Whether Article 78 (1) of the former Enforcement Decree of the Local Tax Act violates Article 105 (6) of the same Act (negative)

Considering the legislative intent of Article 105(6) of the Local Tax Act and Article 111(4) of the same Act, it is reasonable to interpret that the purpose of Article 105(1) and Article 78(2) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 15489, Oct. 1, 1997) stipulate that the scope of liability to pay taxes for the acquisition of stocks of an oligopolistic shareholder is strengthened, and that the purpose of the above provision is not only the case where an oligopolistic shareholder first acquires stocks from the oligopolistic shareholder, i.e., where the oligopolistic shareholder becomes an oligopolistic shareholder, but also the case where additional stocks are acquired after the oligopolistic shareholder becomes an oligopolistic shareholder, but also the case where the oligopolistic shareholder becomes an oligopolistic shareholder. However, considering the provisions of Article 105(6) and Article 114(4) of the same Act, it is merely based on the provision that Article 105(6) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 15582, Dec. 1, 19, 20188).

Articles 105(6) and 111(4) of the Local Tax Act; Article 78(1) and (2) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 15489, Oct. 1, 1997)

Park Jong-young (Yeong et al., two others)

Head of Busan Metropolitan Government

April 29, 1998

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

The Defendant’s imposition of acquisition tax of KRW 27,046,720 against the Plaintiff on May 10, 1997 and the imposition of KRW 2,479,270 shall be revoked.

1. Details of the disposition;

The following facts are not disputed between the parties, or can be acknowledged by taking into account the whole purport of the pleadings in relation to Gap evidence Nos. 1, 2-2, 3-2, 3-4, 6-1 through 13, 6-1 through 13, 7-3, 7-4, 7-1, 9-1, 1-2, 2, 3, 2-2, 3, 3-2, 3-2, and 3-2 through 5 of the evidence No. 3-5, and some testimonys of the witness Kim original-con.

A. The non-party corporation was established on August 21, 1991, and among the 10,000 shares issued at the time of its establishment, the ratio of the shares owned by the plaintiff 4,00 shares, 2,00 shares, 3,00 shares, 4,00 shares, 2,00 shares, 3,00 shares, 1,00 shares, 1,000 shares, 1,00 shares, 3,00 shares, 5,00 shares, and 1,00 shares, 4,00 shares, and 5,00 shares, which are owned by the non-party corporation, was transferred to the non-party corporation. The ratio of the shares owned by the plaintiff 1,50 shares, including the plaintiff 1,50 shares, was increased by the 95% shares owned by the non-party corporation.

B. The defendant, under Article 111(4) of the Local Tax Act, deemed that the above acquisition of shares by Kim Jong-hee constitutes the establishment of a corporation under Article 78(1) of the Enforcement Decree of the Local Tax Act, etc. that "if the first oligopolistic shareholder acquires the shares of the corporation from the shareholder, the first oligopolistic shareholder shall be deemed to have acquired all the shares of the non-party company owned by the oligopolistic shareholders of the non-party company including the plaintiff on the date of the above acquisition of shares by Kim Jong-hee, and thus, pursuant to Article 111(4) of the Local Tax Act, the plaintiff is deemed to have acquired the shares of the non-party company, such as the land and buildings owned by the non-party company, and vehicles owned by the non-party company, which are deemed to have been acquired by the plaintiff under Article 105(6) of the same Act, 2,817,367,674 won multiplied by 40% of the book value of the shares owned by the plaintiff on May 10, 1997.

2. Whether the instant taxation disposition is legitimate

A. The parties' assertion

The Defendant asserts that the instant taxation disposition is lawful on the ground of the foregoing provision of the Act, and accordingly, the Plaintiff is the Plaintiff, the entire 10,000 shares issued at the time of incorporation of the non-party company, and the remaining shareholders are merely the shareholders in the name of trust with the Plaintiff, and even if Kim Pung received 500 shares from the Plaintiff, there is no change in the actual share ownership ratio as the oligopolistic shareholders who own the above 10% shares, and thus, the above acquisition of Kim Pung's shares does not fall under Article 105(6) of the Local Tax Act and Article 78 of the Enforcement Decree of the same Act. However, even if Kim Pung's above acquisition of shares did not correspond to 95% to 10% of the above oligopolistic shareholders' shares, it is unlawful for the Plaintiff to establish this case's taxation disposition by applying Article 105(6) of the Local Tax Act and Article 78(1) of the Enforcement Decree of the same Act to 70% of the above oligopolistic shareholders' shares at the time of the same Act.

(b) Related statutes;

(1) Article 105 (6) of the Local Tax Act provides that where an oligopolistic stockholder becomes an oligopolistic stockholder under subparagraph 2 of Article 22 of the Act by acquiring the stocks or shares of a corporation from the stockholders or employees, such oligopolistic stockholder shall be deemed to have acquired the real estate, vehicles, construction machinery, standing trees, or aircraft of the corporation concerned. Article 22 subparagraph 2 of the same Act provides that the term “ oligopolistic stockholder” means one stockholder or one partner of the corporation, and his relatives or those having special relations as prescribed by the Presidential Decree, whose total amount of stocks or shares is not less than 51/100 of the total issued stocks or shares of the corporation concerned. Article 6 of the Enforcement Decree of the same Act provides that the acquisition tax shall specify the scope of the increased stocks or shares of the corporation, and Article 111 (4) of the same Act provides that the oligopolistic stockholder shall be deemed to have already acquired the stocks or shares of the corporation at the time of acquisition by the oligopolistic stockholder, and the tax base for the oligopolistic stockholder shall be deemed to have been more than the acquisition value of the stocks or shares of the corporation concerned.

