early 2011 High Court 0020 ( October 10, 2011)

taxation on the acquisition of forfeited new shares at a price lower than the market price is legitimate.

It is reasonable to deem that the forfeited new shares were acquired at a price lower than the market price and that there was a benefit determined by the relevant Acts and subordinate statutes. Moreover, the imposition of gift tax on the benefit arising from the acquisition of new shares cannot be deemed as going against the principle of substantial taxation.

2011Guhap15145 Revocation of Disposition of Imposition of Gift Tax

LAA

Samsung Head of Samsung Tax Office

November 23, 2011

December 14, 2011

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s disposition of imposition of gift tax of KRW 45,078,510 against the Plaintiff on April 1, 2010 shall be revoked.

1. Details of the disposition;

A. On November 28, 2007, the Plaintiff accepted KRW 1,479,030 (hereinafter “instant new shares”) from among forfeited shares that occurred due to the failure of the existing shareholders to subscribe and pay, the Plaintiff acquired KRW 1,449,449,400 per share of KRW 980 in total.

B. As the Board of Audit and Inspection audited the improvement status of piracy, it did not report and pay gift tax even though the Plaintiff’s acceptance of the instant new shares constitutes the taxation requirement of gift tax. On March 5, 2010, the Board of Audit and Inspection requested the director of the Seoul Regional Tax Office to correct it.

C. On April 1, 2010, the Defendant notified the results of audit by the Board of Audit and Inspection to the Plaintiff on the date of acquisition of the instant new stocks on April 1, 2010, imposed and notified the Plaintiff at KRW 236,644,80 (including KRW 38,359,670 + KRW 2,680 + KRW 2,680,560 + KRW 1,680 + KRW 828,440 + KRW 747,290 + KRW 632,79 + KRW 618,79,80, and penalty tax) on the aggregate of the gift tax (hereinafter referred to as the “instant disposition”).

D. On July 5, 2010, the Plaintiff filed a request for review of the instant disposition with the Board of Audit and Inspection, but was dismissed on February 10, 201.

[Ground for Recognition: absence of dispute, Gap evidence 1, 2, 8, Gap evidence 3-1 to 7, Eul evidence 1-1 to 7, the purport of the whole pleadings]

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

For the following reasons, the instant disposition is unlawful.

1) The Plaintiff transferred stocks and managerial rights of the CCC Information and Communications Co., Ltd. (hereinafter referred to as “CCC Information and Communications”) to the largest DD, which was the representative director of the non-party company, but did not receive 1.5 billion won of the transfer price from the largest DD but did not transfer 450,000 won of the CCC stocks to the largest DD, the Plaintiff sold the said 4.50,00 shares to the non-party company and acquired the instant new stocks in lieu of receiving the purchase price. As such, it cannot be deemed that the Plaintiff actually received the donation of the instant new stocks, and the Plaintiff did not actually acquire the instant new stocks. Thus, the Plaintiff’s acquisition of the instant new stocks does not comply with the principle of substantial taxation even if it did not meet the requirements for gift tax imposition.

2) It is not reasonable to determine the assessed value per share of the instant new shares as one thousand and 140 won, and to regard them as the market price.

3) In light of the fact that the Plaintiff was unaware of whether to accept the instant new shares at low prices, etc., the Plaintiff was justifiable for failing to fulfill his duty to report and pay gift tax base related to the instant new shares, and thus, the portion of penalty tax out of the instant disposition is unlawful.

(b) relevant statutes;

It is as shown in the attached Table related statutes.

Multi-Recognitions

1) On June 20, 2007, the Plaintiff, the largest shareholder, and the managerial right holder holding 4 million shares of the CCC information and communications, entered into a contract with MaximumD to set up a contract with 3 billion won for the shares of CCC information and communications and paid 1 billion won in total the down payment and the first intermediate payment.

2) On July 20, 2007, the CCC information entered into a contract with the representative director Kim E-E of the non-party company, a listed corporation, to take over the non-party company’s shares of KRW 7 billion and the right of management at KRW 7 billion, and paid the above shares of KRW 7 billion and received the above shares of KRW 700,000 and transfer of management rights.

3) On July 21, 2007, MaximumD was appointed as the director of the CCC Information and Communications on August 8, 2007, and as the representative director of the CCC Information and Communications on October 10 of the same year. On September 28 of the same year, the Plaintiff paid the Plaintiff the second intermediate payment KRW 500,000,000 to Maximum D on June 20 of the same year, and the Plaintiff transferred 60,000,000 shares of CCC information and communications to Maximum D on November of the same year.

