Determination on the disposition of gift tax on the high-priced transfer of stocks between unrelated parties;

The disposition of this case shall satisfy the disposition of gift tax on the high-value transfer of the stocks of this case between unrelated parties without justifiable grounds under the relevant provisions, but there is a justifiable reason in this case.

Article 35 of the former Inheritance Tax and Gift Tax Act

Daegu District Court 20145Guhap22443 Revocation of Disposition of Imposing Gift Tax

N

O Head of tax office

on October 18, 2015

on 04 October 01, 201

.

1. The Defendant’s disposition of imposing gift tax of KRW 2,282,430,150 (including additional tax of KRW 780,930,150) against the Plaintiff on June 1, 2013 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. SS Co., Ltd. (D, Co., Ltd. on March 19, 2010 and November 30, 2010; hereinafter “SS”) is a company whose business purpose is to manufacture and sell extract cans and drinks.

B. On January 28, 2010, the Plaintiff was the representative director and the largest shareholder of SSS. The Plaintiff entered into a contract with GG Co., Ltd. (hereinafter “GGG”) on the transfer of 1,000,000 shares out of SSS’s shares (hereinafter “instant shares”) at a price of KRW 5 billion.0 billion, the Plaintiff received five billion from D on March 19, 2010 from D and delivered the instant shares to GG. The transfer value of the instant shares at KRW 5,000 per share was KRW 5,000,000 per share and paid the transfer income tax for 2010.

C. The director of the KK Tax Office determined that the Plaintiff transferred the instant shares to GG, who is a non-specially related person, at a price significantly higher than the market price (5,000 won per share) of the instant shares (5,000 won per share) without justifiable grounds, and that the transfer price and the market price under Article 35(2) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11130, Dec. 31, 201; hereinafter “former Act”) are the difference between the transfer price and the market price (4,23,00,000 = 50

- KRW 3,923,00,000 subtracting KRW 300,000 from KRW 777,00,000,00 shall be deemed to have been donated property.

the Plaintiff notified the Defendant of the taxation data that the gift tax should be imposed, and accordingly, the Defendant

On June 1, 2013, gift tax of KRW 2,282,430,150 (including additional tax of KRW 780,930,150) was imposed on the Plaintiff (hereinafter “instant disposition”).

D. On July 26, 2013, the Plaintiff filed an appeal seeking the revocation of the instant disposition with the Tax Tribunal.

However, the Tax Tribunal dismissed the plaintiff's claim on June 30, 2014.

Each entry of the evidence of subparagraphs 1 through 3 (including each number; hereinafter the same shall apply) of the grounds for recognition, and the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The plaintiff's assertion

The transfer price of KRW 5 billion includes not only the shares of this case but also the exchange value for SS’s transfer of management rights, which constitutes “market price” as an objective exchange value formed through a general and normal transaction. Even if the Plaintiff transferred the shares of this case to GG at a price significantly higher than the market price, there is a justifiable reason in light of the transactional practice. Therefore, the disposition of this case is unlawful.

2) The defendant's assertion

The transfer price of KRW 5 billion is the value of the instant shares determined by the Plaintiff and GG, and does not include the exchange value for the transfer of management rights of SS. GG purchased the instant shares from the Plaintiff for the purpose of avoiding bypassing the decision-making of SS, and thus, GG purchased the instant shares from the Plaintiff at a price higher than the market price. Therefore, there is no justifiable reason in light of the transactional practice

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

m. Stock purchase and transfer contract

1. Seller: The plaintiff;

2. Purchasers: GG; and

The above seller and the above buyer intend to sell the 500 common share(1,000,000) of the 500 common share(1,000,000) issued value of the SS owned by the seller to the buyer and to transfer the management rights of the subject company.

Article 3 Sales Price

3.1The sales amount for the stock and subject company’s management transfer shall be one hundred billion won.

Article 5 (General Meeting of Shareholders)

On or before February 28, 2010 (the seller and the purchaser may change the date by mutual agreement) the general meeting of shareholders of the company concerned (hereinafter referred to as the "general meeting for the transfer of management rights") shall be held to the extent permitted by the relevant Acts and subordinate statutes, and the following facts may be acknowledged in full view of the evidence, Gap's evidence, Eul's evidence, Eul's evidence, Eul's evidence Nos. 4 through 16, and Eul's evidence No. 1 to 5

1) On November 2009, GG requested 00 law firms to conduct a verification service of the assets and liabilities of SS on November 30, 2009 as of the date of the actual inspection to acquire the stocks of SS, which is a corporation listed on the KOSDAQ market. On December 24, 2009, GG received a verification report on the net asset value of SS, possibility of listing maintenance, etc. from the law firm as of December 24, 2009.

