Donation due to capital increase;

It falls under the deemed donation due to capital increase, and the method of appraising securities under the Inheritance Tax and Gift Tax Act is also legitimate.

Donation under Article 39 of the former Inheritance and Gift Tax Act;

Article 60 of the former Inheritance and Gift Tax Act

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s disposition of imposition of gift tax of KRW 64,559,600 against the Plaintiff on January 10, 2004 is revoked.

1. Details of the disposition;

A. ○○○○○○○○-dong ○○○○○○○-dong ○○○○○○○○○○○○ (hereinafter “○○○○-dong”) was a non-listed corporation established for the purpose of manufacturing plastic products, etc. on February 4, 199. On April 20, 2004, in offering new shares of KRW 240,000 for capital increase, the existing shareholders renounced 42,00 shares that will be allocated to themselves, thereby allocating 30,00 shares among them to the Plaintiff (hereinafter “instant forfeited shares”).

B. From September 15, 2003 to October 27, 2003, the director of the ○○ Tax Office investigated the status of changes in stocks of the ○○ Kcarek’s ○○○○ Tax Office, deeming the forfeited stocks of this case to have been allocated to the Plaintiff at lower prices than the market price, and notified the Defendant of the result.

C. Accordingly, pursuant to Article 39(1)1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the "Act") and Article 29(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17459, Dec. 31, 2001; hereinafter referred to as the "Enforcement Decree of the Act"), the Defendant assessed the "value per 71,519 won per share" of 00,000 won per 14,519,000 won per share of 50,000 won per 14,519,000 won per share after deducting the difference between the forfeited value of 10,500 won and 505,005 won per share of 40,005 won per share (=the forfeited value per 50,000 won per share).

[Ground of recognition] Facts without dispute, Gap 6 evidence, entry of Eul 1, 2, 4 and 6 evidence, purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff asserts that the instant disposition was unlawful for the following reasons.

(1) 원고는 ○○케미칼의 부장으로서 ○○케미칼의 실질적 경영주이던 원고의 자형(姊兄) 이○○의 부탁으로 형식상 이 사건 실권주를 인수한 것 뿐이고, 주금도 가장납입형식으로 이루어져 실제 주금납입이 없었고, 주주로서 어떠한 권리나 이익을 취한 바도 없으므로 이 사건 부과처분은 실질과세원칙에 반한다.

(2) The instant disposition is procedural defect as it was imposed without an interview of the Plaintiff or relevant persons, including ○○○, etc.

(3) In the case of the sale of unlisted stocks, if there is an objective exchange value formed through a normal transaction even though it is not the price stipulated in each subparagraph of Article 49(1) of the Enforcement Decree of the Act, such value may be deemed as the market price. In light of all circumstances, the shares of the ○○ U.K. are less than 5,000 won per share among many and unspecified persons around September 3, 2001, including the price for the transfer of management rights at the time of the above transaction, the market price of the shares allocated to the Plaintiff is less than 5,000 won per share, but the Defendant neglected this and assessed the value of the forfeited stocks in this case by a supplementary assessment method, except for the market price.

(4) Even according to the supplementary assessment method, "the assessment value per share before capital increase" under Articles 54 through 56 of the Enforcement Decree of the Act = The assessment value of net profit and loss for the last three years ± the assessment value of net profit and loss ± the average interest rate established in the financial market ± the assessment rate prescribed by the Ordinance of the Ministry of Finance and Economy in consideration of the average interest rate formed in the financial market, shall be 5,618 won [=(9,271 won X3 + (2,949 won X2) + (01)/6)], and the assessment of the net profit and loss for the last three years shall be 5,185 won if it is divided into 10% (the rate prescribed by the Ordinance of the Ministry of Finance and Economy), but the defendant shall be 71,630 won, and there is an error of law that makes

(b) Related statutes;

(1) The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003)

Article 39 (Presumption of Donation by Capital Increase)

(1) Where a corporation issues new stocks or equity shares (hereafter referred to as "new stocks" in this Article) to increase its capital (including the amount of investment; hereafter the same shall apply in this Article and Article 39-2), a person who obtains any of the following profits, shall be deemed to have received any donation of the amount equivalent to such profits:

