Seoul Administrative Court 2013Guhap6060 ( October 24, 2014)

Whether the value of the donated property bypassing at a multi-level stage through a black corporate entity is legitimate

In order to impose gift tax on the Plaintiffs by deeming the increase in the stock value of a black corporate entity as the value of donated property, it is difficult to deem that the Plaintiffs owned stocks of a black corporate entity and economic substance are identical, but it is difficult to deny the substance of higher corporate entity, etc. and that the benefits from the instant donation were immediately reverted to the

Article 2 of the Inheritance Tax and Gift Tax Act; Article 42 (1) 3 of the Inheritance Tax and Gift Tax Act

2014Nu4327 Revocation of Disposition of Imposing gift tax

IsaA Foreign Country

Head of Gangnam District Tax Office other than

Seoul Administrative Court Decision 2013Guhap6060 decided January 24, 2014

November 5, 2014

December 3, 2014

1. The head of the tax office having jurisdiction over the division of gift tax (the director of the tax office having jurisdiction over the correction) shall revoke the disposition of gift tax imposed on the Plaintiff B as described in the No. 4 of the attached Table 1.

2. All appeals filed by the defendant Gangnam-gu director of the tax office, the senior director of the tax office, and the director of the distribution tax office are dismissed;

3. The total costs of the lawsuit between the Plaintiff B and the director of the branch office are assessed against the Defendants, and the remaining costs of the appeal except for those costs are assessed against the Defendants.

1. Purport of claim

The imposition of each gift tax shall be revoked by the Defendant (the head of Sungnam Tax Office prior to the correction of the PlaintiffB) as shown in attached Table 1 on the Plaintiffs.

2. Purport of appeal

The judgment of the first instance is revoked. All of the plaintiffs' claims are dismissed.

1. The part citing the judgment of the court of first instance

The reasoning of the judgment of this court is as follows, and it is identical to the reasoning of the judgment of the first instance except for the part determined additionally in the following paragraphs. Thus, it shall be quoted in accordance with Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

2. Additional determination

A. The defendants' assertion

1) Under the principle of substantial taxation under the Inheritance Tax and Gift Tax Act, the increase in the value of shares of KK shall be deemed as the value of donated property. In cases where the value of donated property can be assessed by means of objective and reasonable evaluation methods without applying Articles 32 through 42 of the Inheritance Tax and Gift Tax Act, gift tax may be levied pursuant to Article 2(3) of the Inheritance Tax and Gift Tax Act. Thus, the calculation of the value of donated property to the Plaintiffs may be made by applying Article 4

2) Even if it is impossible to calculate the increase in the stock value of KK as the value of donated property immediately, since the value of the shares owned by the plaintiffs due to the instant donation changes in the value of the shares of PPP, etc., and economic benefits between the plaintiffs are gratuitously transferred, the increase in the share value of PPP, etc. calculated pursuant to Article 42(1)3 of the Inheritance Tax and Gift Tax Act may be calculated as the value of donated property

B. Determination

1) Whether the increase in the stock value of KK can be calculated as the value of donated property

Article 2(4) of the Inheritance Tax and Gift Tax Act provides that “Where it is deemed that the inheritance tax or gift tax has been unjustly reduced by indirect means via a third party, or by means of two or more acts or transactions, such economic substance shall be deemed a direct transaction or a continuous single act or transaction, and Paragraph (3) shall apply accordingly.” The purport of Article 2(4) of the Inheritance Tax and Gift Tax Act is to deem that a direct transaction is made by a third party through an indirect means, and that such transaction is made by a third party, regardless of the form of transaction, it shall be deemed that Article 14(3) of the Framework Act on National Taxes provides for the principle of substantial taxation in the gift tax, deeming that a economic substance is a gift, regardless of the form of transaction, if the economic substance is a gift, such transaction shall be deemed a gift subject to the gift tax. Therefore, in order to impose gift tax on the Plaintiffs

그러나 갑 제13, 17호증(가지번호 포함)의 각 기재에 의하면 PPPP 등은 KKKK 외의 다른 회사 지분에도 투자하여 2009. 12. 31. 현재 상당한 수준의 매도가능증권을 보유하고 있었고, 2010 사업연도에는 KKKK로부터 1,492,500,000원(PPPP), 1,489,500,000원(QQQ)의 배당금을 지급받고 위 배당소득 등과 관련하여 법인세를 각 납부한 점, PPPP 등의 사업활동이 법적인 외관만을 형성하기 위한 것이라고 보기 어려운 점, 이 사건 증여에 따른 KKKK의 주식가치 상승분은 KKKK의 주주인 PPPP 등에게 귀속되었고 이는 향후 KKKK가 배당을 실시하거나 PPPP 등이 KKKK의 주식을 처분할 때 배당소득 또는 양도소득의 형태로 구체화되어 과세가 이루어지는 점 등을 종합하면, 이 사건 증여로 KKKK의 주식가치가 상승하여 결과적으로 PPPP 등의 주주인 원고들의 주식가치 역시 높아지는 결과가 초래되었다고 하더라도 PPPP 등의 실체를 부인하고 원고들에게 이 사건 증여로 인한 이익이 곧바로 귀속되었다고 보기 어렵다.

In addition, the instant gift requires fair and rational calculation of the value of donated property as indirect benefit and unrealized benefit. However, since the enactment of the general principle of calculating the value of donated property for taxation on new and irregular donation under Article 32 of the Inheritance Tax and Gift Tax Act on January 1, 2013, Article 24-2 of the Enforcement Decree of the current Inheritance Tax and Gift Tax Act is newly established, and thus it is impossible to apply Articles 33 through 42 of the Inheritance Tax and Gift Tax Act, the value of donated property is calculated by subtracting the acquisition value of the relevant property (in the case of gift property, the value of donated property) from the value of the relevant property. Furthermore, the instant gift is similar to the gift to the form of donated property to black profit-making corporations. In addition, even if Article 41 of the Inheritance Tax and Gift Tax Act was amended on January 1, 2014, Article 31(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that when calculating the said value of donated property, it is difficult to accept the aforementioned statutory provision on individual gift taxation or the remaining value of donated.

2) Whether the increase in the stock value of the PPP et al. can be calculated as the value of donated property

As seen earlier, it is difficult to deny the substance of the PPPP et al. and to deem that the benefits from the instant donation accrue to the Plaintiffs immediately. As long as the instant donation cannot be deemed a direct transaction, or an act or transaction with a single party pursuant to Article 2(4) of the Inheritance Tax and Gift Tax Act, calculating the increase in the stock value of the PPP et al. as the value of donated property by expanding the subject of the benefits accrued from the instant donation to the Plaintiffs from the PPP et al. to the Plaintiffs, without any legal basis,

The Defendants’ assertion cannot be accepted on a different premise.

3. Conclusion

The Plaintiff B’s claim against the Head of the Division Tax Office is accepted on the grounds of its reasoning. The disposition of gift tax imposed by the Head of the Division Tax Office (the Head of the Sungnam Tax Office prior to the rectification) against the Plaintiff B as set out in the No. 4 of the attached taxation details in the attached Table 1 shall be revoked. The judgment of the first instance on the remaining parties is justifiable. All appeals filed by the Head of Gangnam District Tax Office, the Head of the Branch Tax Office, and the Director of the Division