early 2014west0859

In the event that gift tax has been levied as the agenda of title trust donation, the application of the unfair non-reported penalty tax is excessive sanction.

In the event that gift tax is levied as the agenda of title trust donation, it is necessary to prove that there was no tax to be avoided in the event that there was no tax to be avoided, but there is no evidence to prove it, and in the case of illegal non-reported penalty tax, there is no evidence to prove it, and in the case of illegal non-reported penalty tax, the object of concealment and forfeiture is limited to the title trust itself, and

Article 45-2 (Presumption of Donation of Title Trust Property)

Article 47-2 (Additional Tax on Non-Filing of Report)

2015Guhap54315 Revocation of Disposition of Imposition of Gift Tax

IsaA

head of Sung Dong Tax Office

November 20, 2015

December 11, 2015

1. The Defendant’s imposition of gift tax of KRW 425,560,540 (including penalty tax) for the year 2009 against the Plaintiff on November 11, 2013, which exceeds KRW 378,563,247, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. 9/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

The Defendant’s disposition of imposing gift tax amounting to KRW 425,560,540 (including additional tax) on the Plaintiff on November 11, 2013 shall be revoked.

1. Details of the disposition;

A. BB Co., Ltd. (hereinafter “instant company”) was established on October 9, 2007 for the purpose of manufacturing broadcasting equipment. CCC, on October 13, 2007, held a title trust of 00 shares of the instant company (hereinafter “instant shares”) with DDR on October 13, 2007, but again held a title trust of the instant shares to the Plaintiff on October 31, 2009 (hereinafter “instant title trust”).

B. The Seoul Regional Tax Office conducted a survey on stock change with respect to the instant company and confirmed the title trust of the Plaintiff of CCC. Accordingly, the Defendant assessed the value of the instant shares as KRW 000 per share (000 per share) on November 11, 2013, and imposed a gift tax of KRW 425,560,540 [= KRW 234,986,498 + an additional tax of KRW 93,94,599 + an additional tax of KRW 93,94,599 + KRW 234,986,498 + KRW 498 + KRW 4000 + KRW 000 for an additional tax on additional tax on default (hereinafter referred to as the “disposition”). Accordingly, the Plaintiff was dismissed on January 20, 2015.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 and 6, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) Since the instant title trust was made for the purpose of reducing technology royalties, there was no purpose of tax avoidance.

2) In assessing the value of the instant shares, it is unlawful to assess the value of the instant shares by increasing 30% of the shares of EE (hereinafter “E”) owned by the instant company’s overseas subsidiaries. Even if the shares of the instant subsidiary are subject to evaluation of the increase in the shares of the instant subsidiary, it is unlawful to assess the value of the shares of the instant subsidiary based on the false financial statements.

3) The instant disposition is unlawful since the imposition of tax pursuant to the constructive title trust donation applies 20% of the general non-reported additional tax rate.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) CCC established FFFF for the development and manufacture of digital set boxes along with Epics, and worked as FF director of FF at the time of 2007.

2) The instant company, which purchased three tower stuff raw materials from FF and exported three tower stuffs to the middle-dong area, passed a resolution on the distribution of dividends to the Plaintiff in 2010, with the effect that it pays the Plaintiff the cash dividends amounting to the Plaintiff (OOOwon, stock dividends amount, OOOwon), and OOO won in 2011. Accordingly, the instant company paid the cash dividend amount subtracting the amount withheld from the amount withheld to the Plaintiff on April 12, 2010.

3) The Defendant determined and notified the CCC on the ground that “CCC did not report the aggregate of global income tax even if the dividend income occurred as above,” and that the sum of OOOO won reverted to 2010 and OOO won reverted to 2011.

4) The instant company was prosecuted for committing the following criminal facts (Seoul Eastern District Court 201OOO), and the court of first instance sentenced the instant company to a fine O0,000 won on June 11, 2015, and the court of second instance (Seoul East District Court 201OOOO) sentenced the prosecutor on December 4, 2015 and the court of second instance dismissed all appeals filed by the instant company.

FF, in order to avoid the payment of royalties for the use of the technology to be paid by FFF to foreign patentees for the three saws raw materials sold to the instant company, the FF sold the three saws raw materials to the instant company by FFF, even though FF sold the three saws raw materials to the instant company, and then issued a tax invoice again as if FFF sold the three saws raw materials to the instant company by FFF to the Company.

