early 2010west2026 ( December 29, 2010)

Where a change of title is made without agreement on title trust, the provisions on deemed donation of title trust cannot be applied.

Where a change of title is made without an agreement on title trust, the provision on deemed donation of title trust cannot be applied, and the provision on deemed donation of title trust cannot be applied because an agreement on deemed donation of title trust cannot be deemed to exist in cases where the title of shares is transferred for the purpose

2011Guhap7555 Revocation of Disposition of Imposition of Gift Tax

AAA

○ Head of tax office

July 5, 2011

August 18, 201

1. The Defendant’s disposition of imposition of KRW 111,464,960 against the Plaintiff on April 13, 2010 shall be revoked.

2. The litigation costs shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. The director of the Seoul Regional Tax Office, from August 25, 2009 to December 1, 2009, entered into an agreement with △△△ Co., Ltd. (former trade name is a stock company; hereinafter referred to as the “Nonindicted Co., Ltd.”), which is a KOSDAQ-listed corporation, to conduct an integrated investigation of corporate tax. As a result, during the process of Nonparty Co., Ltd’s offering of new stocks equivalent to 477,600 shares per share around December 2005 to 4,160 won per share, the non-party Co., Ltd., Ltd. (hereinafter referred to as the “○○○T”)’s major shareholder, ○○○○○ (hereinafter referred to as the “△△”) to raise funds to participate in the above capital increase, △△△△ Co., Ltd., Ltd. (hereinafter referred to as the “△△△”), and △△△△ Co., Ltd.’s offering of new stocks under the name of 11B investors, 1680, 20060, 400.

B. Accordingly, the director of the Seoul Regional Tax Office, while participating in the above capital increase with new shares, deemed ○○○ to have held the above new shares in title trust with the Plaintiff et al., and applied Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter referred to as the “former Inheritance Tax and Gift Tax Act”), calculated the amount calculated by multiplying 16,259 won per share of the shares of the non-party company as of December 16, 2005 by the number of shares allocated to the Plaintiff et al. [390,216,00 won for the Plaintiff (i.e., value of donated shares 16,259, X24,00 won)] as the value of donated shares by the Plaintiff et al. as of December 16, 2005 (including additional tax on April 13, 2010)

C. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on May 27, 2010, but the Tax Tribunal dismissed the Plaintiff’s claim on December 29, 2010.

[Ground of recognition] Facts without dispute, Gap evidence 1, Eul evidence 1, Eul 2, 7 (including paper numbers), the purport of the whole theory of change

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Defendant was allocated the instant shares under the name of the Plaintiff, which was the births of YB, for the purpose of lending the new shares subscription fund to the non-party company to the non-party company to participate in the capital increase issued by the non-party company, and securing the return of the loan. However, the Defendant, without any grounds, deemed that ○○T received the instant shares allocated under the name of the Plaintiff according to the title trust agreement concluded between the Plaintiff and ○T, and imposed gift tax on the Plaintiff by applying Article 45-2(1) of the former Inheritance Tax and Gift Tax Act

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) Around December 2005, the non-party company intended to implement new shares equivalent to 477,600 shares of 4,160 shares per share by a third party; the non-party company’s major shareholder of the non-party company entered into a financing agreement (hereinafter “the instant financing agreement”) with △△△△ in order to raise funds to participate in the above-mentioned offering of new shares on December 2, 2005, on the condition that △△△ will pay an amount equivalent to 4% of the investment amount as a prior interest to △△△△, on the condition that △△△△ will pay an amount equivalent to 3% of the investment amount raised as a service fee to △△△△△ in addition to the above interest (hereinafter “○○”). The main contents of the written agreement on the raising of new shares are as follows.

(The following table omitted)

2) After December 8, 2005, △△△△ entered into an investment agreement (hereinafter “instant investment agreement”) with the terms and conditions that invite 11 investors, such as DanB, etc., the Plaintiff’s Do Governor, and pay 4% of the investment amount as interest, on the condition that the investment amount is paid as interest. The main contents of the agreement (Evidence A No. 4) are as follows.

(The following table omitted)

3) When the 11 investors, such as YB, entered into the instant investment agreement with △△, and raised a total of KRW 1,687,296,00 with the subscription fund for new shares of the non-party company, △△△△ was issued a cashier’s check equivalent to the amount equivalent to 7% of the subscription fund for new shares raised under the name of service commission and interest, and 338,000,000,000 under the instant investment agreement, and then issued the said cashier’s check to the investors in accordance with the instant investment agreement.

4) Meanwhile, ○○○○ was allocated KRW 1,687,296,00 of the subscription fund for new shares raised pursuant to the instant financing agreement and the investment agreement in the name of investors or a third party designated by the Nonparty Company, who participated in the subscription fund for new shares issued on December 9, 2005 and agreed to issue 405,60 of the new shares issued by the Nonparty Company. The specific details are as follows.

(The following table omitted)

5) After that, 11 investors, including NAB, sold 405,60 new shares allocated five times from December 23, 2005 to February 1, 2006, in accordance with the order of ○○T for the settlement of new shares subscription fund, and then returned the balance of KRW 5,737,782,440, and KRW 338,000,000, which were offered as security, to △△△△△△△△△△, after deducting KRW 1,687,296,00, and deducting KRW 1,687,296,00,00 of the investment principal, and returned the balance of KRW 5,737,782,440,00, which was offered as security.

