Plaintiff 1 and two others (Attorney Choi Chang-hwan et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

August 25, 2005

Seoul Administrative Court Decision 2003Gudan5535 delivered on October 8, 2004

1. All appeals filed by the plaintiffs are dismissed.

2. The appeal costs are assessed against the plaintiffs.

The judgment of the first instance shall be revoked. The defendant's disposition of imposition of KRW 156,035,360, and resident tax of KRW 15,60,530, and KRW 15,603,530, and KRW 179,854,80, and KRW 17,985,480, as to the plaintiff Lee Young-young on May 11, 2002, and imposition of KRW 17,985,480, and KRW 46,360,970, and KRW 46,636,00,000 for the transfer income tax of KRW 199 and KRW 4,636,09,090 for the plaintiff Kim Young-young on May 1, 202, shall be revoked.

1. Details of the disposition;

The following facts may be acknowledged in full view of the purport of Gap evidence 1-2, Eul evidence 1-2, Eul evidence 2-1-2, Eul evidence 3-2, Eul evidence 4-6, Eul evidence 1-2, Eul evidence 2-1, Eul evidence 3, Eul evidence 4-1, 2-3, Eul evidence 4-1, 4-2, and 3, and the whole purport of the arguments.

A. On April 11, 1999, Plaintiff 1 received 634,080 shares of Sam River Business Co., Ltd. (the trade name was changed to Samsung AW, Co., Ltd. on March 21, 2001), Plaintiff 1, and Lee Young-soo, respectively, inherited 25,200,00 shares of the deceased’s son’s son’s son, who died on April 11, 199, Plaintiff Lee Young-young, and Plaintiff Kim Jong-tae (hereinafter the Plaintiffs inherited the shares of the above company as “the inheritance shares of this case”).

B. On Nov. 10, 1997, Samgang River Co., Ltd. registered with the Korea Securities Dealers Association, and traded the shares of the said company on the KOSDAQ market which is an Association brokerage market. However, upon paying inheritance tax on the inherited shares of this case, the Plaintiffs paid inheritance tax, based on the method of assessment under the Inheritance Tax and Gift Tax Act, the value per share was calculated by adding 10% of the total price per share to 9,443 won per share, according to the method of assessment under the Inheritance Tax and Gift Tax Act, which was in force at the time of inheritance.

C. The plaintiffs, without going through the Association brokerage market on October 5, 1999, transferred the shares of the above company of 10,00 won per share of 98,880 shares among the inherited shares of this case to Dong-dong Co., Ltd., the plaintiff Lee Young-young, the 125,200 shares of the plaintiff Lee Young-soo, the 25,00 shares of the plaintiff Kim Jong-tae (hereinafter the "the shares of this case"), and the total shares of the above company that the plaintiffs transferred before the plaintiffs, the 563,160 shares, the 125,200 shares, and the 143,396 shares of the above company of 143,00 won per share without going through the Association brokerage market on the same day. In addition, the plaintiff Lee transferred the shares of the above company of 270,000 shares of the above company of 270,000 shares per share to 10,000 won per share without going through the Association brokerage market.

D. On December 12, 199, the Plaintiffs: (a) filed a preliminary return on the gains from the transfer of assets, including the instant stocks, at the tax office having jurisdiction over the Haman on the transfer of the instant stocks; (b) made a preliminary return on the gains from the transfer of assets, the transfer value of the instant stocks was KRW 10,000 per share, which is the actual transaction value; and (c) the acquisition value was KRW 10,387 per share, which is the appraised value according to the market price in the Association

E. After that, the director of Daegu Regional Tax Office, one of the tax offices having jurisdiction over the above company, imposed a factual investigation into the transfer of the pertinent shares and the transfer of shares of Shinyang P&P, the other related company, and 10,387 won per share which the plaintiffs reported on the acquisition value at the time of preliminary return of transfer margin on the transfer of shares of this case. The acquisition value shall be 3,954 won per share [10,000 won per actual transaction value at the time of transfer (23,878 won per each closing price for one month at the time of acquisition) converted by the method of assessment under Article 166(1)2(a) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 16664 of Dec. 31, 199). The result of such investigation was notified to the defendant.

F. Accordingly, the Defendant calculated the transfer margin of the shares of Samsung & T Co., Ltd, including the instant shares, based on the transfer margin calculated by making the acquisition value of the instant shares KRW 3,954 per share as KRW 3,954 per share. On June 1, 2002, the Defendant imposed a disposition of KRW 156,035,360 and resident tax of KRW 15,603,530 and KRW 15,630 for the Plaintiff 1 on June 1, 1999; on May 11, 2002, imposed a disposition of imposition of KRW 179,854,80 and resident tax of KRW 17,985,480 and KRW 17,985,480 for this Decree on May 1, 2002 as to the Plaintiff Kim Jong-soo for the imposition of KRW 46,360,970, resident tax, and KRW 4636,90 (hereinafter “instant”).

