Plaintiff (Law Firm Squa, Attorneys Soh Byung-jin et al., Counsel for the plaintiff-appellant)

Head of Sungbuk Tax Office

August 21, 2015

1. The Defendant’s disposition of refusal of correction as of April 11, 201, and the disposition of imposition of KRW 232,254,720 as of October 13, 201, that the Plaintiff rendered, shall be revoked in entirety.

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

The same shall apply to the order.

1. Details of the disposition;

A. On January 2007, the Plaintiff acquired 76,000 shares of non-listed shares of the e-energy from the e-energy trading company (hereinafter “e-energy trading company”) (hereinafter “e-energy trading company”) holding 5.4% of the shares of e-energy on December 2, 2008, while working as the representative director of the e-energy company (hereinafter “E-energy”).

B. On March 2, 2009, the Plaintiff reported and paid KRW 232,254,720 to the Defendant for the acquisition of the instant shares.

C. On December 27, 2010, the Defendant: (a) deemed that the acquisition of the instant shares constitutes not a gift but an earned income; and (b) returned the gift tax that the Plaintiff paid to the Plaintiff; (c) on December 29, 2010, the Plaintiff paid KRW 81,671,200 as global income tax for which the acquisition of the instant shares was made as earned income; and (d) filed a revised return and payment of KRW 8

D. Meanwhile, on June 30, 2010, the instant shares were listed on the Stock Exchange (hereinafter “instant listing”). On December 31, 2010, the Plaintiff sought a refund of gift tax already paid on the ground that the acquisition of the instant shares constitutes an earned income. On December 31, 2010, the Plaintiff calculated the gift income as KRW 14,36,640,000 (hereinafter “instant listing marginal profits”) pursuant to the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 2011; hereinafter “instant refusal disposition”) and reported and paid KRW 6,023,98,000,000, and the Plaintiff filed a request for correction on February 11, 2011, the Defendant did not reply to the request for a refund of gift tax already paid on the ground that the acquisition of the instant shares constituted an earned income (hereinafter “instant refusal disposition”).

E. On July 9, 2011, the Plaintiff filed an appeal with the Tax Tribunal against the instant rejection disposition.

F. Meanwhile, the Seoul National Tax Service conducted a gift tax investigation with respect to the Plaintiff from April 18, 201 to May 27, 2011, and notified the Defendant of the result of the tax investigation that the acquisition of the instant shares constitutes not an earned income but a gift. On October 13, 2011, the Defendant imposed and notified the Plaintiff of KRW 232,254,720 (hereinafter “instant disposition”).

G. The Plaintiff added the claim for the instant disposition to the instant case on the petition for a trial as set forth in the said paragraph, and the Tax Tribunal rendered a decision to dismiss all the claims on August 13, 2014.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 22 through 36 (including branch numbers for those with provisional numbers; hereinafter the same shall apply), Eul evidence No. 1, the purport of the whole pleadings

2. Related statutes;

It is as shown in the attached Table related statutes.

3. Whether the instant disposition is lawful

(a) Facts of recognition;

1) The Plaintiff, from January 2004, worked for the Sunow Corporation (Sunow Co., Ltd.; hereinafter “Sshicking”), a company producing solar batteries located in California, California, and performed the technological development business, such as Madern wafer, etc.

2) On September 29, 2006, Sshacking Co., Ltd. (hereinafter “Swewa”) entered into a joint agreement with Swewawawa Co., Ltd. (hereinafter “Swewa”) and set up so-called “Swewa” as a joint venture.

3) The Plaintiff, upon receipt of a proposal for dispatch from Salking to the representative director of the ero-powered energy, worked as the representative director of the ero-powered energy from January 2007 in accordance with the service contract concluded between Salking and ero-energy.

4) On December 2, 2008, he/she held a board of directors on December 2, 2008 to decide to pay the instant stocks to the Plaintiff as compensation for the e-energy business performance in 2008. In fact, he/she limited the provision that “if he/she intends to delegate all rights, such as voting rights, except the right to dispose of the instant stocks, to e-mail, and to dispose of the e-mail prior to listing on the Korea Securities and Futures Exchange, he/she shall first request the purchase of e-mail.”

5) On January 1, 2009, the Plaintiff entered into an annual salary contract with the ero-energy and continued to serve as the representative director of the ero-powered energy. On November 14, 2011, the Plaintiff resigned from the representative director and returned on January 2, 201 to the president in charge of snishing Chishing technology.

6) The assets, capital, sales, operating profits, and net income for 2006 to 2010 from 200 are as listed below:

A person shall be appointed.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 21, purport of the whole pleadings

B. Determination

1) Wage and salary income under Article 20 (1) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008) includes not only all economic benefits, regardless of payment form or name, which are related to the provision of labor, but also benefits which form the contents of the working conditions closely related to the provision of labor on the premise of labor, in addition to the direct work cost (Supreme Court Decision 2007Du5172 Decided Nov. 15, 2007).

2) In light of the following circumstances revealed through the facts acknowledged as seen earlier and the evidence, it is reasonable to deem that the instant shares constitute earned income, since the payment of the instant shares is deemed to have a quid pro quo relationship based on a specific correlation or economic rationality with the labor provided by the Plaintiff as the representative director (it cannot be deemed that the instant shares constitute a donation under the Inheritance and Gift Tax Act, which refers to a gratuitous transfer of property, etc.).

