Revocation of Disposition Imposing Gift Tax

DD’s transfer of this case’s claim to the Plaintiff does not constitute a case where it is clearly acknowledged that the transfer was made in return for payment to the spouse, etc. under Article 44(3)5 of the Inheritance Tax and Gift Tax Act.

The contents of the judgment are the same as attachment.

Article 33 subparag. 3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

2018Guhap73493 Revocation of Disposition of Imposition of Gift Tax

AA

BB Director of the Tax Office

on October 13, 2019

on July 25, 2019

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 229,886,250 against the Plaintiff on November 1, 2017 is revoked.

1. Details of the disposition;

A. The Plaintiff is the representative director of the CCC Construction Co., Ltd. (hereinafter “instant corporation”). DD is the Plaintiff’s spouse and the auditor of the instant corporation. Of the 65,000 shares issued by the instant corporation, the Plaintiff owned 45,50 shares (70%) and DD owned 19,50 shares (30 percent shares), respectively.

B. On October 1, 2014, the Plaintiff and DD entered into a contract with the instant corporation under which the sum of 42,000 shares out of the Plaintiff’s shares (hereinafter “1 shares”) and 18,000 shares out of DD owned shares (hereinafter “2 shares”) was KRW 75,000 per share (hereinafter “each shares”) and KRW 4,500 per share (hereinafter “2 shares”).

C. The Plaintiff: (a) received 600,000,000 won out of 1,350,000,000 won of the transfer price claim for shares 2 of this case from DD (i.e., 18,000 won x 75,000 won) as gift; and (b) treated the remainder of 750,000,000 won as transfer on October 2, 2014; and (c) the Plaintiff and DD reported and paid the transfer income tax for the year 2014 as KRW 271,175,00 each, and KRW 116,075,000 each, and the Plaintiff reported and paid the transfer income tax for the amount of KRW 600,000,000 donated from DD on April 17, 2015.

The report on the tax standard was made.

D. From March 30, 2017 to April 28, 2017, the Defendant is investigating the change of stocks in the instant corporation.

As a result, the decision was made and notified to the Plaintiff on November 1, 2017 on KRW 229,886,250 of the gift tax (hereinafter referred to as “instant disposition”). The acquisition and transfer transaction of each of the instant shares is the capital transaction in which the Plaintiff and DD distributed profits to the Plaintiff and DD, and thus, the Plaintiff and DD revoked each transfer income tax reported to the Plaintiff on November 9, 2017, and notified the Plaintiff and DD of KRW 1,492,07,690 of the global income tax for 2014 and KRW 609,561,620 of the global income tax for 2014.

F. The Plaintiff and DD were dissatisfied with the determination of imposition of global income tax and gift tax, and filed an appeal on December 4, 2017. On September 19, 2018, the Tax Tribunal revoked global income tax for each of the above 2014 years, but dismissed the Plaintiff’s claim regarding the instant disposition of imposition.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, 6, 7, 11, 21 (including additional number, if any; hereinafter the same shall apply), Eul evidence Nos. 1 and 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

On October 2, 2014, the Plaintiff acquired the instant claim from DD and paid DD KRW 500,000,000,000, respectively, on April 10, 2017, and October 31, 2017.

DD’s transfer of the instant claim to the Plaintiff constitutes a case where it is clearly acknowledged that the transfer was made in return for payment to the spouse, etc. under Article 44(3)5 of the Inheritance Tax and Gift Tax Act.

Therefore, even though the Plaintiff could not be deemed to have received the gift of the instant claim from DD, the instant disposition, which was estimated and taxed as a gift between his/her spouse, was unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Relevant legal principles

Article 44(1) of the Inheritance Tax and Gift Tax Act provides that "When the transferor transfers the property to his/her spouse, lineal ascendants or descendants (hereinafter "spouse, etc.") the value of the property shall be presumed to have been donated to his/her spouse, etc. at the time of transfer of the property, the value of the property shall be deemed to have been donated to him/her by his/her spouse, etc." Article 44(3) of the same Act provides that "Where the relevant property falls under any of the following subparagraphs, paragraphs (1) and (2) shall not apply to cases where it is clearly acknowledged that the property was transferred in return for payment to his/her spouse, etc., as prescribed by Presidential Decree" under subparagraph 5 of Article 44 of the same Act. In addition, Article 33(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "where the property is exchanged for the transfer or exercise of the right, the transfer or exercise of the right shall be proved to have been paid the price for the transfer or exercise of the property."

2) Determination on the instant case

A) According to the statements in Gap evidence Nos. 8, 12, 13, 18, 19, and 20, the following facts are as follows: ① among the amount of claim 1,350,000,000 won of the share purchase price for the instant corporation on October 2, 2014, DDR donated 600,000 won to the plaintiff, and the remaining amount of KRW 750,000,000 to the plaintiff, the seal of DD was affixed on the bond transfer contract (hereinafter referred to as "the contract in this case") stating that DD transferred the instant claim to the plaintiff; ② the seal of DD was affixed on the bond transfer notification as of October 2, 2014; ③ the fact that the plaintiff paid DD's total amount of KRW 1,350,000,000 to the plaintiff on April 10, 200, 2005, 2007

B) However, in light of the following circumstances, it is insufficient to acknowledge that the Plaintiff received the instant claim by paying the price from DD in full, and there is no evidence to acknowledge otherwise. Accordingly, the Plaintiff’s assertion that the Plaintiff was not a donation of the instant claim from D is not acceptable.

① On August 1, 2014, the instant corporation decided to purchase each of the instant shares owned by the Plaintiff and DD for the purpose of resolving the loan funds substantially to the Plaintiff, as soon as possible, at the board of directors of the instant corporation.

② On October 1, 2014, the details of the amount of the instant legal entity’s transfer of 60,000 shares (Plaintiffs 42,000 shares, DD 18,000 shares) held by the Plaintiff, etc. were set off by the Plaintiff’s provisional payment of KRW 4,50,000 per share at the same time.

③ On October 1, 2014, the Plaintiff offsets the Plaintiff’s provisional payment with the purchase price of DD shares. As such, DD cannot transfer the instant claim to the Plaintiff on October 2, 2014, inasmuch as DD did not have the purchase price claim for the instant shares that is to be received from the instant corporation, as DD did not exist.

④ In the instant contract, the Plaintiff stated that until October 2, 2017, the Plaintiff shall pay DDR the amount of KRW 750,000,000 of the instant claim and may extend the repayment period by mutual agreement; and

There is no fixed definition of interest or delay damages, and it is an example of transaction practice.

⑤ After the commencement of the tax investigation, the Plaintiff remitted KRW 500,000,000 out of the above credit transfer amount to DD account on April 10, 2017, and DD re-loans KRW 460,000,000 to the instant legal entity on April 21, 2017. In view of the current status of the instant legal entity’s provisional payment against the Plaintiff and the flow of such funds, it is doubtful that the Plaintiff is in fact aware of whether the Plaintiff partially repaid the credit transfer amount to DD.

(6) The Plaintiff asserted that: (a) the Plaintiff, while working as the representative director of the instant corporation, received the instant claim from the Plaintiff and paid KRW 500,000,000 and KRW 250,000,000 respectively on April 10, 2017, based on the sales performance on the earned income and the individual entrepreneur who received the instant claim; and (b) paid the amount equivalent to the instant claim to DD, respectively; (c) however, the Plaintiff did not present clear and objective materials proving that the Plaintiff falls under Article 33 subparag. 3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

3. Conclusion

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

(c)