Where a person with a special relationship with shareholders, etc. of a specific corporation has exempted the relevant corporation from obligations, the profit from debt exemption shall be subject to gift tax.

Even if the act of exemption from a gift tax had no purpose of avoiding the gift tax or did not actually receive any profit after being exempted from a debt, it constitutes subject to the gift tax, and the regulation imposing gift tax on the profit of exemption from a debt

Article 41 of the former Inheritance Tax and Gift Tax Act as deemed donation of profits from transactions with specific corporations

2014Guhap3403 Revocation of Disposition of Imposition of Gift Tax

○ ○

Doegi Tax Director

on 015 04 09

on April 30, 2015

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of gift tax of KRW 417,432,310 ( KRW 53,194,230, and KRW 217,117,030, and KRW 147,121,050, respectively, of gift tax on the portion of gift on December 31, 2010) imposed on the Plaintiff on November 4, 201, shall be revoked in entirety.

1. Details of the disposition;

가. △△수산 주식회사(이하 '△△수산'이라 한다)는 1970. 11. 6. 수산업 등을 목적으로 설립된 비상장법인이고, 원고는 △△수산의 최대주주{비상장주식 3,000주 중 2,305주 소유, 지분율 76.83%(= 2,305/3,000 × 100, 소수점 넷째 자리 미만 버림, 이하 같다)}이며, 차●●과 차■■는 원고와 형제 사이로 △△수산의 주주{각 100주 소유, 각 지분율 3.33%(= 100/3,000 × 100)}이다.

나. △△수산은 차●●으로부터 2010. 11. 31. 3억 원의 채무를, 차■■로부터 2010. 11. 31. 9억 원의 채무를, 2011. 12. 31. 4억 5천만 원의 채무를 각 면제받았다.

C. On June 26, 2013, the Plaintiff reported a gift tax amount of KRW 1,267,750,000, the total sum of donated property of which was KRW 1,267,750,000, in accordance with Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201) with respect to the gains from debt exemption, which was demanded by the regional tax office for explanation related to the above gains from debt exemption, and on June 26, 2013, the Plaintiff filed a claim for correction of the value of donated property of KRW 0,00 on August 14, 2013.

라. 그러나 피고는 2013. 10. 8. 당초의 증여세 신고가 정당한 것으로 보아 경정거부통지를 하는 한편, 2013. 11. 4. 원고가 당초 신고한 납부할 증여세액에 가산세를 더하여 원고에게, ① 2010. 11. 31. 차●●의 증여분 3억 원에 대한 증여세 53,194,230원(가산세 17,344,230원 포함), ② 2010. 11. 31. 차■■의 증여분 9억 원에 대한 증여세 217,117,030원(가산세 70,792,035원 포함), ③ 2011. 12. 31. 차■■의 증여분 4억 5천만 원에 대한 증여세 147,121,050원(가산세 40,046,050원 포함)의 합계 417,432,310원을 부과・고지하는 처분(이하 '이 사건 처분'이라 한다)을 하였다.

E. The Plaintiff dissatisfied with the instant disposition and filed a request for a trial with the Tax Tribunal, but the said request was dismissed on July 24, 2014.

[Reasons for Recognition] The facts without dispute, Gap evidence 2-3, 4, 5, Gap evidence 3-8, Eul evidence 1-5, Eul evidence 1 to 5 (including the number of pages), and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition should be revoked because it is illegal and unjust for the following reasons.

1) △△수산은 차●●과 차■■로부터 채무면제를 받은 전・후로 줄곧 자본 총액이 부수{負數, 음수(陰數)의 구 용어로 이하 '음수'로 사용한다}로 자본잠식 상태에 있었고, 차●●과 차■■는 △△수산의 주채권자인 은행의 지시에 따라 △△수산의 경영 정상화를 위하여 채권을 포기한 것일 뿐 대주주인 원고에게 편법으로 재산을 증여하기 위한 목적이 없었으며, 원고도 개인 부동산을 매각하는 등의 방법으로 약 67억 원을 △△수산에 증여하였고, 원고로서는 △△수산의 주식 가치가 실질적으로 증가하는 등의 어떠한 이익을 받지 않았다(이하 '제1주장'이라 한다).

2) The instant provision is unconstitutional because it violates the constitutional value, such as the shareholder limited liability principle, the principle of tax equality, the substance taxation principle, and the principle of excessive prohibition for the following reasons. Thus, the instant disposition is null and void (hereinafter referred to as the “section 2”).

