Income earned by the plaintiff shall be deemed income from deemed dividend.

The substance of stock transaction in this case does not merely take over stocks as profit transaction or asset transaction, but it constitutes a refund of capital to the plaintiff as part of the capital reduction procedure by means of stock retirement, and it is reasonable to view that the income gained by the plaintiff falls under the income of deemed dividend.

Article 17 of the Income Tax Act

2016Guhap80526

AA

BB Director of the Tax Office

June 16, 2017

June 30, 2017

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 0,00,696,290 won of global income tax for the year 2014 against the Plaintiff on April 1, 2016 is revoked.

1. Details of the disposition;

A. On December 19, 2014, the Plaintiff sold 0,900 shares (5,00 won per share) issued by DD Industries Co., Ltd. (hereinafter referred to as “D Industries”), an unlisted corporation, to DD Industries at KRW 0,00,111,00 per share ( KRW 00,990 per share); on the same day, DDP Co., Ltd (hereinafter referred to as “DP”) (hereinafter referred to as “DP”), an unlisted corporation; hereinafter referred to as “foreign company,” hereinafter referred to as “D industry and DDP”), under the name of each of the above shares sales contract, 00,583 shares (one share 5,00 won per share 5,000 won per share), and received all of the shares (hereinafter referred to as “this case’s shares sales contract”).

B. On February 28, 2015, the Plaintiff reported and paid capital gains tax of KRW 000,017,417 arising from the instant stock transaction.

C. On April 1, 2016, the Defendant denied the transfer income reported by the Plaintiff and notified the Plaintiff of the correction and notification of the global income tax of KRW 0,000,696,290 (including additional tax of KRW 00,108,489) for the year 2014, based on deemed dividend, on the grounds that the non-party company acquired the instant stocks from the Plaintiff for the purpose of retiring the instant stocks (hereinafter “instant disposition”).

D. On June 21, 2016, the Plaintiff appealed to the Tax Tribunal, but was dismissed on September 22, 2016.

Facts without dispute over the basis of recognition, Gap evidence 1 through 3, Eul evidence 1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The non-party company did not purchase the instant shares for the purpose of retirement, and only passed a resolution of retirement after the instant stock transaction. At the time of the instant stock transaction, it was impossible to find out whether the non-party company acquired and retired the instant shares at the time of the instant stock transaction. Accordingly, the instant stock transaction is a normal transaction, not a capital transaction for the purpose of retirement, and is only subject to the capital gains tax, and thus, the instant disposition

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

1) Before the instant stock transaction, the shares owned by the Plaintiff were 17.29% of the total issued shares of the non-party company (DP 340,629 shares, DP 200,00 shares) prior to the instant stock transaction. The remaining shares except the shares owned by the Plaintiff were owned by GGG and its spouse, its representative director, and HH and 3 children of the non-party company as indicated in the following table. The Plaintiff and GG are private villages.

Stockholders

Relationship with Major Shareholders

D Industries

DPP&T

Number of shares (number of shares)

(%) Equity (%)

Number of shares (number of shares)

(%) Equity (%)

GG

Principal

00,630

57.14

00,277

57.14

III

Spouse

00,500

9.83

00,670

9.84

H H H

father

00,562

5.16

00,312

5.16

JJ

ASEAN

00,599

4.58

0,158

4.58

KK

ASEAN

00,219

3.00

0,000

3.00

LL

Marri, 200

00,219

3.00

0,000

3.00

Private villages

00,900

17.29

00,583

17.29

Total

00,629

100

00,000

100

2) The Plaintiff, while holding office as the representative director of the DD industry established by HH on July 2002, retired from office due to conflict with HH around July 2002. At the time of retirement, the Plaintiff owned 17.29% of the shares issued by the DD industry. However, around 2007, DP&T was divided into D industry, and owned 17.29% of the shares issued by the DP.

3) In around 2010, the Plaintiff applied for a provisional disposition seeking perusal and copy of the accounting books, etc. against the non-party company in the position of the shareholder of the non-party company and received a decision of acceptance. In order to appoint a person designated by the non-party company around 2014 as the auditor of the non-party company, the Plaintiff filed a legal dispute between the non-party company and the non-party company for which the GG and HH were the representative director, and requested that the company purchase the shares of the non-party company owned by the non-party company from 2010.

