Plaintiff (Law Firm Rate, Attorneys Park Gi-sung et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

April 19, 2011

Seoul Administrative Court Decision 2007Guhap32747 Decided January 9, 2009

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposing KRW 5,665,184,00 on the Plaintiff on May 8, 2006 is revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On December 6, 2000, an international tourist hotel (number omitted) located in Busan Metropolitan City (hereinafter “instant company”) and a total of 80,000 shares issued by Nonparty 1 (hereinafter “instant shares”) held 25,00 shares (31.25%), Nonparty 25,00 shares (31.25%), and Nonparty 3 held 30,00 shares (37.50%) respectively.

B. On December 6, 200, the Plaintiff acquired the shares of this case from Nonparty 1, 2, and 3 (hereinafter “Nonindicted 1, etc.”) who is the shareholder of the instant company, to KRW 1 billion, and entered the transfer of this case in its own name on January 30, 201, with KRW 15,700 in its own name, KRW 25,00 in its wife’s name, and KRW 39,300 in its name on February 19, 2001, respectively, and on February 21, 2001, registered as the representative director of the instant company in its corporate register.

C. The defendant confirmed the above transfer and acquisition, and deemed the transferor and transferee of the shares of this case to be a specially related person under Article 26 (4) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039 of Dec. 29, 2000; hereinafter "Enforcement Decree of the Act"), and assessed the market price of the shares of this case as KRW 11,153,120,000 after subtracting the above acquisition price from the above market price, and then disposed of KRW 11,153,120,000 after assessing the market price of the shares of this case as a supplementary assessment method, pursuant to Article 35 (1) 1 of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 200; hereinafter "the Act"), and on May 8, 2006, imposed the gift tax of this case on the plaintiff 5,658,100 (hereinafter "the Act").

D. The plaintiff appealed to the National Tax Tribunal on June 26, 2006, but the National Tax Tribunal dismissed the plaintiff's appeal on May 28, 2007.

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 2, 3 and Eul evidence 1 to 10

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The instant disposition shall be revoked on the grounds that it is unlawful for the following reasons.

(1) The Plaintiff cannot be deemed to have a special relationship with Nonparty 1 at the time of acquiring the instant shares. In other words, “executive officers of a corporation controlled by investment,” which is included in a special relationship, are limited to the registered directors and auditors pursuant to the principle of strict interpretation derived from the principle of no taxation without law. The Plaintiff was not an executive at the time of acquiring the instant shares, and even if “de facto executive officers” are included in a corporation’s executive officers, the Plaintiff did not have performed their duties as the managing president

(2) The purchase and sale price of the instant shares is KRW 1 billion as determined by free will with Nonparty 1, etc. and the Plaintiff reflects the objective exchange value of the instant shares at the time of December 2000, and thus, it should be deemed as “market price” of the instant shares. Therefore, it cannot be deemed that the Plaintiff purchased the instant shares at a price lower than the market price.

(3) In addition, Article 35(1)1 of the Act on the deemed donation of low-price acquisition cannot be applied in a case where there is no awareness or intent between the parties to the transaction as to the transfer of the father without compensation. However, at the time of the sale of the instant shares, there was no such awareness or intent between the Plaintiff and Nonparty 1, etc., and even in such a case, the imposition of gift tax is in violation of the Constitution.

(4) Although the shares that the Plaintiff acquired from Nonparty 1 et al. are 15,700 shares that were transferred under the name of the Plaintiff, the Defendant issued the instant disposition against the Plaintiff on the premise that the Plaintiff acquired the entire shares of this case from Nonparty 1 et al.

