Suwon District Court-2015-Gu Partnership-6432 (Law No. 31, 2016)

If a change in the title of shares is not made in the future, gift tax may not be imposed on the nominal owner by applying the legal provisions of this case.

To impose gift tax pursuant to Article 45-2 of the former Inheritance Tax and Gift Tax Act by deeming the title trust of shares as a donation by the tax authority to be a gift, the tax authority must prove the fact that the register of shareholders is prepared, the fact that the actual owner and the nominal owner are different from the nominal owner, or prove the fact that the register of shareholders is not prepared, and the statement on changes in stocks, etc.,

Legal fiction of donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2016Nu4883 Revocation of Disposition of Imposing gift tax

Park AA

○ Head of tax office

Suwon District Court Decision 2015Guhap66432 Decided May 31, 2016

November 16, 2016

December 07, 2016

1. Revocation of a judgment of the first instance;

2. On January 6, 2015, the Defendant revoked the imposition of ○○○○○○ (including additional taxes) of gift tax for the year 2012 against the Plaintiff.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On December 24, 2012, ParkCC acquired 250,000 shares of DD Co., Ltd. (hereinafter “DD”), an unlisted corporation, from KK (hereinafter “D”) in the price of KRW 50,000 (hereinafter “instant shares”), and entered into a share sales contract in the Plaintiff’s name.

B. The Plaintiff, as an attorney-at-law, was in office in ParkCC’s attorney-at-law office. However, on the acquisition of the instant shares, the Plaintiff lent the name of transferee to ParkCC.

C. D on December 24, 2012, 2012, when reporting the tax base and amount of corporate tax on the income in 2013, the list of changes in stocks, etc. and the statement of transfer of shares and equity shares submitted by D, the Plaintiff acquired the instant shares on December 24, 2012, and was stated as the transfer on December 19, 2013.

D. On January 6, 2015, the Defendant determined that the acquisition of the instant shares by designating the Plaintiff as the transferee was a title trust deemed to be a donation pursuant to Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “former Inheritance Tax and Gift Tax Act”). On January 6, 2015, the Defendant decided and notified the Plaintiff of the KRW ○○○ (including additional taxes) of the gift tax for the year 2012 (hereinafter “instant disposition”).

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on March 3, 2015, but was dismissed on June 15, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 3, 4, 7, Eul evidence Nos. 9, 10, 12, and 13, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. As to the certification of taxation requirements

1) With respect to the legal fiction of title trust property, Article 45-2 of the former Inheritance Tax and Gift Tax Act provides that in case where the actual owner and the nominal owner are different from the property (excluding land and buildings) which requires a registration, etc. for a transfer or exercise of the right, the value of the property shall be deemed to have been donated to the actual owner on the date when it is registered, etc. as the nominal owner notwithstanding the provisions of Article 14 of the Framework Act on National Taxes. In applying the provisions of paragraph (1), “in case where the list of stockholders or the register of members has not been prepared, whether the change of holders shall be determined by the documents concerning the shareholders, etc. submitted to the head of tax office having jurisdiction over the place of tax payment pursuant to Articles

2) Even if Article 45-2(3) of the former Inheritance Tax and Gift Tax Act intends to evade taxes by stating the name of the owner of shares, etc. differently from the actual owner on the statement, etc. on the change of shares, etc., the legislative purport of the said provision is to supplement the problems in which Article 45-2(1) of the former Inheritance Tax and Gift Tax Act was not applicable, and even in such a case, where the transfer of ownership is not made because of the absence of the said statement, etc., the legislative purport of the said provision is to impose gift tax. In full view of the legislative purport and the above provision of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act clearly limits the scope of “where the list of shareholders or the list of members is not prepared” to “where the name of the owner is entered differently from the actual owner, even if the statement, etc. on the change of shares, etc., was entered differently from the actual owner, if the title holder did not enter the change of ownership on the shares in

On the other hand, as a matter of principle, the tax authorities prove the existence and tax base of taxation requirements.

Since the tax authority is liable (Supreme Court Decision 2011Du9935 Decided May 16, 2014). In order to impose gift tax under Article 45-2 of the former Inheritance Tax and Gift Tax Act by deeming the title trust of shares as a donation, the tax authority is obliged to prove the fact that the register of shareholders is prepared, and the fact that the name of the actual owner and the nominal owner are different from that of the actual owner, or to prove the fact that the name of the owner has not been entered in the register of shareholders as a requirement under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, or to prove the fact that the name of the owner of shares

3) In light of the above legal principles, it is insufficient to recognize the fact that the Plaintiff’s list of shareholders was made up and the entry of No. 7 was changed under the Plaintiff’s name, and there is no other evidence to support the above fact or the fact that the Plaintiff was not made out of the list of shareholders of DD. Therefore, even if the Plaintiff’s statement of transfer of shares and investment shares (Evidence No. 10) and statement of change of shares (Evidence No. 13) are indicated as the owner of the instant shares, the Defendant cannot impose gift tax on the Plaintiff by applying the main sentence of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act as well as Article 45-2(3) of the same Act, and thus, the disposition of this case based on

B. As to the purpose of tax avoidance

1) The legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle in order to realize tax justice by effectively preventing the act of tax avoidance using the title trust system. Thus, if the title trust was recognized as having been conducted for any reason other than the purpose of tax avoidance, and it is merely a minor tax reduction incidental to the said title trust, it cannot be readily concluded that there had been the purpose of tax avoidance (see, e.g., Supreme Court Decision 2013Du9779, Oct. 17, 2013). Whether there was such purpose of tax avoidance or not should be determined at the time of the title trust of shares, and the burden of proving that there was no purpose of tax avoidance or not exists a person who asserts it (see, e.g., Supreme Court Decision 2012Du546, Nov. 28, 2013).