4) On November 27, 2007, the Plaintiff: (a) transferred 450,000 shares of the CCC Information and Communications Co., Ltd. to Nonparty Company; (b) concluded a share transfer agreement with Nonparty Company to pay the full amount of the share transfer price received from Nonparty Company to Nonparty Company’s capital increase; (c) transferred 450,00 shares of the CCC to Nonparty Company pursuant to the above transfer agreement; (d) paid the full amount of the share transfer price to Nonparty Company’s capital increase; (c) received 1479,030 shares of the instant CCC; (d) transferred 60,000 shares of the said CCC to Nonparty Company; (e) transferred 1,97,2040 shares of the said CCC; and (e) transferred 1,449,450 shares to Nonparty Company; and (e) the remaining shareholders of the CCC transferred the shares of Nonparty Company to Nonparty Company to Nonparty Company 2 through 300% of the shares transfer price to Nonparty Company 30.

[Ground for Recognition: No dispute exists, Gap evidence Nos. 1, 5 through 8, Gap evidence No. 4-1, 2, Eul evidence No. 1-1, 7, Eul evidence No. 2, and the purport of the whole pleadings]

D. Determination

1) As to the first argument

A) Article 39(1)1 (a) of the Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “Gift”) provides that when a corporation issues new stocks to increase its capital at a price lower than the market price, in cases where a shareholder of the relevant corporation renounces his right to receive new stocks and allocates forfeited stocks again, thereby obtaining profits, the amount equivalent to such profits shall be deemed as the value of property donated to the person who has acquired such profits. The interpretation of tax laws and regulations under the principle of no taxation without law shall be interpreted as the value of property donated to the person who has acquired such profits, barring special circumstances. Thus, insofar as a corporation obtains profits by obtaining forfeited stocks at a price lower than the market price, such interpretation constitutes Article 39(1)1 (a) of the Gift Tax Act regardless of the existence

B) On November 27, 2007, the Plaintiff acquired 1,479, and 980 won per share below the market price instead of receiving 450,000,000,000,000 won of CCC information and communications on November 27, 2007. As long as the Plaintiff acquired 1,479, and 4030 won per share below the market price under Article 39(1)1 (a) of the Gift Tax Act, the profits accrued therefrom constitute a gift tax requirement under Article 39(1)1 of the said CCC’s 450,00 shares and 1,479,030 shares of the said CCC’s 40,000 shares and 40,000 shares and 50,000 shares and 405,000 shares and 40,000 shares and 4,000 shares and 4,05,00 shares and 4,000 shares were transferred to Nonparty 25,0,00.

2) As to the second argument

In other words, under Article 60(1) of the Inheritance Tax Act and Article 63(1)1(a) of the Tong Act, the defendant evaluated the value per share before the capital increase of the new stocks of this case as KRW 1.291 under the conditions as follows, which can be recognized by comprehensively considering the overall purport of the pleadings in each statement in subparagraph 1 through 7 of the evidence No. 1 of this paragraph. The defendant evaluated the value per share before the capital increase of this case under Article 63(1)1(a) of the Inheritance Tax Act. The defendant evaluated the value per share before the capital increase of this case as KRW 1129(3)1 of the Enforcement Decree of the Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008) on the basis of the value per share before the capital increase of the donated property (value of KRW 1.291 per share before the capital increase x 18,192,94 per share x 1900 won per share x 19800 won per share,1408

3) As to the third argument

A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed as prescribed by the individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and the taxpayer’s intent or negligence is not considered. On the other hand, such a sanction cannot be imposed in cases where there are justifiable grounds that make it difficult for the taxpayer to be aware of his/her obligations, such as where there are circumstances where it is unreasonable for him/her to reasonably present his/her obligations or where it is unreasonable for him/her to expect him/her to fulfill his/her obligations (see, e.g., Supreme Court Decision 2003Du13632, Jan. 27, 2005).

B) In light of the following circumstances, the Plaintiff reported the transfer income tax of KRW 213,948,240 to the above CCC’s 450,00 shares, and the fact that it cannot be deemed that there was any special circumstance where the Plaintiff could not be known that the Plaintiff acquired the instant new shares at low price solely on the ground that the Plaintiff was unaware of the fact that the Plaintiff was aware of the acquisition of the instant new shares at low price, the Plaintiff cannot be deemed to have justifiable grounds for failing to report and pay the gift tax base on the acquisition of the instant new shares. Thus, the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.