Suwon District Court 2013Guhap5075 ( October 16, 2014)

Whether the purpose of this case’s stock title trust is tax avoidance

It is reasonable to view that there was no tax avoidance purpose in the title trust of the instant shares, since the title trustor entrusted the instant shares in the name of the Plaintiff for the purpose of preventing the stock price decline, securing stable management rights by avoiding the obligation to report the change in the shares, and selling the shares of this case inevitably purchased at a high price in the process of acquiring management rights in the short term to repay the borrowed amount.

Article 45-2 of the Inheritance and Gift Tax Act

Seoul High Court 2014Nu69190 (22 September 22, 2015)

Park △△△

○ Head of tax office

October 16, 2014

August 25, 2015

September 22, 2015

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposing gift tax amounting to KRW 943,447,060 against the Plaintiff on July 1, 2012 is revoked.

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

Judgment as described in paragraphs 1 and 2.

1. Details of the disposition;

A. From April 12, 2012 to May 25, 2012, the Director of △△ Regional Tax Office conducted an investigation into ○○○ (hereinafter “○○○”) and AAA, etc., and notified the Defendant of the taxation data that “AAA acquired ○○ 590,000 shares (hereinafter “instant shares”) in the name of the Plaintiff on August 13, 2009 in KRW 5,250 per share.” B. On July 1, 2012, the Defendant: (a) reported that the Plaintiff was subject to the disposition of the instant shares pursuant to Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Inheritance Tax and Gift Tax Act”); (b) notified the Defendant of the taxation data that “AA acquired 300,000 won shares under the name of the Plaintiff, 300,000 won or less per share; and (hereinafter “the Plaintiff 4036.7.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, Eul evidence Nos. 1, 2 and 5 (including branch numbers, if any; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

1) The instant shares were arbitrarily acquired by AA through the Plaintiff’s account, etc., and the Plaintiff did not have concluded a title trust agreement with AA to acquire the instant shares in the Plaintiff’s name.

2) Since AA acquired the instant shares in the name of the Plaintiff and disposed of both within the filing period under Article 31(4) of the Inheritance Tax and Gift Tax Act, the amount of the donated property was returned to the donor.

applicable to this section.

3) AA intended to sell the instant shares within a short period after acquiring them at the request of BB during the process of acquiring the management right. Since the disclosure of the fact that the sale of the instant shares may cause price fluctuations and business instability, the Plaintiff acquired the instant shares in the name of the Plaintiff in order to avoid the duty to report to a large shareholder under the Financial Investment Services and Capital Markets Act, and did not acquire the instant shares in the name of the Plaintiff for the purpose of evading taxes.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) ○○ was an enterprise registered to the KOSDAQ market around December 6, 2002 and the listing was abolished on April 18, 2012. 2) The conclusion, implementation, etc. of the instant stock transfer agreement.

A) AAAround August 2009, between BB and BB, the largest shareholder of ○○ and the representative director, BB, and BB transferred the management value of 4,00,000,000 shares and 21 billion won per share (in calculation of 5,250 billion won per share, including management rights), on the date of the contract, approximately 1, billion won out of down payment and intermediate payment of 1.3 billion won on the date of the contract, and the remainder of 8 billion won on July 30, 2010 (hereinafter referred to as “instant share transfer contract”). However, at the time of the instant share transfer contract, BB and 30 billion won were owned in the name of some specially related parties, and 30 billion won were assigned to B and 30 billion won, and CB and 80 billion won were assigned to B and 300 billion won on the date of the contract, and CB and 300 billion won were assigned to B and 300 billion won on the date of the contract.

D) AA acquired 2,892,860,750 won (5,250 won per share x 2,455,783 share x 2,783 share) from BB on August 4, 2009 according to the share transfer contract of this case, and around that time, AA completed the change of entry in the name of AAA in accordance with the share transfer contract of this case on August 13, 2009, from normal owners, Kim Jinology, 50 won per share, 560,167 share in the name of CCC from Kim ○○○ and Hac Foundation, 5,250 won per share, 5,250 won per share, and completed the change of entry in the name of the Plaintiff and the Foundation.

F) On September 11, 2009, AA was appointed as the representative director at the general meeting of shareholders.

G) Meanwhile, even after the lapse of July 2010, AA had not paid approximately KRW 2 billion for the remainder of down payment and intermediate payment as stipulated in the instant stock transfer contract and KRW 8 billion for the remainder. After that, AA and BB entered into a modified contract (hereinafter referred to as the “instant modified contract”) with the content that the purchase price of KRW 394,050 shares was reduced to KRW 2,068,762,500 per share (the amount calculated as KRW 5,250 per share) around December 2010.

3) AA’s additional transaction of ○○’s ○ Stocks A) sold all of the instant shares within the head of the tax office from August 31, 2009 to September 15, 2009, and around that time all shares acquired in the name of CCC were sold.