[Ground of recognition] Unsatisfy, Gap 2 to 4 evidence, Eul 2, 3 and 7 evidence (including paper numbers), the purport of the whole pleadings

D. Determination

1) In order to establish a deemed donation of title trust for shares under Article 45-2 (1) of the former Inheritance Tax and Gift Tax Act, a change in the name of the actual owner and the nominal owner should be made in the future under an agreement between the actual owner and the nominal owner on the title trust, i.e., the agreement on the title trust of shares, or communication. Thus, if an opening statement in the name of the nominal owner was made without an agreement on the title trust, the said provision cannot be applied (see Supreme Court Decision 2007Du15780, Feb. 14, 2008). In addition, in cases where a title of shares owned by an obligor is transferred to a creditor for the purpose of collateral security for a claim, the said provision does not merely possess the title of the said principal form on behalf of the debtor, but also holds a security right by holding his own interest, so it cannot be deemed that there exists an agreement on the deemed donation

2) In light of the above legal principles, comprehensively taking account of the circumstances such as the developments leading up to the difference between the actual owner of the instant shares and the nominal owner and the actual disposal of the shares after the acquisition of the shares, and the process of settlement of the price, etc., as seen below, in light of the evidence revealed in the facts acknowledged earlier, as seen earlier, and the overall purport of the pleadings, it cannot be deemed that ○○○ was the title trust of the instant shares to the Plaintiff even if the actual owner of the instant shares and the Plaintiff, who is the nominal owner, were different, and there is no evidence to acknowledge otherwise, and it is reasonable to deem that ○B, among the financial investors, was allocated the instant shares in the name of the Plaintiff for the purpose of securing the return of its principal and interest on investment. Accordingly, the provision on deemed donation under Article 45-2

① The instant funding agreement between △△△ and △△△△, prior to the refund of the principal and interest on investment funds raised by △△△△△, shall be issued and kept by △△△, which is equivalent to 20% of the investment funds (Articles 2(5) and 5(2)), and the new stocks to be acquired through participation in the offering of new stocks shall also be distributed in the name of △△△△△, and the preemptive rights arising during the storage of the rights and new stocks shall be held by △△△△△ (Article 6(11)). In addition, where the total market price of new stocks and the cashier’s checks offered as security does not exceed 150% of the investment funds raised by △△△△△△△△△△△△△△, where the total market price of the new stocks allocated and the cashier’s checks offered as security does not exceed 150% of the investment funds raised by △△△△△△△△, which stipulates that the right to dispose of new stocks and cashier’s checks will be allocated to secure the principal and interest on investment funds.

② Even in the instant investment agreement between △△ and 11 investors, including △△△, “△△△△,” the content of which states that “in order to secure the investors’ principal and interest of investment, the investors shall deliver cashier’s checks equivalent to 20% of the investment funds (Article 2) and in the event that △△△ fully redeems the investors’ investment funds (Article 8), the investors shall return the stocks and secured goods (Article 8).” Accordingly, △△△, while entering into the instant investment agreement with the investors, re-grants the same authority as the securities granted by ○△△△ in lieu of the aforementioned authority.

③ In fact, investors, such as △B, received an agreed interest rate from △△△ pursuant to the instant investment agreement and invested in the amount of KRW 100 million to KRW 200 million or KRW 200 million, and then sold the new shares issued by the Nonparty Company under the name of the third party designated by ○○○, and returned to △△△△△△ the total sales amount after deducting the investment principal from the investment principal. Pursuant to the instant investment agreement, △△△ also received an agreed interest and service fee from ○○T by inviting investors in accordance with the instant investment agreement, and returned the remaining sales amount of new shares after deducting the investment principal received from the investors as above.

④ The △△△△, the representative of the △△△△ at the time, under the tax investigation in relation to the instant case, was in charge of mediating between ○○○ and investors. However, the actual ownership of the instant new shares acquired through the offering of new shares was in ○○T, but the investors stated to the effect that, for the purpose of securing the return of the investment amount, the investors would make payments for the offering of new shares in their names, and that some investors would know of the reasons for the payment for the offering of new shares in the name of others. The △△△△△△, which was in charge of the practical affairs at the time, kept new shares as a security for the investment amount, and that the substantial ownership of the new shares was in ○○○.

⑤ On the other hand, it does not seem that the personal trust relationship was formed to the extent that only the title of shares was owned by ○○T or △△△ and investors, and there is no clear ground to deem that there was an agreement among them to title trust the new shares issued by the non-party company.

(6) Meanwhile, even though shares can be the object of security by establishing a pledge right on shares, the creation of a security right by means of security by transferring the name of shares to the secured party is much more easy in terms of securing and recovering the security right. Therefore, from the standpoint of the secured party, the creation of a security right on shares seems to be more likely than establishing a pledge right on shares.

3) Furthermore, even if B was allocated new shares for the purpose of transfer by means of transfer, as seen above, under the name of the Plaintiff, it eventually results in title trust with the Plaintiff, and even in the case of title trust with respect to whether the provision on deemed donation under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act may apply to the case of title trust with respect to the right of transfer by means of transfer other than ownership, in the case where the actual owner and the nominal owner are different with respect to the property requiring the transfer of the right or the exercise of the right, the gift tax shall be levied on the said property by deeming that the nominal owner have been donated to the actual owner. The legislative intent of the above provision is to effectively prevent the act of tax avoidance by using the title trust system, thereby recognizing the exception to the real principle of taxation (see, e.g., Supreme Court Decision 2003Du13649, Dec. 23, 2004). In light of the fact that the application thereof should be strictly interpreted, the case where the actual owner and the nominal owner of the said provision cannot be interpreted.

Therefore, it is reasonable to view that, even if B held a title trust with respect to the instant shares, the gift tax may not be levied on the Plaintiff by applying the provision of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act to the Plaintiff.

4) Sub-committee

The defendant's disposition of this case based on the premise that ○○ had held title trust with the shares of this case to the plaintiff is unlawful.

3. Conclusion

The plaintiff's claim is justified and accepted.