It is not intended for the principle of no taxation without law by a specific corporation that deviates from the limit of delegated legislation.

The meaning of a particular corporation is defined as "corporation with deficits until the business year to which the donation date belongs" and it cannot be viewed as violating the principle of no taxation without law because it exceeds the limit of delegated legislation.

Article 41 of the Inheritance Tax and Gift Tax Act

Article 31 of the Enforcement Decree of Inheritance Tax and Gift Tax Act

The revocation of revocation of imposition of gift tax by the Seoul Administrative Court 2016Guhap7148

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○ Head of tax office

March 29, 2017

April 21, 2017

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 KRW 000 on December 1, 2015 against the Plaintiff on December 1, 2015 is revoked.

1. Details of the instant disposition

A. AA public corporation (hereinafter referred to as “A public corporation”) is a company established in 1961 for the purpose of railroad and track construction business, etc., and this J, the father of the Plaintiff, is a major shareholder with 74.420% shares as a founder, and the Plaintiff is a shareholder with 23.415% shares.

B. AA public project had not been carried out until the relocation, but it was anticipated that a large-scale deficit will have occurred in the business year 2010, the J donated the public project on December 30, 2010, with the resolution of the board of directors on December 28, 2010, the J donated 00 square meters of forest land and 11 square meters of land, 000 square meters of forest land and 00 square meters of market value (hereinafter “the donation in this case”).

C. On March 29, 2011, AA public official reported the tax base and amount of corporate tax for the business year 2010 to the Defendant on the following grounds: (a) even if 000 won donated to the Defendant as above was included in the gains from the receipt of assets, there is a deficit in the calculation of assets, and (b) 000 won was refunded as an interim prepayment tax amount + 00 won paid as source

D. However, the director of the Seoul Regional Tax Office conducted an investigation into the part of the gift tax for the year 2010 with respect to the Plaintiff from August 20, 2015 to September 25, 2015, deeming that thisJ, through the instant donation, distributed the Plaintiff the profit of KRW 00 (00 x 23.415% of the Plaintiff’s share x 23.415% of the Plaintiff’s share), and notified the Defendant thereof. Accordingly, on December 1, 2015, the Defendant decided and notified the Plaintiff on December 30, 2010 (hereinafter “instant disposition”).

E. On March 2, 2016, the Plaintiff filed an appeal with the Tax Tribunal on March 2, 2016, but was dismissed on July 11, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, Eul evidence 1 to 4, the purport of the whole pleadings

2. Determination on the lawfulness of the instant disposition

A. Summary of the plaintiff's assertion

1) The instant disposition is unreasonable for the following reasons.

(1) Even if a person having a special relationship with a stockholder of a corporation provides property without compensation to the corporation, it goes against the legislative intent of Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter the same shall apply) to impose gift tax by deeming the donation as a donation to support temporary financing or contingent losses of the corporation, not for modified donation.

② The Plaintiff and the JusticeJ were able to avoid gift tax through other means, such as the inheritance of family business, and thus, the Plaintiff and the Justice did not aim to avoid gift tax through the instant gift.

③ Even at the time of the IMF, the gift tax was not imposed on the company’s private shares at the time of the insolvency, and compared with the support for legal management, corporate rehabilitation approval, debt-equity swap, debt extension, etc. on the premise of the company’s private shares in the liquidity crisis.

2) The instant disposition is unlawful for the following reasons.

① In order to constitute “specific corporation” under Article 41(1) of the former Inheritance Tax and Gift Tax Act, there must be losses at the time of donation. AA public service did not carry forward losses at the time of donation of this case, but did not fall under “specific corporation” as it was merely a situation in which losses were anticipated during the pertinent business year.

② Article 31(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter the same) provides that “a specific corporation under Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter the same) which has deficits until the business year to which the date of donation belongs is in violation of the principle of no taxation without law, and thus, is null and void

B. Determination

1) Article 41 (1) of the former Inheritance Tax and Gift Tax Act provides that "where a person who has a special relationship with shareholders or investors of a corporation which has losses or discontinuance of business (hereinafter referred to as "specific corporation") makes any of the following transactions with such specific corporation and obtains profits as prescribed by Presidential Decree, the amount equivalent to such profits shall be deemed the value of donated property of such specific corporation". Paragraph (2) of the same Article provides that "the specific corporation under paragraph (1), persons having a special relationship, or shareholders or investors of the specific corporation shall be deemed to have no applicable value of losses or losses, and that the specific corporation shall be deemed to have no applicable value of losses or losses for the specific business year under subparagraph 4 of the former Inheritance Tax and Gift Tax Act until the specific business year." Article 31 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the specific corporation shall be deemed to have no applicable value of losses or losses which belongs to the corporation under subparagraph 1 of the same Article." It shall be deemed that the specific corporation has no applicable value of losses or losses under subparagraph 18 of the former Enforcement Decree:

2) In light of the aforementioned legal principles, when comprehensively considering the following circumstances, which can be known by the facts acknowledged and presented evidence, Eul evidence Nos. 5-1 through 6, and the purport of the entire pleadings, the disposition of this case imposing gift tax on the plaintiff on the ground of this case’s donation against the public official of the J constitutes “specific corporation under Article 41(1) of the former Inheritance Tax and Gift Tax Act” and thus, is lawful. Accordingly, the plaintiff’s assertion is rejected.

① The Plaintiff and the JJ constitute a father-child relationship, and the Plaintiff is a shareholder who holds 51,513 shares of AA co-ownership (23.415% shares).

② The instant donation to the AA public service of theJ was made around December 30, 2012, when it was anticipated that a large amount of deficit will have occurred in the business year 2010.

③ AA’s public service did not include KRW 000 in the gross income for the year 2010, which includes the date of the instant donation, the amount of losses incurred to KRW 000,000. Thus, it constitutes “a corporation with losses for the business year which includes the date of donation” under Article 41(1) of the former Inheritance Tax and Gift Tax Act and Article 31(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

④ In full view of the statements in the evidence Nos. 5-1 through 6, it appears that the Plaintiff and J had the intent to avoid the gift tax or gift tax through the instant donation. Even if the Plaintiff and J did not have the intent to avoid the gift tax or the gift tax, it cannot be deemed that the instant disposition is improper in accordance with the legal principles as seen earlier.

⑤ The Plaintiff asserted that, even at the time of the MFF, gift tax was not imposed on the company’s private shares at the time of the MF, and that when compared with support such as legal management, corporate rehabilitation approval, debt-equity swap, debt extension, etc. on the premise that the company’s private shares in the company faced with the liquidity crisis were given, there is no evidence to acknowledge it. Furthermore, as seen earlier, insofar as it is deemed that there was a purpose of evading gift tax or gift tax by gift gift through the instant donation, it cannot be said that treating the Plaintiff and the J differently from the cases asserted by the Plaintiff is contrary to equity.

3. Conclusion

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