The meaning of "large stockholders, etc." under Article 157 (5) 2 of the former Enforcement Decree of the Income Tax Act concerning the scope of unlisted stocks subject to capital gains tax, and whether Article 157 (4) and (5) 2 of the Enforcement Decree of the same Act apply the same concept and standard as that of "large stockholders, etc." is invalid in violation of the principle of no taxation without law (negative)

Articles 4 (1) 3 and 94 of the former Income Tax Act (amended by Act No. 6292 of Dec. 29, 2000), Article 157 (4) and (5) 2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032 of Dec. 29, 200), Article 59 of the Constitution

[Judgment of the court below]

The head of Yangcheon Tax Office

Seoul High Court Decision 2006Nu4204 delivered on October 12, 2006

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

Article 4(1)3 of the former Income Tax Act (amended by Act No. 6292 of Dec. 29, 200; hereinafter “Act”) provides for the income accruing from the transfer of assets by a stock-listed corporation. Article 94 of the Act provides for the scope of transfer of stocks or investment shares listed on the Korea Stock Exchange, which are prescribed by the Presidential Decree (Article 3) and the income accruing from the transfer of stocks or investment shares not listed on the Korea Stock Exchange (Article 4) that are prescribed by the Presidential Decree (Article 94 subparagraph 3 of the Enforcement Decree). Article 157(4) of the former Enforcement Decree of the Income Tax Act provides for the scope of listed stocks subject to transfer income tax under subparagraph 1 of the same Article 94 (Article 170 of the Act (Article 150 of the Enforcement Decree of the Act) to be owned by a stockholder of the relevant corporation for 10 billion won or more in light of the concept of “the total amount of stocks or investment shares of the relevant corporation for 20 billion won or more” (Article 15000 of the Enforcement Decree).

In the same purport, in light of the legislative purport of Article 157 of the Enforcement Decree of the Income Tax Act and each provision of the relevant income tax law, it is reasonable to maintain the first instance judgment rejecting the Plaintiff’s assertion that Article 157(5)2 of the Enforcement Decree of the Act is invalid, on the ground that Article 157(4) of the Enforcement Decree of the Act is applied not only to a stock-listed corporation but also to an Association-registered corporation. Furthermore, the legislative purpose of the above Act and the Enforcement Decree is to impose capital gains tax on listed stocks or unlisted stocks. The legislative purpose of the above Act is to prevent modified donation using listed stocks or unlisted stocks and transfer of other assets such as real estate, etc., and even as to unlisted stocks, there is no violation of Article 157(4) and Article 157(5)2 of the Enforcement Decree of the Act and the Enforcement Decree’s provision that there is a need to recognize a flexible response to the scope of application and the grounds for exclusion in order to induce corporate disclosure. Thus, the court below did not err in the misapprehension of the concept of the principle of no taxation without law.

Meanwhile, Supreme Court Decision 95Nu9822 Decided July 8, 1997 cited in the ground of appeal by the plaintiff is inappropriate to be invoked in this case, unlike this case.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Hyun-chul (Presiding Justice)