2) In full view of the following circumstances, the title trust of the instant shares was made for other reasons than the purpose of tax avoidance, and it is difficult to deem that the tax reduction incidental to the instant title trust took place. Even if the tax reduction takes place, even if it is very minor, it cannot be concluded that there was a tax avoidance purpose for ParkCC. The instant disposition is unlawful in this respect. The instant disposition is also unlawful.

① In the process of acquiring TPP, the Plaintiff borrowed KRW 500,000 from the ParkCC as an intermediary of TPP in order to raise the acquisition fund. In the process, when KimP completed the acquisition procedure of TPP stock company to ParkCC, it would incorporate D into a subsidiary of TPP stock company and appoint ParkCC as an advisory lawyer of TPP stock company. However, if ParkCC becomes a shareholder of TPP due to the acquisition of the shares of this case, it would conflict between the parent company’s legal counsel status and the status of investors of the subsidiary company, and ParkCC proposed that only the title of the shares of this case was defective in the name of another person, and it was the title trust of the shares of this case under the name of the Plaintiff in accordance with such proposal, and we accept the Plaintiff’s argument that ParkCC was not only a 3rd witness of this case, but also a 3rd witness of TPP for the purpose other than an attorney-at-law in relation to D or TTPP, and thus, it was sufficiently consistent with the Plaintiff’s argument that there was no particular economic motive for the Plaintiff’s testimony.

② not only did D have not paid dividends once since its establishment in 2007, but also it was difficult to know that D had earned surplus before D-2012 was settled accounts for the business year of December 24, 2012 when the Plaintiff acquired the instant shares. Therefore, it is difficult to deem that GCC entrusted the instant shares under the Plaintiff’s name to expect future dividend income and avoid taxes based on the global income tax rate.

③ Even if ParkCC expected dividend income by estimating D’s future business performance, in light of the following circumstances, the issue of tax reduction does not occur or the reduced tax amount is minor.

In other words, according to Article 14(3)6 of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013; hereinafter "former Income Tax Act") and Article 14(3) of the former Income Tax Act (amended by Act No. 11611, Dec. 31, 2012; hereinafter "former Income Tax Act") and Article 14(3)6 of the former Income Tax Act, only when the dividend income exceeds KRW 40,000,000, the total amount of global income is imposed on global income and its tax is imposed on global income at a fixed rate other than the accumulated tax rate pursuant to Article 127 of the aforementioned Act. Thus, even if DCC pays dividends on the instant stocks after it acquired the instant stocks, there may be a problem of tax reduction based on the accumulated tax rate by adding it to global income only in excess case where the dividend

However, even if D’s unclaimed retained earnings in the business year 201 are merely 87,90,000 won and all of them are distributed, the amount to be distributed to the stocks of this case shall be 4.630,000 won [the number of stocks of this case x 250,000 won (the number of stocks of this case x 4,700,000 won (the total number of stocks of DD), and less than 4,70,000 won (the same shall apply hereinafter], and the above dividend income is not imposed by adding up the global income to the global income, there is no room for tax reduction due to the progressive tax rate of global income tax.

In addition, even if D's un disposed profits earned in the business year 2012 and 2013 are fully distributed in 43,440,000 won, each of which is 44,7780,000 won, the amount to be received as to the shares of this case shall be 2,350,000 won (=43,440,000 x 2,50,000 won ± 4,700,000

[ Note] 2,3810,00 won [=44,780,00 won x 2,50,000 won ± 4,700,000 won ±) and the amount exceeding 20,000 won is respectively 3,50,000 won, 3810,000 won, and the amount of tax reduced when considering the global income tax rate (35%) applied to ParkCC as well as the global income tax rate (15%) applied to the Plaintiff, and the amount of tax reduced when considering the global income tax rate (15%) applied to the Plaintiff is 6,10,00 won (=3050,00 won x (0.355 - 0.15)], 760,00 won [3810 won x 0.35 - 0.15], and it is merely a minor tax reduction.

④ Since the Defendant agreed that KK borrowed KRW 500 million from ParkCC to pay the interest of KRW 15% per annum, if the interest accrued therefrom is included in the Plaintiff’s global income, the tax avoidance pursuant to the progressive tax rate arises compared to the global income of ParkCC, and accordingly, the purpose of tax avoidance pursuant to the title trust of the instant shares is recognized. However, the anticipated income of KRW 75 million claimed by the Defendant is of the nature that it would occur to ParkCC regardless of the title trust of the instant shares under a monetary loan agreement between ParkCC and KK, and thus, it is difficult to deem that the tax would be avoided by the title trust of the instant shares based on such agreement. Accordingly, the Defendant’s aforementioned assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim shall be accepted with due reasons, and since the judgment of the court of first instance differs from this theory, the plaintiff's appeal shall be accepted and the judgment of the court of first instance shall be revoked and the plaintiff's claim shall be accepted as per Disposition.