1. In cases where new stocks are issued at a price lower than the market price (referring to the price assessed under Articles 60 and 63; hereafter the same shall apply in this paragraph and Article 40), the benefits falling under any of the following items:

(a) In case where a shareholder of the relevant corporation (including an investor; hereafter the same shall apply in this Article) has renounced wholly or partially the right to receive new stocks, and where such renounced new stocks (hereafter referred to as “beneficial stocks” in this paragraph) are allocated (excluding the case where a stock-listed corporation or Association-registered corporation under the Securities and Exchange Act allocates such new stocks by the method of solicitation of securities under Article 2 (3) of the same Act; hereafter the same shall apply in this paragraph), the benefits acquired by those who received the allocation of relevant forfeited stocks

(c) Profits acquired by a person who is not a stockholder of the relevant corporation by directly obtaining an allocation of new stocks from the relevant corporation (including the case of directly accepting and acquiring the relevant new stocks from an underwriter under the Securities and Exchange Act; hereafter in this paragraph, the same shall apply), or by directly obtaining an allocation of new stocks in excess of the number entitled to receive an allocation under equal conditions in proportion to the

Article 60 (Principles, etc. of Appraisal)

(1) The value of property on which an inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 63 (2))

(2) The market price under the provisions of paragraph (1) shall be the price which is generally accepted in cases of free trade between many and unspecified persons, and shall include the price which is recognized as the market price under the conditions as prescribed by Presidential Decree, such as the expropriation,

(3) In applying the provisions of paragraph (1), where it is difficult to compute the market price, the price assessed according to the methods prescribed in Articles 61 through 65 shall be based on the type, scale, transaction conditions, etc. of the relevant

Article 63 (Evaluation of Securities, etc.)

(1) The appraisal of securities, etc. shall be conducted by the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be appraised according to the method prescribed by the Presidential Decree in consideration of corporate assets and revenues

(1) Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17459, Dec. 31, 2001)

Article 29 (Calculation Method, etc. of Value Deemed Donation at Time of Capital Increase)

(3) The benefits deemed to have been donated pursuant to Article 39 (1) of the Act shall be the benefits calculated according to the following classification:

1. Profits stipulated in Article 39 (1) 1 (a) and (c) of the Act: The amount calculated by multiplying the value computed under item (a) minus the value under item (b) by the number of forfeited stocks or new stocks under item (c); and

(a) The value per stock calculated by the following formula: Provided, That in cases of a corporation falling under any subparagraph of Article 22 of the Enforcement Decree of the Income Tax Act, where the appraised value per stock after the capital increase is less than the value per stock calculated by the following formula, the value concerned:

[Number of stocks increased by the person X increase in the subscription price per stock] + (number of stocks increased by the person X increase in the subscription price per new stock)] ¡À(number of stocks increased by the increase in the total number of stocks issued before the increase in the number of stocks).

(b) The acceptance price per new stocks;

(c) Number of forfeited stocks or new stocks allocated (in case of a person who obtained the allocation in excess of the number of new stocks allocated under equal conditions, the number of new stocks for such excessive portion); and

Article 49 (Principles for Evaluation, etc.)

(1) The term "those recognized as the market price under conditions prescribed by Presidential Decree, such as the price of expropriation, public auction, appraisal value, etc." in Article 60 (2) of the Act means the price confirmed by the provisions of the following subparagraphs in cases of sale, appraisal, expropriation or public auction (referring to an auction under the Civil Procedure Act; hereafter the same shall apply in this paragraph) or public auction for a period not exceeding six months (three months in cases of donated property) before or after the evaluation base

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not apply where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship provided for in Article 26 (4);

Article 54 (Appraisal of Unlisted Stocks)

(1) Stocks and investment shares not listed on the Korea Stock Exchange (hereinafter referred to as “non-listed stocks” in this Article) under Article 63 (1) 1 (c) of the Act shall be the value assessed by the following formula:

The value per share = The weighted average amount of net profits and losses for the latest three years per share ± the rate prescribed by the Ordinance of the Ministry of Finance and Economy in consideration of the average interest rate formed in the financial market (hereinafter referred to as the “net profit and loss value”).

