Plaintiff 1 and one other (Attorneys Ba-sik et al., Counsel for the plaintiff-appellant)

The Head of Seodaemun Tax Office (Law Firm Choe, Attorneys O Tae-hwan et al., Counsel for the plaintiff-appellant)

May 22, 2012

1. All of the plaintiffs' claims are dismissed.

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

The Defendant’s imposition of KRW 11,687,104,00 against each of the Plaintiffs on August 10, 2010 shall be revoked in entirety.

1. Details of the disposition;

A. On September 3, 1999, Plaintiff 2 was the largest shareholder who, under the name of C.C.C. on September 21, 1999, purchased 52,00 shares from Nonparty 1 (the representative director of heating technology), Nonparty 2, and Nonparty 3 from Nonparty 1 (the representative director of heating technology), purchased each of the 18,00 shares of heating technology, and acquired shares of 18,000 shares from the 18,00 shares from the 3rd, and acquired shares issued with new shares issued with the same day, thereby holding approximately 444% of the shares issued with heating technology.

B. The plaintiff 2 selected and prepared treatment securities to register them on the KOSDAQ market in 2007 as a securities company in charge. On September 2007, the plaintiff 2 presented a review to the effect that "Inasmuch as C.C., the largest shareholder of the C.C., of the C.C., is a foreign nominal company, it is at issue in quality review items, such as safety of management and independence of management in the process of listing, and thus, it is necessary to change the governance structure of the P.1 Company."

C. Accordingly, Plaintiff 2 concluded an agreement on December 21, 2007, to transfer KRW 1.3 million per share to Plaintiff 1, 200, 3 million per share (hereinafter the above 3 million shares, hereinafter the above 3 million shares, hereinafter the above 1.3 million shares, and 1.3 million shares transferred to C.C. C.C., and the above 1.3 million shares are "related shares," and the above 1.3 million shares transferred to C.C. are "related shares," and the transfer of ownership in the name of the Plaintiff 1 and the domestic corporation under its control, which is the corporation under its control, to Convenccc. (hereinafter the "Convenc. 21 December 21, 2007). The following details are as follows:

A person shall be appointed.

D. The Defendant: (a) deemed that the actual right holder of the shares at issue in the name of C.C. C.C., a nominal company, was the Plaintiff 2; (b) deemed that the said Plaintiff trusted the shares at issue with the purpose of tax avoidance to Plaintiff 1; and (c) applied the statutory provision on the constructive gift of title trust property under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8347, Apr. 11, 2007; hereinafter “Gift”); (c) on the donated value, Article 60(2) of the Inheritance Tax and Gift Tax Act; (d) applied Article 49(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”); and (d) evaluated the amount of the gift tax at issue on January 14, 2008 (hereinafter “the gift tax at issue”).

E. Although the Plaintiffs filed an appeal with the Tax Tribunal regarding each of the instant dispositions, the Tax Tribunal dismissed all the Plaintiffs’ claims on June 27, 201.

[Based on recognition] Gap evidence 1 (including paper numbers, hereinafter the same shall apply) through 4, 6 through 9, Eul evidence 1, and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

Each disposition of this case is unlawful for the following reasons.

1) In order to apply the provision on deemed gift from title trust to a title trust, the purpose of tax avoidance is to: (i) the transaction at issue is by an invitation of a listed manager securities to the effect that the largest shareholder of the heat-based technology should be changed in order to pass the listing examination of the heat-based technology; (ii) C.C. has 4.13% of the heat-based stocks; and (iii) the issue was transferred from C.C.C., a corporation Malaysia, a Malaysia, to Plaintiff 1, a Malaysia resident, who is a Malaysia; and (iv) considering the fact that there is no difference in the tax burden in terms of the source tax on capital gains from the stocks at issue, the source tax on the dividend income from the heat-based technology, and the increase in the foreign investment tax burden on the heat-based technology, there is no tax avoidance purpose in the transaction.

