early 209west2283 (Law No. 19, 2010)

Whether the price that a shareholder received by transferring the shares to a corporation is capital gains or dividend income;

A shareholder of a corporation transferred stocks to a corporation and acquired real estate in return for the transfer of stocks from the corporation, and the corporation retired the stocks, which means that the transfer of stocks made as part of the capital reduction procedure is deemed as dividend income and taxation is justifiable.

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of dividend income tax of KRW 1,085,064,90 for the year 2006 against the Plaintiff on February 2, 2009 and the imposition of KRW 140,917,520 for the year 2006 is revoked.

1. Details of the disposition;

A. On April 24, 2006, the Plaintiff Company assessed 27,436 shares of the Plaintiff Company (A: 9,318 shares, 28,118 shares: hereinafter referred to as “the shares of this case”) owned by each of these respective owners from thisA and thisB, and assessed 225,610 shares per share and assessed 1,357,269,760 shares of the Plaintiff Company and assessed 546-3 shares and 1 shares of the Plaintiff Company to this, and assessed 1,357,269,760 shares of the Plaintiff Company and the 27,436 shares of the Plaintiff Company’s shares (hereinafter referred to as “the shares of this case”). The Plaintiff Company transferred the shares of this case to each of the Plaintiff Company’s 1,357,269,760 shares and the 74,964,204,20 shares officially announced land price of each of the Plaintiff Company’s shares (hereinafter referred to as “the shares”).

C. The Plaintiff Company decided to reduce the Plaintiff Company’s capital by means of retiring the entire shares in accordance with the resolution of EE, which became one shareholder, and completed the registration of capital reduction on June 5, 2006 after the public notice of capital reduction on May 4, 2006.

E. On February 2, 2009, the Defendant imposed a tax imposition of KRW 1,085,064,90 on the Plaintiff on the ground that the acquisition value of the instant shares and the appraisal value of each of the instant real estate (7,045,876,03) equivalent to the difference between the acquisition value of the instant real estate and the value of each of the instant real estate constituted income from thisA and thisB, and that the Plaintiff Company did not withhold income tax or submit a written payment record, and imposed a corporate tax of KRW 140,917,520 (hereinafter “each of the instant dispositions”).

[Reasons for Recognition: entry of Gap evidence 1 to 5, Eul evidence 1, and Eul evidence 2]

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff company's assertion

(1) The instant stock transaction is a separate act conducted without relation to the procedure for reducing capital through the retirement of the Plaintiff Company’s own shares, and is merely a transfer of the Plaintiff’s shares issued by EA and EB to the Plaintiff Company as part of the division of property jointly owned by EA and EB. Thus, the instant disposition that limited the transfer margin to the dividend income is unlawful even though it constitutes capital gains.

(2) On November 1, 2008, prior to the instant disposition, the Defendant imposed corporate tax on the Plaintiff on November 1, 2008, on the ground that the instant disposition was conducted in duplicate with respect to any income accrued from the transfer of the instant shares, and that the instant disposition constitutes an unfair act of unreasonably reducing tax burden by transferring the real estate owned by the Plaintiff Company to EA and EB, a person with a special relationship, at the market price, and thereby unjustly reducing tax burden. The instant disposition is unlawful since the instant disposition was conducted in duplicate on the income accrued from the transfer of the instant shares, and thus, it constitutes a duplicate disposition.

(b) Related statutes;

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

(1) The Plaintiff Company was established on September 25, 1968 and sold petroleum, etc.

(2) The representative director EE, vice president EA, EB, and EB of the Plaintiff Company owned the shares of the Plaintiff Company at the ratio of 4:3:3,00,000, and the shares of the Plaintiff Company have been owned at the ratio of 1370-20, 1370-20, and one lot and its ground buildings (D buildings) in Seocho-gu Seoul Metropolitan Government, Seocho-gu, Seoul, K2, K2 outside 3-1, two lots and its ground buildings (K station), 1367 ground buildings (Doffice buildings) in Jongno-gu, Jongno-gu, Seoul, Jongno-gu, Jongno-gu, Seoul (Dtel buildings), 1367 ground buildings (Dtel buildings), 179-6, and 3,030 square meters, respectively.

(3) E, E, E, E, E, E, E, E, E, E, E, E, E, E, E, E, E, E, and B had a consultation on the exchange of the shares of the Plaintiff Company with the Plaintiff Company on April 20, 206, and B had six E, 14,564 shares issued by the Plaintiff Company (AA 11,682 shares, BB 2,882 shares) owned by each of them, on the 24th of the same month, entered into a exchange agreement with the Plaintiff on exchange transactions with the Plaintiff, and completed the transfer of entry into force.

