Plaintiff (Law Firm LLC et al., Counsel for the plaintiff-appellant)

Head of Gangnam District Tax Office and fourteen others

August 29, 2014

Seoul Administrative Court Decision 2013Guhap4484 decided June 28, 2013

1. Revocation of a judgment of the first instance;

2. The “Disposition Agency” in the separate sheet of Disposition No. 1 is revoked in entirety the imposition of each gift tax on the Plaintiff on each date indicated in the “Date of Notice”.

3. The total costs of the lawsuit shall be borne by the Defendants.

The order is as follows (the plaintiff reduced the purport of the claim on April 18, 2014 according to the defendant's correction of reduction).

1. Details of the disposition;

A. On December 27, 1975, the president of ○○ Group, the Plaintiff’s father Nonparty 1, from around December 27, 1975 to 23 persons, including Nonparty 2, the vice president of ○○ Group, etc., title trusting 133,265 shares of ○ Industry Co., Ltd. (hereinafter “○○ Industry”) (hereinafter “instant shares”).

B. Nonparty 1 died on November 2, 1996, and Nonparty 2, including Nonparty 2, did not change the name of the deceased Nonparty 1’s heir in the future.

C. In applying Article 41-2(1)(hereinafter “instant provision”) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “former Inheritance Tax Act”) and Article 9 of the Addenda, the Defendants imposed each gift tax on the non-party 2, including the non-party 2, who is the title trustee. The Defendants also imposed each gift tax (hereinafter “each of the instant dispositions”) on the title truster, as shown in the attached disposition list No. 1.

D. On May 15, 2012, the Plaintiff dissatisfied with the request and filed a trial with the Tax Tribunal. However, the said request was dismissed on January 11, 2013.

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 3, Eul evidence 1, Eul evidence 1, Eul evidence 1, Eul evidence 1 (including each number), the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

(a) Relevant statutes;

Attached Form 2 shall be as listed in attached Table 2.

B. The defendant's assertion and interpretation of the provision of this case as to each disposition of this case

(1) The defendant's primary and conjunctive disposition

The defendant primarily asserts that each disposition of this case constitutes "where the actual owner and the nominal owner are different" out of the main text of the provision of this case. However, where a person owns borrowed stocks in a manner that does not implement a transfer for a long time as in this case, it shall be deemed that the plaintiff acquired the stocks of this case on January 1, 2003, which is the date of acquisition of ownership (where the property is subject to a transfer for a long time, referring to the day following the end of the year following the year in which the date of acquisition of ownership falls; hereinafter referred to as "general item") and Article 9 of the Addenda of the above former Inheritance Tax Act, pursuant to the main text of this case and Article 9 of the Addenda, it shall be deemed that the plaintiff acquired the stocks of this case (the defendant's preparatory document as of March 7, 2014).

The defendant asserts that both the reason for disposition and the date of deemed donation shall be based on the overall title trust, and therefore, since it is a sanction for neglect of change of ownership, it does not require agreement, such as title trust (the defendants' statement in the pleading protocol dated March 7, 2014).

(2) As to the interpretation of the provision of this case

Comprehensively taking account of the provisions of this case and the contents, form, purport, etc. of the relevant statutes and the following circumstances: (a) where an agreement on title trust exists, the out-of-the-counter part of the provisions of this case shall be deemed the date of deemed donation when the registration, etc. (referring to the registration, registration, transfer of title pursuant to Article 31(3) of the former Inheritance and Gift Tax Act) is made; and (b) the overall title part shall be deemed the date following the end of the year following the year in which the acquisition date of ownership falls as the date of deemed donation in order to impose sanctions against neglect of entry into a title trust, i.e

① As a matter of principle, the provision on deemed donation of title trust applies to property that requires registration for the transfer or exercise of the right, etc., where the actual owner and the nominal owner have made registration, etc. in the future of the nominal owner by agreement or communication, regardless of the intent of the nominal owner, where registration, etc. is unilaterally made using the nominal owner’s name (see Supreme Court Decision 2007Du15780, Feb. 14, 2008). The main text of the provision of this case is “where the actual owner and the nominal owner are different” out of the second main text of the provision of this case can only be applied where a title trust agreement exists, and where no separate title trust agreement exists, such as transfer of title, the provision on deemed donation of title may not be applied to outside of the overall title. In a case where a title trust agreement is neglected without any separate title trust agreement, as a means of sanction, the provision

② Article 41-2(2) of the former Inheritance and Gift Tax Act states that “where property has been registered, etc. in the name of another person” and “where a transfer has not been made in the name of the actual owner,” the overall protection part is an independent provision.