Article 56 (Calculation Method of Net Profit and Loss per Share for Recent Three Years)

(1) The weighted average amount of net profits and losses per share of the preceding three years under Article 54 (1) shall be the value under subparagraph 1, and where the corporation concerned is prescribed by the Ordinance of the Ministry of Finance and Economy as being unreasonable to follow the value under subparagraph 1 on the grounds that the net profits and losses for the preceding three years are less than three years after the commencement of business, or the amount of net profits and losses for the recent three years due to a temporary contingency case, etc., the value under subparagraph 2 shall be zero. In this case

1. The amount calculated by the following formula:

The weighted average amount of net profit and loss per share for the last three years of the commencement of the succession = [(the net profit and loss per share for one business year of one year prior to the commencement of the succession) + (the net profit and loss X2 per share for one business year of two years prior to the commencement of the succession) + (the net profit and loss per share of one business year of three years prior to the commencement of the succession) X1/6] X1

2. Average value of estimated profits per share, which is calculated by two or more credit appraisal specialized institutions or accounting corporations under the Certified Public Accountant Act according to the standards as prescribed by the Ordinance of the Ministry of Finance and Economy (limited to the case where the standard date for calculation of estimated profits per share and the date on which an assessment statement commences or the date on which a donation commences falls within one year, in the case where a report on the tax base of inheritance and a gift tax under Articles 67 and 68 of the Act is filed within the same

(1) Enforcement Rule of the former Inheritance Tax and Gift Tax Act (Act No. 195, Apr. 3, 2001)

Article 17 (Appraisal, etc. of Unlisted Stocks)

(1) "Rate prescribed by the Ordinance of the Ministry of Finance and Economy" in the formula of Article 54 (1) of the Decree means the interest rate publicly announced by the Commissioner of the National Tax Service in consideration of the rate of distribution of corporate bonds with maturity of three

Article 17-3 (Calculation Method of Net Profit and Loss per Share for Recent Three Years)

(1) "Cases prescribed by Ordinance of the Ministry of Finance and Economy" in the former part of Article 56 (1) of the Decree means cases where it is unreasonable to evaluate the amount of average net profit and loss per share of the last three years on any of the following grounds:

1. Where less than three years have passed since the commencement of business;

(2) "Institution specializing in credit assessment determined by Ordinance of the Ministry of Finance and Economy" in Article 56 (1) 2 of the Decree means an institution specializing in credit assessment referred to in Article 36-13 (1) 2 of the Enforcement Decree of the Securities and Exchange Act

(3) "Standards prescribed by the Ordinance of the Ministry of Finance and Economy" in Article 56 (1) 2 of the Decree means the standards for calculating estimated profits per share among the standards referred to in Article 14 (4) of the Enforcement Decree of the Securities and Exchange Act.

Addenda (No. 195, April 3, 2001)

1. (Enforcement Date) These Rules shall enter into force on the date of their promulgation.

2. (Application) These Rules shall apply from the first commencement of inheritance or donation after January 1, 2001. However, the amended provisions of Article 9 shall apply from the first commencement of inheritance or donation after this Rule enters into force.

【Basic Provisions of Inheritance Tax and Gift Tax Act

63-5613 Stock assessment of a corporation less than three years after the commencement of its business.

(1) In cases of a corporation with two or more business years before the evaluation base date, "an weighted average amount of net profit and loss for the latest three years per week" in Article 56 (1) 1 of the Decree shall be calculated by dividing the amount of net profit and loss per share for the immediately preceding business year by 2, and an amount calculated by multiplying the amount of net profit and loss per share for the immediately preceding business year by 1, by 3. (No. 12, 200)

(c) Fact of recognition;

The following facts may be acknowledged in full view of Gap evidence 3-1 to 4, Gap evidence 6, Eul evidence 5, and the purport of the whole pleadings in the testimony of abnormal witness.

