

1. Details of the disposition;

A. As of December 30, 2003, as indicated below, the Plaintiff owned the shares of Auju Industries Co., Ltd. (hereinafter “Auju Industry”), Auju Industry Co., Ltd. (hereinafter “Auju Industry”), Yangsan High-Pressure concrete Co., Ltd. (hereinafter “ Yang High-Pressure concrete”), as indicated in the following table.

The shares (%) 1,522,567.87 2,252,684 69.149,8209,82099.96 Other shareholders 17,431.13,007,316 30.9 180.04 0.04 1,540,540,540,000 300 3,000 1,540,000 3,000 3,260,000 10,000 450,000

B. At the time, the main pipe industry, the main liquor industry, and the double-tension and high-tension concrete (hereinafter “Apein, etc.”) were operated as a material business sector. On December 30, 2003, each of the material business sector of the Apein industry and the Yang High-tension and high-tension concrete was divided into the main pipe industry to merge into the main pipe industry, but it was revised by Act No. 7010 of Dec. 30, 2003 to determine the ratio of the merger, and the net asset value per share was calculated as follows: (a) the assessed net asset value per share in accordance with the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Jan. 1, 2004; hereinafter “former Inheritance Tax Act”) was calculated by dividing the total asset value of each corporation from the net asset value of each net asset sector by the ratio of the total asset value to the net asset value of each net asset sector to the net asset value of each net asset sector.

- The net asset value for each corporate entity

The net asset value of the Pipe industry, the Pipe industry contained in the main text, 136,852,258,563 won 211,647,231,282 won 57,898,155,781 won

- The appraised value per share of the Apepe industry

8,865 won (136,852,258,563 won ¡À1,540,00 shares)

- The appraised value per share of each building material sector of the A-State industry and the T-Occinary high-tension concrete;

(1) The appraised value per share of a building material project for the Asian industry: 6,229 won.

The net asset value on the balance sheet 10,180,68,680,627,627,71,727 won on the balance sheet 16,028,90,028,908,771,781,796 won on the taxation of KRW 10,241,741,017,796 won 3,159,969,969,221 won on the net asset value of KRW 89,938,99,931 won on the balance sheet 12,868,939,679, 208, 208, 207, 208, 2013, 208, 306, 208, 306, 205, 207, 3016, 205, 207, 2014, 207, 208, 3016, 275, 27, 2014, 3

(2) The assessment value per share of building materials of high-tension and concrete: 134,407 won.

The net asset value on the balance sheet 35,848,635,605,605,605,637,775,775,778,978,871, 2305,746,248,405,245,245,186,051, 637,656,656,134,107,807,158,2530,848,871,23,496,641,796,5,7146,50,7147, 305, 107, 100,775, 775, 100, 196, 305, 47, 308, 405, 107, 196, 107, 305, 307, 408, 1975, 1948, 75,28, 7,

C. As above, Apepe industry, etc. calculated the appraised value per share of the Ape industry’s stocks as KRW 8,865, and the appraised value per share of each building material business sector of Apepe industry and Pu high-tension concrete as KRW 66,229, and KRW 134,407, respectively. Based on this, the Apepe industry’s stocks were newly issued for the net assets in the Apepe industry, as to the Apepe industry’s building material business sector of Puak and high-tension concrete, and issued them to shareholders of Ape industry and Pu high-tension concrete at the following rates of mergers:

delivery of new shares 2,546,935 shares issued and delivered to the business sector 2,546,935 shares issued and delivered to the business sector 2,575 shares issued and delivered to the 2,546,935 shares issued and delivered to the business sector 2,57 shares issued in the aggregate of 2,546 shares issued and delivered to the business sector 2,040,875 shares issued in the business sector 10.74,407 won merger ratio of 10.51249

D. The ratio of shares of the Apepe Industries owned by the Plaintiff, as the Plaintiff, who is a major shareholder of the Apeju Industry and the Apeju Industries, was issued new shares of the Apeju Industries, was modified as follows:

Plaintiff 1,522,567 Shares 98.9%, 410,257 Shares 523,867 Shares 523,866,695 Shares 84.2% of Other Shareholders 17,433 Shares 630,619 Shares 648,258 Shares 15.8% in total 1,540,540,000 Shares 2,076 shares 524,077 Shares 4,104,104,953 Shares 17,433 Shares 630,619 Shares 210 Shares 648,258 Shares 15.8% in total. 1,540% in total,540,00 shares 2,040,876 Shares 524,07 shares 4,104,953 Shares 10% in total.