① From January 2007, the Plaintiff served as a representative director in the e-energy that was newly incorporated company, and achieved considerable management performance by 2008 as indicated in the above table.

② The Plaintiff, who was an employee of Salking, started working in the form of ero-energy in accordance with a short-term service contract between Salking and ero-energy, and continued to extend the working period. At the time of receiving the instant shares, the Plaintiff entered into an annual salary contract directly with ero-energy from January 1, 2009, and was scheduled to serve as a representative director.

③ As the largest shareholder of the e-energy, three of the five members of the e-energy Council may change depending on the results of the operation of the e-energy. Therefore, the need to intervene in the management of the e-energy is high. Such e-energy appears to have been in a position that may directly or indirectly affect the management of the e-energy and the performance of duties.

④ The board of directors of the eroding Holdings held at the time indicated that the instant share payment agenda against the Plaintiff was a compensation title for business performance in 2008, while presenting the instant share payment agenda to the Plaintiff.

⑤ In relation to the instant shares, the Plaintiff was subject to the limitation that “if he/she intends to delegate all rights, such as voting rights, except the right to dispose of the shares, to the erode intermediary, and to dispose of the erode energy prior to listing on the Korea Securities and Futures Exchange, he/she shall request the erode intermediary to purchase the erode intermediary.” This is equivalent to the Plaintiff’s acquisition of monetary compensation, such as the price for disposal

(6) After the Plaintiff received the instant shares, gift tax was reported and paid, but the Defendant was entitled to refund gift tax that the Plaintiff paid on the ground that it constitutes earned income, and the Plaintiff rejected the Plaintiff’s request for correction of gift tax reported and paid on the ground that it is earned income on the listing marginal profits of this case, and again made the disposition of this case.

7. There is no evidence suggesting that there exists another reason to pay the Plaintiff the instant shares, in addition to the circumstance that the Plaintiff served as the representative director of the e-energy.

3) Therefore, the instant disposition of imposition premised on the fact that the instant shares were paid as gift is unlawful.

4. Whether the rejection disposition of this case is legitimate

A. Article 41-3 (hereinafter “instant provision”) of the Inheritance and Gift Tax Act provides that where a person having a special relationship with the largest shareholder, etc. receives stocks of the relevant corporation from the largest shareholder, etc. or has acquired them for a fee, such stocks, etc. are listed on the Korea Exchange (referring to those listed on the securities market) pursuant to the Financial Investment Services and Capital Markets Act within five years from the date of donation or acquisition, and where the value of the stocks, etc. has increased and a person who received stocks, etc. or acquired it for a fee has acquired profits above the standard prescribed by Presidential Decree in excess of the original taxable value or

B. As seen earlier, the Plaintiff’s acquisition of the instant shares does not constitute a gift. In light of the content and purport of the provision of this case, it is reasonable to deem that the acquisition of the instant shares does not constitute a gift tax, but rather, an acquisition of the instant shares in return for work, and it does not constitute an acquisition with compensation under the provision of this case. Therefore, it is reasonable to deem that it is not subject

① The instant provision is a provision that enables the largest shareholder, etc. to make it possible to conduct an irregular inheritance by donating or transferring unlisted stocks to a person with a special relationship, such as his/her children, etc. for the purpose of obtaining large profits from the registration of the Korea Stock Exchange or the Korea Securities Dealers Association by using internal information on a company, or continuously holding the same without transferring it by a donee or a acquisitor, and in fact, imposes tax on such profits to regulate the problem of controlling affiliate without tax burden (see Supreme Court Decision 2010Du11559, May 10, 2012). Since stocks paid as earned income are paid as compensation for work, it is difficult to deem that there is a need for taxation in accordance with the legislative intent as seen above.

② The instant provision provides that “Where a person obtains profits above the standard prescribed by Presidential Decree in excess of the taxable value or acquisition value of the original gift tax,” and Article 31-6(3) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 23040, Jul. 25, 2011) provides that “in order to calculate listing profits subject to gift tax, the taxable value per share as of the date of donation of stocks, etc. (in cases of acquisition of stocks, etc., the acquisition value per one share as of the date of acquisition)” shall be calculated under subparagraph 2. Each of the above provisions assumes that “the initial acquisition value per share as of the date of acquisition” exists, and thus, it appears that the acquisition value can be calculated, namely, stocks acquired by paying

③ As the instant provision was amended by Act No. 6780 on December 18, 2002, the requirements were added to “where a person acquires stocks, etc. of the relevant corporation from a person who is not the largest shareholder, etc. with property donated from the largest shareholder, etc.” as well as gift tax was imposed on the listed marginal profits. According to the legislative review report at the time of the amendment, the provision of this case appears to have been amended to include the case where a person, other than the largest shareholder, etc., receives a donation of funds for acquiring stocks, etc. from the largest shareholder, etc., and acquires stocks, etc. from a person who is not the largest shareholder, etc.... at the time of the amendment. However, the phrase “donation or transfer” was amended to “where a person, etc., acquires stocks, etc. directly from the largest shareholder, etc.,” but it is difficult to deem

C. Therefore, the instant rejection disposition based on the premise that the gift tax is imposed on the listed marginal profits of this case is unlawful without further examining the remaining issues.

5. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition by admitting it.

[Attachment]

Judges Kim Jong-hwan (Presiding Judge) Kim Young-young