The third party conversion situation and acquisition of warrant certificates to avoid gift tax;

Where a company enters into a contract with a person who is not in a special relationship, and the largest shareholder of the company is deemed to bear the risk of stock price fluctuations for a considerable period of time, etc., gift tax shall not be levied on the profits accruing from the acquisition of convertible bonds and bonds with warrants.

Articles 2, 40 and 41 of the Inheritance Tax and Gift Tax Act

2012Guhap5185 Revocation of Disposition of Imposition of Gift Tax

OO

O Head of tax office

1. On July 7, 2011, the Defendant revoked each imposition of KRW 34,598,920 on gift tax for the year 2008, and KRW 1,792,151,070 on gift tax for the year 2009, and KRW 6,637,72,170 on gift tax for the year 2010.

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

The same shall apply to the order.

1. Details of the disposition;

A. AA(BB) is a company specializing in the production and supply of arms EL (Elecre. Finance and self-explosion weapons) and was established on April 28, 199 and listed on the KOSDAQ market on October 25, 2007, and the Plaintiff is the largest shareholder, representative director, and representative director of AAA, or the gift tax attributed to year 2008.

"1) On December 6, 2005, AA made a contract with CCC (hereinafter referred to as "CCC") to acquire convertible bonds, and on December 9, 2009, the ACC issued convertible bonds of KRW 500 million in total face value (hereinafter referred to as "instant convertible bonds") to CCC. (2) On December 29, 2006, the Plaintiff acquired from CCC the total face value of the instant convertible bonds of KRW 350 million in total at KRW 3.5 million, and on November 18, 2008, the Plaintiff exercised the conversion right to all of the instant convertible bonds [3,100,000 won in total at the exercise price per share, KRW 50,00 in total, and KRW 112,90 in preference to each other (hereinafter referred to as "instant convertible bonds"), and converted into common share on November 29, 2008 (hereinafter the same shall apply].

"3) On July 7, 2011, the Defendant issued a notice of KRW 34,598,920 on the ground that the Plaintiff received gift tax equivalent to the difference between KRW 1,675 and the conversion value of KRW 1,200 at the time as to the above common shares on November 20, 2008 (i.e., KRW 3,100 + 2.58 shares).” The Defendant issued a notice of KRW 34,598,920 on the ground that the Plaintiff received gift tax equivalent to the difference between KRW 1,675 and KRW 1,20 at the time.

1) On December 7, 2006, AA entered into a bond acquisition contract with DD Co., Ltd. (hereinafter referred to as "DD"), and on December 12, 2006, on December 12, 2006, AA issued the first non-guaranteed overseas bonds with warrants (hereinafter referred to as "first bonds with warrants") of JPY 370,000,000 (fixed exchange rate of KRW 800,38,000,000 (fixed exchange rate of KRW 100,000) for the first non-guaranteed overseas bonds with warrants (hereinafter referred to as "first bonds with warrants"), and instead, on the same day, the 1 bonds with warrants of this case were entirely transferred to ASIB BON UNH (CAY) LITD (special purpose corporations for the issuance of asset-backed securities, hereinafter referred to as "SPC").

(2) SPC issued P-CBXP (hereinafter referred to as "P-CBO"), which is a bond security instrument, and sold to overseas investors and Small and Medium Business Corporation, and separated warrant certificates (hereinafter referred to as "non-instant first warrant certificates") were sold to the Plaintiff, substitute securities, etc. on December 15, 2006. (iii) The Plaintiff from SPC on December 15, 2006, 50% (the total face value) out of the first warrant certificates of this case from SPC.

JPY 185,00,000) transferred JPY 13,875,000 (in case of conversion into Korean won at that time, 110,131,425 won) to JPY 13,875,00, and on September 14, 2009, exercise the First PPS securities of this case (2,450 won per exercising price per share)

AA acquired 604,368 common shares.