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The Defendant determined the acquisition value by applying the conversion price to the case where the Plaintiff’s acquisition of the instant stocks was nonexistent when the Plaintiff acquired them by inheritance. However, since the instant stocks are traded in the Association brokerage market, there exists a market price. Therefore, in calculating the acquisition value of the instant stocks, the acquisition value shall be determined by deeming the conversion price as the actual transaction value rather than applying the conversion price. In addition, in the case of the transfer of the assets inherited or donated under Article 163(9) of the Enforcement Decree of the Income Tax Act, amended by Presidential Decree No. 16664, Dec. 31, 199, the acquisition value of the instant stocks shall be deemed the amount as at the time of inheritance or donation under the Inheritance Tax and Gift Tax Act, considering the newly established provision that the acquisition value shall be deemed the actual transaction value at the

Therefore, it is unlawful for the Defendant to take the instant disposition by calculating the acquisition price of the instant shares according to the conversion price, deeming that there was no actual transaction price at the time of acquisition of the instant shares, and thus, the instant disposition should be revoked.

B. Relevant statutes

It is as shown in the attached Form.

(c) Markets:

(1) The income from the transfer of the instant shares constitutes Article 94 subparag. 4 of the former Income Tax Act (amended by Act No. 6051 of Dec. 28, 199; hereinafter “former Act”). Article 97(1)1(b) of the former Act provides that the acquisition price shall be “the actual transaction price required for the acquisition of the relevant asset” in calculating the necessary expenses for the transfer income if the instant shares are the same as the instant shares. However, if it is impossible to confirm the actual transaction price at the time of acquisition, it shall be based on the standard market price at the time of acquisition of the relevant asset.

(2) Upon paying inheritance tax on the instant inherited shares, the Plaintiffs paid inheritance tax by deeming the price per share as KRW 10,387,00 calculated by adding 10% to the average price of the KOSDAQ market on eight transaction days prior to the date of inheritance according to the method of assessment under the Inheritance Tax and Gift Tax Act, which was in force at the time of inheritance. Meanwhile, in calculating the acquisition value of the instant shares, the Defendant deemed as “where it is impossible to verify the actual transaction price required for acquiring the relevant assets” and deemed as “where it is impossible to verify the actual transaction price required for acquiring the relevant assets,” and deemed as “Articles 9(1)2 and 100(1) proviso of the former Enforcement Decree of the Income Tax Act, Articles 157(5), 165(1)2, and 166(1) and (2)1(a) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 16664, Dec. 31, 199).

(3) The acquisition value of the property acquired through the inheritance is calculated in accordance with the criteria for determination of the Income Tax Act, notwithstanding the taxable amount of inheritance tax, and the taxable value of the inheritance tax under the Inheritance Tax Act cannot be viewed as the actual transaction value (see Supreme Court Decision 92Nu18481, Jun. 11, 1993). The Plaintiffs are not the actual transaction value required for the acquisition of the shares of this case by inheritance. Thus, in calculating the acquisition value of the shares of this case, it is lawful to deem the case where the Defendant cannot confirm the actual transaction value required for the acquisition of the shares of this case in the calculation of the acquisition value of the shares of this case, and to take the disposition of this case by making the acquisition value of KRW 3,954, which is the standard market

(4) In addition, Article 163(9) of the Enforcement Decree of the Income Tax Act amended by Presidential Decree No. 16664, Dec. 31, 1999; in the case of transfer of assets inherited or donated as in this case, the provision was newly established that the acquisition value shall be regarded as the amount at the time of inheritance or donation under the Inheritance Tax and Gift Tax Act in calculating gains on transfer; however, this is not only effective from January 1, 200, but also Article 7(1) of the Addenda of the Enforcement Decree of the above Act provides that "the amended provision on capital gains in this Decree shall apply from the first transfer after this Decree enters into force." Based on the above provision, the acquisition value of the stocks in this case shall not be deemed as the amount at the time of inheritance under the Inheritance Tax and Gift Tax Act.

3. Conclusion

Therefore, the plaintiffs' claims seeking the cancellation of the disposition of this case are dismissed in its entirety as it is without merit. The judgment of the court of first instance is just in its conclusion, and the plaintiffs' appeals are without merit, and it is so dismissed in its entirety. It is so decided as per Disposition.

Judges Kim Jong-soo (Presiding Judge)