(5) In rendering the instant disposition on January 30, 201, the Defendant assessed the net asset value of the instant shares as KRW 116,857 per share on the base date of appraisal, and after calculating the net profit and loss value at KRW 0,00, the value per share of the instant shares, including the management premium, at KRW 151,914, including the management premium. The base date of appraisal of the instant shares should be the end of December 6, 200 or at least December 200, at the time of the sale and purchase of the instant shares. The net asset value per share is excessively excessive exceeding KRW 116,857 per share.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Under the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted as the text of the law, barring any special circumstance, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds (see, e.g., Supreme Court Decisions 2000Du4378, Jul. 26, 2002; 83Nu213, Dec. 27, 1983). However, if a certain requirement fact exists under the law, the law does not constitute a “donation” in its original meaning, regardless of whether there was a “donation” (Articles 33 through 41-5, 42, and 42 of the Act). As such, the pertinent provision on deemed as having been a “donation” (see, e.g., Supreme Court Decision 200Du974, Sept. 26, 200).

(2) Meanwhile, Article 35(1)1 of the Act provides that “If a transferee acquires property from a person with a special relationship at a price lower than the market price, the transferee shall be deemed to have received a donation equivalent to the difference between the price and the market price and the amount equivalent to the profits prescribed by the Presidential Decree.” Article 26(4)1 of the Enforcement Decree of the Act provides that “a person with a special relationship under Article 35(1)1 of the Act refers to a transferor or transferee and a person falling under Article 19(2)1, 2, and 4 through 8, Article 19(2)2 of the Enforcement Decree of the Act provides that “an employee shall be deemed as one of the employees, and according to Article 13(4)2 of the Enforcement Decree of the Act, an employee of a corporation under control by an investment within the scope of the above employee shall be included in “an employee under Article 26(4)1 of the Enforcement Rule of the Act” (amended by the Ordinance of the Ministry of Finance and Economy No. 195, Apr. 3, 2001). 200.

(3) We examine the instant case based on the aforementioned legal principles and regulations.

The Defendant applied Article 35(1)1 of the Act, Article 26(4)1 of the Enforcement Decree of the Act, and Article 19(2)2 of the Enforcement Decree of the Act, and it is apparent that the Plaintiff is not an employee of Nonparty 1, etc., who is the transferor of the instant shares. As such, to be recognized as a special relationship between the Plaintiff and Nonparty 1, etc., at the time of the purchase and sale of the instant shares, ① Nonparty 1, etc. controlled the instant company by equity investment, and ② the Plaintiff was an officer of the instant company. However, the fact that Nonparty 1, etc. controlled the instant company by equity investment at the time of the purchase and sale of the instant shares is as seen above. Accordingly, the issue in this case is whether the Plaintiff at the time of the purchase and sale of the instant shares is deemed an executive of the instant company.

(3) According to Article 37(1) of the Commercial Act, if an executive officer of a corporation is deemed a de facto shareholder or a person with no special relationship under the former Enforcement Decree of the Corporate Tax Act, the term “executive officer of the corporation” or “executive officer” as provided for in the Enforcement Decree of the same Act shall be deemed to be a de facto shareholder or a person with no special relationship under the former Enforcement Decree of the Corporate Tax Act, and thus, it shall be deemed that the former Enforcement Decree of the Corporate Tax Act explicitly provides that if an executive officer is deemed to be a de facto shareholder or a person with no special relationship under Article 43(6) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 21302, Feb. 4, 2009; hereinafter the same shall apply), such an executive officer shall be deemed to be a de facto shareholder or a person with no special relationship under the latter Enforcement Decree, and thus, such provision shall be deemed to be included in the scope of non-taxation under the Corporate Tax Act if the executive officer is deemed to be a de facto shareholder or an executive officer.

(4) Therefore, insofar as the Plaintiff was not registered as an executive in the corporate register of the instant company at the time of sales of the instant shares, the Plaintiff’s disposition based on the premise that the Plaintiff had a special relationship with Nonparty 1, the transferor, etc. is unlawful without having to examine the remainder of the Plaintiff’s assertion.

3. Conclusion

Therefore, the plaintiff's claim is justified, and the judgment of the court of first instance is unfair with different conclusions, so it is revoked and it is so decided as per Disposition by the court of first instance to cancel the disposition of this case.

[Attachment Form 5]

Judges Kim Chang-suk (Presiding Justice)