E. However, even though the value of the divided business sector should be assessed according to the provisions of Articles 60 through 66 of the former Inheritance and Gift Tax Act, the director of the Seoul Regional Tax Office determined that it is unfair to calculate the merger ratio by the ratio of adding or deducting the reserve balance under the Corporate Tax Act to the net asset value on the account account (Sheet sheet) by the Apepe industry, etc., and that the Plaintiff, a major shareholder, was the gift profit under the former Inheritance and Gift Tax Act. The Seoul Regional Tax Office assessed the appraised value per share of the Ape industry as KRW 88,703, and assessed the net asset value under the former Inheritance and Gift Tax Act as KRW 210,867,235,618, and the net asset value under the Gape industry’s former Inheritance and Gift Tax Act as KRW 57,940,302,206 (each assessed value is somewhat different from the appraised value per share calculated by the Ape industry as at the time of the difference between the two values per share and the above appraised value per share.

(1) The appraised value per share of a building material project for the Asian industry: 69,576 won.

The value of assets on the balance sheet 169,94, 52, 25 won, 151,01,01, 374, 393, 117,86 won, 110,672, 974, 1062, 490,723 won, 4810, 484, 2484, 2463, 2697, 264, 2697, 264, 2697, 2697, 264, 797, 397, 297, 2964, 365, 267, 97, 297, 364, 965, 267, 97, 97, 264, 260, 256, 298, 2963, 2965, 2964, 2964

(2) The assessment value per share of building materials of high-tension and concrete: 135,746 won.

The value of assets on the balance sheet 61,32,137,25,250 won or more 50,04,275,274,278,367,274,367,478,367,478,367,478,367,478,367,478,367,297,367,2748,367,274,367,368,475,278,274,367,367,47,367,297,384,367,367,475,367,47,297,367,294,367,367,297,475,384,2547,47,257,257,374,257,297,47,375,27,394,37,47,47,37,47,

F. On June 11, 2009, the head of the Seoul Regional Tax Office notified the Defendant, who is the head of the competent district tax office, of the content that the Plaintiff obtained a deemed donation of KRW 1,121,743,126 as a major shareholder of the Apepe industry, and KRW 226,42,932 as a major shareholder of the Apepe industry, due to an unfair merger between Apepepe industry, etc. at the merger ratio of KRW 1:0.78437:1.535,285, and KRW 215,954,301 (including additional tax on negligent return, KRW 753,285, and additional tax on negligent payment, KRW 215,301, which was imposed on the Plaintiff (hereinafter referred to as the “instant disposition imposing the gift tax”). The Defendant issued the disposition imposing the gift tax on the Plaintiff on June 11, 2009.

The appraisal value of the shares of the Pipe industry in the main text 8,703 won 69,576 won 135,746 won in the merger ratio of 10.7847 1.53034 company's shares appraisal value of 88,865 won in 66,229 won in 134,407 won in the merger ratio of 10.745281.5249

G. On September 2, 2009, the Plaintiff appealed to the Tax Tribunal for the instant disposition, but the Tax Tribunal dismissed the Plaintiff’s request on December 24, 2009.

【Ground of recognition】 Facts without dispute, entry of Gap evidence 1 through 5, Eul evidence 1 and 2 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Appropriateness of the calculation of the merger ratio

In order to maintain consistency in the computation of acquisition cost at the time of personnel division, the main pipe industry, etc. calculated the net asset value of the divided business sector based on the method prescribed by the Corporate Tax Act, in order to maintain consistency in the computation of acquisition cost at the time of personnel division, under the ambiguous provisions for the method of assessing the net asset value of the building materials business sector divided into Aju industry and Yang tension concrete. In addition, in calculating the income amount of fictitious dividend upon corporate personnel division, the net asset value ratio under the Corporate Tax Act is applied to the same property when the market price prescribed by the Corporate Tax Act and the Inheritance Tax Act are different in cases where the market price under the Inheritance Tax Act is different from the same property, it is reasonable to apply the net asset value ratio under the Corporate Tax Act, in light of the purport of Article 26(9) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 18177, Dec. 30, 203).

Therefore, since the merger ratio calculated based on the above method is justifiable, the instant disposition on the premise that the above merger ratio is unfair shall be revoked as it is unlawful.

(2) Illegal in calculating deemed donation amount

Since the Plaintiff, a shareholder of the Apepe Industries, which is a corporation surviving after division, did not receive the new shares of merger, the Plaintiff, as the shareholder, did not gain profit from the merger, and the assessed value per share of the Yangsan High-Pressure concrete, was reduced rather than the value at the time of the Defendant’s assessment methods. Thus, the Plaintiff did not receive any profit as the shareholder of Yang High-Pressure concrete.

Therefore, the disposition of this case on the premise that the plaintiff was entitled to share profits as a shareholder of the Apepe Industries and Yang Modive concrete must be revoked because the disposition of this case is unlawful.