2) In relation to the assessment of the shares at issue, the instant transaction example value (5,000 won per share) does not reflect the market price of the shares at issue, and rather, the sales value (1,500 won per share) of December 26, 2007, which is the nearest day of the transaction value during the three-month period before and after the instant transaction, should be deemed the market price. If the said sales value does not fall under the market price, the supplementary assessment value (1,231 won per share) under the Inheritance and Gift Tax Act should be applied.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) Plaintiff 2 agreed with Nonparty 1, the representative director of the Open Forest Technology, who was well aware of it in 199, to acquire the old stocks of the Open Forest Technology and to secure the control over the open forest technology instead of investing in the new stocks due to capital increase by issuing new stocks. On September 20, 199, Plaintiff 2 acquired 160,000 shares per share from Nonparty 1, the major shareholder of the open forest technology in the name of C.C., and Nonparty 3 (Evidence 1-1), and acquired 50,000 shares per share (Evidence 1-1), and C.C.C. to increase 240,00 shares per share in the third party allotment to KRW 50,000,000 per share (Evidence 1-240,000 won per share). The largest shareholder of C. 46,000 won per share acquired at the 56,000,000 won per share by additionally acquiring the new stocks by the Open Forest Technology Resolution Council (Evidence 2.36, the largest shareholder).

On September 21, 999.9.21, the shares held by the former 160,000 shares 160,000 shares 160,000 shares 160,000 shares 40,000 49.26% 49.26% of 9.6 December 16, 999 as free capital increase (200%) 80,000 shares 1,200,000 49.26% of shares transfer on December 21, 2000 55,145,000 shares transfer 55,000 1,145,0047.0% shares transfer on January 15, 01. 15,000,000 shares 160,0000 shares 1,075,075,004. 13% on September 13, 2004; 304.637.4%

2) Around September 2007, treatment securities, a general manager of the listing of heat-based technology, prepared a “review report on the largest shareholder-related issues” as follows (Evidence A 3).

The provisions on listing review under the listing regulations as of the direction for review and forecast of the largest shareholder in the main text stipulate only matters concerning the limitation on the change of status one year prior to the filing of a request for listing review under the listing regulations as of the direction for review and forecast. Thus, even if the largest shareholder is the largest shareholder, the shareholders controlling the Paper Company shall be able to disclose, such as listed corporations, and shall be able to engage in responsible management. If the controlling shareholder of the Paper Company is an individual, the shareholders of the Paper Company shall be able to delete the structure of the Paper Company and request listing in the form of the largest shareholder of the Paper Company. If it is impossible for the Paper Company to submit a request for listing review under the listing regulations as of the present date: (a) the method for submitting a request for listing review to the largest shareholder; (b) the method for submitting a request for listing after changing the Paper Company structure to the Paper Company; and (c) the method for submitting a request for listing after changing the same to the largest shareholder in the form of the Plaintiff 2 to the public.

3) On October 12, 2007, the Open Forest Technology Financial Team drafted a “written review of the change in corporate governance (draft)” on the following main points (Evidence 7). Accordingly, three-dimensional accounting firms assessed the value per share of Open Forest Technical Stocks as KRW 4,355 (see At the bottom of Evidence 9).

It seems to be the most desirable measure among the future measures on the review report related to the largest shareholder of the ○ future treatment securities included in the main text. The appropriateness of the trading price of ○ Stocks is the appropriateness of the ○ stock trading price.

4) On October 24, 2007, the Open Forest Technology Financial Team issued a “implementation proposal for alteration of equity structure” in the following outlines with respect to the disclosure of companies through listing of re-rupture rupture rupture rupture rupture rupture rupture routtures and third parties recruitments (Evidence B

The largest shareholder ratio of the table ○ in the main text is changed from C.C. to another corporation ( E.C.) controlled by Plaintiff 2 and Plaintiff 2, and even if 30% public offering is established after listing, Plaintiff 2's share ratio is more than 30%, it is possible to exercise the major shareholder's right. - C.C.C. is the highest shareholder for 8 years after 99 years, and C.C.C. and Plaintiff 2 is not a specially related person. Thus, if C.C. takes place at the end of 2007, it is difficult to face an original theoretical problem that needs to be explained to the substance of C.C.C., and that the relationship between Plaintiff 2 and the other corporation (E.C.) and Plaintiff 2 is reduced in the future (i.e., acquisition of corporate tax at the price that would not be fair after 99).

5) Unlike the above review results expressed by the Plaintiff 2 as the largest shareholder, the Plaintiff 2 decided to divide Plaintiff 1 and BentP to transfer the shares in C.C. C.C., and decided to set forth KRW 4,500 per share, adding a certain amount to the assessment value per share of Samyeong Accounting Firm, as the nominal acceptance value for key trade and related transactions. On December 21, 2007, the Plaintiff 1 and the title trustee of the shares in question were prepared the following agreements (Evidence 4).

