In case where a donation contract of shares is revoked by a judgment of revocation of a fraudulent act, and the shares reinstated in the name of an obligor are sold in the procedure for compulsory auction and the proceeds from sale are distributed to all creditors, the transferor of share certificates under Article 3 subparag. 3 of the Securities Transaction Tax Act liable for payment

Securities transaction tax is a distribution tax levied on a transferor of share certificates as a taxpayer regardless of the occurrence of profit by spreading the fact that the securities transaction tax is a commercial transfer of share certificates.

The essence of the obligee's right of revocation is to revoke the obligor's fraudulent act and restore assets deviating from the obligor's responsible property so that the obligee can enforce compulsory execution. The obligee's right of revocation is to be treated as the obligor's responsible property against the obligee, beneficiary, or subsequent purchaser.

In full view of the nature and effect of obligee’s right of revocation, and the language and text, contents, etc. of the Securities Transaction Tax and the relevant provisions, in a case where a gift contract of shares is revoked by a judgment of revocation of a fraudulent act, and the shares recovered in the name of obligor were sold in the procedure for compulsory auction and all proceeds were distributed to creditors, a transferor of share certificates under Article 3 subparag. 3 of the Securities Transaction Tax Act [the same provision as that of the former Securities Transaction Tax Act (amended by Act No. 9274, Dec. 26, 2008)], which is to be liable for the payment of securities transaction tax established by transfer of share ownership at a cost, shall be deemed as

(1) If the proceeds from a compulsory auction for the property restored to the original state in the name of the debtor by a judgment revoking a fraudulent act are distributed to the creditor, the obligation shall be extinguished by being appropriated for the repayment of the debtor's obligation. The effect of revocation of a fraudulent act may also extend to the debtor in that the proceeds from the sale

(2) Securities transaction tax is a taxable act based on the fact that a share certificate is a onerous transfer of share certificates, and where the share certificates are transferred without going through a securities company outside the securities market, the transferor of the share certificates shall become a taxpayer and a taxpayer. If the shares reinstated under the name of the debtor are sold in the compulsory auction procedure due to revocation of fraudulent act, the transferor of the share certificates is the debtor who is the nominal owner of the share certificates.

③ Even if the property is restored to the obligor’s nominal property for compulsory execution by revocation of fraudulent act, and the obligor does not directly acquire the right to such property, such restitution ought to be made inasmuch as the legal effect of the transaction where the shares owned by the obligor were sold during the compulsory auction procedure and the sales price, which led to the extinction of the obligation, is consistent with the transaction in which the shares owned by the obligor are sold during the compulsory auction procedure, the tax authority should also exercise the right to impose taxes by deeming the transferor of the share certificates as the obligor for the securities transaction tax subject to the transfer of

Articles 1, 1-2(3), 2, 3, 7, and 9 of the Securities Transaction Tax Act; Articles 1 (see current Article 2), 2(3) (see current Article 1-2(3)), 3, 7, and 9 of the former Securities Transaction Tax Act (Amended by Act No. 9274, Dec. 26, 2008); Articles 2(3) (see current Article 1-2(3)), 3, 7, and 9 of the Securities Transaction Tax Act; Articles 406(1) and 407 of the Civil Act

Supreme Court Decision 2007Da84352 Decided April 24, 2008 (Gong2008Sang, 792) Supreme Court Decision 2007Du14695 Decided September 10, 2009 (Gong2009Ha, 1676) Supreme Court Decision 2015Da217980 Decided March 9, 2017 (Gong2017Sang, 623)

A public educational institute (Law Firm Erasing, Attorneys Kim Jong-mun et al., Counsel for the defendant-appellant)

Head of Pyeongtaek Tax Office

Seoul High Court Decision 2016Nu70620 decided June 21, 2017

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Where a share donation contract is revoked by a judgment revoking a fraudulent act, and shares reinstated in the name of an obligor are sold in the procedure for compulsory auction, a securities transaction tax taxpayer;

The Securities Transaction Tax Act provides that a transfer of share certificates or shares (hereinafter “share certificates”) shall be subject to the securities transaction tax (Article 1 and the main sentence of Article 2), and “transfer” refers to the transfer of ownership at a cost due to contractual or legal grounds (Article 1-2(3)). The tax base per se becomes the transfer value of share certificates (Article 7), and the taxpayer vary depending on the method of transfer of shares or alternative payment, and the Korea Securities Depository, etc. shall collect and pay the securities transaction tax from the transferor of the share certificates or pay it directly by the transferor of the share certificates (Articles 3 and 9). The same applies to the former Securities Transaction Tax Act (amended by Act No. 9274, Dec. 26, 2008; hereinafter the same) applicable to the instant case. The location and expression of provisions are different (see Articles 1, 2(3), 3, 7 and 9 of the former Act). The transfer of share certificates per se is 90 years old and 205 years old, regardless of whether such transfer of share certificates is 901.