(1) ○○○○○ was established under the initiative of the Plaintiff, the Plaintiff’s own type. Of the shares 40,000 shares (e.g., 5,000 shares) issued at the time of its establishment, ○○○○○ 7,000 shares (e.g., 5,000 shares), 15,00 shares (e., ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○), and 2,00 shares (e.g., ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○), each of 8

(2) On April 16, 2001, ○○○○ck’s board of directors was held to increase the number of shares 240,000 shares (e.g., par value 5,000 shares). A decision was made to allocate shares in proportion to the number of shares held by the shareholders listed in the register of shareholders; however, on April 20, 2001, with respect to the shares giving up subscription among the existing shareholders, it decided to acquire shares by other shareholders and a third party. After issuing new shares on April 20, 201, the remaining shareholders allocated 30,000 shares among them to the Plaintiff and the remainder of 12,00 shares to the ○○○○ (the status of shares held by the former issuance of new shares and post-issuance of shares is as follows).

Stockholders

Paid-in Capital

Proportional Distribution City

Number of shares allocated (shares)

In fact

Number of shares allocated;

Holding shares (States)

Holding ratio (%)

Seoul High △△△

8,000

20

48,000

48,000

This △△△△

8,000

20

48,000

48,000

○ ○

2,000

5

12,000

24,000

○○

15,000

37.5

90,000

90,000

○ ○

7,000

17.5

42,000

0

0

0

0

30,000

Total

40,000

100

240,000

240,000

(3) On the other hand, on September 3, 2001, the changed ○○ transferred △△△ to △△△△△, 105,000, 22,160, 18,160, 18,160, and 7,000 per share, respectively, to △△△△△△△△△△, designated by △△△△△△△.

D. Determination

(1) Determination on the first argument

① First of all, ○○○○○’s testimony as to whether the forfeited shares of this case was nominally held in trust with the Plaintiff, and the witness’s testimony as to this case’s forfeited shares is without any evidence to acknowledge it in light of the respective statements No. 9-1, 4, and 5 of the evidence No. 9-2. ② With respect to the fictitious payment, there is no evidence to acknowledge it otherwise. ② In the case of the fictitious payment of the subscription price, it is paid in reality due to the movement of money, even in the case of the fictitious payment of the subscription price which immediately withdrawn the subscription price or the loan after the incorporation of a company or the capital increase. Even if it is actually used as the best payment of the subscription price, it is merely a subjective intention of the promoters or directors who make the payment (see, e.g., Supreme Court Decision 9Du8039, Mar. 27, 2001). However, even if ○○ stocks acquired the subscription price, the Plaintiff’s assertion is not a real reason under the premise that the Plaintiff’s position as a shareholder.

(2) Judgment on the second argument

In light of the evidence evidence Nos. 2 and 2, the investigation of changes in the shares of the ○○○○○○ Office’s ○○○○○○ Office’s ○○○○○ Office’s ○○○○○○○○○○○ Office’s ○○○○○○ Office’s ○○○○○○○○○ Office’s ○○○○○○○○○ was conducted through a written investigation. In order to verify the actual transaction amount of the transfer value, it can be acknowledged that the Plaintiff, ○○○○, ○○○○, and ○○○○○○, who transferred the shares, requested the submission of the actual transaction value and documentary evidence,

(3) Judgment on the third argument

(A) Under the provision of Article 60 of the Act, the calculation of the value of donated property according to the supplementary method of assessment as stipulated in Articles 61 through 65 of the Act is limited to cases where it is difficult to calculate the market value of donated property as of the date of donation, and the tax authorities have the burden of proving that it is difficult to calculate the market value. Under the provision of Article 60(2) of the Act, the market value here includes the value recognized as normal when free transactions are conducted between many and unspecified persons, and includes the amount recognized as the market value under the conditions as prescribed by the Presidential Decree such as expropriation and public auction price and appraisal price. Article 49(1)1 of the Enforcement Decree of the Act refers to the amount recognized as the market value under the conditions as prescribed by the Presidential Decree such as the above provision of the Act from 6 months before the base date of appraisal (3 months in the case of donated property) to 20 months before the base of return on the tax base of inheritance tax or gift tax. However, since the transaction value is objectively unreasonable, it refers to the fair and objective method of exchange.