③ The amendment, which newly established the general title section, referred to as “in the event that a transfer of ownership to stocks, etc. is not made, it shall be deemed as a title trust and thereby preventing the avoidance of tax using a transfer of ownership,” and the major salvists also intended to treat the same as a title trust where a person who acquired stocks and equity shares does not change for a long time, and thus, to levy gift tax by deeming the nominal owner as having donated the relevant stocks and equity shares as a donation.” In addition, the title trust is deemed to have been donated by treating a title trust as a neglect

C. Judgment on the grounds for main disposition

In order to lawful the grounds for the primary disposition, which is outside the second chapter of the instant provision, “where the actual owner and the nominal owner are different” as the grounds for the disposition, there is an agreement between the actual owner of the instant shares and the existing title trustee on the title trust. This is the tax requirement for applying the instant provision, and the tax authority bears the burden of proof.

According to the overall purport of Gap evidence Nos. 7 through 12 (including each number), it can be acknowledged that the non-party 3, non-party 4, non-party 5, non-party 6, non-party 7, non-party 8, and non-party 9, who are currently the deceased non-party 1's co-inheritors, filed a lawsuit for recovery of inheritance against the plaintiff. The above co-inheritors clearly stated that they claim to deliver their shares equivalent to their shares of inheritance, and that the above co-inheritors did not request to deliver the shares held in title by specifying any of the title trustees of the shares of this case.

According to the above facts, as of November 2, 1996, the date of inheritance of the shares of this case, the actual owner of the shares of this case at the time of November 2, 1996, cannot be known as whether it is the plaintiff or other co-inheritors. Thus, it cannot be specified whether the existing title trustee should enter into an agreement on the title trust with the plaintiff

The Defendant, who is the tax authority, submitted evidence that the actual owner of the instant shares was the Plaintiff and that there was an agreement on title trust between the Plaintiff and the existing title trustee, and submitted evidence Nos. 2 through 6, Eul 2 through 6, Eul 2 through 6, and Eul 2 through 6. However, such evidence is unreasonable in light of the fact that the non-party 1, while his will, expressed the borrowed-name property including the instant shares as “B money property,” and decided to the Plaintiff in an opportunity to hand it over to the Plaintiff, and that the non-party 2, the executor of the will, transferred the ownership of the instant shares to the Plaintiff. Furthermore, it is insufficient to acknowledge that there was an agreement on title trust between the Plaintiff and the existing title trustee solely with the statement alone, and there is no other evidence to acknowledge it (the fact that the existing title trustee is the person related to ○○ Group, and it is not reasonable to presume that there was an implied agreement on maintaining the existing title trust relationship between the Plaintiff and the title trustee due to neglect of title trust, etc.

If so, the primary reason for the disposition is against the law without any need to be examined.

D. Determination on the conjunctive disposition

(1) The plaintiff's assertion

Comprehensively taking account of the following circumstances, the common title portion is applicable to the transfer for consideration. Even if the transfer of shares is not limited to the transfer for consideration, the common title portion is applicable only to a relationship between the nominal owner and the actual owner by transferring the shares through a juristic act at least to the extent that there is a disagreement between the nominal owner and the actual owner. Accordingly, the foregoing provision does not apply to cases where “existingly trusted shares” are acquired by inheritance.

① Considering the legislative purport of the overall title, the proviso to Article 41-2(2) of the former Inheritance and Gift Tax Act, etc., the instant provision may only apply to “where the transferor holds the name of shares, and where the transferee has acquired shares at a cost.”

② Even in cases where the overall title portion is acquired by inheritance, if the inheritance does not change for a long period, it would result in inconsistency on which the gift tax is imposed on the decedent. Moreover, it may not be recognized that the heir has property under title trust or that the trustee has inheritance. In such cases, if the gift tax is imposed, it would be contrary to the principle of self-responsibility.

(3) If the overall title trust applies even where the shares previously held in title are acquired by inheritance, it constitutes a retroactive taxation, and the existing title trustee shall be punished by the double taxation by imposing gift tax two times on one act of title trust.

④ On March 7, 2006, the tax authority also rendered authoritative interpretation to the effect that “where the decedent does not enter into a transfer under the name of the heir after the inheritance commencement, it is reasonable not to apply the instant provision” (hereinafter “instant authoritative interpretation”).