"4) On July 7, 2011, the Defendant rendered a decision on KRW 1,792,151,070 as gift tax on the Plaintiff on the ground that the Plaintiff received the gift equivalent to the difference between KRW 20,450 at the time and KRW 2,450 at the event price at the time on the said KRW 604,368 (hereinafter “instant second disposition”) and the gift tax reverted to the Plaintiff in 2010.”

(1) On April 8, 2008, AAE (hereinafter referred to as the "EE") entered into an underwriting contract with the E EE Co., Ltd. (hereinafter referred to as the "EE"), and on the same day, AA issued a second-time bearer bonds with non-registered domestic privately placed bonds (hereinafter referred to as the "second-time bonds with non-registered bonds") with the eE on the same day, and on April 8, 2008, the Plaintiff acquired 50% (the total face value 2.5 billion won) out of the warrant certificates separated from the second bonds with non-registered bonds (hereinafter referred to as the "second bonds with non-registered warrant") from EE on April 8, 2008, the Plaintiff acquired 50% of the total face value of the second bonds with non-registered bonds with non-registered bonds at KRW 2,877 won per share, and acquired the common share of AA86,960,000 on April 20, 2010.

3) On July 7, 2011, the Defendant decided and notified the Plaintiff of KRW 6,637,772,170 as gift tax on the ground that the Plaintiff received the gift equivalent to the difference between KRW 22,000 at the time and KRW 2,877 at the time of the event with respect to the said KRW 868,960 (hereinafter “instant disposition”).

E. On October 4, 201, the Plaintiff, who was dissatisfied with each of the instant dispositions, filed an appeal with the Tax Tribunal on October 4, 2011.

However, it was all dismissed on September 13, 2012.

[In the absence of a dispute with recognition, each entry in Gap evidence 1 through 13 (including each number, if any) and the purport of the whole pleading

2. Whether each disposition of this case is lawful

A. The parties' assertion

1) The defendant's assertion

A) The Plaintiff acquired the instant convertible bonds and each of the warrant certificates from DD, SPC, and EE, corresponding to the “takeover” under the former Securities and Exchange Act, and each of the instant dispositions is lawful, based on Article 40(1)2(b) of the Inheritance Tax and Gift Tax Act.

(B) Even if DD, SPC, and EE do not correspond to 'takeovers under the former Securities and Exchange Act', and the plaintiff unfairly reduced gift tax by means of DD, SPC, and EE going through a third party in order to avoid gift tax when directly acquiring the instant convertible bonds and each of the warrant certificates from AAA, and thus, Article 40 (1) 2 (b) of the Inheritance Tax and Gift Tax Act applies in accordance with Article 2 (4) of the Inheritance Tax and Gift Tax Act. Further, the plaintiff obtained huge profits from market price by exercising the instant convertible bonds and each of the warrant certificates, which constitutes a benefit under Article 42 (1) 3 of the Inheritance Tax and Gift Tax Act. Each of the instant dispositions are legitimate even under the above provisions.

2) The plaintiff's assertion

A) Since DD, SPC, and EE do not correspond to the transferee under the former Securities and Exchange Act, Article 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be the basis provision for the instant disposition.

B) AA issued the instant convertible bonds and each warrant bond for financing, and the Plaintiff had no choice but to acquire the instant convertible bonds and each warrant bond at the financial institution’s request. The Plaintiff’s acquisition of profits equivalent to the share price difference due to the exercise of the instant convertible bonds and each warrant bond is due to the increase in the listing and sales on the KOSDAQ market of AA, and the Plaintiff was at risk of share price fluctuations, and there was no unfair reduction of gift tax. Therefore, Articles 2(4) and 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be a ground provision for the instant disposition.