On February 2, 200, all the economic profits (such as the total amount of disposal, dividends, etc.) from the possession and disposal of the outstanding shares shall belong to Plaintiff 2, an actual shareholder, as to the exercise of voting rights and the subsequent disposal of the outstanding shares, contained in the main text 2.1. of the Table 2.2.2.

6) On April 3, 2008, while distributing 300 million won in cash to Plaintiff 1, who is a resident of Washington, withheld 45 million won, which is 15% of the amount payable under the Korea- Singapore Tax Treaty at the time, and paid 30 million won to Plaintiff 1, who is a resident of Washington.

7) On the basis of arranging cases of sale and purchase of heat technology stocks before and after the transaction in question, the following table is as follows.

On June 1, 07, Nonparty 6, 16, 16, 250, 200, 00, 005, 00, 00, 00, 00, 00, 00, 005, 00, 00, 00, 00, 00, 10, 00, 10, 00, 10, 00, 10, 00, 10, 00, 00, 10, 00, 00, 10, 00, 00, 00, 10, 00, 00, 00, 20. 0, 05, 00, 00, 00, 200, 00, 00, 000, 10,000, 50,005, 207

8) The distribution of net income for the heat technology is as follows. In particular, the net asset value of the heat forestry technology in 2006 is about 15.1 billion won, while the net asset value in 2007 shows a big difference between 24.6 billion won and the net asset value in 2007 (see the evidence No. 6-1). The main reason why the above difference occurred is that the net income in 2007 was increased to 9.2 billion won.

A person shall be appointed.

[Reasons for Recognition] Facts without dispute, Gap's 1 to 5, 8, 9, 10 evidence, Eul's 2 to 8, the purport of the whole pleadings

D. Determination

1) Whether the purpose of tax avoidance is recognized

(a)the opening;

According to Article 45-2(1) of the Inheritance Tax and Gift Tax Act, in cases where the actual owner and the nominal owner are different in cases of property which requires the transfer or exercise of rights, the value of such property shall be deemed to have been donated to the actual owner on the date on which the registration, etc. was made to the nominal owner; however, subparagraph 1 of the proviso shall be excluded in cases where the property is registered, etc. in another person’s name without the purpose of tax avoidance. The legislative intent of the above provisions of the Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle in the purport of effectively preventing tax avoidance by using the title trust system and realizing the tax justice. Thus, if the title trust is recognized to have been made for reasons other than the purpose of tax avoidance, and it is merely a minor reduction incidental to the said title trust, it cannot be deemed that there was a “tax avoidance purpose” under the proviso of the same Article in the said title trust, and the burden of proving that

B) Criteria for determination

The plaintiffs asserted that the main purpose of this transaction was to conduct preliminary examination for listing technology, and that there is no difference in the actual tax burden, regardless of holding the key shares in the name C.C.C.C. and holding them in the name of the plaintiff 1. However, in full view of the following circumstances, whether the purpose of tax avoidance exists or not shall be determined based on the effects under the tax law that is expected to have occurred or anticipated by the trust of the plaintiff 1, not by the plaintiff 2, but by the fact that the trustee of the pertinent shares was changed from C.C. to the plaintiff 1., not on the basis of the effects under the tax law.

① Although the instant transaction was conducted in the form of a single transfer contract between C.C. and Plaintiff 1, the actual legal relationship is constituted at the same time by Plaintiff 2 to resolve the title trust relationship between C.C. and Plaintiff 1, and at the same time, by setting up a title trust relationship with Plaintiff 1. Each of the instant dispositions is the act of title trust with Plaintiff 2 against Plaintiff 1. Therefore, in determining the purpose of tax evasion, whether Plaintiff 2 is able to avoid taxes by changing the title of Plaintiff 1’s name without changing the title in his/her own name.

② If the Plaintiff’s logic is accepted, if the taxpayer previously held a title trust with the purpose of tax avoidance and the title trustee was changed to B under the same purpose, it should be deemed that there was no purpose of tax avoidance. As such, given that there was no additional result of tax avoidance than the previous situation due to the title trust act of B. However, if for any reason, there is a circumstance under which taxation cannot be imposed on the previous title trust act of A with respect to the previous title trust act of A, it would result in unreasonable result that it may not be imposed as a deemed donation on the title trust of B, newly made only on the ground that there was a de facto legal situation that the former act of title trust was made with respect to the title trust of B. In particular, in light of Plaintiff 2, C.C., and in this case, the title trust of C.C. is deemed to have the purpose of tax avoidance, and thus, if the key transaction is not deemed a title trust, it would result in the unfair outcome as mentioned earlier.