① The Plaintiff did not acquire any property from △△ Fishery, and the Plaintiff did not have any monetary obligation to be additionally borne by the Plaintiff under the principle of limited liability with respect to obligations in excess of its assets at the time of liquidation, thereby imposing gift tax on shareholders solely on the ground that there was a high possibility of a increase in the value of the future stocks

② Deficits, the term of deduction for which has not expired, have property value to guarantee the reduction or refund of corporate tax. However, for a corporation which has no deficit, corporate tax is imposed by applying the amount of asset receipt as earnings, while for a corporation which has deficit, the amount of asset receipt is offset with deficit and gift tax is imposed to shareholders. This is against the principle of tax equality as provided in Article 11(1) of the Constitution, since it is arbitrary discrimination against a corporation which has no deficit, and without reasonable reasons.

③ Since the value of the shares of a corporation which has deficits before and after the receipt of assets still remains negative, imposing gift tax on an individual who is a shareholder even though the liabilities exceed its assets at the time of liquidation violates the principle of substantial taxation.

④ Considering the fact that the act of free offering of property by a person with a special relationship is not entirely distinguishable from whether it conforms to the purpose of tax avoidance for a specific corporation or not, and that the value of property with deficits is not recognized at all, it violates the principle of excessive prohibition by losing the suitability of means, the minimum of damage, and the balance of legal interests.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination as to the first proposal

아래와 같은 사정에다가 아래 2)항에서 설시한 사정을 보태어 보면, 차●●과 차■■의 채무면제행위가 △△수산의 재무구조개선을 위한 것으로서 증여세 회피 목적이 없었거나, △△수산이 채무면제를 받은 후에도 자본잠식 상태에 있어 원고가 실제로 어떠한 이익을 받은 것이 없다 하더라도, 이를 이유로 증여세 과세대상이 아니라고 할 수 없으므로, 원고의 이 부분 주장은 이유 없다.

① Article 41 of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996) was introduced on December 30, 1996 as one of the provisions on individual donation for the purpose of preventing the act of evading gift tax using deficit through the full amendment of the Inheritance Tax and Gift Tax Act, and the title of the provision is deemed as donation, and its content is deemed to have been donated. According to the above provision, it is reasonable to view that the provision on constructive donation of profit through the transaction with a specific corporation was not identical to the provision on comprehensive donation for the purpose of evading gift tax (see, e.g., Supreme Court Decision 200Du8278, Sept. 24, 2006) as the provision on comprehensive donation for the purpose of evading gift tax, regardless of whether a person with a special relationship with a shareholder of the particular corporation has a intent to donate property or exempting debts to the relevant corporation. Therefore, it is reasonable to view that the provision on comprehensive donation has not been amended by the aforementioned provision on comprehensive donation.

② The legislative intent of the instant provision is to prevent a company with losses under the premise of the continuation of its business from actually bringing about the benefit of the company by receiving a donation. As such, the legislative intent of the said provision is completely terminated if the value per share of the corporation’s stock before and after the act of donation is assessed as a negative number, and Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012) also stipulates that the benefit shall be limited to the loss of the corporation concerned. Thus, if the value per share after the act of donation is assessed as a negative number as asserted by the Plaintiff, the legislative intent of the said provision is fully dismissed.

2) Determination as to the second proposal

A) The issue related to the legislation or the contents of the donation, such as how to calculate the value of donated property in relation to the imposition of gift tax, is left to a policy decision based on the legislative discretion of the legislator. Thus, if the legislation, tax authorities, or the interpretation and application of the court within a reasonable and reasonable scope, which is not arbitrary or discretionary, in light of fundamental rights or basic principles stipulated in the Constitution, the legislative limit of restriction on fundamental rights, and the legislative purpose of the pertinent law, etc., it cannot be deemed as unconstitutional (see, e.g., Constitutional Court Order 96Hun-Ga22, Aug. 27, 199

B) In light of the aforementioned legal principles and the following circumstances, setting forth the scope of loss, scope of special relation, calculation of gift income, etc. as the instant provision in order to prevent the act of avoiding gift tax by using loss to a specially related stockholder is to restrict property rights within the limit of the legislative limit of restriction of fundamental rights for the purpose of implementing legitimate legislative purpose. Thus, the Plaintiff’s assertion on this part is without merit, since it does not violate the constitutional value such as the principle of limited liability of shareholders, the principle of substantial taxation, the principle of tax equality under Article 11(1) of the Constitution, the principle of excessive prohibition under Article 37(2)