C) Furthermore, the Plaintiff acquired the instant convertible bonds and each of the warrant certificates from DD, SPC, and EE that did not have a special relationship, and each of the above transactions is recognized as justifiable grounds in light of the transactional practice, and Article 42(1)3 of the Inheritance Tax and Gift Tax Act cannot be the grounds for the instant disposition pursuant to Article 42(3) of the Inheritance Tax and Gift Tax Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) As to the first and second dispositions of this case, Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 916, Jan. 1, 2010); as to whether Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201) can be the direct basis for each of the provisions under Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act (hereinafter referred to as "the former Inheritance Tax and Gift Tax Act, and the former Inheritance Tax and Gift Tax Act" (hereinafter referred to as "the Inheritance Tax and Gift Tax Act, including the former

A) Article 40 (1) 2 (b) of the Inheritance Tax and Gift Tax Act provides that where the largest shareholder or a person specially related to the largest shareholder of a corporation that issued convertible bonds or warrant certificates, etc., who is the shareholder, has received "acquisition, etc. (including acquisition by transfer from an underwriter under the Securities and Exchange Act) in excess of the number of shares that can be allocated under equal conditions in proportion to the number of shares held by the relevant corporation, the amount equivalent to the relevant profits shall be deemed the value of property donated to the person who has acquired such profits, in case where the value of shares issued or to be received by the convertible

Article 2 (6) and (7) of the former Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007; hereinafter referred to as the "former Securities and Exchange Act") which has been applied until February 3, 2009 provides that "an underwriter" means a person who acquires securities (in issuing securities, acquiring all or part of the securities from an issuer of such securities for the purpose of selling them)" and Article 2 (4) of the former Securities and Exchange Act and Article 2-4 (2) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20947 of Jul. 29, 2008; hereinafter referred to as the "former Enforcement Decree of the Securities and Exchange Act") provides that "any person who has received an offer for the sale of securities shall be a shareholder of the same kind or a person who has received an offer for the sale of securities outside the securities market or the KOSDAQ, and the person who has received an offer for the sale of securities shall be excluded from 20 months or more of the preceding subscription.

(2) In addition, Article 44 (1) of the former Financial Investment Services and Capital Markets Act (amended by Act No. 1063 of March 12, 2010) provides that "this case's subscription for new and outstanding securities is 5% or more of the total number of subscription for new and outstanding securities issued by the Financial Investment Services and Capital Markets Act" and Article 9 (1) 12 of the same Act provides that "this case's subscription for new and outstanding securities issued by the Financial Supervisory Commission is 0% or more of the total number of subscription for new and outstanding securities issued by the Financial Investment Services and Capital Markets Act" and that such subscription for new and outstanding securities is 9% or more of the total number of subscription for new and outstanding securities issued by the Financial Supervisory Commission. It means 0% of the total number of subscription for new and outstanding securities issued by the Financial Investment Services and Capital Markets Act, and that such subscription for new and outstanding securities is 9% or more of the total number of subscription for new and outstanding securities purchased by the Financial Supervisory Commission."

Therefore, Article 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be a direct basis for each of the dispositions in this case.

2) Whether Article 2(4) and Article 40(1)2(b) of the Inheritance Tax and Gift Tax Act can be applied

A) Article 2(4) of the Inheritance Tax and Gift Tax Act provides that where it is deemed that the inheritance tax or gift tax has been unjustly reduced by indirect or indirect means via a third party, or by means of two or more acts or transactions, it shall be deemed that such economic substance has been directly made by the party concerned, or that such act or transaction has been conducted consecutively. For the purpose of applying Article 2(4) of the Inheritance Tax and Gift Tax Act, it shall be recognized that “the inheritance tax or gift tax has been unjustly reduced” is “the inheritance tax or gift tax has been unjustly reduced.” The legislative purpose of the above provision is to realize equality by regulating the tax avoidance act in order to avoid or reduce the burden of inheritance tax or gift tax by taking into account the form of transaction in which a third party or another act or transaction is made in the middle. Therefore, it shall be determined by whether the general public has not any reasonable transaction form of choice, as the degree of recognition of the intention

B) As to the first disposition of this case

(1) Facts of recognition

In full view of the aforementioned evidence, the following facts can be acknowledged in light of Gap evidence 14-1, Gap evidence 15-1, Gap evidence 20-20, the fact-finding results with respect to the FFF corporation of this court, and witness GG testimony.

