Plaintiff (Law Firm Rate, Attorneys Jeon Young-young et al., Counsel for plaintiff-appellant)

Head of the District Tax Office

August 28, 2009

Seoul Administrative Court Decision 2007Gudan11279 Decided January 16, 2009

1. Of the judgment of the first instance court, the part against the plaintiff falling under the order to revoke below shall be revoked.

2. On July 30, 2006, the part exceeding KRW 236,839 among the disposition rejecting a request for correction as to capital gains tax of KRW 47,367,723 against the Plaintiff shall be revoked.

3. The plaintiff's remaining appeal is dismissed.

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

The judgment of the first instance shall be revoked. The defendant's rejection of a claim for correction as to capital gains tax of KRW 47,367,723 against the plaintiff on July 30, 2006 shall be revoked.

1. Details of the disposition;

A. On or after September 16, 2004, the Plaintiff owned 53,541 shares of Albnel Science Co., Ltd (the representative director Nonparty 1 and Nonparty 1; hereinafter “AWnel Science”) (hereinafter “instant shares”) 53,541 shares (hereinafter “instant shares”).

B. On May 31, 2005, the member of the KOSDAQ-listed corporation (the representative director Nonparty 2; Nonparty 2; hereinafter “NE”) entered into an all-inclusive share swap agreement with the Department of Alel Bioscience on a comprehensive exchange of shares as of August 31, 2005, with the members’ share swap as of August 31, 2005. The said exchange agreement includes the provision that “as for a single share of less than one share, the amount calculated on the basis of the first day on which the share swap is listed in the Exchange market shall be paid in cash to the shareholders of AlNE Science.”

C. Upon entering into the above exchange contract, the member's member and Albnel Bioscience evaluated 17,107 won per share of the shares issued by Albnel Bioscience as 17,107 won per share, while the member's shares were assessed as 1 weighted average monthly class price per share in May 31, 2005, which is the date of the above exchange contract, and 421 won, which is the average weighted class price per share in the last day and 421 won, which is the lower of the last day of the exchange contract (the method stipulated in Article 36-12 (1) of the Enforcement Rule of the Securities and Exchange Act) and assessed as 10.8 shares (17,107±1,582.96 won (421 x 76) of the shares issued by Albnel Bioscience Science Science as 10.8 shares per share in the issuance of the shares issued by the member.

D. However, upon the transition of convertible bonds into shares of Albn EL Bioscience, after the members had been subject to the UN capital reduction procedure, the Saman Accounting Firm revaluated revaluated revaluated the value per share of Albn EL Bioscience 15,973 won, and accordingly, the exchange ratio was changed to exchange about 10.09 shares per share of Albn EL Bioscience 10.09 shares (15,973 won ±1.582.96).

E. On August 31, 2005, according to the above share swap contract, the member of ENE (the trade name after the share swap was changed to AWELO) became a complete parent company for AlNel Science. The member became a complete subsidiary of ENNE. During the process, the shares owned by the Plaintiff were transferred to AlNE, and the Plaintiff acquired the shares of ENE instead of the member.

F. On November 30, 2005, the Plaintiff calculated the transfer value of the instant shares as KRW 15,973 per share, the said appraised value, and paid KRW 71,98,691 of the capital gains tax after filing a preliminary return of capital gains tax.

G. On May 30, 2006, the Plaintiff asserted that the transfer value of the instant shares is not KRW 15,973 per share, not KRW 15,973 per share, but KRW 6,143 per share calculated by taking an arithmetic mean of the transaction examples of the Alel Bioscience Stocks at the time of the said share swap, and that the legitimate transfer income tax based thereon is KRW 24,620,968. As such, the Plaintiff filed a request for rectification of reduction by asserting that the said amount should be refunded, 47,367,723 ( KRW 71,98,691 - 24,620,968) reported and paid in excess of the reasonable amount of tax.

