Cho High Court Decision 201J 3377 (No. 22, 2012)

at the time of acquiring shares, it cannot be deemed that there was a purpose of tax avoidance.

It cannot be deemed that there was an objective of tax avoidance at the time of acquisition of stocks, on the ground that the purpose of tax avoidance was alleged to have been the object of gift tax and capital gains tax avoidance, but it is merely a vague trend that there is possibility of future tax reduction.

2012Guhap7081 Revocation of Disposition of Imposition of Gift Tax

KimA

port of origin

December 28, 2012

February 1, 2013

1. The Defendant’s disposition of imposing gift tax of KRW 000 on the Plaintiff in January 6, 201 is revoked.

2. The costs of the lawsuit are incidental to the defendant.

The same as the order(the "1.17" written in the written complaint as the date of the disposition seems to be a clerical error).

1. Details of the disposition;

A. On July 18, 2008, the Plaintiff participated in the issuance of new shares by a third party ofCCB C&C (hereinafter “A&C”) under the name of Nonparty B, and paid 00 won for the acquisition price after acquiring the shares of AAB and paying 4,424,000 (hereinafter “the shares of this case”). (B) The Defendant, however, dismissed the Plaintiff’s claim for adjudication on the acquisition of the shares of this case under the name of SongB by applying Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 201; hereinafter referred to as “former Inheritance Tax and Gift Tax Act”), which was the title trustee, and Article 45-2 of the former Inheritance Tax and Gift Tax Act (hereinafter referred to as “BA”) (hereinafter referred to as “the Plaintiff’s claim for adjudication on the title trust property of this case”), which was 200,000 won or less (hereinafter referred to as “the Plaintiff’s claim for adjudication on the title trust property of this case”).

[Reasons for Recognition] The whole purport of the arguments, as described in the facts without dispute, Gap evidence 1, 2, and Eul evidence 1, 2, and 6

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

As the Plaintiff disposed of and refunded the instant shares within the short period, and thereby registered the shares in title for the purpose of repaying obligations, such as provisional payment, to DD Development Co., Ltd. in the Plaintiff’s management, it cannot be deemed that there was a purpose of tax avoidance. Nevertheless, deeming that the Plaintiff trusted the instant shares for the purpose of tax avoidance, and thus, the instant disposition that imposed the gift tax on the Plaintiff is unlawful.

(2) The defendant's assertion

In light of the fact that the above title trust appears to be a means of gift by law to the non-party KimE, who is the plaintiff's children, and that the financial resources of SongB, a trustee, could not pay the transfer income tax following the acquisition of the instant shares due to lack of financial resources of SongB, etc., the evidence submitted by the plaintiff alone cannot be deemed to have not been the purpose of tax avoidance to the plaintiff at the time of acquisition of the instant shares. Therefore,

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Relevant legal principles

The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act provides that where the actual owner and the nominal owner are different from each other in property (excluding land and buildings; hereafter the same shall apply in this Article), the value of the property shall be deemed to have been donated to the actual owner on the date when it was registered, etc. under the nominal owner (where the property is the property requiring a transfer of title, it refers to the date following the end of the year following the year in which the date of acquisition of ownership belongs), notwithstanding the provisions of Article 14 of the Framework Act on National Taxes. The main text of Article 45-2(2) provides that “where the property is registered, etc. under the name of another person, and the name of the actual owner is not converted into the name of the actual owner, it shall be presumed that there has been a purpose of tax avoidance.” In light of the contents and legislative purport of each provision above, it is recognized that there was no purpose of tax avoidance, but that the title trust was made for other reason, not for tax avoidance, and that there was no purpose of tax avoidance.

The following facts may be recognized by the parties or by their respective entries in Gap evidence 2 to 15 (including household numbers), and Eul evidence 2 to 5 (including household numbers), and by the purport of the testimony and oral argument of the witness F.

(A) From around 2008, Nonparty DD Development Co., Ltd. (hereinafter referred to as “DD development”) promoted the bypass listing procedure through a merger with AA companies, a KOSDAQ-listed company, for listing on the KOSDAQ market, and as a result, it was merged into AA companies around August 6, 2010.

(B) The Plaintiff, as the representative director and the largest shareholder of DD development, transferred 122,40 shares of DD development to AA company on July 9, 2008 as part of the above merger procedure. On the same day, the Plaintiff was the largest shareholder of AA company by acquiring the shares of AA company 13,33,00 shares (37.54% of the total issued shares) in the name of the Plaintiff by participating in the third party-party share offering.

(C) At the time, the Plaintiff was obligated to pay the total amount of KRW 000 for DD development, and the total amount of KRW 7 billion for DD development transfer income tax.

(D) In order to repay the above debt, the Plaintiff acquired additional stocks of AA company whose stock price increase was anticipated to rise at the time, and disposed of and refunded them, and raised the necessary funds. However, Article 22-3(1)2 of the KOSDAQ Market Listing Regulations (amended by Presidential Decree No. 368 of Sep. 12, 2008) that was in force at the time, and Article 190(2) of the Act (limited to the stocks issued by the relevant non-public corporation) was taken over from the largest shareholder, etc. of the non-public corporation and issued stocks to AA by the largest shareholder, etc. of the relevant non-public corporation within 6 months after the date of submission of the report on acquisition of the asset. Accordingly, the Plaintiff, as the largest shareholder of DD development, was unable to acquire the stocks of A company in its name, and disposed of the stocks for 2 years in accordance with the above provisions.

(E) On May 2008, the Plaintiff borrowed the name of DD development personnel, etc. to acquire additional stocks of AA company. On the other hand, the Plaintiff acquired AA company’s bonds with warrants of 000 won under the name of EF, etc., who is an employee of DD development fund team, and on July 18, 2008, acquired the instant stocks (1.07% of the total issued stocks) in the name of SongB, who is an employee of DD development.

(F) After acquiring the instant shares, the Plaintiff disposed of the entire said shares in KRW 000 from July 28, 2009 to September 21, 2009, and repaid the debt of the said provisional payment for D development from the proceeds of realizing the shares.

(G) As of December 31, 2008, around the date of acquisition of the Plaintiff’s shares, the deficit of the AA company was around 00 won. Moreover, the AA company did not have paid dividends from 2008 to 2009, the Plaintiff’s share holding period.

(3) Judgment on the Plaintiff’s assertion

The following circumstances recognized by the above facts and evidence, i.e., (i) the Plaintiff appears to have acquired the instant shares for the purpose of raising funds necessary for the repayment of debts by disposing of and returning the shares of AA in the short term, and (ii) the Plaintiff actually purchased the instant shares only one year after acquiring them, and used the proceeds from the sale of all the instant shares to repay debts, etc., and (iii) the AA company did not have paid dividends from 2008 to 2009, the Plaintiff’s holding period of the instant shares at the time of the title trust, and it is difficult to deem that there was no objective of evading the application of the progressive tax rate under the global income tax aggregate taxation on dividend income to the Plaintiff at the time of the title trust, and the shares of AA company held under the name of the Plaintiff were 37.54% of the entire shares, and even if the Plaintiff acquired the shares (11.07%) under the name of the Plaintiff, it cannot be deemed that there was a possibility that the Plaintiff could have acquired the instant shares under the name of the title trust, and tax reduction of the Plaintiff’s.

(4) The theory of lawsuit

Therefore, the Defendant’s disposition of this case, which imposed the gift tax on the Plaintiff on deeming that the Plaintiff was a title trust for the purpose of tax avoidance, is unlawful.

3. Conclusion

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