(B) We examine the instant case: (a) there is no evidence to acknowledge that the sale, appraisal, expropriation, auction, or public sale of the ○○○○ Kenya’s stocks were within 3 months before or after the base date of appraisal of the instant taxation disposition; (b) the stock transaction, which the Plaintiff asserted as the market price, was made on September 3, 2001 at the time of the lapse of 4 months from April 2001; (c) however, the four shareholders, including the Plaintiff, were transferred as face value once on the same day between the △△△△△ and the △△△△△△△ and the △△△△△△, which are the major shareholders, and was made between the other party to the transaction, and it is difficult to regard the said transfer as an ordinary transaction between many and unspecified persons in light of the type of transaction; and (c) in light of the overall circumstances such as the fact that there was no stock transfer after the said transaction, it cannot be deemed that there was an objective market price calculated based on the method of appraisal set forth in subparagraph 1(c).

(4) Judgment on the fourth argument

(A) Comprehensively taking account of the overall purport of the arguments in each statement of Gap evidence 10-1 to 5 and Eul evidence 2, the facts revealed that the amount of the "value per share before and after the capital increase," the "value per share after the capital increase," and the amount of deemed donation, calculated through the following processes.

Calculation

[1] The appraised value per share before the capital increase (see Articles 54 and 56 of the Enforcement Decree of the Act, Article 17 of the Enforcement Rule of the Act, and general Rule 63-5613 of the Inheritance Tax and Gift Tax Act)

Value per share = The weighted average amount of net profit and loss in the last two years per share + The rate prescribed by the Ordinance of the Ministry of Finance and Economy in consideration of the interest rate formed in the financial market.

(1) The net profit or loss amount per share for the preceding two years.

(1) The business year before the base date of appraisal (200)

9,271 won (i.e., net profit and loss 370,850,538 won ± total number of issued and outstanding shares 40,000 shares)

(b) Business year before the evaluation base date (2) year (199)

2,704 won (i.e., net profit and loss 108,161,625 won ± total number of issued and outstanding shares ± 40,000) calculated as annual conversion amount; 2,949 won

(2) The appraised value of the net loss for two years;

7,163 won =

(9,271 WonX2) + (2,949 WonX1)

3

(3) The rate prescribed by the Ordinance of the Ministry of Finance and Economy: 10% per annum)

(4) Price per share: 71,630 won (=7,163 won ¡À10%)

[2] Acceptance price per stock of new stocks: 5,000 won

[3] The appraised value per share after the capital increase: 14,519 won (see Article 29 of the Enforcement Decree of the Act)

14,519 won =

(71,630 won X40,000) + (5,000 won X240,000)

(40,000 +240,000 Shares)

[4] Amount of deemed donation: 285,570,00 won = (14,519 won -5,000 won) X30,000 won

[5] Gift tax: 64,559,600 won (including additional tax)

(B) In light of the above, since the ○○○○ Kck’s commencement of the business on February 4, 1999 falls under the case where the project under Article 17-3(1)1 of the Enforcement Decree of the Act as of April 20, 201 as of the base date of appraisal is less than three years after the commencement of the business, the market price of the forfeited stocks in this case shall be appraised at the value under Article 56(1)2 of the Enforcement Decree of the Act, but Article 56(1)2 of the Enforcement Decree of the Act applies to the case where the return is filed within the time limit for the return of gift tax base, the above provision cannot be applied to the Plaintiff. In addition, Article 56(1)1 of the Enforcement Decree of the Act applies to a corporation for more than three years after the commencement of the

As a result, the defendant calculated the "value per share before the capital increase" on the basis of the "Common Rule 63-5613 of the Inheritance Tax and Gift Tax Act (the stock appraisal of a corporation less than three years after the commencement of business)" as the "general rule of the National Tax Service," although the general rule of the National Tax Service is merely an administrative rule that issued the criteria for interpretation and enforcement of the tax law within the tax authority, and even if the court or the public is not a law effective to bind the tax authority, the court may take this into account for the reasonable interpretation of the tax law. In this case, it is reasonable to calculate the amount by applying the above basic rule in assessing the ○○ kbk's shares with a period of business of less than three years. Accordingly, the plaintiff's assertion in this part is without merit.

3. Conclusion

Therefore, the disposition of this case is legitimate, and the plaintiff's claim of this case is without merit, and it is dismissed. It is so decided as per Disposition.

* Note *

1) Since the ○○○ Kenya is a corporation with less than three years after the commencement of the business, it was calculated in accordance with the General Rule 63-5313 of the Inheritance Tax and Gift Tax Act.

* Note *

2) The interest rate after April 3, 2000 shall be 10% per annum.