The act of evading the progressive tax rate and unfair calculation approval regulations by taking advantage of the title trust of unlisted stocks is unfair methods under the Framework Act on National Taxes, and fraud and other improper acts.

Since the act of receiving or transferring under the name of the title trustee with respect to the listed stocks held in title trust is an unfair act under the Framework Act on National Taxes, a disposition imposing the exclusion period for imposition of ten years and the unfair non-reported additional tax is lawful.

The exclusion period of national tax imposition under Article 26-2 of the Framework Act on National Taxes

Article 47-2 of the Framework Act on National Taxes

2016Guhap23326 Revocation of Disposition of Imposing global income tax, etc.

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○○ Head of tax office

December 23, 2016

February 3, 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 global income tax of KRW 5,408,850 for the year 2004, global income tax of KRW 34,952,200 for the year 2005, global income tax of KRW 41,635,010 for the year 2006, global income tax of KRW 54,863,430 for the year 2007, global income tax of KRW 107,334,370 for the year 2008, global income tax of KRW 108,025,130 for the year 209, global income tax of KRW 183,275,950 for the year 2010, and revocation of each disposition of imposition of excess of KRW 32,408,3208,320 for the year 209, and additional tax for the year 2013, and imposition of excess of KRW 1392,192.

1. Details of the disposition;

A. AA, BBB, andCC Co., Ltd. (hereinafter referred to as “Co., Ltd.” is omitted) is an unlisted company that belongs to an enterprise group under the Monopoly Regulation and Fair Trade Act (hereinafter referred to as “instant enterprise group”). The Plaintiff is a representative director of AA and a representative director of the AA, around 2010, holding 52.59% of the AA’s shares and 31.52% of the BBB’s shares, and is a controlling shareholder who actually controls the said enterprise group.

B. On December 2, 2010, the Plaintiff transferred BB’s outstanding shares (31.52% of the total number of outstanding shares of the issuing shares) to Jeong BB, who is BB, BB, in the form of sale and purchase. On September 9, 2013, the head of the tax office △△△△△△△△ rendered a decision to revoke the said disposition of gift tax on the ground that the transfer of shares constitutes a donation of profits arising from the acquisition of shares between related parties under the former Inheritance Tax and Gift Tax Act (amended by Act No. 111130, Dec. 31, 2011; hereinafter the same shall apply) on the ground that the transfer of shares constitutes a donation of profits arising from the acquisition of shares at a low price among related parties. The Plaintiff filed a request for a tax judgment against BB, which was made by the Tax Tribunal, on September 25, 2014.

C. △△ Regional Tax Office conducted an investigation into changes in the shares of the instant enterprise group, and deemed that the Plaintiff was a title trust (hereinafter referred to as “instant title trust”) with the RedE (the Plaintiff’s title trust, the executive officers of AA), Lee F (the Plaintiff’s birth), RoGG, and DoH ( executive officers and employees of the Plaintiff), as indicated in the following table, and notified the Defendant of this fact.

D. According to the above notification, on August 3, 2015, the Defendant issued a revised and notified the comprehensive income tax as indicated below on the premise that the period for exclusion of ten years is applied on the ground that the Plaintiff’s omission of the comprehensive income tax on dividends to which the progressive tax rate applies through the title trust of this case constitutes an unfair method, fraud, or other unlawful act under the Framework Act on National Taxes. (hereinafter “instant disposition for imposition of global income tax”).

Table Omission of the Table

E. In addition, on June 14, 2013, on the premise that the HongE transferred 80,000 shares in the name of the Plaintiff from the Plaintiff to theCC, a related party, the Defendant deemed that the Plaintiff did not report the transfer of shares at a low price, and notified the Plaintiff of KRW 32,408,320 of the transfer income tax for the year 2013, on August 3, 2015 (hereinafter “instant disposition imposing transfer income tax”).

Table Omission of the Table

F. On November 4, 2015, the Plaintiff dissatisfied with the request and filed a trial with the Tax Tribunal, but the said request was dismissed on June 1, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 3 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

1) On the instant disposition imposing global income tax

At the time of the establishment of AA in 192, the Plaintiff trusted the shares of the RedE, EF, EF, RogG, and DH to satisfy the requirements of seven promoters, and thereafter, paid dividends for free capital and cash dividend in the name of the trustee. The Plaintiff did not have the purpose of evading taxes, and the report of global income tax pursuant to such title trust was not an active act, and thus, the exclusion period of imposition for five years shall apply, and no penalty tax for unfair under-reported return may be imposed.

2) As to the imposition of transfer income tax of this case

Considering that the agreement on title trust of shares is effective, and ownership is transferred to and reverted to the trustee in the external relationship, and the ownership is reserved in the internal relationship, the act of transferring the shares under the name of Red E to a third party and paying capital gains tax in the name of Red E cannot be deemed unlawful means. Moreover, the Plaintiff and Red E constitutes a relative by marriage within the fourth degree of relationship, and there is no tax amount evaded because the special relationship withCC is equally applied with the Plaintiff. Furthermore, red E paid gift tax of KRW 155,590,00 as the deemed donation for the title trust of this case. The imposition of penalty tax on unjust non-declaration on the capital gains of this case constitutes double restriction and is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) During the business year from 2004 to 2010, the details of dividends that the Plaintiff and the trustee received from AA during the business year are as listed below.

Table Omission of the Table

2) On June 14, 2013, the RedE reported to the Defendant that it transferred KRW 800,000 of the shares of the AAA, which was entrusted by the Plaintiff, in the name of the Plaintiff, KRW 3.488,000,000,000, but the actual transfer value was KRW 3.7552,000,000.

