[1] Whether the transaction price in the case of transferring the shares issued with the management right of the company can be deemed as the market price of the shares (negative)

[2] Requirements for the transfer of unlisted stocks to a specially related person to constitute an act of profit sharing as a wrongful calculation

[1] The market price under Article 46 (2) 4 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 198) refers to an objective exchange price formed through normal transactions. If shares issued by a company are transferred with the right of management, the transaction price shall not be deemed the market price in general, which reflects the objective exchange value in cases where only shares are transferred.

[2] Where it is recognized that the tax burden of Article 46 (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 198) unfairly reduces the tax burden, subparagraph 1 through 8 provides an individual and specific type of act, and subparagraph 9 provides an overall type of act with regard to "where it is recognized that there was a distribution of profit to other investors, etc.", it shall be deemed that the act and calculation of a corporation fall under any of the above subparagraphs. The meaning of subparagraph 9 here refers to a case where a profit portion is recognized to be distributed to investors, etc. in addition to transactions stipulated in subparagraphs 1 through 8, and even if a transfer of a certain asset does not fall under a low-price transfer under subparagraph 4, if it can be recognized that there was a future expectation profit as a result of the transfer of the asset to a specially related person, it shall be deemed as a series of acts under subparagraph 9.

[1] Article 46 (2) 4 (see current Article 88 (1) 3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of December 31, 1998) / [2] Article 20 (see current Article 52) of the former Corporate Tax Act (amended by Act No. 5581 of December 28, 1998), Article 46 (2) 4 (see current Article 88 (1) 3), and 9 (see current Article 88 (1) 9) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of December 31, 1998)

[1] Supreme Court Decision 88Nu9565 delivered on July 25, 1989 (Gong1989, 1306), Supreme Court Decision 89Nu558 delivered on January 12, 1990 (Gong1990, 471) Supreme Court Decision 93Nu233 delivered on December 22, 1994 (Gong1995Sang, 710), Supreme Court Decision 97Nu195 delivered on November 14, 197 (Gong1997Ha, 3898) / [2] Supreme Court Decision 91Nu13571 delivered on September 22, 199 (Gong192, 3030) and Supreme Court Decision 90Nu53979 delivered on May 10, 196 (Gong290597 delivered on May 29, 197)

Pacific Co., Ltd. (Law Firm KEL, Attorneys Gyeong-hee et al., Counsel for the defendant-appellant)

Head of Yongsan Tax Office

Seoul High Court Decision 2001Nu61 delivered on October 17, 2001

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. According to the reasoning of the judgment of the court below and the judgment of the court of the first instance cited by the court below, since the company's affiliates, including the plaintiff company, were holding a total of 120,00 shares issued in the old Pacific Co., Ltd. (hereinafter referred to as "the present Pacific Co., Ltd.") at the time of sale of the above 70 billion won shares in the old Pacific Co., Ltd. (the above 100,000 shares were transferred to the defendant Co., Ltd., Ltd. (the above 400, Jun. 30, 1996) by the defendant Co., Ltd., Ltd., which had been held by the 500,000 shares of the present Pacific Co., Ltd., Ltd. (the above 50,000 shares were transferred to the defendant Co., Ltd.) for the above 1's new Pacific Co. 1's new Pacific Co., Ltd. (the above 500,000 won shares).

However, "market price" under Article 46 (2) 4 of the Enforcement Decree refers to an objective exchange price formed through normal transactions (see Supreme Court Decision 93Nu22333, Dec. 22, 1994). If shares issued by a company are transferred with the right of management, the transaction price cannot be deemed as the market price which reflects the objective exchange value when only shares are transferred (see Supreme Court Decision 89Nu558, Jan. 12, 1990). Thus, the above transaction price at the time when the plaintiff company transferred all shares with the right of management of the professional camp group of this case can not be deemed as the market price.

Nevertheless, the lower court erred by misapprehending the legal doctrine on the market price, thereby adversely determining that the transfer of the instant shares constitutes a transfer at a low price under Article 46(2)4 of the Enforcement Decree.

2. "Calculation of wrongful acts" means the calculation of an act to reduce or exclude the tax burden incurred when a taxpayer takes a round-up act, multi-stage act and other abnormal transaction form without a reasonable transaction form. The purport of Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998) provides for the denial of wrongful calculation in Article 20 of the former Corporate Tax Act. The purpose of the wrongful calculation is that a transaction with a corporation and a related party under Article 46(2) of the Enforcement Decree was deemed to have neglected economic rationality by abusing all the types of transaction under Article 46(2) of the former Enforcement Decree, and thus, it is deemed that the taxation authority imposed income which is objectively deemed reasonable in terms of tax law and thus intends to ensure fair taxation and prevent tax avoidance. See Article 46(2)1 to 8 of the Enforcement Decree, where it is deemed that a series of transactions with a related party under subparagraphs 9 through 9 are deemed to constitute an act of wrongful calculation, and thus, it is deemed to constitute an act of wrongful calculation.

In light of the facts and records established by the court below in accordance with the above legal principles, at the time of transferring the shares of this case to Pacific et al., the plaintiff, as a company, knew or at least anticipated that modern group would purchase the shares of this case at a price much higher than the market price in order to acquire the management right of the professional camping team at the time of transferring the shares of this case to Pacific et al., but distributed the profits equivalent to the difference to Pacific et al. as a result, by transferring the shares of this case at par value to Pacific et al., and on the other hand, it would have reduced the tax burden on the income accrued from the transfer of the shares of this case to Pacific et al., and thus, it cannot be deemed that the plaintiff company's series of acts of this case are economic rationality. Thus, it constitutes

3. Therefore, the court below erred in holding that the series of the above series of acts by the plaintiff company constitutes a wrongful calculation under Article 46 (2) 4 or 9 of the Enforcement Decree of the Act on the Grounds that the defendant's disposition of this case constitutes a low price transfer under Article 46 (2) 4 of the Enforcement Decree of the Act on the Grounds that the above series of acts by the plaintiff company constitutes a wrongful calculation, but the court below's above error is justified in its conclusion that the above series of acts by the plaintiff company constitutes a wrongful calculation, and thus, it does not affect the conclusion of the judgment. The court below's error in the misapprehension of the rules of evidence

4. Therefore, the appeal shall be dismissed, and all costs of appeal shall be borne by the plaintiff who is the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Byun Jae-chul (Presiding Justice)