C) Whether there exists a decrease in tax burden

First, even if Plaintiff 2’s transfer of outstanding shares to one’s own name, it was possible to satisfy the criteria for listing on the KOSDAQ, so it is difficult to view that Plaintiff 2’s act of title trust without changing the title to one’s own name, and that the act of title trust with Plaintiff 1 was the primary purpose of meeting the criteria for listing examination, and there is no other evidence to recognize that there was no other purpose of tax avoidance against the Plaintiffs. Rather, it can be recognized that the title trust with Plaintiff

○ Avoidance of global income tax on dividend income

Plaintiff 2, on April 3, 2008, received cash dividends of 300 million won from the Open Forest Technology, paid only the dividend income tax by 15%, not the highest tax rate of global income tax, according to the withholding tax rate of 35%, thereby achieving the outcome of tax avoidance, and then, the same tax avoidance effect can be expected in the future.

○ Tax reduction and exemption for foreign-capital invested companies

The Open Forest Technology listed C.C.C., a Malaysia, as a shareholder, and received tax reduction or exemption benefits for foreign-capital invested companies under Article 121-2 of the Restriction of Special Taxation Act. However, since the actual shareholder of the Open Forest Technology was Plaintiff 2, a domestic resident, the Open Forest Technology would unfairly enjoy tax reduction or exemption benefits under Article 121-2 of the Restriction of Special Taxation Act. Therefore, insofar as the name of the shares at issue is recovered under Plaintiff 2’s name, it seems that the issue of the transaction is likely to be collected from the tax authority for the illegal tax reduction or exemption benefits of the Open Forest Technology.

D) Sub-committee

Therefore, the plaintiffs' assertion that there is no purpose of tax avoidance in the issues transaction is without merit.

2) For the market price of the shares in question

A) Article 60(1) of the Inheritance and Gift Tax Act provides that “The value of property on which gift tax is levied shall be based on the market price as of the date of donation (hereinafter “the date of appraisal”), and Article 60(2) of the same Act provides that “The market price under the provisions of paragraph (1) shall be the value generally deemed to be established when free transactions are made between many and unspecified persons, and shall include the amount recognized as the market price under the conditions as prescribed by the Presidential Decree, such as the expropriation and public sale price and appraisal price.” Meanwhile, Article 49(1)1 of the Enforcement Decree of the Inheritance and Gift Tax Act provides that where a transaction is made within three months before or after the date of appraisal (hereinafter “evaluation period”), the value verified as the transaction amount shall be stipulated as the market price, but the transaction price shall be determined as the market price, except where the transaction price is objectively deemed to be unfair, such as the transaction price with a person with a special relationship under the proviso of Article 26(4). In the end, the market price under the above Act refers to an objective exchange price formed through a normal transaction price.

B) The Defendant asserts that the issue price of KRW 5,00 per share, which is the example of business transaction in the instant case, is the market price of the outstanding shares, while the Plaintiffs should be the market price of KRW 1,500 per share, which is the transaction value between Nonparty 4 and Nonparty 5 on December 25, 2007. However, in full view of the following circumstances recognized by the purport of the above fact-finding and the entire pleadings, the Plaintiff’s allegation in this part is without merit.

① Since there is no special relation with the transaction example of this case, and the transaction example of this case was made between Nonparty 13 and Nonparty 14, who are deemed to have no special relation with the executive officers or controlling shareholders of the heat forestry technology, within the evaluation period from December 21, 2007, which is the base date of appraisal, the requirement for the transaction example of this case is met. In addition, Plaintiff 2 acquired the stocks of the heat forestry under the name of C.C.C. on Sep. 2, 199, the value of the heat forestry technology is KRW 4,166, and each net asset value of the heat forestry technology in 199 and 207 and the price fluctuations during that period. In light of the changes in the market price of each of the net assets in 199 and 207, the price increase of KRW 5,00,000 appears to have been natural, and the price increase of the new forestry technology at the time of internal listing of the forest technology is within the reasonable price of the stock.

