[1] Where a transaction party forms a legal relationship by selecting one of the various ways that can achieve the purpose of the transaction, the standard for determining the contents and scope of the taxation thereby, and whether the ultimate objective of the different transaction is the same as the substance, or whether the transaction party receives the same treatment under the tax law (negative)

[2] In a case where Gap et al. sold the shares of Byung Co., Ltd. owned by Eul Co., Ltd., and Eul Co., Ltd. paid the purchase price received by Eul Co., Ltd. as the purchase price for new shares issued by Eul Co., Ltd., in accordance with the method of allotment to third parties, and thereafter Eul Co., Ltd.'s merger with Byung Co., Ltd. received profits equivalent to the difference because the new shares issued by Eul Co., Ltd. was issued at a lower price, and Gap et al. received profits equivalent to the difference, the case affirming the judgment below holding that the application of Article 39 (1) 1 of the former Inheritance Tax and Gift Tax Act to the above issued shares cannot be deemed as a violation of the principle of substantial taxation, on the ground that Gap et al. and Eul Co., Ltd. took the legal form of transfer of shares of Byung Co., Ltd., Ltd., the above issued shares, the above issued shares, and the merger between Byung Co., Ltd. and Eul Co., Ltd.

[1] Article 39 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) / [2] Article 39 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007)

[1] Supreme Court Decision 97Nu1723 delivered on May 26, 1998 (Gong1998Ha, 1806)

Plaintiff (Law Firm, Kim & Lee LLC, Attorneys Yu-soo et al., Counsel for the plaintiff-appellant)

Head of the tax office of the branch tax office and one other

Seoul High Court Decision 2012Nu28577 decided August 28, 2013

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Gift”) provides that “In case where a person, other than a shareholder of the relevant corporation, obtains profits by directly receiving new stocks from the relevant corporation as a result of issuing new stocks at a price lower than the market price, the amount equivalent to such profits shall be deemed to have been donated.”

If a party to a transaction forms a legal relationship by selecting one of the various ways that can achieve the purpose of a transaction, the contents or scope of taxes arising therefrom shall be determined individually in accordance with the legal relationship. The ultimate objective of a transaction is the same, and regardless of the difference in the legal form, it cannot be deemed that the substance is the same or that the transaction is treated the same as the tax law (Supreme Court Decision 97Nu1723 delivered on May 26, 1998).

B. The lower court, citing the reasoning of the first instance judgment, acknowledged the following facts.

1) On January 16, 2006, the Plaintiff, Accent Accent Technology Investment Company, Nonparty 1, 2, 3, 4, 5, and Nonparty 6 (hereinafter “Plaintiff, etc.”) entered into a contract for the sale of shares (hereinafter “instant contract for the sale of shares”) to sell 230,000 shares in total (250,00 shares total issued shares 250,000 shares of the film corporation (hereinafter “EL”) (hereinafter “the instant contract for the sale of shares”) with the Plaintiff, a stock-listed corporation (hereinafter “Plaintiff, etc.”). According to the instant contract for the sale of shares, the Plaintiff, etc., paid the total amount of KRW 30,00,00 to the Plaintiff, etc. for the offering of shares to the Plaintiff, etc. for the offering of 30,000,000,000 shares to the Plaintiff, etc. for the offering of 30,000,000,000 shares for the offering of shares.

2) On Jan. 16, 2006, Len Entertainment held a board of directors on Jan. 16, 2006 to acquire management rights and to diversify the business of Lenman. Lenman acquired 230,00 shares of Lenman film. Lenman issued 10,206,496 shares of registered common shares to repay loans related to acquisition of management rights and to raise funds for operation in the future (hereinafter “instant new shares”). The issue price of new shares was 10,206,496 shares to the third party including the Plaintiff, etc. (the part issued to the Plaintiff, etc. was referred to as the “instant new shares”; the issue price of the new shares was 10,070 won per share by applying the discount rate of 9.92% per share; the Plaintiff’s purchase price was 2005,000 won per share pursuant to Article 57 of the former Regulations on the Issuance and Publication of Securities (hereinafter “Securities Disclosure Regulations”); and the Plaintiff’s purchase price was 2015.