(2) Determination

(A) The scope of application of subsection (a)

According to the one interpretation method, if a law seems to be contrary to the Constitution even if it appears to be contrary to the Constitution, other interpretation methods shall be chosen in accordance with the Constitution (see Supreme Court Decision 91Da8, May 8, 1992, etc.).

In full view of the following circumstances, the common sense is applicable to cases where the existing shares held in title trust are acquired by inheritance. However, if there are special circumstances, such as where the existing title trustee cannot be deemed to have known of the inheritance of shares or neglected to change the title holder due to joint inheritance, etc., the application of the common sense of responsibility is excluded. It is reasonable to deem that there is a correct interpretation consistent with the principle of self-responsibility derived from the freedom of general action guaranteed by the Constitution, and the burden of proof as to the existence of such special circumstances exists.

① The title holder shall be deemed to have been donated the value of the property on the date following the end of the year following the year in which the date of acquisition of ownership falls, if the property requires a transfer of ownership, and does not stipulate only the cause of acquisition of ownership by commercial transfer such as sale, exchange, etc. Even according to the result of inquiry into the Ministry of Strategy and Finance of this court, the term “acquisition of ownership” in the overall title is not limited to commercial transfer.

② Also, Article 9 of the Addenda provides that “The portion of ownership acquired before this Act enters into force and the entry of a change of ownership under Article 41-2(1) and (2) as of the enforcement date of this Act shall be deemed to have been acquired as of the enforcement date of this Act,” and does not exclude three-party relations such as inheritance from the acquisition of ownership before this Act enters into force.

③ According to the legislative review report and review report under the former Inheritance and Gift Tax Act, in order to prevent cases where a transfer of ownership is not made despite having acquired stocks for the purpose of evading tax burden through disguised distribution of stocks, the amendment bill imposes gift tax including the relevant stocks donated by the nominal owner, and, in the case of title trust, impose the same joint and several tax liability as the trustee on the truster in the case of title trust. The purport of the amendment is “where a transfer of ownership is not made despite the acquisition of rights, there is a problem that the tax authorities cannot grasp the change of stocks in the case where a transfer of ownership is not made, and where a transfer of ownership is not made for a long time, its substance is the same as that of the title trust, thereby strengthening taxation by deeming it as a title trust.”

④ In light of the fact that the proviso of Article 41-2(2) of the former Inheritance and Gift Tax Act does not provide for “if a successor does not transfer a title holder in spite of the acquisition of the existing shares trusted, the method for remedying the existing title trustee should be applied.” In addition, the proviso of Article 41-2(2) of the former Inheritance and Gift Tax Act provides that the transferor should not be presumed to have been subject to the acquisition of shares held in the existing title trust by inheritance. The proviso of Article 41-2(2) of the former Inheritance and Gift Tax Act provides that the tax authority should prove the purpose of tax avoidance by preventing the transferor from estimating the purpose of tax avoidance when the transferor reports the details of ownership change along with the report pursuant to Articles 105 and 110 of the Income Tax Act, along with the report on the tax base of capital gains tax under Article 10 of the Income Tax Act or the report on the change

Moreover, it is necessary to protect a bona fide transferor in that the transferor imposes gift tax on the transferor on the reason that the transferor did not acquire the shares and transfer the shares for a long time despite the transferor’s no intention of title trust. However, there is a need to protect the transferor in that the transferor establishes the first title trust relationship according to his/her intention.

Even based on the result of inquiry into the Ministry of Strategy and Finance, the proviso of Article 41-2(2) of the former Inheritance and Gift Tax Act is to prevent a bona fide transferor from imposing a gift tax, and the tax authority can take into account the fact that the transferor is able to ascertain the transfer and acquisition of ownership in the event of the transferor’s performance of his/her duty under the tax law following the transfer. Accordingly, in the case of inheritance, the tax authority cannot provide for the same exception as the transfer because it has no separate duty to report and pay the nominal owner under the tax law. Therefore, based on the proviso of Article 41-2(2) of the former Inheritance and Gift Tax Act, the provision of this case cannot be interpreted as not

⑤ If the overall title part, as alleged by the Plaintiff, applies only to “where the transferor acquires shares in the name of the shares,” it would be unreasonable to impose gift tax even if the actual owner of shares transfers shares in the name of the shares by means of “donation,” etc. but the transferee of the shares fails to transfer the ownership for a long time,” and even if the actual owner transfers shares in the name of the shares by means of sale, exchange, gift, etc., the actual owner of the shares is unable to impose gift tax even if he/she fails to transfer the ownership for a long time. In particular, if a title trust relationship is established once more, it would result in a violation of the legislative intent of the instant provision in that it would enable the actual owner of shares to maintain the title trust relationship without any sanction even if the actual owner changes the ownership of shares.