(4) At the time of the instant stock transaction, the Plaintiff Company acquired shares at KRW 225,610 per share, and acquired each of the instant real estate as the officially assessed value instead of the appraised value, and transferred at low price. The difference between the appraised value and the officially assessed value was based on KRW 1,350,415,117.

(5) On April 28, 2006, the Plaintiff Company held a general meeting of shareholders on April 28, 2006 to resolve the reduction of capital through voluntary retirement of the instant shares, and on May 4, 200 through a resolution of capital retirement, announced the reduction of capital to the Economic Newspapers on May 4, 200, and completed the registration of capital reduction on June 5, 2006.

(6) LeeA, LeeB, on April 30, 2006, retired from office as vice president or vice president of the Plaintiff Company.

(7) On November 1, 2008, the Defendant: (a) deemed that the low-price transfer of the instant real estate constitutes an unfair act; (b) deemed that the transfer of real estate at issue constitutes an illegal act; and (c) imposed corporate tax of KRW 501,575,110 on the Plaintiff Company, which is the difference between the appraised value and the officially announced value; and (d) on February 2, 2009, the Plaintiff’s assessed corporate tax of KRW 7,045,876,03, which is the difference between the appraised value of the instant real estate acquired by EA and B, and the acquisition value of the instant stocks; and (b) deemed that the said disposition was an fictitious dividend income by capital refund.

[Grounds for Recognition: Evidence No. 3-1, 2, Evidence No. 4-1, 5-1 through 5, Evidence No. 6-1 through 3, Evidence No. 1, 2-3, and evidence No. 3]

D. Determination

(1) As to the first argument

The issue of whether a sale of shares constitutes a transfer of shares, or whether a capital transaction constitutes a retirement of shares or a refund of capital is to be determined based on the substance of the transaction and the intent of the parties concerned. However, under the substance over form principle, not simply depends on the content or form of the contract in question, but also on the whole process of the transaction, such as the party’s intent and the process of concluding the contract, the method of determining the price, and the progress of the transaction, should be grasped and determined (see, e.g., Supreme Court Decisions 92Nu3786, Nov. 24, 1992; 2001Du6227, Dec. 26, 2002).

According to the above facts, the plaintiff company's acquisition of the shares of this case by EA and EB after the transaction of the shares of this case and completed the registration of capital reduction by means of public notice. The plaintiff company appears to have reached an unreasonable low price transfer of the shares of this case to EA and EB for the purpose of arranging the plaintiff company to EA and EB as one shareholder company. The plaintiff company's resolution of capital reduction of this company's shares was made by the sole decision of EA and EB after the transaction of the shares. Thus, this company's acquisition of shares of this case was not known. However, this company's shares was argued to have not been known. However, this company's shares were owned by EA and EB with 30% shares owned by EA and EB with the vice president and EB with the duty of office and maintained the registration of directors at the time of the above temporary shareholders' meeting. This company's shares were also subject to strict regulation for the purpose of this company's capital reduction in light of the fact that EA and EB were to acquire shares of this case.

Therefore, the difference between the acquisition value of the instant shares and the value of real estate transferred by the Plaintiff Company in order to acquire the instant shares shall be deemed as income prescribed in the Corporate Tax Act. Accordingly, the instant disposition is lawful. The Plaintiff Company’s assertion in this part is without merit.

(2) As to the second argument

Unless there exist special circumstances, such as the revocation of the preceding disposition, where several incompatible dispositions against the same tax liability overlap, the subsequent disposition is unlawful as it constitutes a duplicate disposition (see, e.g., Supreme Court Decisions 83Nu583, Aug. 21, 1984; 86Nu312, Nov. 11, 1986; 95Nu1051, Jul. 11, 197).

As seen earlier, the Defendant: (a) deemed that the transfer price of each real estate of this case constitutes an unfair act; (b) deemed that the transfer price of each real estate of this case constitutes an illegal act; and (c) subsequently, it was confirmed that the disposition became final and conclusive by revising and notifying the corporate tax after adding the difference between the appraised price of each real estate of this case and the officially announced value of each real estate of this case; (d) however, the taxpayer liable to pay the corporate tax of this case is the Plaintiff Company subject to the assessment of the difference between the appraised price of each real estate of this case and the transfer price of each real estate of this case; (e) while the disposition of this case is the Plaintiff Company and this BB, the taxpayer is the shareholder of this case, and the taxpayer is subject to the assessment of the tax of this case, the difference between the appraised price of each real estate of this case and the transfer price of the stocks of this case. Accordingly, the above disposition of this case

(3) Sub-determination

Therefore, the instant disposition is lawful.

3. Conclusion

Therefore, the claim of this case by the plaintiff company is dismissed as it is without merit. It is so decided as per Disposition.