3) On March 13, 2006, Len Entertainment concluded a contract for merger and films with Lenman on May 19, 2006, and merged with Lenman on May 19, 2006 as the merger date, and completed the merger registration on May 23, 2006.

Based on the above factual basis, the court below held that since since the Lenen Entertainment selected the instant shares offering along with the instant sales contract by means of absorbing films, it cannot be deemed that the instant shares offering constitutes part of the merger procedure or constitutes the exchange of shares, even if the entire transaction process, such as the process of concluding the contract and the progress of the transaction actually formed, it cannot be deemed that the Plaintiff et al. and Lenen Entertainment owned by the Plaintiff et al. were in the legal form of the transfer of shares, the instant shares offering, and the instant Len Entertainment’s legal form of the merger between the film and Lenen Entertainment, the instant shares offering, and Lenen Entertainment’s merger between the film and the Hen Entertainment, in order to avoid various problems that may arise when taking general mergers, other than the small-scale merger and the simplified merger, the application of Article 39(1)1 of the Inheritance Tax and Gift Tax Act to the instant shares offering cannot be deemed to violate the principle of substantial taxation.

C. In light of the above legal principles and records, such judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the principle of substantial taxation as otherwise alleged in the ground of appeal

2. Regarding ground of appeal No. 2

The court below held that even if the issue value of the new shares that the Plaintiff received at the time of the issuance of the new shares was determined pursuant to Article 192 of the Securities and Exchange Act and Article 84-25(1)1 of the Enforcement Decree of the Securities and Exchange Act as to the issue value of the newly issued shares where a listed corporation issues the newly issued shares upon delegation of Article 192 of the Securities and Exchange Act and Article 84-25(3) of the Securities and Exchange Act, the above provision has certain limitations on the issue value of the newly issued shares in order to ensure fairness and transparency in the issuance of new shares, and its legislative purpose differs from that of Article 39(1)1 Item (c) of the Inheritance and Gift Tax Act, such issue value cannot be deemed as the “market value” under

In light of relevant provisions, legal principles, and records, the judgment of the court below is just and acceptable, and there is no error in the misapprehension of legal principles as to the calculation of market price of listed stocks, as otherwise alleged in the grounds of appeal.

3. As to the third ground for appeal

With respect to the calculation of profits deemed to have been donated pursuant to Article 39(1) of the Inheritance Tax and Gift Tax Act, Article 29(3)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that Article 29(3)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the amount shall be calculated by multiplying the amount calculated by subtracting the acquisition value per share (i.e., the appraised value per share before capital x the total number of issued stocks x the number of issued stocks x the number of increased by capital x the number of issued stocks x the number of increased by capital x the number of issued stocks by capital x the number of issued stocks

The lower court determined that, inasmuch as Article 39(1)1 Item (c) of the Inheritance and Gift Tax Act provides that, in cases where a third party, other than a shareholder of the pertinent corporation, receives a allocation of new shares of the relevant corporation at a price lower than the market price, gift tax shall be imposed on the relevant corporation, considering the profits calculated pursuant to Article 39(3) of the Enforcement Decree of the Inheritance and Gift Tax Act and Article 29(3)1 of the Enforcement Decree of the Inheritance and Gift Tax Act as the value of donated property, the Plaintiff received a allocation of new shares of the Loen Entertainment at a price lower than the market price and received profits under the above provision, the Plaintiff cannot be deemed to have no gift interest solely on the ground that the Plaintiff transferred the said new shares at a price lower than the market price of

In light of the above provisions and relevant legal principles and records, we affirm the judgment of the court below as just, and there is no error in the misapprehension of legal principles as to the calculation of the gift profit, contrary to what is alleged in the grounds of appeal.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Chang-suk (Presiding Justice)