Whether depository receipts are included in the scope of stock certificates

Depository receipts may not be allowed to impose securities transaction tax on the transaction because they are not included in the stock certificates and depository receipts are similar to the stock certificates.

Article 2 of the Securities Transaction Tax Act / [Definitions]

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The records of this case and the judgment of the court below and the grounds of appeal were examined. However, the grounds of appeal by the appellant are not included in the grounds prescribed in each subparagraph of Article 4(1) of the Act on Special Cases Concerning the Procedure for Appeal, and the appeal is dismissed in accordance with Article 5 of the same Act. It is so decided as per Disposition by the assent

[Seoul High Court Decision 2007Nu14567, May 15, 2008]

The defendant's appeal is dismissed.

Expenses for appeal shall be borne by the defendant.

The Defendant’s disposition imposing securities transaction tax of KRW 6,327,839,550 against the Plaintiff on November 8, 2005 shall be revoked.

The purport of appeal: Revocation of the judgment of the first instance. The plaintiff's claim is dismissed.

The court's explanation on the instant case is identical to the reasoning of the first instance court's judgment, and thus, citing it in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

Therefore, the judgment of the first instance court is legitimate, and the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.

[Seoul Administrative Court 2006Guhap3701, May 17, 2007]

1. The Defendant’s disposition imposing securities transaction tax of KRW 6,327,839,550 against the Plaintiff on November 8, 2005 shall be revoked.

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

The same shall apply to the order.

1. Details of disposition;

A. Around May 2004, the Plaintiff, a company established under the ○○○○○ Act, purchased ○○-○○ Confection (hereinafter “instant depository receipts”) receipts from ○○○-○○ Confection, a company established under ○○○○○○○○○○○, and paid the full purchase price.

B. On November 8, 2005, the Defendant: (a) considered that the depository receipts of this case constitute the share certificates that are subject to the securities transaction tax under Article 2(1)1 of the Securities Transaction Tax Act; and (b) issued a disposition of imposition of KRW 5,752,58,10 as well as additional tax of KRW 575,258,140 as to the Plaintiff (hereinafter “instant disposition”).

【Ground for recognition】 Facts that there is no dispute

2. Whether the instant disposition is lawful

A. The parties' assertion

Article 2 (1) 2 of the Securities Transaction Tax Act provides that the Plaintiff’s stock certificates shall not be included in “stock certificates” under Article 2 (1) 1 of the Securities Transaction Tax Act, and thus, the Defendant asserted that the instant stock certificates are not subject to securities transaction tax, and that the instant securities depository receipts are not subject to securities transaction tax, and that the instant securities depository receipts may be listed on the Korea Stock Exchange on May 1995. As such, the instant securities depository receipts are newly established under the Securities Transaction Tax Act (Act No. 5156, Aug. 14, 1996) in order to ensure taxation balance between the stock certificates issued by a domestic corporation and the stock certificates issued by a foreign corporation, and that the instant securities depository receipts were not subject to securities transaction tax, and that the instant securities depository receipts were not subject to securities transaction tax, and that the instant securities depository receipts were issued for the purpose of raising funds in a foreign securities market, and that the holders of the purchased securities depository receipts were not subject to the allocation of ○○-bank stocks issued through the instant securities depository receipts.

(b) Related statutes;

Article 1 of the Securities Transaction Tax Act

The securities transaction tax shall be levied on a transfer of stock certificates or shares (hereinafter referred to as "stock certificates, etc."): Provided, That in cases where the transfer of stock certificates, etc. falls under any of the following subparagraphs, the securities transaction tax shall not be levied:

1. Where stocks, etc. symbolicly are transferred to a foreign market (limited to such a market as determined by the Presidential Decree; hereafter in this Article, referred to as the "foreign securities market") similar to the securities market and Association brokerage market under the Securities and Exchange Act;

○ 2 Conciliation

(1) The term "share certificates" in this Act means certificates falling under any of the following subparagraphs:

1. Stock certificates of a corporation established under the Commercial Act or special Acts;

2. Stock certificates or depository receipts which are listed or registered in the securities market, etc. issued by a foreign corporation.

(4) Stocks before the issuance of stock certificates, rights arising from underwriting of stocks, preemptive rights and investment certificates issued by a corporation established by special Acts shall be deemed stock certificates in the application of this Act.

○ taxpayer under Article 3

A taxpayer of securities transaction tax shall be any of the following persons:

In cases of transfer of stocks, etc. other than those under subparagraphs 1 and 2, the transferor of the relevant stocks, etc.: Provided, That where a nonresident or a foreign corporation which does not have a domestic business place or a domestic business place transfers stocks, etc. other than through a securities company, the transferee of the relevant stocks,

(c) Fact of recognition;

(1) The ○ Bank is a stock company established on September 19, 1981 for the purpose of financial business.

(2) Article 9(1) of the Articles of ○○ Bank’s articles of incorporation provides that ○○ Bank’s shareholders shall have the right to receive new shares in proportion to the number of shares owned by them in the issuance of new shares. Paragraph (2) of the same Article provides that ○○ Bank’s articles of incorporation shall have the right to receive new shares in proportion to the number of shares owned by them in the issuance of new shares. Notwithstanding the provisions of the main sentence of paragraph (1), a resolution of the board of directors may allocate new

(3) On November 15, 200, 200, 2000 depository receipts and 20,000 registry receipts were issued on February 23, 2002. Of them, 74,226,857 registry receipts of this case were acquired and owned by ○○-○○○○ Consort on May 2004.

