As long as the fact of title trust is recognized, the Plaintiff’s claim is without merit, since the Plaintiff failed to prove that there was an obvious purpose other than the purpose of tax avoidance.

It is insufficient for the Plaintiff to recognize that there was no purpose of tax avoidance in obtaining title trust from BB the instant shares, and there is no other evidence to acknowledge this otherwise. Therefore, the Plaintiff’s claim is without merit.

Article 45-2 of the Inheritance Tax and Gift Tax Act (Legal Fiction as Donation of Title Trust Property)

Changwon District Court-2016-Gu Partnership-726 (2018.03)

AA

○○ Head of tax office

2018.03.20

2018.04.03

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The disposition of imposition of gift tax of KRW 79,972,590 imposed on the Plaintiff on September 4, 2015 by the former Cheong-gu Defendant on September 4, 2015 (the Plaintiff sought revocation of the disposition of imposition of gift tax as of September 5, 2015 from the purport of the claim, but the date of disposition under subparagraph 2 is September 4, 2015).

1. Details of the disposition;

A. BB acquired 16,00 shares out of 32,00 shares issued by DD DG Co., Ltd. (hereinafter referred to as “CCC”), which is engaged in the manufacture, installation, etc. of steel structure on December 15, 2000, among 32,000 shares, 16,00 shares out of 32,00 shares issued by DDG Co., Ltd. (hereinafter referred to as “CC”), and completed the transfer of each transfer under the name of the Plaintiff (CC’s staff) with respect to 6,400 shares out of 6,40 shares, and the remaining 9,60 shares in the name of the EE (CCC staff).

B. CCC issued new shares 67,000 shares with capital increase on February 4, 2002, and BB accepted 13,400 shares among them in the name of the Plaintiff.

C. In addition, on January 4, 2003, CCC issued new shares with capital increase of 5,000 shares, and BB accepted 500 shares among them in the name of the Plaintiff.

D. On November 8, 2007, the Plaintiff retired from the CCC and completed a change of entry in the name of 20,300 shares (=6,400 shares + 13,400 shares + 500 shares; hereinafter “instant shares”) in the name of EE, FF, and GG, the employees of CCC, at the request of BB.

E. From March 7, 2012 to April 20, 2012, the director of the Daegu Regional Tax Office confirmed that BB made a title trust of CCC’s shares to the Plaintiff, etc., and notified the Defendant of the taxation data.

F. On September 4, 2015, the Defendant rendered a disposition of imposition of gift tax of KRW 79,972,590 (including a return and late payment for arrears) (hereinafter “instant disposition”) by deeming that the Plaintiff, a trustee of stock title, received shares from BB pursuant to Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”).

G. Although the Plaintiff filed an objection against the instant disposition on October 6, 2015, the Plaintiff received a decision of dismissal on November 9, 2015, the Plaintiff filed a request for a tax trial on February 5, 2016, but received a decision of dismissal on April 27, 2016. Meanwhile, the Plaintiff issued a disposition of gift tax imposition pursuant to Article 45-2 of the former Inheritance Tax and Gift Tax Act with respect to EE, etc., whose stocks were held in title by BB, and E, etc. filed a lawsuit seeking revocation of the said disposition, but the judgment of dismissal became final and conclusive on May 31, 2017 ( Daegu District Court Decision 2013Guhap859, Daegu High Court Decision 2013Nu10374, Daegu High Court Decision 2014Du43905), and the Plaintiff did not have any dispute arising under recognition on February 5, 2016, including evidence Nos. 1 through 51, 1 through 81, and 830 each of pleadings (including evidence).

2. Relevant statutes;

Attached Form 1 is as shown in attached Table 1.

3. The plaintiff's assertion and judgment

A. The plaintiff's assertion

According to Article 45-2 (1) 1 of the former Inheritance Tax and Gift Tax Act, the Plaintiff does not seem to have received shares under title trust in the absence of the purpose of tax avoidance. However, the Plaintiff asserted that the instant shares were transferred under title trust from BB, but did not have the purpose of tax avoidance. Therefore, the Plaintiff’s disposition of this case, which imposed gift tax on the Plaintiff on the premise of the legal fiction of donation of shares, is unlawful.

B. Determination

1) Legal principles

The legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle with the purport of effectively preventing the act of tax avoidance by using the title trust system and realizing the tax justice. Thus, the application of the proviso of the same Article is possible only if the purpose of tax avoidance is not included in the purpose of the title trust, and in such a case, the burden of proving that there was no purpose of tax avoidance exists no purpose of tax avoidance. Therefore, the burden of proving that there was no purpose of tax avoidance may be proven by means of proving that there was a purpose other than the purpose of tax avoidance. However, the nominal owner who bears the burden of proof has a clear purpose irrelevant to the tax avoidance to the extent that it is recognized that there was no purpose of tax avoidance in the title trust, and the fact that there was no tax avoidance at the time of the title trust or there was no tax avoidance at the time of the title trust should be proven to the extent that it does not have any ordinary doubt (see, e.g.,

2) Determination

In light of the above legal principles, considering the following facts and circumstances acknowledged by adding the whole purport of the pleadings to each of the statements in Gap evidence Nos. 5, Eul evidence Nos. 3 through 10 (including various numbers), each of the statements in Gap evidence Nos. 6 through 16 (including additional numbers) is insufficient to recognize that the plaintiff did not have any purpose of tax avoidance in the title trust of the shares of this case from Eul, and there is no other evidence to support this otherwise, the plaintiff's above assertion is rejected.

A) On December 15, 200, HB, the wife of BB, also acquired 16,000 shares of CCC on December 15, 200. As such, BB and HH, which actually took over 32,00 shares issued by CCC, constitute an oligopolistic shareholder under Article 39(1)2 of the former Framework Act on National Taxes (amended by Act No. 7008 of Dec. 30, 203; hereinafter “former Framework Act on National Taxes”), and thereby, BB had the secondary liability to pay taxes on the national taxes payable by CCC. On December 15, 200, BB had the same appearance as a title trust to the Plaintiff and EE, which does not constitute an oligopolistic shareholder under the above provision. Accordingly, BB had sufficient motive for title trust to avoid the secondary liability to pay taxes on the CCC to the Plaintiff.

B) AB, around 2002, was partially terminated the title trust of its employees and acquired new shares issued by CCC with capital increase, and was externally constituted an oligopolistic shareholder under Article 39(1)2 of the former Framework Act on National Taxes. However, according to the above provisions, the scope of secondary tax liability varies depending on the oligopolistic shareholder’s equity ratio (=number of shares owned/total number of shares issued). Thus, BB still has practical benefit in title trust to the Plaintiff in order to reduce the scope of secondary tax liability by lowering its equity ratio in appearance.

C) While CCC did not pay dividends to shareholders during the title trust of the instant shares, CCC did not pay dividends to the shareholders. However, CCC’s distributable profits were KRW 330,138,018 (the amount obtained by deducting 10% from the retained earnings of this month; hereinafter the same shall apply), KRW 508,839,872 in 2004, and KRW 2,192,287,887 in 2007, and so it was possible for shareholders to pay a considerable amount of dividends. BB had a motive for title trust of the instant shares to the Plaintiff in preparation for a case where dividends are paid in its own name.

D) BB is a small amount of money through a title trust with the Plaintiff, etc., but in fact, BB avoided taxes of KRW 167,000,000, capital gains tax, capital gains tax, and KRW 1,250,000.

4. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.