Adjudication 2013luminous4350 ( December 18, 2013)

The cancellation of a contract for sales of non-performance can not be deemed to have received the money.

Since the cancellation of the sales contract for unlisted stocks due to nonperformance cannot be recognized because the transfer price was paid to the transferor from the corporation's account, it is reasonable to impose capital gains tax by applying the regulations of wrongful calculation based on low-price transfer between related parties.

Gwangju District Court 2014Guhap410 Revocation of Disposition of Imposing Capital Gains Tax

AA

BB Director of the Tax Office

2014.07.03

2014.09.04

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of KRW 00,00,000 and KRW 0,000,000 of local income tax for the year 2011 against the Plaintiff on September 5, 2013 shall be revoked, respectively.

1. Basic facts

A. Plaintiff’s return of income tax amount on stock transfer

On September 14, 2002, the Plaintiff acquired 0,000 shares ofCC farming association (hereinafter referred to as “instant shares”) that is an unlisted corporation in AAri (hereinafter referred to as “instant corporation”), and held office as the representative director of the instant corporation from August 11, 2004 and from November 6, 2004 to November 27, 2006.

From April 2, 2008, the Plaintiff’s Schedule D was in office as the representative director of the instant legal entity from April 2, 2008. On September 2, 201, the Plaintiff transferred to D 10,000 won per share in total of KRW 10,000 per share (hereinafter “instant stock transfer contract”). On December 20, 201, the Plaintiff reported the transfer income tax amount of KRW 0,000 calculated by adding the transfer value and acquisition value to KRW 00,000 per share.

B. Defendant’s disposition of capital gains tax and local income tax rectification

B As a result of a regular audit on the instant corporation, the head of the tax office notified the Defendant of the taxation data that the Plaintiff acquired the instant shares at low price. Accordingly, the Defendant denied the transfer value reported by the Plaintiff by deeming that the instant shares were transferred at low price between related parties and thus subject to the avoidance of wrongful calculation, and assessed the market value of the instant shares at KRW 00,000 according to the supplementary assessment method under Article 63 of the Inheritance Tax and Gift Tax Act and Article 54 of the Enforcement Decree of the same Act, and notified the Plaintiff of the pre-announcement of taxation on July 5, 2013, by calculating the market value of the instant shares at KRW 00,000 (0,000 per share x00) as the market value of the instant shares at KRW 00,000,000 in accordance with the supplementary assessment method under Article 63 of the Inheritance Tax and Gift Tax Act and Article 54 of the same Enforcement Decree of the same Act (hereinafter “instant disposition”).

C. The plaintiff's notice of cancellation of the transfer contract of this case

On July 16, 2013, the Plaintiff sent a peremptory notice to D that “the cancellation of the instant share transfer contract due to the nonperformance of the obligation to purchase the shares,” and on December 25, 2013, the Plaintiff delayed the performance of the instant share transfer price of KRW 65 million. Therefore, on January 10, 2014, the Plaintiff sent a peremptory notice to D that “in the event of nonperformance by January 10, 2014, the contract will be rescinded on the day following the expiration date of the highest notice.”

(d) Procedures of the previous trial; and

The Plaintiff dissatisfied with the instant disposition and filed a tax appeal on October 7, 2013, but was dismissed by the Tax Tribunal on December 18, 2013.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 3 through 6, 13, 14, Eul evidence Nos. 1, 2, 4 and 5, and the purport of the whole pleadings

2. The plaintiff's assertion and relevant Acts and subordinate statutes;

A. The plaintiff's assertion

The Defendant: (a) deemed that the instant share transfer contract constitutes an object of wrongful calculation based on the premise that the said contract is valid; (b) rendered a decision of correction of capital gains tax; and (c) issued a disposition imposing local income tax in proportion thereto; but

1) The instant share transfer contract was rescinded

DD failed to pay the Plaintiff the acquisition price of the instant stock transfer contract due to the aggravation of the financial situation of the instant corporation. The amount paid from the account of the instant corporation to the Plaintiff’s account was paid as wages or retirement allowances after the Plaintiff resigned from the representative director of the instant corporation, not as the acquisition price of the instant stocks to DD. Accordingly, the instant stock transfer contract was rescinded by notifying DD of the cancellation of the contract on the grounds of the nonperformance of obligation.

Even if the notification of the cancellation of the contract is not valid due to the absence of the highest notice, the Plaintiff notified D on December 25, 2013, and thus, it cannot be deemed that the instant stock transfer contract was retroactively null and void due to the cancellation of the contract, and thus, the instant disposition was unlawful by losing the grounds for taxation.

2) No person is subject to the avoidance of wrongful calculation.

Even if the share transfer contract of this case is valid, the Plaintiff transferred the shares of this case not necessarily with the intention to evade taxes but with no choice but for the unity of his family, and since D from April 2, 2008, which began to hold office as the representative director of the corporation of this case, the difference between the market price and the transaction price of this case is less than KRW 00,000,000,000 and less than KRW 00,000,000, and thus, the disposition of this case based on this premise is unlawful.

(b) Related statutes;

Attached Form 2 is as stated in the relevant Acts and subordinate statutes.

3. Determination

A. Whether the transfer contract of this case was cancelled

Since capital gains tax is levied on income from the transfer of assets, even if the asset appears to have been transferred by a sales contract, if the sales contract becomes null and void from the beginning or if the sales contract is cancelled later, etc., in principle, the transferor's sales price received should be returned to the transferee, and thus, it cannot be deemed as taxable income from the transferor's income (see, e.g., Supreme Court en banc Decision 2010Du23644, Jul. 21, 201).