4) On June 2014, the Plaintiff and the Nonparty Company agreed to proceed with the sales procedure with approximately KRW 0 billion of the purchase price of the instant shares, and accordingly, the Plaintiff proceeded with the procedures of public summons, etc. as to the 100 shares of the D Industries, which lost the share certificates.

5) On or around December 2014, the Plaintiff and the non-party companies drafted a written agreement containing the following contents (the terms of “A” in the above written agreement refers to the Plaintiff, “B,” and “DP” refer to DP and “DP” refer to DP.

Stock Transfer Agreement

1. Eul shall purchase the shares of 00,900 shares issued by Eul, and 00,583 shares issued by Byung, and 00,583 shares issued by Byung, in accordance with the procedures prescribed by each Commercial Act, and Gap shall cooperate with Eul in the above procedure and sell them to Byung: Provided, That Eul and Byung may otherwise determine the method of purchase, if there is a need for management, and Gap shall sell each share in cooperation with it unless there is a change in the purchase price as referred to in paragraph (2);

2. The sales of the instant shares shall be terminated before December 25, 2014, and the sales price shall be KRW 00,990 per share for shares to be issued and KRW 00,990 per share for shares to be issued, and KRW 00,990 per share for shares to be issued. However, as long as the total sales price of the instant shares is not less than KRW 0 billion, Party B and C shall not raise an objection to the change of the sales price per share, taking into account the financial situation of each company, tax issues, etc.

3. The parties shall prepare a separate share sales contract that specifies the trading party, stocks subject to the sale and purchase, price per share, payment schedule, etc. on the basis of this Agreement before the closing date under paragraph (2) as required for filing a tax return on the sale and purchase of this case.

5.A, on the date of this Agreement (or prior thereto), has to deliver to the buyers the actual share certificates of the remaining shares excluding 00,000 shares that B have been issued on or before the date of this Agreement, and the above 00,000 shares which have not been currently possessed shall not be subject to any legal defect in acquiring the ownership of the shares, by following the procedure for invalidation of such share certificates.

6. Eul and Byung shall, within the period referred to in paragraph (2) after Gap fulfilled all the obligations, etc. under paragraph (5), pay Gap in a lump sum, the full price for the sale and purchase of this case, and at that time ownership for the stocks subject to the sale and purchase of this case shall be reverted to each purchaser finally.

7.Unless this Agreement is rescinded due to reasons attributable to B and C, A shall delegate the voting rights of the shares subject to sale to TT from the date of this Agreement until the completion of the sale of the shares in this case under paragraph 6.

8. Taxes and public charges incurred from the sale and purchase of stocks of this case shall be borne respectively;

6) On December 2, 2014, the non-party companies held each board of directors on December 2, 2014, and resolved to hold a provisional shareholders’ meeting to acquire treasury stocks among three directors, while attending the meetings of GG and HH. On December 18, 2014, the non-party companies held each extraordinary shareholders’ meeting and resolved to acquire treasury stocks for the management stability as follows.

A) D Industries: General Shares 00,900 (17.3%) 0,000, 111,000 per share (00,990 per share) for the subject of acquisition and the period of acquisition shall be December 25, 2014 for the subject of acquisition.

B) DP&T: General Shares 00,583 (17.3%) for the subject of acquisition, acquisition value shall be 00,978,170 won per share (00,990 won per share) for the subject of acquisition, and the time limit for acquisition on December 25, 2014 for the subject of acquisition.

7) On December 19, 2014, the non-party company purchased the instant shares from the Plaintiff and paid the price. On December 22, 2014, the next business day (day) held a board of directors and resolved to retire the instant shares on December 26, 2014. On December 26, 2014, the non-party company retired the instant shares on December 26, 2014, and completed the registration for modification of each of the capital reduction on January 9, 2015.