(2) Meanwhile, Article 104 subparag. 8 of the Local Tax Act provides that the term “acquisition” refers to sale and purchase donation, contribution in kind to a corporation, construction, reclamation of public waters, creation of land through reclamation, and all other similar acquisitions, such as original acquisition, acquisition by succession or free of charge, and Article 3 subparag. 5 and subparag. 6 of the Act on Special Rural Development and Fisheries are liable to pay an amount equivalent to 10/100 of the acquisition tax amount to be paid under the Local Tax Act as a special rural development tax.

C. Determination

(1) Judgment on the plaintiff's first argument

First of all, even if the plaintiff is a substantial shareholder of the total issued shares of the non-party company and the remaining shareholders are merely in title trust, there is insufficient evidence to acknowledge the fact of title trust as alleged by the plaintiff, and even if such title trust is acknowledged, considering the fact that the acquisition tax is a distribution tax, the fact that the person registered as the external shareholder can exercise the right and make an effective disposal, and the fact that Article 110 of the Local Tax Act provides for non-taxation on the formal acquisition of ownership, and subparagraph 1 of Article 110 of the Local Tax Act provides for the non-taxation on the title trust, and that in the case of the trust, the trust shall be registered as a trust under the Trust Act, even if the trustee transfers it according to the truster's intention, the transferee shall lawfully acquire it, and since there is no reason to exclude it from the acquisition provided by Article 104 subparagraph 8 of the Local Tax Act, the first argument of the plaintiff is no longer reasonable.

(2) Judgment on the second argument by the Plaintiff

Article 105 (6) of the Local Tax Act provides that "When an oligopolistic stockholder becomes an oligopolistic stockholder pursuant to subparagraph 2 of Article 22 of the Act by acquiring a corporation's stocks or shares from a stockholder or employee, the oligopolistic stockholder shall be deemed to have acquired the real estate, vehicle, standing timber, or aircraft ." The above provision provides that "If an oligopolistic stockholder becomes an oligopolistic stockholder pursuant to subparagraph 2 of Article 22 of the Act by acquiring a corporation's stocks or shares, the oligopolistic stockholder shall be deemed to have been subject to taxation." However, as it appears in the legislative intent and Article 111 (4) of the former Enforcement Decree of the Local Tax Act are comprehensively taken into account, the scope of liability to pay taxes for the acquisition of shares by an oligopolistic stockholder is strengthened, and it is reasonable to interpret that the above provision provides that the oligopolistic stockholder shall be subject to taxation including all cases of additional acquisition after becoming an oligopolistic stockholder (see Supreme Court Decision 75Nu253, Feb. 27, 1979).

Meanwhile, Article 78(1) of the former Enforcement Decree of the Local Tax Act provides that where a person who first becomes an oligopolistic shareholder due to the establishment of a corporation or the increase in its capital, etc., acquires stocks or shares of a corporation from a stockholder or employee, acquisition tax shall be imposed pursuant to Article 114(4) of the Act by deeming that such person acquired stocks or shares owned by an oligopolistic shareholder on the date of acquisition thereof, and that Article 114(2) of the same Act differs from imposing acquisition tax on a person who becomes an oligopolistic shareholder due to other reasons, deeming only increased portion of acquisition as acquisition. Thus, it is questionable whether such discrimination has reasonable grounds or whether such discrimination does not exceed the scope of delegation under Articles 105(6) and 114(4) of the same Act.

However, comprehensively taking account of the provisions of Articles 105(6) and 114(4) of the same Act, where an oligopolistic shareholder acquires stocks from such oligopolistic shareholder, such oligopolistic shareholder, in principle, shall be construed as the number of stocks acquired by such oligopolistic shareholder (not only the number of stocks acquired at such time but also the number of stocks acquired by such oligopolistic shareholder, including additional acquisition, until such additional acquisition), and such interpretation is clearly required to calculate the tax base of the oligopolistic shareholder by comparing the number of stocks acquired at the time of the first oligopolistic shareholder with the number of stocks acquired by such oligopolistic shareholder at the time of the first time. Thus, Article 78(1) of the Enforcement Decree of the same Act is merely a clear representation of the provisions of the mother law, and thus, it is difficult to interpret the same legal principle as above to the extent of delegation. If an oligopolistic shareholder is subject to the same legal principle as above, the oligopolistic shareholder shall not be deemed to have been subject to the first increase in the number of stocks acquired by such oligopolistic shareholder at the time of the first increase in the number of stocks owned by such oligopolistic shareholder.

(3) Judgment on the plaintiff's third assertion

In this case where Article 78 (1) of the former Enforcement Decree of the Local Tax Act was in force, if a person who becomes an oligopolistic shareholder, etc. after the person who has become an oligopolistic shareholder acquired additional stocks from the shareholder, etc., Article 78 (1) of the same Act shall apply, and Article 78 (2) of the same Act shall not be applicable. Thus, the plaintiff's third assertion is not reasonable in this respect. In addition, Article 78 (3) of the same Act provides that if a person who was an oligopolistic shareholder becomes an oligopolistic shareholder again within five years after he became an oligopolistic shareholder, acquisition tax shall be imposed on the person who increased the ratio of stocks at the time of the former oligopolistic shareholder as an oligopolistic shareholder. In this case, it is clear that a related person, including the plaintiff, owned 10% of the stocks at the first 95% of the stocks of the non-party company, and thereafter the ratio of ownership has been reduced to 100% of the stocks of the non-party company, and it does not constitute a matter of application of Article 78 (3) of the same Act.

3. Conclusion

Therefore, the plaintiff's claim of this case seeking revocation on the premise that the taxation disposition of this case is unlawful is dismissed as it is without merit, and the costs of lawsuit are assessed against the plaintiff who has lost.

June 17, 1998

Judges Kim Jong-si (Presiding Judge)