(1) For a profit-making corporation to include the value of donated property in the calculation of earnings and pay corporate tax (see Article 41(1)3 of the Corporate Tax Act and Article 72(2)7 of the Enforcement Decree of the same Act), where a profit-making corporation receives a donation, it is not liable to pay gift tax, but where a profit-making corporation receives a donation, it may indirectly bring economic benefits from the donation to the shareholders of the corporation in the year of the transfer of stocks: Provided, That where a profit-making corporation receives a donation at the time of dividend or transfer of stocks, it is not subject to gift tax in general on the shareholders of the given corporation. However, since a donation to the corporation in loss is not included in the calculation of earnings, it is possible to use it as an irregular donation method that actually gives economic benefits

Therefore, on December 30, 1996, Article 41 was newly established through the Special Act on Inheritance Tax and Gift Tax (amended by Act No. 4178, Dec. 30, 1996) and the provisions stipulate that the profits accrued to the shareholders, etc. of a certain corporation shall be divided into the shareholders, etc. of the corporation through the transaction of donation of property to the corporation, and deemed as gift tax. This purpose is to prevent a shareholder, etc. of the deficit corporation in a special relationship with the donor through donation to the specific corporation, which is not subject to corporate tax, from gaining profits without tax burden. This is to effectively regulate and prevent unfair tax avoidance act in order to avoid or reduce the burden of gift tax, and to realize tax justice by this reason, the legitimacy of the legislative purpose is recognized.

② The tax authority is anticipated to have it difficult to prove the free transfer of the concealed economic benefits, that is, it is difficult for a person with special interest to prevent unfair tax avoidance through such non-ordinary transactions. As such, it seems that the provision of this case takes the form of capital transactions in which a person with special interest contributes real estate to a corporation in loss, etc., which is a shareholder, or is exempt from the corporation’s obligations, and selects the method of imposing gift tax on the shareholder by deeming the amount of loss, etc. received as a donation to the shareholders of the corporation without the burden of corporate tax and gift tax, to achieve the legislative purpose.

③ In particular, in light of the fact that most of the unlisted corporations in Korea consisting of relatives and relatives as shareholders, and oligopolistic shareholders exclusively control the company’s management, the oligopolistic shareholders limit the company’s profit itself to an unlisted corporation in consideration of the fact that they actually return to the shareholders, etc., and that in determining the scope of profit subject to taxation, even considering the amount calculated by multiplying the shareholder’s equity ratio by the value of donated property acquired by the relevant corporation, the scope is limited to the case where the relevant amount is at least KRW 100 million, it is limited to the case where the pertinent amount is at least KRW 100 million. In light of the provision of this case, it is determined that the legislative means’s adequacy and the minimum requirement of infringement is satisfied in relation to the provision of this case. Such determination of the scope of profit subject to taxation cannot be deemed as arbitrary or arbitrary in view of the public interest such as tax justice

④ Meanwhile, inasmuch as the value of donated property is included in the calculation of earnings and the corporate tax is paid by a corporation without deficit, it cannot be deemed unreasonable discrimination to impose gift tax only on the shareholders of the corporation with deficit because the value of donated property is not included in the gross income and the profits therefrom actually accrue to the shareholders (Article 41 amended by Act No. 12168, Jan. 1, 2014; the same shall apply to the situation in which the equity ratio of the spouse and lineal ascendants and descendants of the person with special interest in the transaction in addition to the deficit corporation is 50%). Moreover, even a corporation with deficit is traded in the market by evaluating the business value, and there is a possibility that the oligopolistic shareholders can pay considerable operating income in the future, and there is considerable possibility that the oligopolistic shareholders gain from the continuation and maintenance of the company, even if the value of shares of the corporation is still a corporation with deficit before and after the acquisition of the gift tax without compensation, it is difficult to readily conclude that gift tax is a violation of the substance over form principle.

⑤ The principle of limited liability of shareholders is that shareholders are not liable to creditors of a company as well as internal relations. This is intended to develop the corporation system by separating the company and shareholders' property in physical companies such as a stock company from the company and protecting shareholders, thereby enabling them to form large capital through free transaction of stocks. However, such principle of limited liability of shareholders may also be restricted for the sake of public interest by legislators. Since the principle of limited liability of shareholders is adopted under the legislative consideration for the activation of the corporation system, restriction is also a matter of legislative policy (see Constitutional Court en banc Order 93Hun-Ba49,94Hun-Ba38,95Hun-Ba64, Jun. 26, 1997).

Therefore, the provision of this case, which was introduced to prevent a company with losses under the premise of continuing a business from actually bringing such profits to its large shareholders by receiving a donation, is justifiable in that it limits the principle of shareholder limited liability in accordance with the legislative policy in order to enhance the equity in taxation and to achieve the public interest purpose of securing adequate means for tax collection (see Article 39 of the Framework Act on National Taxes and Article 47 of the Framework Act on Local Taxes).

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.