2) On December 31, 2009, the Plaintiff owned 7,380,504 shares of SS as of December 31, 2009 (30.19%) among the total number of outstanding shares of SS 24,439,199, and on January 21, 2010, the Plaintiff determined and transferred 50,000 shares among them to LL at KRW 1,000 per share.

3) On January 28, 2010, the Plaintiff: (a) decided to transfer the instant shares to GG in the price of KRW 5 billion; (b) prepared a “contract for the transfer of stock purchase and management rights” with the following contents (hereinafter “instant contract”).

As a special agreement, with respect to the common share 6,00,000 shares of SS owned by the Plaintiff other than the shares in this case, GG intended to give the Plaintiff an option to put put put to place place place orders at KRW 1,000 per share, and made up an annex agreement with the following contents (hereinafter referred to as “instant annex agreement”).

4) On March 19, 2010, the Plaintiff received KRW 5 billion from GG, and delivered the instant shares to GG. On the same day, SS partly amended its articles of incorporation by holding a general meeting of shareholders on the same day to add health assistance food, cosmetics, etc. for the business purpose of GG to the manufacturing and sale of health assistance, cosmetics, etc., which were for the business purpose of GG, and existing officers including the Plaintiff resign, and appointed new internal directors, outside directors, and auditors, such as appointing V, the representative director of GG, as internal directors.

5) On November 18, 2010, the Plaintiff sent to GG a written notice demanding the exercise of put options pursuant to the instant annexed agreement and the payment of KRW 6 billion for said put options. From around that time to October 29, 2012, the Plaintiff urged GG to implement the instant annexed agreement and sent a written notice demanding GG to cancel the instant annexed agreement in the event that GG fails to implement the agreement. Thereafter, on November 16, 2012, the Plaintiff issued new shares 7,054,673 shares, which amount to 24.19% of the total number of outstanding shares of SS’s existing shares, and applied for provisional disposition prohibiting the issuance of new shares as above, to J in a third party allotment method, and subsequently, the Plaintiff and the Plaintiff agreed to dispute over the implementation of the instant annexed agreement and the instant annexed agreement, including the Plaintiff and the Plaintiff, who were subject to acceptance by 00Ka000 on November 30, 2012.

6) A dispute arising in connection with the implementation of the instant contract and its affiliated agreements on March 12, 2013

To resolve this, the Plaintiff’s common share 5,00,000,000, which is owned by the Plaintiff between GG and H, was sold in KRW 5 billion, and upon receipt of payment of KRW 3 billion, on March 2013, 2013, a written agreement was formulated to delegate voting rights to GG, HH and GG, and H’s designated entity.

D. Determination

1) Relevant legal principles

Article 35 (2) of the former Act shall apply where a property is transferred between persons other than those in a special relationship.

Article 26 (6) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 23591, Feb. 2, 2012) provides that only if property is transferred at a price significantly higher than the market price without justifiable grounds, the amount equivalent to the difference between the price and the market price shall be presumed to have been donated and the profit equivalent to the profit prescribed by Presidential Decree shall be deemed to be the value of the donated property of the person who acquired the profit. Article 35 (2) of the former Act provides that "The value of the transferred asset at a remarkably higher level" refers to the value in case where the market price is 30/10 or more of the market price at the price of the transferred asset.

In general, in a lawsuit seeking revocation of a tax disposition, the tax authority bears the burden of proving the fact of taxation requirements, and in light of the language, content, and form of regulation under Article 35(2) of the former Act, in order to lawful imposition of a gift tax under Article 35(2) of the former Act, the transferor not only transferred the property at a price significantly higher than the market price to a person other than the person with a special relationship, but also the tax authority bears the burden of proving that there is no justifiable reason in light of transaction practices (see Supreme Court Decision 2011Du22075, Dec.