[Reasons for Recognition] Evidence No. 2, Evidence No. 1, Evidence No. 1, and the purport of the whole pleadings

D. Determination

1) Whether the instant disposition imposing global income tax is lawful

(A) the exclusion period

According to Article 26-2(1) of the former Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 2011; hereinafter the same), national taxes shall not be imposed after the expiration of five years from the date on which the relevant national tax can be imposed. However, if a taxpayer fails to submit a tax base return by the statutory due deadline, national taxes may be imposed for seven years, and if a taxpayer evades national taxes by fraud or other unlawful means, national taxes may be imposed for ten years. The legislative intent of Article 26-2(1) of the former Framework Act on National Taxes, in principle, is five years to ensure prompt determination of tax law relations, but it is difficult for the tax authorities to find that there is an omission report, and thus it is difficult for them to expect to exercise the imposition right of national taxes for 10 years, and it does not constitute a false act of tax evasion or other unlawful act of 10 years from the date on which the relevant national tax can be imposed (see, e.g., Supreme Court Decision 2010Du15).

First, as to the purpose of tax avoidance, the evidence submitted by the Plaintiff in this case or its assertion alone is insufficient to acknowledge that the title trust of this case was made for only an obvious purpose different from that of tax avoidance, and there is no other evidence to acknowledge it otherwise. On the other hand, the whole purport of the entire pleadings is as follows: (i) even if there was a purpose to satisfy the number of the Plaintiff’s promoters at the time of establishment of AAA in the title trust of this case, if it is deemed that there was an intention of tax avoidance, it cannot be deemed that there was no intention of tax avoidance; (ii) as a result, the difference between global income tax amount due to the difference in the cumulative tax rate when comparing the case where the Plaintiff received dividends on the shares held in title trust and the case where the trustee received dividends, it is reasonable to deem that the Plaintiff, a controlling shareholder of the enterprise group of the instant case, could have sufficiently predicted the occurrence of dividend income to the trustee and the Plaintiff’s progressive tax avoidance due to such occurrence, etc., by means of avoiding the global income tax progressive rate.

Next, in full view of the purport of the entire arguments as to whether there was an unlawful act, it is recognized that the Plaintiff actively concealed the Plaintiff’s property and income by opening a borrowed account in the name of the title trustee while maintaining a long-term title trust relationship even after the establishment of AA, and using dividends through the said account. Thus, it is deemed that the Plaintiff’s act of title trust and writing the appearance therefrom constitutes “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes.

Therefore, the imposition of global income tax of this case on the premise that the ten-year exclusion period is applied pursuant to Article 26-2 (1) 1 of the former Framework Act on National Taxes is legitimate, and the plaintiff's principal against this is without merit.

B) Unfair underreported Additional Tax

In the case of underreporting the tax base by an unjust method, which is the requirement for an unfair underreporting additional tax under Article 47-3(2)1 of the former Framework Act on National Taxes, by an affirmative act, such as making it difficult to discover the taxation requirement of the national tax or forging or withdrawing false facts, it shall be deemed that the underreporting derives from the purpose of tax evasion, such as avoidance of progressive tax rates and application of the provisions on carried forward losses (see, e.g., Supreme Court Decision 2013Du12362, Nov. 28, 2013).

On the other hand, in the instant disposition of global income tax in the instant case, the purpose of tax evasion was to the Plaintiff in the instant title trust and the receipt of dividend, and the use of unlawful methods such as opening a borrowed account is as seen earlier. As such, the imposition of unfair under-reported additional tax is lawful in the disposition of global income tax in the

2) Whether the part of the imposition disposition of transfer income tax of this case is legitimate

The following facts or circumstances acknowledged by the aforementioned evidence and the purport of the entire pleadings, namely, ① the Plaintiff’s title trust of 80,000 shares of AA with HongE, each of the following facts or circumstances, i.e., (i) transferred the above shares to RedE, under the name of RedE, on June 14, 2013; (ii) a sales contract was prepared in the name of RedE in the transfer of the above shares; and (iii) the Plaintiff reported the transaction tax and the transfer income tax under the name of RedE; (iv) the purchaser’s relation with the Plaintiff constitutes a specially related person under Article 101 of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; (iii) the Plaintiff and a specially related person under Article 28(1) of the Framework Act on National Taxes (the Plaintiff, Red E, and a specially related person under Article 28(2) of the Enforcement Decree of the Framework Act) but does not constitute Red E.

Examining such facts and circumstances in light of the legal principles as seen earlier, even if the Plaintiff’s transfer of stocks in the name of Red E is an act incidental to the transfer of stocks ordinarily nominal, such circumstance alone does not necessarily mean that the purpose of tax evasion is not recognized or does not constitute an unlawful act. In light of the aforementioned circumstances, it appears that there was a purpose to conceal transaction corresponding to wrongful calculation under the Income Tax Act, and that there was an active act such as the preparation of a false sales contract and the false payment of the price, etc. so as not to discover such fact, and constitutes “unfair method” under Article 47-2(2)1 of the former Framework Act on National Taxes

Furthermore, the constructive gift of title trust and the additional tax on improper non-report shall not be deemed as an independent disposition for separate taxation facts, and it cannot be deemed as a double restriction.

Therefore, it is legitimate for the Plaintiff to impose an unfair additional tax on the imposition of the transfer income tax of this case, and the Plaintiff’s assertion against this is without merit.

3. Conclusion

Therefore, all of the plaintiff's arguments are without merit, and they are dismissed. It is so decided as per Disposition.