In the instant title trust, it is insufficient to view that there was no tax avoidance purpose other than the purpose related to the Harbor Act.

In the instant title trust, it is insufficient to deem that there was no tax avoidance purpose other than the purpose related to the Harbor Act, and there is no evidence to acknowledge otherwise, and rather, the instant title trust was intended to reduce the burden of gift tax on the instant shares, acquisition tax on oligopolistic shareholders, etc.

Donation of title trust property under Article 41-2 of the Inheritance Tax and Gift Tax Act

2014Guhap69723 Revocation of Disposition of Imposition of Gift Tax

○ Kim

Head of Yeongdeungpo Tax Office

May 22, 2015

June 5, 2015

1. The plaintiff's claim is dismissed.

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

1. Details of the disposition;

A. At the time of the establishment of ○○ Co., Ltd. (hereinafter “instant company”) established around April 1, 1996, the total number of shares issued was 10,000 shares, 29% shares of the Plaintiff, 20% shares of the Plaintiff, 10% shares of the head of △△△, 21% shares of the head of △△△, 30% shares (hereinafter “instant shares”) were held in the name of △△, and 30% shares (hereinafter “instant shares”) in the name of △△, respectively. The instant shares were transferred to △△ on December 16, 202, and were reported to the tax authority.

B. As a result of the investigation into the instant company, etc., the head of the Seoul Regional Tax Office: (a) was the Plaintiff’s father, who was the Plaintiff’s father; and (b) did not transfer the instant shares to the head of △△; (c) deemed that the Plaintiff was donated from Kim △△ to the head of △△, and notified the Defendant of the taxation data.

C. The Defendant determined and notified gift tax to the head of △△ pursuant to Article 41-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter the same) and designated the Plaintiff as a joint and several taxpayer and determined and notified the Plaintiff of KRW 852,974,080 on August 29, 2013 (hereinafter the “instant disposition”).

D. The Plaintiff filed a request for a trial on October 24, 2013 with the Tax Tribunal, but the decision of dismissal was rendered on July 9, 2014.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 3 (including branch numbers for those with additional numbers; hereinafter the same shall apply), Eul evidence 1 and 7, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant shares were actually owned by △△, and the Plaintiff purchased the instant shares in KRW 60,00,00 from △△, thereby holding 59% of the instant shares. As the Plaintiff’s increase in the Plaintiff’s shares led to the cancellation of the registration of the instant company’s tugboating business pursuant to Article 34 of the Harbor Act, the Plaintiff was merely a title trust to △△ for a separate purpose irrelevant to tax evasion. As such, the said title trust was made for a separate purpose irrelevant to tax evasion. In fact, the tax reduced due to the said title trust was merely KRW 53 million for acquisition tax against the Plaintiff, and thus, the instant disposition was unlawful. Accordingly, the instant disposition based on the premise that there was a tax avoidance purpose is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

1) At the time of the incorporation of the instant company, the remaining 71% of the Plaintiff’s shares, other than the Plaintiff’s shares, were owned by Kim △△△. However, Kim △△ held title trust with 20%, 21%, and 30% of the shares, respectively, to the head of △△, △△, and

2) On December 16, 2002, Kim △△△ donated the instant shares to the Plaintiff. On the same day, the Plaintiff trusted the instant shares to the head of △△△ on the same day (hereinafter “instant title trust”). In the event that the instant shares were held in the name of the Plaintiff, acquisition tax to be borne by the Plaintiff is KRW 53,060,360.

3) On November 5, 2008, the Plaintiff received the instant shares from the head of △△△△△, a corporation that the Plaintiff acquired, in the form of donation to the Plaintiff, to the ○○ corporation that received the instant shares. After that, the Plaintiff and the Plaintiff acquired 2% of the Plaintiff-friendly job offering △△△△△△, 49% of the shares of ○○, and 49% from the △△△△△ on March 13, 2009, respectively, but the Plaintiff agreed to pay to the △△△△△△△△△△, a substantial amount of interest equivalent to the interest on the share acquisition.

4) ○○ received dividends of KRW 240 million from the instant company in 2009, but did not pay taxes on the dividend income in the pertinent business year due to the cumulative deficits, etc.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 4, Eul evidence Nos. 3 through 7, the purport of the whole pleadings

D. Determination

1) The legislative purport of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is to effectively prevent the act of tax avoidance using the title trust system and realize the tax justice. As such, the proviso of the same Article is applicable only where the purpose of tax avoidance is not included in the purpose of title trust. In such a case, the burden of proving that there was no purpose of tax avoidance is against the nominal person who asserts it (see, e.g., Supreme Court Decisions 9Du2192, Jul. 23, 199; 2003Du13649, Dec. 23, 2004). Therefore, it can be proven by the method of proving that there was no purpose of tax avoidance, other than the main purpose of tax avoidance (see, e.g., Supreme Court Decision 2004Du733, May 12, 2006). In light of the legislative purpose of the same Article, the title holder who bears the burden of proving that there was no objective of tax avoidance or tax avoidance.

2) We examine whether the title trust of this case had the purpose of tax avoidance in light of the above legal principles. As long as the title trust was made, it is presumed that the title trust of this case had the objective of tax avoidance. According to each of the evidence and the purport of the entire pleadings as seen earlier, the Plaintiff is recognized as having conducted the title trust of this case for the purpose of avoiding the revocation of the registration of a tugboat business under the Harbor Act (hereinafter “purposes related to the Harbor”). Meanwhile, in light of the following circumstances, it is insufficient to deem that the evidence submitted by the Plaintiff alone was insufficient to reverse the presumption, and that there was no purpose of tax avoidance except for the purpose related to the Harbor Act. Rather, the title trust of this case was intended to reduce the burden of gift tax, oligopolistic stockholders, etc. on the stocks of this case, other than the purpose related to the Harbor Act.

① Although the Plaintiff was aware that at the time of donation of the instant shares from Kim △△△, the gift tax would not be paid by reporting and paying the instant title trust, the Plaintiff appears to have known that the gift tax would not be paid.

② If a corporation becomes an oligopolistic shareholder by acquiring its shares, acquisition tax on the ship, etc. owned by the corporation pursuant to Article 105(6) of the former Local Tax Act (amended by Act No. 7843, Dec. 31, 2005) shall be imposed. If the Plaintiff did not engage in the title trust of this case, the Plaintiff did not pay acquisition tax to be borne by the Plaintiff as an oligopolistic shareholder; however, it is difficult to view that the said amount alone is merely a minor tax reduction.

③ Before the instant title trust was held, △△△, through a tax accountant, examined the tax administration trend regarding the transfer of unlisted stocks in relation to the instant title trust, and examined tax issues, including financial data prepared for actual investigations, acquisition tax against oligopolistic stockholders. This appears to have been the procedure to confirm in advance the issue of tax burden on the owner of the instant stocks, Kim △△△△△ or the Plaintiff. However, if the instant title trust was solely made for the purpose related to the Harbor Act, there seems to be no reason to go through the aforementioned detailed tax review procedure in the process.

④ Even after the title trust, the Plaintiff did not pay corporate tax, etc. on the dividend income of the instant shares by reverting the instant shares to ○○○, which is a large amount of losses, thereby evading the comprehensive income tax that should have been paid if the Plaintiff received directly.

3) Therefore, the instant disposition based on the premise that the instant title trust had an objective of tax avoidance is lawful.

3. Conclusion

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