[1] Whether payment in kind of stock certificates constitutes “transfer of stock certificates” under Articles 1 and 2(3) of the former Securities Transaction Tax Act and is included in the object of taxation of securities transaction tax (affirmative)

[2] Whether interpreting that payment in kind of share certificates is included in the object of securities transaction tax violates the constitutional provisions on equality rights or guarantee of property rights (negative)

[1] In full view of the contents and legislative purport of Articles 1 and 2(3) of the former Securities Transaction Tax Act (amended by Act No. 9274 of Dec. 26, 2008), and the payment of share certificates in kind under Article 73(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007), the payment of share certificates in lieu of payment in cash is made in lieu of payment in inheritance tax, so it can be deemed as a payment in kind of inheritance tax under public law, so it can be deemed as a payment in kind, and the securities transaction tax is a distribution tax levied regardless of the occurrence of profits if share certificates are transferred at a cost. It is reasonable to interpret that payment in kind constitutes a "share certificate transfer" under the above Act and is subject to taxation of securities transaction tax. It cannot be interpreted that the payment in kind constitutes a transaction in accordance with private law, such as the transfer of share certificates under Article 5(1) of the former Securities Transaction Tax Act.

[2] In light of the fact that, in cases where ownership is transferred to the State by payment of stocks in kind, it is difficult to view that the payment in kind should be given preferential treatment in the imposition of securities transaction tax because there is no difference between the general transfer of stocks and the extinction of tax liability due to payment in kind, and that even in cases where inheritance tax is sold without payment in kind of stocks and is paid in money, it cannot be said that the interpretation that the payment in kind is included in the object of securities transaction tax is in violation of the constitutional provisions on equality rights or property rights

[1] Articles 1, 2(3), and 5(1) of the former Securities Transaction Tax Act (amended by Act No. 9274 of Dec. 26, 2008); Articles 73(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); / [2] Articles 1, 2(3), and 5(1) of the former Securities Transaction Tax Act (amended by Act No. 9274 of Dec. 26, 2008); Articles 73(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); Articles 11 and 23 of the Constitution

Plaintiff 1 and one other (Attorney Park Yong-hoon, Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2006Nu27603 decided June 19, 2007

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

Article 1 of the former Securities Transaction Tax Act (amended by Act No. 9274 of Dec. 26, 2008; hereinafter “Securities Transaction Tax Act”) provides that “The transfer of share certificates shall be subject to the imposition of securities transaction tax.” Article 2(3) provides that “The transfer of share certificates means the transfer of ownership at a cost due to contractual or legal causes,” and Article 5(1) provides that “the time when the transfer of share certificates becomes final and conclusive.” Meanwhile, Article 73(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “Gift”) provides that “The head of a tax office having jurisdiction over the place of tax payment may grant permission for payment in kind only for the relevant securities upon request of a taxpayer, in cases where the value of securities among inherited property exceeds 1/2 of the value of the relevant securities and the inheritance tax amount exceeds 10 million won.”

In full view of the contents and legislative purport of each of the above provisions, payment of share certificates under Article 73(1) of the Inheritance Tax and Gift Tax Act is made in lieu of payment of inheritance tax in cash, and thus, the obligation of inheritance tax is exempted accordingly, it can be deemed that it constitutes a payment transfer with the nature of payment in kind under public law, and the securities transaction tax is a distribution tax levied regardless of the occurrence of profits when the ownership of share certificates is transferred at a cost, it is reasonable to interpret that payment in kind constitutes a "transfer of share certificates" under Articles 1 and 2(3) of the Securities Transaction Tax Act and included in securities transaction tax subject to taxation. It cannot be interpreted that Article 5(1) of the Securities Transaction Tax Act separately prescribes the timing of such transfer in regard to transaction of share certificates, which are one of the objects of taxation of securities transaction tax, and thus, the object of taxation of the securities transaction tax is limited to private transaction, such as

In addition, considering the fact that there is no difference between the general transfer of share certificates and the transfer of ownership by payment in kind upon the transfer of ownership to the State, and thus, it is difficult to deem that a preferential treatment should be given to the payment in kind of share certificates in the imposition of securities transaction tax on the grounds that taxes are extinguished upon the transfer of ownership by payment in kind, and that the imposition of securities transaction tax is levied in the course of selling the share certificates without paying the inheritance tax in kind, even in the case of selling them with the share certificates and paying them in money

In the same purport, the lower court recognized the facts as indicated in its reasoning, and determined that the Plaintiffs were exempted from the obligation of inheritance tax by paying the inheritance tax in kind with the instant share certificates, and thus, it constitutes a case where the ownership of share certificates is transferred at a cost.

The court below did not err in the misapprehension of legal principle as to the object of securities transaction tax.

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jeon Soo-ahn (Presiding Justice)