Plaintiff 1 and two others (LLC, Kim & Lee LLC, Attorneys Yu-type et al., Counsel for the plaintiff-appellant)

Head of the Guro Tax Office and two others

September 17, 2015

1. The disposition imposing each gift tax as stated in the separate disposition list against the Plaintiffs shall be revoked.

2. The costs of lawsuit are assessed against the Defendants.

As indicated in the disposition (the Plaintiff 2 stated the date of disposition in the purport of the claim as “ September 22, 2014,” but the date of notice for tax payment to the said Plaintiff, “ September 15, 2014,” which is the date of notice for tax payment, shall be deemed the date of disposition).

1. Details of the disposition;

A. On December 2003, the Plaintiffs purchased each of the shares of the said Company from Nonparty 1, a major shareholder of tinbroston Co., Ltd., an unlisted corporation (hereinafter “tinbroston”), using the name of another person (hereinafter “the instant transaction”), as indicated in the table below (hereinafter “the instant shares”).

Plaintiff 1,340,90,000 won on December 2, 2013, 201, Plaintiff 2, Nonparty 3, Nonparty 4, December 1, 2003, KRW 175,000 on December 3, 2003, KRW 175,00,000 on December 7, 2003, in the name of purchase (the relationship with the Plaintiff) of the Plaintiff in the name of purchase (the status of the Plaintiff), and KRW 268,10,000 on December 1, 203, Plaintiff 3, Nonparty 4 (the status of the Plaintiff)

B. On March 30, 2004, Hobro’s tonnage submitted a detailed statement of changes in stocks, etc., stating the instant transaction, etc., as accompanying documents of a corporate tax base return for 2003 business year (from January 1, 2013 to December 31, 2003) to the Gangnam Tax Office.

C. On June 2014, the director of the Seoul Regional Tax Office confirmed the fact that the Plaintiffs acquired shares in another person’s name as above and notified the Defendants of the result of the tax investigation by deeming them as gift. Accordingly, the Defendants designated the relevant Plaintiffs as joint and several taxpayers on each disposition date indicated in the separate disposition list and imposed each gift tax (hereinafter “each disposition of this case”).

D. The Plaintiffs appealed and filed each request for examination with the National Tax Service on December 4, 2014, but the Commissioner of the National Tax Service dismissed each request on March 16, 2015.

[Grounds for Recognition] Unsatisfy, Gap evidence 1 to 3 (including each number), Eul evidence 2, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

① Since the title transfer to Nonparty 4, Nonparty 2, and Nonparty 3 at the time of the instant transaction because he did not have prepared and kept a register of shareholders under the Commercial Act, Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “Revised Inheritance Tax and Gift Tax Act”) cannot be applied to the instant transaction. In addition, the instant transaction was conducted before January 1, 2004, which was the enforcement date of the amended Inheritance Tax and Gift Tax Act, and thus, it cannot be deemed that the title transfer was made in accordance with the statement of changes in stocks, etc. by applying Article 45-2(3) of the amended Inheritance Tax and Gift Tax Act.

② Even if the revised Inheritance and Gift Tax Act applies to the instant transaction, since the time when the liability to pay taxes was established for the instant transaction was enforced before the said Act enters into force, Article 78(1) and (2) of the said Act does not apply to the instant transaction. Therefore, the imposition of additional tax equivalent to an amount exceeding an amount equivalent to 20/100 of the amount of tax payable pursuant to Article 78(2) of the former Inheritance and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance and Gift Tax Act”).

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) The non-party 5, whose executive officers of tinbroston, kept on the computer the files (Evidence B No. 1; hereinafter referred to as the “instant documents”) stating the shareholder name, number of shares, acquisition date, equity ratio, etc. of tinbroston, and the tinbros Nonparty 6, who was a certified public accountant belonging to tinbroston, was revised by Nonparty 7 of tinbroston’s employee Nonparty 7.

2) According to the instant transaction, Nonparty 3, Nonparty 4, and Nonparty 2 stated that they each acquired tinbro’s shares in accordance with the instant transaction.