(6) However, even if there are special circumstances, such as where the existing title trustee could not be deemed to have neglected to change the title holder due to the existence of a share inheritance or the common inheritance, if the provision of this case is applied, it would be held liable for failure to change the title holder, which is an act that cannot be expected at the time to the existing title trustee, and would be contrary to the principle of self-responsibility derived from the freedom of general action guaranteed by the Constitution, so if the existing title trustee proves such special circumstances, the application of the provision of this case would be excluded.

(B) Whether it violates the principle of self-responsibility

The Plaintiff asserts that if the overall title trustee applies to the case where the shares already held in title trust are acquired by inheritance, the former title trustee is subject to double taxation of gift tax regardless of his/her own responsibility. However, the former title trustee cannot be held liable for establishing the first title trust relationship according to his/her own intention. The instant provision grants a period for resolving the title trust relationship by the end of the year following the year following the date on which shares are acquired by inheritance. As seen above, the instant provision does not constitute a provision contrary to the principle of self-responsibility. Moreover, if the title trustee cannot be deemed to have known of the inheritance of shares or neglected to change the title holder due to joint inheritance, etc., the application of the provision cannot be deemed to be contrary to the principle of self-responsibility.

(C) Whether there is a problem of retroactive taxation and double taxation

The Plaintiff asserts that if the provision of this case applies to the case where the existing shares held in title trust are acquired by inheritance, the existing title trustee is liable for gift tax on the existing shares held in title trust. However, the provision on deemed donation provides a representative adjustment tax that imposes sanctions on certain acts, and thus, imposing gift tax on the title trust between the decedent and the title trustee is subject to gift tax on the title trust made between the decedent and the title trustee. However, the imposition of gift tax on the shares held in title trust, even if the heir acquired the existing shares held in title trust, cannot be deemed as a retroactive taxation, as it imposes a liability for neglecting a change of ownership between the heir and the title trustee, and cannot be deemed as a double taxation on the same taxable object

(D) The position of tax authorities

On July 22, 2011, the National Tax Service corrected errors in the interpretation of this case by interpreting the purport that “it does not enter the name of the heir despite the acquisition of the shares held in title by the decedent constitutes a deemed donation of title trust under the provisions of this case.” On September 16, 2011, the instant interpretation was deleted from the “National Tax Information System”, and on September 30, 201, sent a public notice demanding “△△△△△”, “△△”, “△△△”, “△△△”, and “Woo”, which operate a website related to the information of national tax statutes, to delete the interpretation of this case. Accordingly, the tax authority cannot be deemed to have maintained its position as alleged by the Plaintiff, and thus, the Plaintiff’s assertion on this part is also groundless.

(E) Determination on the instant case

With respect to the shares of this case, Nonparty 3, Nonparty 4, Nonparty 5, Nonparty 6, Nonparty 7, Nonparty 8, and Nonparty 9, who are currently the deceased Nonparty 1’s co-inheritors, filed a lawsuit seeking inheritance recovery against the Plaintiff. In the above lawsuit, the above co-inheritors clearly stated the purport that they would claim to deliver their shares equivalent to their shares of inheritance, and the fact that the above co-inheritors did not claim to deliver the shares held in title by specifying any of the title trustees among the title trustees of the shares of this case.

Pursuant to the aforementioned legal principles, where a title trustee does not know the inheritance of shares under an existing title trust or neglect to change the title holder due to joint inheritance, etc., the application of the common title portion shall be deemed excluded. However, in the case of the shares of this case, the title trustee cannot be held liable for neglecting the title holder due to joint inheritance, and thus, each disposition of this case imposing gift tax by applying the general title of the shares of this case is unlawful.

3. Conclusion

Therefore, the plaintiff's claim is justified, and the judgment of the court of first instance, which has different conclusions, is unfair, and it is so revoked and it is so decided as per Disposition.

[Attachment]

Judges Cho Jong-tae (Presiding Judge)