Taxation on the donation of profits to a specific corporation as a deficit shall be justified.

Article 41(1) of the Inheritance Tax and Gift Tax Act provides that the amount as prescribed by the Presidential Decree shall be regarded as the gains from donation. Article 31(6) of the Enforcement Decree of the same Act provides for the calculation of gains from donation by delegation, so it is impossible to interpret that there is no value of donated property in the case of incidental business under the Act before the amendment. Thus,

Article 41 of the Inheritance Tax and Gift Tax Act: Donation of Benefits through Transactions with Specified Corporation

2014Guhap3076 Revocation of Disposition of Imposition of Gift Tax

EO

O Head of tax office

March 4, 2015

March 25, 2015

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 227,853,530 against the Plaintiff on August 1, 2013 is revoked.

1. Details of the disposition;

A. On December 31, 2010, the Plaintiff owned 0,000,000 shares out of 0,000 shares issued in the AA as of December 31, 201, as a shareholder of the AAA (hereinafter referred to as “AA”).

B. AD donated BB shares 0,000,000 shares of BB (the share ratio of 51.0%; hereinafter referred to as “instant shares”) to AAA, which had been subject to the Plaintiff’s punishment and carried-over losses on April 20, 201.

C. On August 1, 2013, the Defendant imposed gift tax of KRW 000,00,000 (including penalty tax) on the Plaintiff on the ground that “The Plaintiff acquired the gift interest of KRW 000,000 ( KRW 0,000 x 0,000 x 0,000 /0,000 /00 0,000 ] as the gift of the instant shares” (including KRW 0,000).

D. Accordingly, the Plaintiff filed a request for examination on October 28, 2013. On January 27, 2014, the Plaintiff was dismissed by the Commissioner of the National Tax Service.

Facts that there is no dispute with recognition, Gap evidence 1 through 2 (including paper numbers), Eul evidence 1, 2, and 4

Each entry, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

According to Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “former Inheritance Tax and Gift Tax Act”) related to the instant case and Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012), “Where a person who has a special relationship with a shareholders of a deficit corporation donates property to the relevant deficit corporation without compensation, and a shareholder of the deficit corporation obtains profits equivalent to the amount calculated by multiplying the value of the donated property by the share ratio, the amount equivalent to such profits shall be deemed as the value of donated property to the shareholder of the relevant corporation.” Thus, in order to impose gift tax on the Plaintiff, the Defendant requires the Plaintiff to obtain actual profits from

However, AAA is a deficit corporation and its value per share (-) is all attached to the gift of this case. Thus, the Plaintiff did not gain any profit from the donation of this case, and the disposition of this case is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

Article 41 (1) 1 of the former Inheritance Tax and Gift Tax Act provides that "in case where a shareholder of the relevant corporation who has a special relationship with a shareholder of the relevant corporation has provided property to the relevant corporation for free, and a shareholder of the relevant corporation has acquired profits as determined by the Presidential Decree", the amount equivalent to such profits shall be deemed as the value of donated property to the relevant corporation," and Article 31 (6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the amount calculated by multiplying the profits acquired by the shareholder, etc. (limited to the amount of losses) by the ratio of stocks or equity shares

The legislative intent of Article 41(1) of the former Inheritance Tax and Gift Tax Act is to prevent shareholders of the corporation in a special relationship with the donor from gaining profits without bearing the burden of taxation through a donation to the specific corporation whose loss is not subject to corporate tax even if the donation of property is made. Moreover, in light of the fact that in the case of closed unlisted corporation, unlike the general listed corporation, it is impossible to calculate the fair price of shares, and the shareholders of the unlisted corporation actually enjoy a large number of intangible benefits, such as cost settlement through the unlisted company, even if the value per share of the unlisted corporation before and after free donation is all incidental, it cannot be concluded that there is no profit gained by the shareholders of the corporation.

Meanwhile, Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) did not stipulate that the portion relating to the benefit was delegated by the Presidential Decree. Since Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18177, Dec. 30, 2003) provides that “the increased value of shares” is “the increased value of shares,” it may be interpreted as having no value of donated (see, e.g., Supreme Court en banc Decision 2006Du19693, Mar. 19, 200). However, as seen earlier, it appears that the amount prescribed by the Presidential Decree is deemed as the shareholder’s benefit, and Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 18177, Mar. 19, 2009).

Therefore, it cannot be readily concluded that the instant disposition was an unlawful disposition that failed to meet the taxation requirements, unless the Plaintiff proves that he was not able to obtain the benefits from the instant stock donation. As such, it is difficult to deem that the Plaintiff was sufficiently proven that the Plaintiff was unable to obtain the benefits from the instant stock donation, the Plaintiff’s assertion is without merit, and the Defendant’s disposition is lawful.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.