5) Meanwhile, the value per share of the instant shares increases by 30% the value of the instant subsidiary’s shares in which the instant company invested by 100%.

[Reasons for Recognition] Each entry of Gap evidence 3 to 5, 18, 19, Eul evidence 3 to 5, and 7 (including paper numbers)

D. Determination

1) Whether there was no purpose of tax avoidance

The legislative purport of Article 45-2(1) of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”) is to recognize an exception to the substance over form principle to the purport that the act of tax avoidance by using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, the proviso to Article 45-2(1) is applicable only where the purpose of title trust is not included in the purpose of tax avoidance. In such a case, the burden of proving that the purpose of tax avoidance was not included in the purpose of title trust is against the person who asserts it (see, e.g., Supreme Court Decisions 99Du2192, Jul. 23, 199; 2003Du13649, Dec.

Furthermore, as the nominal owner who bears the above burden of proof, there was an obvious objective irrelevant to the tax avoidance to the extent that it is deemed that there was no tax avoidance purpose in the title trust, and the fact that there was no tax avoidance at the time of the title trust or in the future is proved to the extent that the ordinary person is not doubtful, based on objective and conclusive evidence (see Supreme Court Decision 2004Du11220, Sept. 22, 2006). Whether there was such tax avoidance purpose or not should be determined at the time of the title trust of stocks at the time of the title trust, and it should not be determined as to whether there was any tax evasion thereafter (see Supreme Court Decision 2012Du546, Nov. 28, 2013).

In light of the following circumstances, i.e., ① the FFF sold three saws to the instant company: (a) the joint founder of the FFF would have been easily anticipated that the sales of the instant company would have increased continuously; (b) the instant company actually distributed shares to shareholders due to the increase of sales in 2010 and 2011; (c) the CCC could have avoided the imposition of global income tax on dividend income by offering shares in title trust; and (d) even if the purpose of the incorporation of the instant company was the reduction of technical royalties of FFF, it is difficult to deem that the CCC excluded the Plaintiff from the purpose of tax avoidance in title trust, taking into account the fact that the CCC’s title trust of the instant shares was not for tax avoidance and tax avoidance, or that there was no other evidence to find otherwise.

2) Whether it is subject to an increase and assessment

Article 63(3) of the Inheritance Tax and Gift Tax Act provides for an assessment of the premium on the largest shareholder by requiring the largest shareholder to add a certain ratio to the value assessed under paragraphs (1) and (2) of this Article, while Article 101 of the Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010) provides that Article 63(3) of the Inheritance Tax and Gift Tax Act shall not apply to the shares of the largest shareholder, etc.

The plaintiff's assertion on this part is that the subsidiary of this case constitutes a small or medium enterprise in assessing the shares of the subsidiary of this case, 100% of which the subsidiary of this case holds 10%, and thus, it should be excluded from the evaluation of the premium under Article 101 of the Restriction of Special Taxation Act, and the issue is whether the subsidiary of this case is a small or medium enterprise or not. Considering the following circumstances, the subsidiary of this case is not deemed a small

(1) Article 1 of the Framework Act on Small and Medium Enterprises provides that "the purpose of this Act is to provide for basic matters concerning direction-setting for small and medium enterprises and policies to foster small and medium enterprises, thereby supporting the creative and independent growth of small and medium enterprises, upgrading their industrial structure, and developing the national economy in a balanced manner." Thus, overseas corporations cannot be deemed as small and medium enterprises of

② Article 3(1)2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises explicitly states that a corporation (including foreign corporations, but ..........) whose total assets are not less than 500 million won owns directly or indirectly not less than 30/100 of stocks, etc. and which does not fall under the largest investor, shall be a foreign corporation. As such, the Framework Act on Small and Medium Enterprises does not explicitly stipulate that small and medium enterprises are foreign corporations.

③ In the event that the instant company owns real estate, there is no premium assessment if it owns the shares, but if it falls under the largest shareholder, it may be deemed that the premium assessment was conducted and somewhat unfair. However, this is for calculating premium of the shares held by the largest shareholder, and it is nothing more than a result of a matter of course.

3) Whether financial statements have been prepared falsely

However, there is a lack of evidence to prove that the financial statements of the subsidiary of this case were prepared falsely, and there is no other evidence to prove otherwise, the plaintiff's assertion in this part is without merit.