② We examine the Plaintiffs’ transaction value of 1,500 won as of December 25, 2007 and 500 won as of December 20, 2007. The above transaction value does not fall short of 2,531 won per share in the balance sheet in 2007. Thus, the above value is hard to view as normal in that the transaction value has increased explosively in the pertinent year, and it was completed at the time of preparation for listing. However, Nonparty 4 and Nonparty 5, who are the parties to the transaction as of December 25, 2007, who were the parties to the transaction from 2000 to 202, and worked as the representative director of the Open Tech technology, could not be excluded from the possibility of being affected by Nonparty 1, who is the representative director of the Open Tech, cannot be viewed as reflecting the objective exchange value of stocks.

③ The Plaintiffs asserts that it is difficult to credibility of this case’s transaction examples on the grounds that during several occasions between April 30, 2008 and May 30, 2008, the shares were traded at KRW 2,500 per share. However, the above transaction examples were repeatedly made against Nonparty 12 and Nonparty 14 at the same time within a short period of time, with Nonparty 2 and Nonparty 14 at the same KRW 2,500 per share, and are in conflict with the subsequent transaction flow (see, e.g., the sales value per share of June 5, 2008 and June 25, 2008); Nonparty 2 transferred 50 won per share to Nonparty 12 even on December 20, 2007, in light of the above credibility and credibility of the transaction examples after this case’s transaction examples were transferred to the same person on April 30, 2008.

3) Sub-decisions

As long as the purpose of tax avoidance is recognized in the pertinent transaction, and the market price of the shares is determined to be reasonable, each of the instant dispositions is legitimate.

3. Conclusion

Therefore, all of the plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.

Judges Lee Jae-hee (Presiding Judge)

1) However, since the establishment of a title trust relationship was intended, the actual payment was not made.

Note 2) The Open Forest Technology has the above governance structure for listing, but it did not apply for listing on the KOSDAQ due to the sudden change in the economic situation, such as the U.S. financial crisis in 2008.

3) However, the management right decided to delegate it to Nonparty 1 who is a professional venture business operator (see subparagraph 4 of this paragraph).

4) Nonparty 1 was the largest shareholder holding 46% of the C.C. as of the beginning of the year in 1999. Based on the end of the year in 1999, Nonparty 1 transferred old shares to C.C.C., and thereafter allocated new shares for capital increase, Nonparty 1 became the two-party shareholders with 18.06% of the total amount of 13.38% of the total amount of 13.38%, and Nonparty 2 became the three-party shareholders (see evidence 2-1).

Note 5) The net asset value per share of the heating technology as of the end of 2006, which serves as the basis for the supplementary assessment method, is merely KRW 1,448 (see Evidence 11). On the other hand, the net asset value per share as of the end of 2007, is KRW 2,531 (net asset value 24,68,854,947 ± 9,744,00).

6) For example, A cannot impose gift tax as a non-resident or as a matter of domestic tax law or tax treaty, or when the exclusion period for gift tax on the previous title trust act has expired.

Note 7) As seen in the above facts, on October 24, 2007, the Open Forest Technology Financial Team ordered to cut off the link interest between C.C.C. and Plaintiff 2 on this ground.

8) Although the dividend was distributed to Plaintiff 1, in fact, Plaintiff 2 appears to have received the said dividend income by December 21, 2007 agreement between the Plaintiffs pursuant to Article 2.2.2.

9) The income tax on dividends related to the instant stocks is imposed at 15% of the dividend payment pursuant to Article 10(2) of the Korea Washington Tax Convention, while Article 55(1) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008) provides that the tax rate of 35% shall be applied to the excess of the tax base of global income of 88,000,000 won, and Article 55(1) of the Income Tax Act currently in force also applies the same tax rate.

10) At the time of 1999, the net asset value of the heat-based technology was KRW 13,648,670,996, net income was KRW 400,138,549 (see subparagraph 6-2 of the evidence). The net asset value of the heat-based technology in 2007, when the issue was traded, was KRW 24,68,854,947, and net income was KRW 9,248,604,276 (see subparagraph 6-1 of the evidence).

Note 11) The above transactions made at the end of year 2007 reflects the results of year 2007 rather than year 2006.

(12) The above non-party 2 transferred the largest share at the time when the plaintiff 2 first takes over the high-tech co-owned stocks for the first time, and was the third shareholder of the high-tech co-ownership at the time of 199 (the same resident number of the non-party 2 stated in the evidence No. 2-1, No. 2-2, and No. 12-15).