H. On December 15, 2006, the Plaintiff filed an adjudication seeking revocation of the instant disposition with the National Tax Tribunal (hereinafter “instant disposition”) on December 15, 2006, when the Defendant did not notify the lapse of the two-month period under Article 45-2(3) of the Framework Act on National Taxes from the date on which the Defendant received the said request for correction, and the National Tax Tribunal dismissed the said request for adjudication on June 8, 2007.

【Ground of recognition】 Evidence Nos. 1, 2, 3-1, 2, 6-1, 2, 7, 8, 1, 1, and 1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The transfer value of the instant shares is non-listed shares and thus, should be calculated based on the actual transaction value. However, the Plaintiff did not set the price for the exchange of the instant shares between the members, and there was no difference between the members through the settlement procedure according to the ratio of exchange with the stocks of the UN. Therefore, the transfer of the instant shares constitutes a case where there is no actual transaction value

(2) Therefore, the transfer value of the instant shares should be calculated as KRW 6,143 per transaction example or KRW 5,500 per share, or KRW 6,500 per transaction example, pursuant to the provisions of the Income Tax Act. If it is improper, the transfer value should be calculated as KRW 662 per share, which is the appraised value under the Inheritance Tax and Gift Tax Act or the standard market value under the Income Tax Act. Thus, the instant disposition rejecting the Plaintiff’s request for reduction

B. Relevant statutes

The entries in the attached statutes are as follows.

C. Determination

(1) Articles 94(1)3(c) and 96(2) of the Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) provide that the transfer value shall be calculated based on the actual transaction value at the time of transfer in calculating the transfer income tax accruing from the transfer of stocks not listed on the Exchange. However, Article 114(5) of the Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006), Article 176-2(1)1 and (3) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005) provides that where there are no books, sales contracts, receipts, and other important documents necessary to confirm the actual transaction value at the time of transfer or acquisition, or where it is impossible to recognize or confirm the actual transaction value at the time of transfer due to lack of material parts, such transfer value may be determined or corrected in the order of transaction example, appraisal value, appraisal value, appraisal value, and appraisal value.

(2) First, we examine whether the actual transaction price in the transfer of the instant shares exists or can be confirmed.

The actual transfer value of the pertinent asset, which serves as a basis for calculating a false transfer income tax, refers to the amount actually agreed upon at the time of the transaction, i.e., the transferor’s transfer of the asset and the price received for the transfer of the asset, which is the value objectively recognized by the sales contract and other documentary evidence (see Supreme Court Decisions 92Nu1472 delivered on February 12, 1993; 98Du19841 delivered on November 26, 199, etc.).

As to the instant case, it is acknowledged as seen earlier that the instant shares were transferred to NT according to the comprehensive exchange contract between N&A and E&A, and instead, the Plaintiff acquired NT new shares of the members. However, the parties to the said comprehensive exchange contract are merely the Plaintiff’s shareholders of Al&A Bioscience Science who transfer the instant shares and acquired new shares in accordance with the provisions of the Commercial Act, and thus it is difficult to deem that the Plaintiff and E&N had an agreement on the exchange contract or its consideration for the instant shares (the Plaintiff did not exercise the appraisal right under Article 360-5 of the Commercial Act against the said comprehensive exchange contract). Thus, it is difficult to view the value of the instant shares as stipulated in the said comprehensive exchange contract as the actual transaction value, i.e., the agreed value between the parties., the actual transaction value.

Furthermore, even if there was an agreement between the Plaintiff and its members to exchange the instant shares according to the aforementioned comprehensive exchange agreement, if it is an exchange of shares, the actual transfer value can be confirmed if it is accompanied by the market price appraisal procedure for the difference between the appraisal value and the exchange value. However, if it is not a simple exchange, the actual transfer value can not be confirmed (see Supreme Court Decision 98Du19841, Nov. 26, 199, etc.). It is difficult to view the difference between the members of the exchange and Albnel Science as the standard market price of No. 2000, supra, as it merely focuses on the provisional exchange value of shares of each company, and objective valuation of shares of each company is difficult to view the difference between the sale value of shares under the above comprehensive exchange agreement and No. 130,500,000,000 won, and it is difficult to view that there was an objective difference between the market price of No. 23,50,000,000 won and the above comprehensive exchange value of shares.