In addition, the legislative purport of Article 35(2) of the Act is to cope with and promote fairness in taxation by imposing gift tax on the profits earned by the counterparty in a case where profits equivalent to the difference between the price and the market price are actually gratuitously transferred by abnormal means that manipulates the transaction price for the benefit of the counterparty. However, since the transaction between unrelated parties does not coincide with each other, it is reasonable to deem that the difference was donated to the counterparty solely on the basis that there is a difference between the price and the market price. Therefore, Article 35(2) of the former Act added taxation requirement that “for the transaction between unrelated parties, there is no justifiable reason in light of the transaction practice” as to the transaction between unrelated parties, unlike the transaction between unrelated parties. In full view of these factors, it is reasonable to deem that the transferee’s acquisition of the assets at a high price has justifiable reasons to believe the transaction price at a normal price that reflects the objective exchange value, and even if there were any objective reasons to deem that the acquisition of the assets at a reasonable market price was not normal from a reasonable economic perspective.”

2) The Plaintiff transferred the instant shares to GG to KRW 5 billion ( KRW 5,000 per share), which is considerably more than the average amount of the market value of SSS stocks calculated in accordance with Articles 60(1), 63(1)1(a)1(b) and (b) of the former Act (Total KRW 77,000 per share, KRW 777,00 per share, KRW 777,00 per share, and KRW 77,00 per share). As such, the Plaintiff transferred the instant shares to a high-priced, thereby constituting an appearance such as having donated the difference from the market value.

However, in full view of the following circumstances derived from the above facts, the Plaintiff bears the risk of transferring the shares of this case to SS, such as loss of management rights, and even GG can be evaluated as having obtained the benefits of acquiring the management rights of SS and securing the opportunity to list the stocks bypassing the KOSDAQ. Therefore, it is reasonable to deem that there was a justifiable reason for the stock transaction of this case. In the course of the instant stock transaction, GG may not be deemed to have gratuitously transferred the benefits equivalent to the difference to the abnormal method of manipulating the transaction price for the Plaintiff’s interest.

① Before entering into the instant contract with the Plaintiff, GG traded on the basis of its free will with the Plaintiff, as a party equal to the Plaintiff, by conducting an actual inspection on the net asset value of SS and the possibility of listing maintenance, etc. through 00 law firms, an outside appraisal organization, etc.

② S is a company that produces cans for the first time in the Republic of Korea and has been engaged in transactions for more than 40 years with a maximum beverage company. GG was sufficiently induced to acquire SS, a KOSDAQ-listed company, while promoting a business of health beverage using stem cells.

③ The Plaintiff received KRW 5 billion from GG in accordance with the instant contract and delivered the instant shares to GG, held a general meeting of shareholders to resign from the office of representative director, resigned from the office of the existing officer, and selected and appointed internal directors, outside directors, and auditors, including appointing the HH designated by GG as the internal director, thereby exercising the right to manage the SG from that time. In addition, the Plaintiff decided to delegate the voting right of the SS shares held by the Plaintiff and its specially related persons to the designated person by GG for the stable exercise of the right to manage the SG.

④ Accordingly, GG intended to issue new shares 7,054,673 shares, which amount to 24.19% of the total number of the existing shares issued by SS, and to distribute it to HG, even if it did not take over additional 6,000,000 shares, prior to the acquisition by additional 6,000,000 shares as stipulated in the annexed agreement. If the above new shares were issued, GG could become the largest shareholder of DD without taking over additional 6,00,000 shares, and the Plaintiff could have lost control over S.

⑤ In full view of all the process that GG traded the instant stocks, it appears that SS intended to acquire and make a bypass the KOSDAQ-listed corporation. In order for GG to list to the KOSDAQ market in such a way, it has secured the right of management of SS, and GG is calculated from the perspective of a reasonable economic person pursuing profits for the cost necessary for the transfer of management rights from the Plaintiff, and then determined the transaction price of the instant stocks. It cannot be deemed that it donated profits to the Plaintiff by determining the transaction price without any calculation, and that it was engaged in a transaction in which it considers losses to the Plaintiff.

6) The instant contract and the attached agreements cannot be assessed separately. The Plaintiff and GG agreed to sell and sell to GG 6,00,000 shares of SS to 1,000 won per share in accordance with the attached agreements. Upon the implementation of this part, the Plaintiff sells to GG 7 million shares to 11 billion won (1,571 won per share). The Korea Exchange’s market price or the price of the Plaintiff sold to XX does not significantly differ from that of the Plaintiff. Considering the transfer of management rights and the stock transaction following the attached agreements, the Plaintiff and GG did not have economic rationality to determine the price of the instant shares of 5 billion won per share.

3) Therefore, the instant disposition taken on a different premise should be revoked as it is unlawful.

section 3.

3. Conclusion

Thus, the plaintiff's claim of this case is reasonable, and it is so ordered as per Disposition by admitting it.

shall be ruled.