4) Whether an additional tax on general non-declaration is applied

A) According to Article 47-2(2)1 of the Framework Act on National Taxes (amended by Act No. 11124, Dec. 31, 2011; hereinafter the same), where a taxpayer has a tax base without filing a return by improper means (referring to any method prescribed by Presidential Decree as violating the duty to report the tax base or the amount of national tax on the basis of concealing or pretending all or part of the fact that serves as the basis for calculating the tax base or the amount of national tax), an amount equivalent to 40/100 of the amount calculated by multiplying the calculated tax amount by the ratio of the amount of tax base without filing a return in an unjust manner to the tax base shall be added to or deducted from the amount of tax to be paid. Article 27(2) of the Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 23592, Feb. 2, 2012; hereinafter the same) provides for false recording of books, such as preparation of false books or false documents (Article 27(2)3)4).

In addition, even if a provision on deemed donation is applied and gift tax is imposed, the substance of the relevant transaction is not determined as a gift (see Supreme Court Decision 2002Du12137, Sept. 24, 2004).

B) In light of the above legal principles, comprehensively taking account of all the following circumstances, the Plaintiff’s failure to report the tax base of gift tax in an unfair manner on the ground that the Plaintiff did not report the tax base of gift tax pursuant to the title trust of this case, and thus, it is difficult to recognize that the Plaintiff filed a non-declaration of tax base without filing an unfair report on the tax base of gift tax

(40%) can not be applied.

① The penalty tax on an unfair non-reported return is a penalty tax on a specific tax subject to reporting by concealing and citing the fact that serves as the basis of the tax base, etc. in an unfair manner, and in the case of deemed donation, the fact that serves as the basis of the tax base, etc. is the title trust, since the subject of reporting is based on the title trust. Therefore, even if the subject of the concealment and family head is limited to the title trust itself, it is difficult to deem that the subject of the concealment and family head is the basis of the tax avoided from the title trust in this case. In other words, even if the title trust in this case was concealed and concealed from the underlying fact of another tax, it is reasonable to deem that it cannot be the basis of the penalty tax on an unfair non-reported return on the gift tax due to the

② The Defendant asserts that CCC received transfer proceeds from the transfer of the instant shares to the account held in the Plaintiff’s name, and thereafter, that the said agreement was valid in the case of a stock title trust, and that it was impossible to identify its whereabouts. However, in the case of a stock title trust, the agreement itself is effective, and accordingly, the ownership in the external relationship or the relationship with a third party is transferred to and reverted to the trustee, and the ownership in the internal relationship between the truster and the trustee is withheld to the truster. Therefore, it is difficult to readily conclude that CCC’s above act was used in the name of the Plaintiff, the trustee, in accordance with the instant title trust agreement valid, inasmuch as it was accompanied by the process of the title trust.

③ On the other hand, in a consistent reasoning of the Defendant, where deemed donation due to title trust, 40% of the unfair non-declaration penalty tax should be applied without any exception in cases where deemed donation is recognized. It is difficult to expect that the person who held the title trust should report gift tax due to the deemed donation of title trust for the purpose of tax avoidance. This is because most of the cases where the Plaintiff’s act of performance is conducted at a level similar to the Plaintiff’s act, such as preparation of false documents, etc. In this case, the rate of non-declaration penalty tax may be differentiated between 20% and 40%, and the specific fact-related relationship may arise, which may result in a problem inconsistent with the purport of Article 47

(4) Even if a gift tax is imposed due to a deemed donation, the substance of the relevant transaction is not confirmed as a donation. Ultimately, the gift tax resulting from a deemed donation is a kind of sanction on title trust for the purpose of tax avoidance (see, e.g., Constitutional Court en banc Order 2012Hun-Ba259, Sept. 26, 2013). It can be practically an excessive sanction on title trust for the purpose of tax avoidance.

5) Sub-decisions

Therefore, the portion exceeding the amount calculated by applying the rate of general non-reported penalty in the disposition of this case is illegal. Since the amount exceeding the amount calculated by applying the rate of general non-reported penalty in the disposition of this case is illegal, the portion exceeding the amount of 378,563,247 won [=234,986,498 won + the additional tax on general non-reported penalty + 46,97,299 won (=234,986,498 won x tax rate 20%) + the additional tax on non-reported additional tax 96,579,450 won] among the disposition of this case should be revoked illegally.

3. Conclusion

Thus, the plaintiff's claim is justified within the scope of the above recognition, and the remaining claim is accepted.

It is dismissed as it is without merit, and it is so decided as per Disposition.