(3) Therefore, the supplementary transfer value in the case where the actual transaction value is not verified is examined.

In addition to the whole purport of pleadings in the statements in the evidence Nos. 4-1 through 11, Eul evidence Nos. 4-1, 2, 3, and Eul evidence Nos. 5-1, 2, Eul evidence Nos. 6-1, 2, 3, and Eul evidence Nos. 8, during the three months before August 31, 2005, which is the date of exchange under the comprehensive exchange contract of the above shares, the fact that there was a transaction as follows (the shares sold to the non-party Nos. 10 No. 10 No. 10 are part of the shares purchased from the non-party No. 2, No. 4, 5-6, and 7, the shares purchased from the non-party No. 3's bank No. 9-1, the non-party Nos. 3 and the seller purchased shares from the non-party No. 10-1, the non-party No. 3 can be acknowledged as transfer and payment of shares based on the sequence No. 1, No. 305.

본문내 포함된 표 순번 매매일자 매도인 매수인 매매주식 수(주) 매매단가(원) 매매대금(원) 1 2005. 6. 3. 소외 9 소외 10 10,000 2,500 25,000,000 2 2005. 6. 13. 소외 5 소외 3 70,588 869 61,395,764 3 2005. 7. 18. 소외 8 은행 소외 1 169,411 5,000 847,055,000 4 2005. 7. 18. 소외 1 소외 6 116,000 5,000 580,000,000 5 2005. 7. 18. 소외 1 소외 7 53,411 5,000 267,055,000 6 2005. 7. 20. 소외 11 소외 12 84,705 6,500 550,582,500 7 2005. 8. 16. 소외 13 소외 14 4,500 7,000 35,819,000 8 2005. 8. 16. 소외 13 소외 15 5,117 7,000 31,500,000 9 2005. 8. 16. 소외 13 소외 16 4,500 7,000 31,500,000 10 2005. 8. 18. 소외 3 소외 4 42,171 28,455 1,200,000,000 11 2005. 8. 18. 소외 17 소외 18 32,394 360 11,661,840 합계 592,797 ？ 3,641,569,104

On the other hand, Article 176-2(3) of the Enforcement Decree of the Income Tax Act provides that transaction example cases shall not be applied in cases where it is objectively deemed unfair from the transaction example with a related party under the provisions of Article 98(1). However, there is no evidence to deem that there is a special relationship between the parties to each of the above transactions. Furthermore, the sales unit price of Nos. 2, 10, and 11 is significantly higher or lower than that of other transactions. Thus, the mere fact that the sales unit price of No. 2, 10, and 11 is considerably higher or lower than that of the above sales unit price cannot be deemed objectively unfair, it is reasonable to deem that the transaction example case of each of the shares in this case constitutes 6,143 won (3,641,569, 104, 592

Therefore, the transfer value of the instant shares is KRW 328,902,363 (53,541 x 6,143 x 6,143). On the basis of this, when calculating the legitimate transfer tax amount, it is KRW 24,857,807, as indicated in the attached Table of Calculation of Tax Amount.

(4) Ultimately, among the transfer income tax amount reported and paid by the Plaintiff 71,988,691, the Plaintiff’s claim for rectification of the amount exceeding KRW 24,857,884 (won 71,988,691 - KRW 24,857,807) is justifiable. Thus, the part exceeding KRW 236,839 (won 47,367,723 - KRW 47,130,884) among the instant disposition is unlawful.

3. Conclusion

Therefore, the plaintiff's claim shall be accepted for some reasons, and the judgment of the court of first instance is unfair for the conclusion, so the part against the plaintiff corresponding to the part exceeding 236,839 won among the judgment of the court of first instance shall be revoked, and the disposition of this case corresponding to that part shall be revoked, and the remaining appeal of the plaintiff shall be dismissed and it is so decided as

[Attachment]

Judges Cho Jong-chul (Presiding Judge)