(4) The depository receipts of this case indicate that “The certificate of the right to receive ○○ Bank’s shares or the certificate of the right to receive ○○ Bank’s shares are the GDR representing common shares with a face value of 5,000 won per share.”

(5) On September 9, 2000, on the letter of approval for the acquisition of ○○○-○ Conscison shares of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○. In relation to ○○○○, it stated that 17.9% shares of 17.9% of the number of outstanding voting shares of ○○○○○○○○○○○○○○○○○ in the contents of the application. The ○○○-○ Conscis on the part of the ○○○○○○○○○○○○○○○○○○○○, upon the receipt of the depository receipts of ○○○○○○ bank, exercised its management right by having

(6) On the register of shareholders of ○○○-○○ Contac-○ Contac Cor-○ Cor-○ Cor-○ Cor-○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Contac was registered as shareholders from the date on which ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ Contac was acquired the instant depository receipts to the date on which ○ ○

(7) Although there were 33 domestic companies as well as ○○ Products Co., Ltd. on or around December 1990 that issued depository receipts abroad, there were no cases where Korean securities transaction tax was imposed on the transaction of depository receipts.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 7, 8-1, 2, Eul evidence 1, 2, 3, 5, 6, 7-1 to 4, 8, 9-1, 2, 11, and 16, and the purport of the whole pleadings

D. Determination

(1) Legal relations of depository receipts

When a company intends to issue stocks and raise funds in a foreign country, it is subject to inconvenience due to trade customs between countries, legal system, and language differences, so that stock certificates are issued in lieu of stock certificates for the purpose of eliminating such inconvenience and enhancing distributionability, and stock certificates are divided by nature in that stock certificates are securities representing the original right to claim for stock certificates, while stock certificates are securities representing the "stocks, which are rights under the Commercial Act."

When a domestic corporation issues depository receipts outside of Korea, the actual stock certificates shall be deposited at ○○○○○○○○○○○, and the depository receipts shall be issued through the depository institution outside of Korea, and the forms of certificates, names and contents of the original stock certificates, the method of exercising shareholder rights, the method of depositing the certificates, the transfer and sale of the certificates, the procedure of taking over and selling the certificates, the remittance of dividends, the capital increase procedure, etc. shall be determined specifically

(2) Determination as to whether the “stock certificates” under Article 2(1)1 of the Securities Transaction Tax Act includes “stock certificates”

① Article 2(1) of the Securities Transaction Tax Act provides that “stock certificates or depository receipts shall be deemed as stock certificates under the Securities Transaction Tax Act.” Article 2(1) of the same Act provides that “stock certificates or depository receipts shall be deemed as stock certificates” and subparagraph 1 provides that “stock certificates shall not be included in stock certificates under subparagraph 1.” <2 If depository receipts are included as stock certificates or depository receipts in substance and are included in the matter of course, “stock certificates” under subparagraph 2 shall be deemed as “stock certificates.” (3) Article 2(4) of the Securities Transaction Tax Act provides that “stock certificates shall be deemed as stock certificates before the issuance of stock certificates, rights arising from the acquisition of stocks, preemptive rights, and stock certificates issued by a corporation established under special Acts shall be deemed as stock certificates in the application of this Act, and it shall not be deemed as including “stock certificates or depository receipts” under subparagraph 1 of Article 2 of the same Act, and it shall not be deemed as a “securities receipts or securities transaction tax” under subparagraph 2 of the same Article.

(3) Whether the substance of the depository receipts can be treated equally as stock certificates

The Defendant asserts that ○○○○○○ Bank should be treated as stock certificates because the purpose of ○○○○○○○○○ Bank’s holding of securities depository receipts is different from that of securities depository receipts, and thus, should be treated as stock certificates. However, the Defendant’s holding of ○○○○○○○○○ Bank’s holding of securities market bonds should be strictly construed as ○○○○○ Bank’s holding of securities market bonds, and it should not be subject to securities transaction tax because of the economic consequences arising from such transactions (in the case of transfer of ○○○ Bank’s stocks holding only real estate), (2) determination of similarity between ○○○○ Bank’s holding of securities depository receipts and ○○○ Bank’s holding of securities market bonds may not be subject to securities transaction tax because of the fact that ○○○ Bank’s holding of securities depository receipts and ○○○○○ Bank’s holding of securities in formality would be able to issue securities depository receipts and ○○ Bank’s holding of securities other than ○○○ Bank’s holding of securities.

3. Conclusion

Therefore, the instant depository receipts are not included in the “share certificate” under Article 2(1)1 of the Securities Transaction Tax Act, and it is not permissible to impose securities transaction tax on the instant depository receipts on the grounds that the instant depository receipts are similar to the share certificates. The instant depository receipts cannot be viewed differently solely on the fact that the Plaintiff, a holder of the instant depository receipts, is listed as a shareholder in the ○○ Bank’s shareholder registry or exercises management rights on ○○ Bank. Therefore, the instant disposition is unlawful, and the Plaintiff’s claim seeking the revocation of the instant disposition on such ground is reasonable, and thus, it is so decided as per Disposition by the assent of all participating Justices.