Title trust of the shares of this case for the purpose of acquiring status of stay cannot be deemed tax avoidance purpose.

The title trust of the instant shares was made for the purpose of acquiring corporate investment status, and there was a minor reduction of tax as an incidental to the title trust, and thus, cannot be deemed to have existed the purpose of tax avoidance.

2015Guhap61726 Revocation of Disposition of Imposition of Gift Tax

IsaA

head of Sung Dong Tax Office

on December 25, 2015

October 23, 2015

1. The Defendant’s disposition of imposing gift tax of KRW 00 (including additional tax) on the Plaintiff on September 4, 2014 is revoked. 2. The litigation cost is assessed against the Defendant.

The same shall apply to the order of the Gu office.

1. Details of the disposition;

A. From April 21, 2014 to July 25, 2014, the director of the Seoul Regional Tax Office conducted an integrated investigation of corporate tax and an investigation of changes in shares against the non-party ○○○ Co., Ltd. (hereinafter referred to as “non-party ○○”). As a result, on September 24, 2004, the plaintiff, the representative director of the above company, confirmed that he/she owned the above ○○○○○ Co., Ltd. (hereinafter referred to as “instant shares”) made a title trust (hereinafter referred to as “title trust in this case”) on his/her own stocks to B, Chinese, and notified the defendant as taxation data. (B) On September 4, 2014, the defendant filed a request for examination of title trust property under Article 45-28 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter referred to as “the plaintiff’s request for examination of title trust property belongs to the plaintiff 2014.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff merely held the shares of the non-party company in title trust to BB so that B may obtain the status of stay for corporate investment (D-8) under the Immigration Control Act, and the instant disposition, which was based on the premise otherwise, was unlawful even if B did not have any tax evaded due to the above title trust or was merely a minor intent, even though the instant title trust did not have any tax avoidance purpose.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) As of February 4, 1994, the Plaintiff: (a) owned 00 shares issued by the said company as of February 2, 1994; (b) however, (c) opened part of the shares issued by the said company under the name of his spouse, siblings, and executives and employees to satisfy the requirements of Article 288 of the former Commercial Act (amended by Act No. 5053, Dec. 29, 1995); and (d) transferred the title to 00 shares issued by the said company on April 15, 1994 at the time of establishment of the said company. Since the mitigation of the requirements for promoters under the former Commercial Act, the Plaintiff transferred 10 shares issued by the said company to 200-10 shares issued by Nonparty 4 under the name of its spouse, executives, and employees to 10-1, 200-1, 204, 204, 204, 30-1,000 new shares issued by Nonparty 4.

5) On 2010, the non-party company distributed 00 billion won out of the unclaimed retained earnings in the business year 2009 to shareholders, among which ○○○○○ was distributed in the name of BB, and the Plaintiff reported and paid global income tax (dividend income) in the name of BB. If the instant shares were to be paid in the name of the Plaintiff, the difference between the global income tax and the global income tax to be borne by the Plaintiff is approximately KRW 00,000. The fact that there is no dispute over the ground for recognition, the entry in the items in subparagraphs 3, 4, and 6-7, and the purport

D. Determination

1) In the application of the provision on deemed donation of trust property under the name of Article 45-2(1) of the Inheritance Tax and Gift Tax Act, if it is recognized that the title trust was carried out for any reason other than the purpose of tax avoidance, and it is merely a minor reduction of taxes incidental to such title trust, it cannot be readily concluded that such title trust had an objective of tax avoidance (see, e.g., Supreme Court Decision 2007Du1931, Apr. 9, 209). If it appears that there was no objective of tax avoidance, it cannot be deemed that there was a possibility of tax reduction in the future (see, e.g., Supreme Court Decision 2004Du7733, May 12, 2006). Furthermore, the legislative purport of Article 45-2(1) of the Inheritance Tax and Gift Tax Act is to establish that there was no objective of tax avoidance under the name of 200, namely, the purpose of tax avoidance under the name of 300, supra.

A) Article 18-2 [Attachment 1] of the former Enforcement Rule of the Immigration Control Act (amended by the Ordinance of the Ministry of Justice No. 571 of Jul. 8, 2005) provides that “B may obtain the status of stay of non-professional employment (E-9) by employing BB to the non-party company even if the Plaintiff did not trust the instant stocks to the non-party company. However, in order to obtain the status of stay of a company investment (D-8) by using the non-party company, the above non-professional employment (E-9) status of stay is only one year and only one year.” Article 18-2 [Attachment 1] of the former Enforcement Rule of the Immigration Control Act (amended by the Ordinance of the Ministry of Justice No. 571 of Jul. 8, 2005) provides that the above company should correspond to the foreign-capital invested company under the Foreign Investment Promotion Act, and Article 18-2(1)50 of the former Enforcement Decree of the Foreign Investment Promotion Act (amended by the Presidential Decree No. 2500, Jan. 27, 200, 278).

C) The non-party company immediately registered the instant shares as a foreign-capital invested company after the title trust. If the Plaintiff trusted the instant shares for the purpose of tax avoidance, it appears that there is no reasonable ground to hold the title trust with the foreign-capital invested company, and in fact, the non-party company acquired the status of stay for corporate investment (D-8) after its registration as a foreign-capital invested company and maintained its qualification until recently.

D) The oligopolistic shareholder’s secondary tax liability is recognized as complementary to cases where an unlisted company, the main taxpayer, is deemed to have no possibility of tax collection due to its failure to pay taxes, and as seen earlier, the Plaintiff did not change the fact that the Plaintiff continued to have been oligopolistic shareholders from the time of the establishment of the non-party company until the time of the instant title trust. Therefore, it is not deemed that the instant shares were trusted in title to B in order to avoid its secondary tax liability, and furthermore, there is no evidence to prove that the non-party company was in arrears after its establishment, and thus, it is unlikely that

E) The non-party company paid dividends on the instant shares to BB more than five years after the date of the instant title trust, and thereafter, since it did not have paid dividends up to now, it is difficult to deem that the Plaintiff was engaged in the instant title trust for the purpose of evading global income tax (dividend income). The dividend dividend paid to BB itself constitutes a section subject to the global income tax rate per se and thus, the global income tax that the Plaintiff was exempted from the instant title trust is only KRW 00,000,000,000,000 won due to the difference in the accumulated tax rate.

F) The Defendant asserted that the non-party company omitted corporate tax by appropriating high-amount processing personnel expenses, etc. in the name of BB from the time of the instant title trust from the time of the instant title trust until 2013, but the omission of corporate tax seems not to have been the Plaintiff but the non-party company and not to have necessarily required to appropriate the processing personnel expenses.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.