However, in full view of the following facts and circumstances revealed by adding the aforementioned evidence and evidence Nos. 3-2, 9, 10, and 12 to the statement of evidence Nos. 3-2, 9, 10, and 12, the instant transfer contract cannot be deemed as retroactively null and void due to the cancellation of the contract due to D’s default. Thus, the Plaintiff’s assertion on this part is without merit.

1) The instant corporation included KRW 0,00,000 in net income and KRW 0,000,000 in earned surplus and KRW 0,000,00 in earned surplus at the settlement of accounts in 2011, and thus, it is difficult to deem that the financial situation of the instant corporation has deteriorated so that DD could not pay the Plaintiff the purchase price of stocks in 201.

2) From October 5, 2006 to March 10, 2012, as shown in the attached Table 1, a total of KRW 00,000,000 was deposited from the Plaintiff’s account to the Plaintiff’s account at least ten times. Of them, from October 5, 2006 to August 6, 201, a maximum of KRW 00,000 has been deposited in most months during most months. From August 29, 201, an amount of KRW 00,000,000,000 on October 3, 2011, KRW 00,000,000 on November 1, 201, KRW 300,000 on December 8, 2011, KRW 300,000,000 on each of the deposited money.

3) However, the shareholder composition of the instant legal entity is highly likely to be mixed with funds of individuals and legal entities since most of the funds of the instant legal entity consisting of D, D’s spouse EE, EEF, EEF, EE or GG, etc., D and EE’s shareholding ratio constitutes 0.00% in the year 2011, 00.00% in the year 201, and 00.00% in the year 2012, and DD were working as the representative director of the instant legal entity from April 2, 2008 to April 2, 2008. In full view of the fact that D and EE appear to be a company that actually owns and controls D or EE, the amount paid to the Plaintiff from the account of the instant legal entity is presumed to be the amount paid to the Plaintiff by D or EE.

4) Only the details reported as earned income by the instant corporation at the time of returns on income tax in 2008 are confirmed, and there is no evidence to prove that the instant corporation paid wages or retirement allowances to the Plaintiff.

Rather, the amount of money deposited from the Plaintiff’s account to August 6, 201, which was deposited from October 5, 2006 to August 6, 201, is deemed to have been paid as living expenses on the ground that the Plaintiff has maintained the status as a shareholder upon resignation of the representative director of the instant corporation around December 2006, and ② KRW 00,000,000, which was deposited from August 29, 201 to March 10, 201, was paid before and after the conclusion of the instant stock transfer contract, and ② The amount was paid after September 2, 2011, the transfer of the shareholder registry from the Plaintiff to D around February 2, 2013, which was immediately before the last deposit, and the Plaintiff’s account was not transferred from the Plaintiff’s account to the Defendant on April 31, 2013, including the Plaintiff’s securities transaction tax.

(b) Whether the calculation is subject to avoidance of wrongful calculation;

Article 167 (3) 1 of the Enforcement Decree of the Income Tax Act provides that when assets are transferred to a related party at a price lower than the market price as one of the "if it is deemed that the tax burden has been reduced unreasonably" under Article 101 (1) of the Act, it shall be limited to cases where the difference between the market price and the transaction price is at least 300 million won or the market price is at least 5/100 of the market

Meanwhile, Article 101 of the Income Tax Act provides that a resident’s actual act or calculation is legally effective and lawful, and even if accurate calculation is made on the basis of accounts, where such act or calculation constitutes a type of transaction where the tax burden under each subparagraph of Article 167(3) of the Enforcement Decree of the Income Tax Act is objectively reduced by an objective transaction between a related party under Article 98(1) of the Enforcement Decree of the Income Tax Act, and the purpose of realizing fair taxation is to deny it under the tax law and calculate the amount of income in a manner prescribed by the law. Thus, it is sufficient to acknowledge that a transaction between a related party cannot be deemed a normal transaction to be taken by a reasonable economic person in light of social norms and transaction practices, and thus, it does not necessarily require any tax evasion or economic loss to the party concerned (see Supreme Court Decision 2007Du7505, Sept. 2

Examining the facts acknowledged earlier and the facts and circumstances revealed in Gap evidence No. 12 together with the purport of the entire pleadings in light of the aforementioned legal principles, the Plaintiff’s instant share transfer contract is deemed to have unjustly reduced the tax burden, and thus constitutes a subject of the avoidance of wrongful calculation under Article 167(3)1 of the Enforcement Decree of the Income Tax Act, and thus, the instant disposition based on such premise is lawful.

Therefore, the plaintiff's assertion on this part is without merit.

1) Pursuant to Article 98(1) of the Enforcement Decree of the Income Tax Act and Article 1-2(1)1 of the Enforcement Decree of the Framework Act on National Taxes, the Plaintiff and DD have no dispute between the parties in relation to facts that constitute a specially related person.

2) As seen earlier, according to the supplementary assessment methods under Article 63 of the Inheritance Tax and Gift Tax Act and Article 54 of the Enforcement Decree of the same Act, the Defendant assessed the market price of the transfer value of the instant shares as KRW 000,000,000. The difference between the said appraised value and the transaction value of the instant shares reported by the Plaintiff is KRW 00,000,000 ( KRW 00,000,000 - 00,000), and the difference between the market price and the transaction value is KRW 00,000.

3) DD prepared a written confirmation that “The instant stock transfer agreement was not based on the ordinary transaction procedures in the form of down payment, intermediate payment, and balance, due to the characteristics of the transaction between the family and that “the transfer of shares was to be made simultaneously with the conclusion of the contract, not upon the completion of the contract, at the time of the change of the financial situation.”

4) As asserted by the Plaintiff, even if there was no purpose of evading taxes in the motive for the transfer of shares in this case, selling shares of KRW 000,000 at the market price of KRW 00,000 cannot be deemed as a normal transaction to be done by a reasonable economic person in light of social norms and transaction practices.

4. Conclusion

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