B) Since then, AA accepted new shares at a cost from April 20, 2010 to August 17, 201, or acquired ○○ shares at a price between KRW 687 to KRW 3,553 per share and completed the transfer of ownership by exercising preemptive rights, etc. In addition, as of August 17, 201, the number of shares registered in the name of AA as of August 17, 201 is 6,79,656 shares.

4) AAB filed a claim against BB for compensation for damages arising from a tort by asserting that BB conspiredd the share price of ○○○○ before the instant share transfer contract, but the judgment against B was affirmed (Seoul Central District Court Decision 2011Gahap96432, Seoul High Court 201Na794555). BB entered into the instant modified contract without any inevitable reason that BB had little assets in the name of “AAA”, and the anonymous investors in AA or AA agreed to purchase only the ○○’s business with the same as BB, thereby calculating the sales amount by adding up the sales amount of KRW 13 billion, which is the premium of the market price of the ○○○○ stocks to the market price of the listed company.

5) Meanwhile, as of December 31, 2008, ○○○’s untreated deficit amounted to KRW 17,195,703,813, and as of December 31, 2009, the untreated deficit amount was KRW 29,751,074,941, and ○○○ did not distribute to shareholders in 2008 and 2009.

[Reasons for Recognition] The facts without dispute, Gap's evidence Nos. 4 through 6, 8, 9, 11, 14, Eul's evidence Nos. 3, 4, 5, 6, and 7, the fact inquiry results against the director of the Seoul Regional Tax Office of the first instance court, the facts to this court, and the purport of the whole pleadings

D. Determination by issue

1) Determination as to whether there was an agreement on title trust

The provision on deemed donation under Article 45-2(1) of the Inheritance Tax and Gift Tax Act shall apply in cases where the actual owner and the nominal owner have made registration, etc. in the future by means of an agreement or communication with the nominal owner when the transfer or exercise of the right requires a registration, etc., such as transfer or exercise of the right. As such, where the tax authority unilaterally establishes that the actual owner is different from the nominal owner, regardless of the intent of the nominal owner, and where the tax authority establishes only the fact that the actual owner is different from the nominal owner, the burden of proving that the registration, etc. of the nominal owner was made in the unilateral act of the actual owner regardless of the intent of the nominal owner should be borne by the nominal owner who asserts it (see Supreme Court Decision 2007Du15780, Feb. 14, 2008). In light of the foregoing legal doctrine, it is insufficient to recognize that the health account statement and the

Rather, in full view of the following facts and circumstances admitted in addition to the purport of the entire pleadings, it is reasonable to deem that the Plaintiff delegated AA to acquire the instant shares in the name of the Plaintiff. Therefore, the Plaintiff’s above assertion is not acceptable.

① The Plaintiff appears to have offered AA with a certificate of personal seal impression, certificate of personal seal impression, passbook, passbook, and password, etc., after receiving a request from AA, while serving as an employee of the company operating or exercising substantial influence over AA as a high school line of the AA, as the employee of the company. ② On September 5, 2011, the Plaintiff was investigated by the office of the competent district public prosecutor’s office of Gwangju District public prosecutor’s office in relation to the case of occupational embezzlement of AA, etc., and “AAA was required to open a securities account, certificate of seal impression, and certificate of personal seal impression.” The Plaintiff made a statement to the effect that the money or shares were used for any other work in the AA, and that “I would have to have sought any other work in the AA.”

2) Whether Article 31(4) of the Inheritance Tax and Gift Tax Act can be applied

In light of the above, if the title trustee interpreted that the gift tax cannot be imposed on the grounds that the return of the property donated to the title truster for the disposal of the property held in title trust or the equivalent amount of the value thereof is the return of the property donated to the title truster, the purport of the law in order to restrain title trust for the purpose of tax avoidance would be eliminated by deeming the act of title trust as a donation. Since the subject matter of the donation deemed as a donation under Article 45-2(1) of the Inheritance Tax and Gift Tax Act is the shares of this case, even if AA sells the shares within three months and the sale price was reverted to AA, a truster, within the scope of three months, the property donated pursuant to Article 31(4) of the Inheritance Tax and Gift Tax Act cannot be deemed as having been returned (see, e.g., Supreme Court Decision 2005Du10200, Feb. 8, 2007). Accordingly, the Plaintiff

3) Whether there was a purpose of tax avoidance

A) The legislative purport of Article 45-2(1) of the Inheritance Tax and Gift Tax Act is to recognize an exception to the principle of substantial taxation to effectively prevent the act of tax avoidance using the title trust system, and realize the tax justice. Thus, if the title trust was recognized as having been conducted for any reason other than the purpose of tax avoidance and only a minor reduction of tax incidental to the said title trust, it cannot be readily concluded that there had been the purpose of tax avoidance. However, in light of the legislative purport as seen above, only if the purpose of the title trust is not included in the purpose of tax avoidance, it is impossible to determine that there was an intention of tax avoidance by applying the proviso of the said provision, and thus, it cannot be said that there was no other purpose of tax avoidance. Furthermore, the burden of proving that there was no purpose of tax avoidance, in this case, is against the person who asserts it (see, e.g., Supreme Court Decision 2013Du9779, Oct. 17, 2013). 206; if the title holder bears the burden of proof as above, the title trust, the purpose of tax evasion should be determined to the extent of tax avoidance in the future.

