Plaintiff 1 and two others (Attorney Yang Sang-hoon, Counsel for the plaintiff-appellant)

Head of Namyang District Tax Office and two others

October 6, 2010

Seoul Administrative Court Decision 2009Guhap34723 decided May 28, 2010

1. All appeals filed by the plaintiffs are dismissed.

2. The appeal costs are assessed against the plaintiffs.

The decision of the first instance shall be revoked, and the imposition of the gift tax of 104,480,590, 14,208,300, 10,420,300, and 3,154,120, and the imposition of the gift tax of 147,596,410, 18,367, 600, and 12,402,754,790, and 3,754,160, and 165, respectively, imposed on the plaintiff 1 on October 3, 2008 by the director of the second instance tax office, and the imposition of the gift tax of 147,596,410, and 3,754, and 160,000, respectively, imposed on the plaintiff 2 on September 23, 2008 by the director of the second instance tax office, shall be revoked.

1. Quotation of judgment of the first instance;

The reasoning of this Court’s reasoning is as follows, except for the determination of the plaintiffs’ assertion and the relevant statutes added as follows, and thus, the reasoning of the judgment of the court of first instance is the same as that of the part of the judgment of the court of first instance. Thus, this Court cited it as it is in accordance with Article 8(2)

2. Additional matters to be determined;

Although the plaintiffs should calculate the weighted average amount of net profits and losses per share of an unlisted company for less than 3 years after the commencement of business as in the non-party company according to Article 56 (1) 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004), the average amount of net profits and losses per share of the non-party company for the last three years should be calculated as the average amount of net profits and losses per share calculated according to the standards prescribed by the Ordinance of the Ministry of Finance and Economy among the credit appraisal specialized agencies or accounting corporations under the Certified Public Accountant Act, among the accounting corporations under the Certified Public Accountant Act, as in accordance with Article 56 (1) 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004), the defendants argued that there was an error in calculating this according to subparagraph

3. Additional Acts and subordinate statutes;

former Inheritance Tax and Gift Tax Act (amended by Act No. 7580 of July 13, 2005)

Article 68 (Tax Base Return of Gift Tax)

(1) A person liable to pay the gift tax pursuant to the provisions of Article 4 shall report the taxable value and tax base of the gift tax pursuant to the provisions of Articles 47 and 55 (1) to the head of the competent tax office having jurisdiction over the place of tax payment within 3 months from the date of donation under the conditions as prescribed by the Presidential Decree: Provided, That the deadline for filing the report on the settlement of the gift tax base following the listing of unlisted stocks or the merger of corporations pursuant to the provisions of Articles 4

(2) In cases of paragraph (1), a report shall be submitted to the head of a tax office having jurisdiction over the place of tax payment, along with documents proving the kinds, quantity, appraised values, various deductions, etc. of donated property necessary for calculating the tax base of gift

Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004)

Article 56 (Calculation Method of Net Profit and Loss per Share for Recent Three Years)

(1) The weighted average amount of net profits and losses for the latest three years per week under Article 54 (1) shall be the value under subparagraph 1, and where the relevant corporation is prescribed by the Ordinance of the Ministry of Finance and Economy as being unreasonable to calculate the value under subparagraph 1 on the grounds of an abnormal increase in the amount of net profits and losses for the latest three years since the commencement of business or due to a temporary postal case, etc., it may be the value under subparagraph 2. In this case, if the value is not more than zero won, it shall be deemed zero won.

1. The amount calculated by the following formula:

The weighted average amount of net profit and loss per share for the preceding three years = [the net profit and loss per share for one business year which becomes one year before the evaluation base date x 3) ＋ (2) ＋ (the net profit and loss per share for one business year which becomes two years before the evaluation base date x 1) 】 (the net profit and loss per one business year which becomes three years before the evaluation base date x 1) - 6

2. Average value of estimated profits per share, which is calculated by two or more specialized credit assessment institutions prescribed by the Ordinance of the Ministry of Finance and Economy or accounting corporations under the Certified Public Accountant Act, according to the standards prescribed by the Ordinance of the Ministry of Finance and Economy (limited to the case where the standard date for calculation of estimated profits per share and the date on which an assessment statement is prepared falls within one year, and the date on which an inheritance tax return and a gift tax return are made falls within the same year); and

4. Conclusion

Therefore, the judgment of the court of first instance is justified, and all appeals by the plaintiffs are dismissed as it is without merit. It is so decided as per Disposition.

Judges Yellow-gu (Presiding Judge)