8) On February 27, 2015 and March 2, 2015, DP&T prepared a statement of dividend income payment stating that dividend income equivalent to the purchase price of each of the instant shares was paid to the Plaintiff as of December 22, 2014, and filed a report thereon with the head of the competent tax office. Thereafter, DD industry imposed an additional tax of KRW 00,325,554 on July 14, 2016 on the said constructive dividend income, and DP imposed an additional tax of KRW 00,130,84 on October 4, 2016, and paid all of them around that time. GGGG, etc. reported and paid gift tax on the profits accrued from capital reduction, etc. of the instant shares on March 31, 2015.

Facts that there is no dispute over the basis of recognition, Gap evidence 4 through 9, Eul evidence 2 through 8 (including each number), Gap evidence 10, part of witness TT testimony and the purport of the whole pleadings.

D. Determination

Whether a sale of shares constitutes a transfer of shares as an asset transaction or a stock retirement or a refund of capital, which is a capital transaction, is a matter of interpretation of legal acts and must be determined based on the contents and intent of the parties. However, under the substance over form principle, not simply depends on the contents or form of the relevant contract, but also on the entire 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 (see, e.g., Supreme Court Decision 2008Du19628, Oct. 28,

Comprehensively taking account of all the evidence and the purport of the entire pleadings as seen earlier, it is reasonable to view that the substance of the instant stock transaction between the Plaintiff and the Nonparty Company does not merely take over stocks as a profit transaction or asset transaction, but constitutes a refund of the Plaintiff’s capital as part of the capital reduction procedure by means of stock retirement. Accordingly, it is reasonable to view that the income earned by the Plaintiff constitutes the deemed dividend income as prescribed in Article 17(1)3 and (2)1 of the Income Tax Act. Accordingly, the instant disposition is lawful.

1) On December 18, 2014, Nonparty Company: (a) held a general meeting of shareholders on December 19, 2014 to make a resolution on stock purchase; (b) purchased the instant shares from the Plaintiff on December 19, 2014; and (c) made a resolution on stock retirement by holding a board of directors on December 22, 2014, the next business day; and (c) retired the instant shares on December 26, 2014; and (d) in light of these series of processes, Nonparty Company appears to have already purchased the instant shares from the Plaintiff for the purpose of retiring the shares before the resolution of the general meeting of shareholders.

Unlike this, it is difficult to believe that part of the evidence No. 10 and part of the witness TT testimony to the effect that Party A decided the retirement of shares after acquiring the shares of this case is difficult.

2) The non-party company is a non-listed corporation of a large scale, and the non-party company is virtually one person who owns only the shares of the plaintiff, excluding the plaintiff, and the plaintiff has undergone legal disputes with the side of the GG for several years, and eventually selling the shares of this case on the side of the GG. The non-party company's purchase of the shares is intended to refund its shares to the plaintiff merely because the non-party company did not find any third party to purchase the shares. In addition, even based on the witness's testimony, the non-party company did not prepare for listing and did not have any over-the-counter trading of the shares, and it is difficult to find a third party to purchase the shares because the non-party company, which had undergone legal disputes over several years with the plaintiff, intended to dispose of the shares acquired from the plaintiff to a third party. In fact, the non-party company retired the shares of this case without any effort to dispose of the shares of this case from the first third party without the purpose of disposing them.

3) In addition, the non-party company: (a) retired the instant shares; (b) prepared a statement of dividend income payment against the Plaintiff and reported it to the head of the competent tax office; and (c) paid penalty tax on the grounds that the Plaintiff did not withhold the dividend income tax; and (d) GG et al. paid gift tax with the amount equivalent to the profit accrued from the retirement of the instant shares as the value of donated property; and (c) recognized that the substance of

4) The agreement or sales contract prepared between the plaintiff and the non-party company does not include the contents of the non-party company's future disposal of its own stocks acquired by the non-party company, and it may be deemed that the non-party company explicitly failed to disclose the plan to retire the stock of this case to the plaintiff before the stock transaction of this case. However, the plaintiff is in the position of the non-party company as the representative director of the non-party company and a major shareholder of the non-party company, and prepared the stock transaction of this case for several months after the closure of legal disputes with the non-party company, and was well aware of the circumstances leading to the stock transaction of this case, the situation of the non-party company, and the possibility of transferring the stock of this case to the third party

3. Conclusion

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

(c)