The essence of the obligee’s right of revocation is to cancel the obligor’s fraudulent act and restore assets deviating from the obligor’s responsible property so that the obligee may enforce compulsory execution (see Supreme Court Decision 2007Da84352, Apr. 24, 2008). Any property whose fraudulent act is revoked by exercising the obligee’s right of revocation and whose name is restored to the obligor’s name shall be treated as the obligor’s responsible property to the obligee, beneficiary, or subsequent purchaser (see Supreme Court Decision 2015Da217980, Mar. 9, 2017).

In full view of the nature and effect of obligee’s right of revocation, and the language, text, and contents of the Securities Transaction Tax Act, in a case where a gift contract of shares is revoked by a judgment of revocation of a fraudulent act, and the shares recovered under the obligor’s name were sold in the procedure for compulsory auction and the proceeds of sale are distributed to all creditors, a transferor of share certificates under Article 3 subparag. 3 of the Securities Transaction Tax Act (Article 3 of the former Securities Transaction Tax Act also provides the same contents), which is established by the transfer of ownership of shares, shall be deemed an obligor, not a beneficiary

If the proceeds from a compulsory auction for the property restored to the original state in the name of the debtor by a judgment of revocation of a fraudulent act are distributed to the creditor, the obligation is extinguished by being appropriated for the repayment of the debtor's obligation. The effect of revocation of a fraudulent act is also against the debtor in that the debtor's obligation is repaid with

Securities transaction tax is imposed on the fact that it is a commercial transfer of share certificates, and where share certificates are transferred without going through a securities company outside the securities market, a transferor of share certificates shall be a taxpayer and a taxpayer. If shares reinstated under the name of the debtor are sold in the compulsory auction procedure due to revocation of fraudulent act, a transferor of share certificates is an obligor who is the nominal owner of the share certificates.

Although a fraudulent act is only restored to a debtor's property in his/her name for compulsory execution by revocation of a fraudulent act, and the debtor's right to such property is not directly acquired, as long as the appearance of the transaction where the shares owned by the debtor were sold in the compulsory sale procedure and the legal effect of the transaction that the sale price was effective due to appropriation for the debtor's repayment of the debtor's obligation, the shares owned by the debtor are consistent with the transaction sold in the compulsory sale procedure, the tax authority should consider the transferor of share certificates as the debtor for the securities transaction tax subject to taxation

2. The judgment of the court below and its propriety

A. According to the reasoning of the lower judgment and the record, the following facts are revealed.

(1) On August 28, 2002, the Plaintiff donated 98,000 shares of registered ordinary shares issued by Daejeon Cultural Broadcasting Co., Ltd. (hereinafter “instant shares”) from the Nonparty, and completed delivery and transfer of ownership. On the grounds that the bankruptcy trustee of the Non-Party’s bankruptcy debtor, the creditor of the non-party, filed a lawsuit against the Plaintiff seeking cancellation of the instant share donation contract and transfer of shares (Seoul Central District Court Decision 2003Gahap62656, 2004Gahap9560), and won the lawsuit against the Plaintiff for revocation of the instant share donation contract and transfer of shares (Seoul Central District Court Decision 2003Gahap656, 204Gahap9560).

(2) According to the judgment of revocation of the above fraudulent act, the procedure for compulsory auction was initiated upon the application of the creditor with respect to the shares of this case that were transferred to the Non-party future, and on April 24, 2008, 60,000 shares out of the shares of this case at 5,265,90,000 won, and the remaining 38,000 shares out of the shares of this case at Yong Steel Co., Ltd. on May 14, 2008 were sold to 3,810,000 won, and all the remainder which remains after deducting the execution cost was appropriated for the repayment of the debt to the non-party's creditor.

(3) As to the sale of the instant shares, the Defendant: (a) deemed the Plaintiff as the transferor of the shares; and (b) imposed securities transaction tax of KRW 82,064,280 (including the penalty tax for failing to file a return and the penalty tax for failing to pay due diligence) as the tax base.

B. Examining these factual relations in light of the legal principles as seen earlier, inasmuch as the instant shares that were restored to the Nonparty’s name by a judgment of revocation of a fraudulent act were sold during the compulsory sale procedure and the sales proceeds were distributed to all creditors, a transferor of share certificates under Article 3 subparag. 3 of the former Securities Transaction Tax Act, which is established by transfer of ownership of shares at a cost, shall be deemed as the Nonparty, not the Plaintiff,

In the same purport, the lower court determined that the Plaintiff, who did not receive any consideration in relation to the transfer of ownership of the shares in this case during the compulsory auction procedure, did not constitute a taxpayer of securities transaction tax under Article 3 subparag. 3 of the former Securities Transaction Tax Act. The lower court is justifiable in accordance with the foregoing legal doctrine. In so doing, the lower court did not err by misapprehending the legal doctrine on the validity of revocation

3. Conclusion

The Defendant’s appeal is dismissed as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)