Disposition Revocation of Imposition of Gift Tax

The data submitted by the Plaintiff alone is insufficient to recognize that there was a window dressing accounting as alleged by the Plaintiff, and it cannot be said that there was any illegality in assessing the value of the shares in this case.

Article 39 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11130, Dec. 31, 201)

2015Guhap683777 Revocation of Disposition of Imposition of Gift Tax

Gu*

*The Director of the Tax Office

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 imposing KRW 156,314,520 on the Plaintiff on November 10, 2014 is revoked.

1. Details of the disposition;

A. The ○○ Industrial Complex Co., Ltd. (hereinafter referred to as the “instant corporation”) is a company that carries on the business of manufacturing electric equipment, such as electric power circuit breakers and business.

B. The instant corporation, through the resolution of the board of directors on August 8, 2011 and the resolution of the general meeting of shareholders on August 29, 2011, decided to increase the total amount of KRW 3 billion to the face value and to participate only in the existing shareholders without any third party allotment. However, on September 16, 2011, all the remaining shareholders except the Plaintiff’s portion of investment in kind have forfeited on the date of payment of the share price, and received “the forfeited shares for the issuance of new shares” from the remaining shareholders in accordance with the resolution of the board of directors on the same day, and thereafter decided to issue new shares with KRW 50 million upon the resolution of the board of directors on September 20, 201. Accordingly, the Plaintiff acquired 10,000 shares of the instant corporation solely on October 5, 2011 (hereinafter “instant shares”).

C. The shareholders of the instant corporation and the number of shares and shares shares of the shareholders due to the above capital increase with consideration are as listed below. The Plaintiff and the remaining shareholders have a special relationship under the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “former Inheritance Tax and Gift Tax Act”).

D. From August 7, 2014 to September 19, 2014, the director of the Central District Tax Office: (a) conducted an investigation of changes in stocks with respect to the instant corporation and the Plaintiff; and (b) conducted an investigation of changes in stocks, pursuant to Articles 60(1) and 63(1)1 of the former Inheritance Tax and Gift Tax Act and Articles 54 and 29(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the value (35,835 won per share) assessed as follows shall be deemed as the market price of the instant stocks; and (c) based on the face value (5,000 won per share) below the market price, the Plaintiff issued new stocks and notified the Defendant of the results of the investigation by deeming that the Plaintiff received stocks solely from a person with a special relationship was a donation of benefits

E. Accordingly, the Defendant: (a) determined and notified the Plaintiff of KRW 156,314,520 on October 10, 201 on the aggregate of KRW 156,314,520 (hereinafter “instant disposition”) calculated pursuant to Article 29 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”); and (b) determined and notified the Plaintiff of KRW 848,463,308 on the value of donated property (hereinafter “instant disposition”).

F. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on January 28, 2015, but was dismissed on June 17, 2015.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 7, Eul evidence 1 to 6, Eul evidence 2

each entry, the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

From 208 to 2011, the instant corporation has concealed accumulated amounts through window dressing accounts to avoid the pressure on repayment of loans borrowed in accordance with its financial statements and the increase of interest rates. Since then, the instant corporation was subject to external audit for the first time in 2012, and the rehabilitation commencement procedure was carried out, and as a result, the inventory assets as of the end of 2012 were rapidly reduced. In light of the fact that the net assets of the instant corporation in 2012 were reduced by approximately KRW 10.1 billion and the total sales amount was KRW 4 billion in 1 year, it is true that the instant corporation had carried out window dressing accounts from October 31, 201.

As of the end of December 31, 2010, the instant corporation received a window dressing accounting by excessively appropriating inventory assets as of the end of 2010 and omitting retirement benefit appropriation liabilities. In light of the window dressing accounting as of December 31, 2010, the share value per share of the instant corporation as of December 31, 2010 is merely 6,138 won, and the Plaintiff’s share value per share is 1,138 won (22%) compared to the Plaintiff’s share offering value of 5,00 won, and thus, there is no gift tax payable by the Plaintiff, since the difference is within 300 million won or less pursuant to Article 39(1)2 (a) of the Inheritance Tax and Gift Tax Act and Article 29(3)

The Plaintiff determined the value of capital increase per share of the instant shares without a tax review according to management consulting by AAAA, which is a consulting company, as KRW 5,000, and even if the Plaintiff increased the capital in KRW 35,835 per share claimed by the Defendant, the Plaintiff would become the largest shareholder. Therefore, there was no problem that the Plaintiff did not intend to evade taxes, and the Plaintiff did not claim for the actual inventory assets at the time of tax investigation due to lack of accounting-related knowledge.

Therefore, the disposition of this case is illegal and unfair as it evaluates the stock value based on the accounting books of the corporation of this case without reflecting the window dressing accounting.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that "the value of an asset on which a gift tax is levied under this Act shall be based on the market price as of the date of donation (hereinafter referred to as the "base date for appraisal")," and Article 60(3) provides that "in case where it is difficult to calculate the market price in the application of paragraph (1), the value shall be appraised by the methods stipulated in Articles 61 through 65 in consideration of the type, size, transaction situation, etc. of the relevant asset, and where it is difficult to calculate the market price, the value according to the so-called supplementary method shall be deemed to be "market price". Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act provides that "the method stipulated in the Presidential Decree concerning the method of appraisal of stocks of an unlisted corporation" shall be appraised by the method stipulated in the Presidential Decree in consideration of the assets and earnings of the relevant corporation, and Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the net value of each corporation shall be increased by the net asset value per share" by dividing between 3 and 5.

Meanwhile, the burden of proving the net asset value is, in principle, on the tax authority. However, in calculating the net asset value of the relevant corporation as of the date of transfer, exceptional circumstances, such as where the corporation’s assets are different from the statement of financial position or where there are other circumstances in calculating the net asset value of the relevant corporation, are against the person liable for tax payment disputing such exceptional circumstances (see Supreme Court Decision 2002Du1245

2) According to the report on investigation (No. 10 evidence No. 10) and the audit report (Evidence No. 11) of the CCC audit team for the instant case, it cannot be deemed that the above report is subject to 2012 business years of the instant corporation, as alleged by the Plaintiff, and the stock value assessment report or written opinion (Evidence No. 13 and 20) prepared by DDR for the previous business year cannot be deemed as objective evidence because of the nature of the Plaintiff’s written opinion as it was written ex post facto at the Plaintiff’s request. The records of production and sale of the instant corporation, details of calculation of retirement benefits (Evidence No. 15, 17) were 1,2, and 19,000 won, which were written by the Plaintiff during the instant lawsuit, were 2,000 won and 10,0000 won, and it cannot be deemed as evidence for the Plaintiff’s assertion that it had been 13,000 won or more after the lapse of 17,000 won,00 won.

Therefore, it is insufficient to recognize that the data submitted by the Plaintiff alone had a window dressing accounting as alleged by the Plaintiff, and there is no other evidence to support the Plaintiff’s assertion. Ultimately, since the Defendant cannot be deemed to have any error in evaluating the value of the shares in this case, the instant disposition is lawful, and the Plaintiff’s assertion premised on the fact that the window dressing accounting had been completed is without merit.

3. Conclusion

Thus, the plaintiff's claim of this case is dismissed for reasons.