[1] In a case where the title trust was made for another reason, not for tax avoidance, but for other reasons, and only a minor reduction of tax was made as incidental to the title trust, whether it can be deemed that there was a tax avoidance purpose under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (negative)

[2] In a case where Gap et al. trusted the shares issued by Eul et al. to Byung et al., and the tax authority imposed gift tax on Byung et al by applying the provision on deemed donation of trust property under the name of trust property under Article 45-2 (1) of the former Inheritance Tax and Gift Tax Act, the case holding that the judgment below erred by misapprehending the legal principles, even though it is highly probable to deem that the above title trust appears to have been a measure to avoid business difficulties of Eul and that there is no purpose to avoid the application of the progressive tax rate

[1] Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010) / [2] Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

[1] Supreme Court Decision 2004Du7733 Decided May 12, 2006 (Gong2006Sang, 1063), Supreme Court Decision 2010Du24104 Decided March 24, 201, Supreme Court Decision 2011Du10232 Decided February 21, 201 (Gong2017Sang, 646)

Plaintiff (Appointed Party) (Attorney Cho Jae-ho, Counsel for the defendant-appellant)

Director of the Tax Office

Daejeon High Court (Cheongju) Decision 2015Nu10408 decided September 7, 2016

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined.

1. Where it is recognized that the title trust was made for any reason other than the purpose of tax avoidance, and only a minor reduction of tax incidental to such title trust takes place, it cannot be deemed that the purpose of tax avoidance under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) exists (see, e.g., Supreme Court Decisions 2004Du7733, May 12, 2006; 2010Du24104, Mar. 24, 201).

2. A. The lower court acknowledged the following facts by citing the reasoning of the first instance judgment.

(1) The Plaintiff (Appointed Party, hereinafter “Plaintiff”) and the Plaintiff’s spouse 5 were nominally named by the Appointed Construction Co., Ltd. (hereinafter “instant shares”) with the total number of 136,500 shares issued by Samho Construction Co., Ltd. (hereinafter “Thoho Construction”) as the representative director, and registered the title transfer on May 26, 2008 to 2, 3, and 4 (hereinafter “the instant shares”).

(2) Accordingly, the Defendant applied the provision on deemed donation of trust property under the name of trust property under Article 45-2(1) of the former Inheritance and Gift Tax Act, respectively, and imposed gift tax on the designated parties 2, 3, and 4 on July 17, 2012 and August 2, 2012. On July 17, 2012, the Plaintiff and the designated parties 5 as joint and several taxpayers (hereinafter collectively referred to as “instant disposition”).

B. Next, the lower court rejected the Plaintiff’s claim seeking the revocation of the instant disposition on the ground that it is difficult to deem that the title trust of the instant shares did not have any tax avoidance purpose in light of the following: (a) there was a possibility to reduce the global income tax burden, which was accumulated in light of the possibility of future dividend distribution of the retained earnings accrued from the Tho general construction in the Hoho comprehensive landscape; and (b) there was a tax in arrears with the Plaintiff and the

3. However, it is difficult to accept such a determination by the lower court for the following reasons.

A. The evidence duly admitted by the lower court reveals the following circumstances.

(1) On May 21, 2008, EP Construction Co., Ltd., for which the Plaintiff was the representative director, was in bankruptcy and due to the occurrence of reasons for bad credit standing to the above company and 5 of the appointed parties. On May 23, 2008, Samho Comprehensive Landscaping Construction Co., Ltd. was notified by the Construction Mutual Aid Association of May 23, 2008 that all business transactions were suspended due to the loss of qualifications as joint and several suretiess

(2) The title trust of the instant shares was made on May 26, 2008, which was three (3) days after the date of the title trust of the instant shares, and the share ownership relationship of the Hoho comprehensive landscape construction due to the title trust of the instant shares was changed from the “Appointed 541.58%, Plaintiff 30.26%, and 314.08%,” to the “Appointed 241.84%, 325.6%, and 418.42%,” respectively.

(3) Subsequent to the construction of the Samho comprehensive landscape, the joint and several sureties was replaced by two joint and several suretiess, and the project was normally continued until the instant disposition, such as bid, issued by the Construction Mutual Aid Association.

(4) The 3rd general landscape construction was conducted with approximately KRW 1.466 billion earned surplus in the year 2007, and even thereafter, continued to have reached approximately KRW 3.829 billion in the year 2012, but did not have been distributed until now.

(5) Meanwhile, the name trustee 2, 3, 4 are the names of the Plaintiff, 5 children, 5 children, 5 children, 5 children, and 5 children, respectively.

B. Examining these facts in light of the legal principles as seen earlier, the Plaintiff and 5’s act of title trust of the instant shares appears to be a measure to avoid managerial difficulties in the third comprehensive landscape construction, such as replacing a joint and several surety for the Construction Mutual Aid Association from 5 to 2 designated parties. Moreover, since all the title trustees of the instant shares are related to the Plaintiff and 5 who are the title truster, it is difficult to deem that there was a purpose to avoid the secondary tax liability as an oligopolistic shareholder. Moreover, since 3-ho comprehensive landscape construction had no dividends paid once, there was no global income tax evaded due to the title trust of the instant shares, even if 3-ho comprehensive landscape construction was carried out, the number of shareholders following the title trust is equal, and there was no significant change in the share ratio structure, in light of the circumstances in which the Plaintiff had already been granted credit bad credit to 5, or the company that had been the representative director had no difference in the amount of tax, the same tax rate as that applied to the instant dividend income at the time of the title trust.

C. Nevertheless, the lower court did not specifically examine and determine such circumstances and determined that it was difficult to deem that there was no purpose of tax avoidance solely for the reasons indicated in its reasoning. In so determining, the lower court erred by misapprehending the legal doctrine on the purpose of tax avoidance in deemed donation of title trust property, thereby failing to exhaust all necessary deliberations. The allegation contained in

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

[Attachment] List of Selections: Omitted

Justices Kwon Soon-il (Presiding Justice)