3) Meanwhile, in addition to the instant documents, tinbroton keeps the documents (Evidence No. 3) stating the shareholder’s name, number of stocks, amount of dividends, resident registration number, address, etc., and the cash dividend and amount of withholding tax in 2004. Nonparty 3, Nonparty 4, and Nonparty 2 are indicated as the subject of dividend.

[Reasons for Recognition] The aforementioned evidence, Gap evidence Nos. 4, 5, Eul evidence Nos. 1 and 3, and the purport of the whole pleadings

D. Determination

1) Whether a transfer by the register of shareholders is made

A) The transfer of registered shares cannot be asserted against the company unless the name and address of the acquisitor is entered in the register of shareholders. Thus, it constitutes “where the actual owner and the nominal owner are different in the property requiring a transfer or exercise of rights” (see, e.g., Supreme Court Decisions 2003Du13762, Feb. 27, 2004; 2005Du10200, Feb. 8, 2007).

B) The Defendants asserted that the instant documents, etc. in custody of tinbroton can be deemed as the tinbro’s shareholder registry, and thus, are examined first. In order to clarify matters concerning shareholders and stock certificates, the entry of the shareholder registry should include the contents stipulated in Article 352 of the Commercial Act, such as personal information of shareholders and the number and type of shares held. However, according to the above facts, the instant documents appear as a document stating the status of the movement of shares within the scope necessary for the performance of the above business by the certified public accountant, who is delegated with the duty of reporting and paying the transfer tax, gift tax, etc. from tinbroston, and the type of shares held by each shareholder, and the date of acquisition of each share. Therefore, the instant documents cannot be deemed as the shareholder registry under the Commercial Act, and the Defendants’ assertion that “the amount of cash withholding tax in 2004 and the amount of shares held by tinbros shall also be deemed as the form or electronic document under the Commercial Act.”

2) Whether Article 45-2(3) of the amended Inheritance and Gift Tax Act is applicable

Article 45-2 (3) of the amended Inheritance and Gift Tax Act provides that "where the list of stockholders is not prepared, the transfer of stockholders shall be determined by the documents related to stockholders, etc. and the statement of changes in stocks, etc. submitted to the head of the tax office having jurisdiction over the place of tax payment pursuant to Articles 109 (1) and 119 of the Corporate Tax Act." Article 10 of the Addenda provides that "after January 1, 2004, the above amended provisions shall apply from the portion of submission of the documents related to stockholders, etc. and the statement of changes in stocks, etc. under the above provisions of the Corporate Tax Act." Since the above provision expands the scope of taxation of gift tax on the nominal stocks, etc., if it is interpreted that this provision can be applied retroactively, it may infringe the predictability and legal stability of the taxpayer, and thus, it violates Article 18 (2) of the Framework Act on National Taxes, which provides that the taxpayer shall not be subject to retroactive taxation under the new tax law after the establishment of the obligation to pay national taxes.

On the other hand, the defendant asserts that the fact that the actual owner does not transfer his/her name to another owner is the fact that, in principle, it is permissible to do so. However, since the time when the tax liability is established in the gift tax is "when the property is acquired through donation", applying Article 45-2 (3) of the amended Inheritance Tax and Gift Tax Act to the transaction of this case conducted prior to the enforcement of the amended Inheritance Tax and Gift Tax Act is an interpretation that is subject to the completed fact and thus is not allowed. Therefore, the defendant's above argument is without merit.

3) Sub-decisions

Ultimately, it cannot be deemed that the change of entry was made in the name of Nonparty 3, Nonparty 4, and Nonparty 2, the title trustee according to the shareholders’ list, and the Plaintiffs cannot be deemed that the change of entry was made based on the statement of changes in stocks, etc. submitted to the head of the competent tax office on March 30, 2004 by applying Article 45-2(3) of the revised Inheritance and Gift Act. Thus, each of the dispositions of this case is unlawful.

3. Conclusion

Therefore, the plaintiffs' claim of this case is justified, and it is so decided as per Disposition.

[Attachment]

Judges Park So-young (Presiding Judge)