(3) Illegality of imposition of penalty tax

In light of the fact that the acquisition cost under the Corporate Tax Act calculated a merger ratio by applying the net asset value ratio under the Corporate Tax Act in order to maintain consistency with the distribution standard, and that the shares held by the Plaintiff and his/her family-related parties reach 99% and the Plaintiff did not receive a distribution from minority shareholders or other shareholders, it is reasonable to deem that there exists a justifiable reason that, as for the additional tax (additional tax return 75,853,285 won, additional tax 215,954,301 won, additional tax) is lawful, at least a part of the additional tax (additional tax return 75,855,954,301 won, additional tax) is not attributable to the Plaintiff.

Therefore, the penalty tax imposition disposition of this case should be revoked as it is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) As to the adequacy of a merger ratio calculation

In assessing the net asset value of the business portion at the time of the merger, the method of reducing the amount of liabilities from the asset value of the relevant corporation under the former Inheritance Tax Act, i.e., the method of calculating the net asset value on the balance sheet, i.e., the method of calculating the amount of reserves from the net asset value of the relevant corporation on the balance sheet, i.e., the method of calculating the amount of reserves under the Corporate Tax Act, i., the former method of calculating the net asset value under the Corporate Tax Act, i.e., the method of calculating the amount of gift tax and the method of calculating the gift value. Thus, in calculating the gift value, it is reasonable to apply the former method of calculating the gift tax in accordance with Article 55 of the former Enforcement Decree of the Corporate Tax Act, and the above provision of Article 10-2 (1) of the former Enforcement Decree of the Corporate Tax Act, which provides that the method of calculating the net asset value of the relevant corporation on the basis of the net asset value before the merger, shall not be applied to the calculation of the net asset value of the relevant corporation.

(2) As to the illegality of calculating the deemed donation amount

According to Article 38 of the former Inheritance and Gift Tax Act, a shareholder of a corporation surviving the merger after the merger shall be liable for gift tax if there is a benefit from the merger, regardless of whether the corporation received new shares for the merger. However, as shown below, the assets of the Aju Industries and the Aju Industries were over-assessment of the price per share of the Aju Industries, and as a result, the Plaintiff, a major shareholder of the Ajupe, received profit from the merger of this case. Moreover, the Yangsan and tension concrete was relatively over-assessment compared to the Aju Industries, and the Plaintiff, a major shareholder of the Ajuju Industries, received profit-sharing of the Aju Industries due to the merger of this case (the Plaintiff received profit-sharing of each of the above profits separately as the shareholder of the Aju Industries and Yangyang High-tension concrete). As long as each of the above profits was separately distributed as the shareholder of the Aju Industries, the Plaintiff’s above assertion is without merit.

- the number of stocks to be issued in accordance with normal mergers;

47,035,92,925,302,374,853,247,240,000, 2738,400, 340, 346, and 88,703 won per share of 88,500,703 won per share of 136,603,60,576 won, 135,746 won per 746,746 won per 130,540,540,000, total net asset value of 136,60,635,746 won per stock of 10.7847,530,540,00 (existing number of stocks to be granted to 1,540,5340,00 (existing number of stocks to be granted)

- The number of actual stocks issued

The number of shares 1.540,000 (existing Number of Shares) 2,040,872,077 Shares 4,104,952 Shares 4,104,952 of the Pipeing Industry (Building Materials Department) No. 1.540,000 (No. 1.540,000 shares)

- After the merger, the value per share of the pipeline 91,150 won (374,166,853,247 won/4,104,952 note)

- The Plaintiff’s calculation of the Plaintiff’s gift profit after the merger (which differs from the gift profit at the time of the instant disposition, but is different from the calculation of fractional treatment)

(1) 47,03,035,00 won (1,540,00 x 91,00 x 97,00 won) 186,02,05,00 won (1,540,000 x 91,150 x 97,769,872 x 91,150 won) of the value of shares held at the beginning 136,603,271,50 won (1,540 x 91,000 won) of the value of shares acquired after the merger - 140,371,57,69,769,769,79,79,769,79,7636,79,79,79,67,50 won (524,07 x 91,977) of the shares held at the end of the merger.

(3) As to the illegality of the imposition of penalty tax

However, in order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under tax law is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates a return, tax liability, etc. as prescribed by the Act without justifiable grounds, and the taxpayer’s intention or negligence is not considered: Provided, That it is not unreasonable for a taxpayer to be unaware of his/her duty, or there is a circumstance that it is unreasonable for the taxpayer to expect the fulfillment of his/her duty to pay taxes to the party concerned to do so, and it cannot be imposed in cases where there is a justifiable reason that it is not attributable to the taxpayer’s failure to perform such duty.

However, even though Article 55 of the former Inheritance and Gift Tax Act and Article 10-2 of the Enforcement Rule of the same Act provide the method of calculating the net asset value of the division business sector, the calculation of the merger ratio by a different method is merely deemed due to the misunderstanding of laws and regulations, and it is difficult to deem that there is a justifiable reason not to cause a failure to perform its duties.

Therefore, the plaintiff's above assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

[Attachment Form 5]

Judges Lee Jong-so (Presiding Judge)