In full view of the facts acknowledged earlier and the overall purport of the pleadings, it is reasonable to view that AA was a trust of the instant shares in the Plaintiff’s name for the purpose of preventing a breadth, securing a stable management right, and repaying a loan by selling the instant shares purchased at a high price inevitably in the process of acquiring ○○ management right in a short term, by evading the obligation to report the change of shares under Article 147(1) of the Financial Investment Services and Capital Markets Act (amended by Act No. 9784, Jun. 9, 2009; hereinafter “Capital Markets Act”).

① During the process of acquiring the management right from BB, AA purchased approximately 70% of or higher than the market price of the instant shares from BB. ② Within one month after AA acquired the instant shares, AA sold all the instant shares at a market price lower than the purchase price. ③ After that, AA had again acquired ○○ shares in its own name in excess of the number of the instant shares. ④ In light of the fact that BB did not pay any balance under the instant stock transfer contract, and the statement of the person involved in the conclusion of the instant stock transfer contract, it appears that AA was used before and after the instant stock transfer contract that had not sufficiently satisfied the financial situation of BA, and that AA had not been able to pay for the outstanding shares in excess of the market price of BA’s shares under the name of ○○○ 510/10 of the instant shares that were sold under the name of ○○ 50/10 of the instant shares that were sold under the management right-listed corporation, and that AA had not been obligated to pay for the outstanding shares under the following provisions of Section 14(1).

(C)review the items of avoided taxation;

The issue of taxation that may be avoided through the title trust of the instant shares is the global income tax following the dividend, the transfer income tax following the transfer of shares by a major shareholder, the secondary tax liability of oligopolistic shareholders, the deemed acquisition tax by oligopolistic shareholders under the Local Tax Act, the global income tax by the disposal of income, the inheritance tax and gift tax, etc. In such a case, whether AA had the objective of evading each tax at the time of title trust is examined

① In light of the health account, ○○○’s 208 and the amount of losses in 2009, AA appears to have known the fact that ○○ was not a profit to distribute to shareholders in 2009 (in fact, no dividend was made after AA acquired the right of management) with respect to the global income tax, and the fact that AA disposes of all of the instant shares within a month after AA purchased, it is difficult to deem that ○ intended to avoid applying a high-rate global income tax on dividends to AA.

② Next, as to the transfer income tax, since the shares of this case were less than 5/100 of the shares of this case, if the transfer margin occurred, it would have been able to avoid the transfer income tax due to the transfer of shares by the major shareholders as stipulated in Article 94(1)3 (a) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) and Article 157(4)1 of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 21765 of Oct. 1, 2009). However, in light of the fact that the shares of this case were purchased more than the market price in the process of acquiring the management right of ○○, and it is difficult to view that AA purchased all shares of this case with no intention to avoid the transfer margin and to avoid the transfer income tax under its name, it is difficult to view that AA had purchased the shares of this case under its own name and then sold them again under its own name.

③ Furthermore, given that the secondary tax liability of oligopolistic shareholders does not amount to 50/100 of the shares held by AA, the secondary tax liability of oligopolistic shareholders [Article 39(1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010); Article 22 of the former Local Tax Act (amended by Act No. 9685, May 21, 2009; hereinafter “Local Tax Act”)] or deemed acquisition tax by oligopolistic shareholders (Article 105(6) of the Local Tax Act) does not seem to have been aimed at evading the title trust of the shares in this case.

④ In addition, in light of the fact that AA sells all of the instant shares within one month after it acquired the instant shares, it is difficult to deem that there was a purpose to avoid the global income tax [Article 67 of the former Corporate Tax Act (amended by Act No. 9763, Jun. 9, 2009); Article 106(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21698, Aug. 21, 2009); or inheritance tax and gift tax] by disposing of income.

⑤ There is no evidence to deem that there was any tax evasion at the time of title trust or in the future by entrusting the instant shares under the name of the Plaintiff, and in fact, there was no outcome of tax evasion.

D) Sub-committee

Therefore, since AA has entrusted the instant shares to the Plaintiff without a tax avoidance purpose, the instant disposition was unlawful on a different premise.

3. Conclusion

Therefore, the judgment of the first instance court is unfair, and it is so decided as per Disposition by cancelling it and accepting the claim of this case.