Seocho 2014west 1534 (2014.08)

Taxation on the donation of profits to a specific corporation as a deficit shall be justified.

Article 41(1) of the Inheritance Tax and Gift Tax Act provides that the amount as prescribed by the Presidential Decree shall be regarded as the gains from donation. Article 31(6) of the Enforcement Decree of the same Act provides for the calculation of gains from donation by delegation, so it is impossible to interpret that there is no value of donated property in the case of incidental business under the Act before the amendment. Thus,

Article 41 of the Inheritance Tax and Gift Tax Act

2014Guhap63985 Revocation of Disposition of Imposition of Gift Tax

MaA and 2

YThe director of the tax office

May 8, 2015

June 5, 2015

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The imposition of each gift tax on January 2, 2013 by the defendant against the plaintiffs on January 2, 2013 is revoked.

1. Details of the disposition;

A. Plaintiff UA is the father of Plaintiff UB and UCC, and the Plaintiffs are the shareholders of DD Industry Stock Companies (hereinafter “DD Industry”).

B. DD industry lent money to FF Industrial Development Co., Ltd. (hereinafter referred to as "FF") and EE Co., Ltd. (hereinafter referred to as "E"), free of interest (hereinafter referred to as "each of the instant loans") as follows:

Classification

Business year

Amount of money (one million won)

The plaintiffs' share ratio

F

2010 Business year

69,692

UCC (50 per cent), UB (50 per cent)

2011 Business Year

61,206

Japan

2010 Business year

14,276

UCC(40 per cent), UB(40 per cent), UA(20 per cent)

2011 Business Year

21,734

On the other hand, as of December 31, 201, FF's deficit is about 17.9 billion won, and EE's deficit is about 00 billion won.

C. On January 1, 2010, the Defendant: (a) determined and notified gift tax to the Plaintiffs on January 14, 2013, by deeming that the Plaintiffs obtained the amount equivalent to the interest on the said loan as the gift income; and (b) on January 14, 2013, the gift tax was determined and notified (hereinafter “instant disposition”).

D. Plaintiff UCC: (a) on March 20, 2013; (b) on March 22, 2013; and (c) on March 22, 2013, Plaintiff UA and UB, the Tax Tribunal.

The appeal was filed but was dismissed on May 8, 2014.

2. Determination

A. Summary of the plaintiff's assertion

If there is no economic profit distributed even after the full comprehensive taxation of gift tax was introduced, gift tax is impossible. Each of the loans in this case did not take place or distribute profits to the Plaintiffs without compensation, and the share value of each of the respective corporations in this case did not increase at all. Nevertheless, the instant disposition that the Defendant imposed on deeming that Article 41(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201) which was the basis for taxation was deemed a deemed donation provision and was unlawful. Even after the amendment of January 1, 2010, interpretation to the effect that gift tax is imposed, even though the said provision was not a donation profit, would result in an unconstitutional consequence that infringes on the fundamental rights of taxpayers.

Each of the instant loans was made for the acquisition of construction rights as part of the project finance. Therefore, it cannot be said that the said lending constitutes a gratuitous loan of money as provided in the said provision.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") provides that "in case where a person who has a special relationship with a shareholder or investor of a corporation having losses, obtains profits from the shareholder or investor of the specific corporation through transactions falling under any of the following subparagraphs with the specific corporation, the amount equivalent to such profits shall be deemed as the value of donated property to the shareholder or investor of the specific corporation concerned (Article 1); (1) regarding the calculation of profits earned by the specific corporation; (2) a person having a special relationship; and (3) a person who has a special relationship with a shareholder or investor of the specific corporation; and (4) a person who has a special relationship with the shareholder or investor of the specific corporation, a benefit calculated by multiplying the value of shares calculated by the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18177, Dec. 30, 2003; hereinafter referred to as the former Enforcement Decree)" shall be deemed as the number of shares or profits calculated under paragraph 14.

However, the Supreme Court en banc Decision 2006Du19693 Decided March 19, 2009, on the issue of whether the revised Enforcement Decree of the Inheritance Tax and Gift Tax Act exceeds the delegation scope of the former Inheritance Tax and Gift Tax Act and thus becomes null and void, held that Article 41(1) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as "the Inheritance Tax and Gift Tax Act") stipulates that where a corporation receives a donation and actually obtains a profit from its shareholders, etc., the calculation of such profit shall be delegated to the Presidential Decree, but Article 31(6) of the amended Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as "the amended Enforcement Decree of the Inheritance Tax and Gift Tax Act") provides that "if a shareholder or a person who has a special relationship with a specific corporation, obtains a profit from the specific corporation as prescribed by Presidential Decree, the following:

In full view of the purport of the above Supreme Court’s ruling and the text and text of Article 41(1) of the amended Inheritance Tax and Gift Tax Act, if Article 41 of the previous Inheritance Tax and Gift Tax Act delegates only the calculation of profits on the premise that the shareholder, etc. obtained profits, it can be deemed that the amended Inheritance Tax and Gift Tax Act delegated the same to the Enforcement Decree as well as the calculation of profits that the shareholder obtained.

2) Meanwhile, Article 41 of the Inheritance Tax and Gift Tax Act provides that a shareholder, etc. of a corporation in a special relationship with the donor shall be prevented from gaining de facto economic benefits without any tax burden. The gains gained by a shareholder, etc. through a transaction with a specific corporation shall be considered as the gains obtained by a shareholder, etc., because it is difficult to compute the

Ultimately, Article 41(1)1 of the amended Inheritance Tax and Gift Tax Act, and Article 31(6)1 of the Enforcement Decree of the same Act, if a person having a special relationship with a stockholder of the deficit corporation provides property to the pertinent deficit corporation without compensation, a shareholder of the deficit corporation shall be deemed to have obtained the amount calculated by multiplying the value of donated property by the ratio of stocks or equity shares, and such amount may be interpreted as having been the value of donated property to the stockholders of the deficit corporation. Considering that the above provision applies only to cases where the donation profit is at least KRW 100 million for only the shareholders of the deficit corporation having a special relationship with the donor, it is difficult

3) Examining the instant case in light of the aforementioned legal principles, the instant disposition that the Defendant imposed by deeming the amount calculated by multiplying the amount equivalent to the interest on each of the instant loans by the Plaintiffs’ share ratio as the donation profit is lawful.

In addition, Article 41 of the Inheritance Tax and Gift Tax Act aims to prevent shareholders, etc. of the deficit corporation having a special relationship with the donor from gaining de facto economic benefits without tax burden. Thus, it cannot be deemed that the application of the above provision is excluded solely on the ground that the plaintiffs did not have received actual profits due to each of the loans of this case or provided for the purpose of acquiring the right to execute construction, or that the plaintiffs did not increase

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.