(A) AA is taking most part of the sales of the mobile phone package weapons, and around September 2005, AA was adopted as a component by passing through the specification test of the weapons CEL installed in the HH mobile phone and then the fund for product production and company operation was required.

(B) In order to raise funds for product production and operation to be supplied to H, AA requested financial institutions such as major banks, III, and investment companies to provide loans, but AA was refused for all of the reasons that AA’s sales until 2004 was merely a small and medium enterprise with a total of KRW 1 billion and a small and medium enterprise with a total of KRW 1 billion and is not able to hold a business feasibility contest. Ultimately, only DDs invested in AA in 2002 and 2004 determined the terms and conditions of the subscription bond underwriting contract and prepared the draft proposal for the contract, clearly stating its intent to acquire convertible bonds with the following contents.

Acceptance of Convertible Bonds

Article 1 (Purpose of Contract)

This Agreement is between DDR, AA, and the Plaintiff in accepting convertible bonds issued by DDR as part of financing required by AA to commercialize the ELkids as part of financing.

The purpose is to determine the rights and obligations arising under this Act.

Article 11 (Conditions on Issuance of Bonds)

Matters concerning the terms and conditions of issuance of bonds issued by AA and the conversion thereof shall be as follows:

(1) General matters

1. Name of bonds: First convertible bonds;

2. Types of bonds: Registered convertible bonds; and

3. Total face value of bonds: 500,000,000 won; and

4. Issuance price of bonds: 100% of the face value of bonds;

5. Period for maturity of bonds: November 30, 2008

6. Interest rate of the debentures: 8% per annum;

(2) Matters concerning conversion;

2. Conversion price;

(a) The face value (gold to KRW 5,000) of the stocks issued by AA shall be 6.2 times (gold to KRW 31,00): Provided, That if there is a special agreement on the adjustment of conversion price, it shall be followed; and

3. Period for claiming conversion: It shall be from the date of issuance of the bonds to the date of redemption: Provided, That 70% of the total issued amount may be converted from June 1, 2007;

Article 17 (Matters concerning Conversion)

The conversion ratio shall be adjusted according to the ordinary profits of the financial statements approved at the general meeting of shareholders for the settlement of the business year 2005 approved by the AA, provided that the results of the business year 2005 of the AA shall be based on the external audit report of a reliable accounting firm designated by the company, and if the development costs of the financial statements for the settlement of the business year 2005 exceed KRW 500 million, the ordinary profits of this paragraph shall be revised and calculated by the amount calculated by subtracting the excess amount.

205 Ordinary profit

Preferred Shares Conversion Ratio per Common Shares

17.50 or less billion shares, 2.58 shares

Article 20-2 (Right of Early Redemption)

AA and the Plaintiff may request early redemption of the convertible bonds of this case to DDR, and DDR shall be bound to comply with within the limit of 70% of the amount of issuance.

(1) In this case, the amount of early redemption shall be the sum of the investment principal and the interest calculated by applying 10% per annum to the same amount from the date of issuance to the date of completion of redemption, and the interest paid shall be subtracted from the amount.

Sheet, AA, and the Plaintiff shall exercise their rights until May 31, 2007 after the issuance of this case’s convertible bonds. Subsequent to the issuance of this case, DD has no obligation to comply.

(C) The conversion ratio of the instant convertible bonds was objectively determined in accordance with the AA’s business performance in 2005 based on Article 17 of the Convertible Bonds Subscription Agreement, and DD granted the AA and the Plaintiff the right to early redemption for decision making.

(D) AA around 2004, based on the amount borrowed from DD from sales 1.3 billion won, supplied DD with arms to HH, thereby rapidly growing around 2005 and 38.1 billion won around 2006, and was listed on KOSDAQ market on October 25, 2007.

(E) On November 20, 2008, the Plaintiff KRW 1,20 per share of the instant convertible bonds (=3,100 won +

2.58 Shares were converted into common shares. Examining the trends of AAAA’s stock price fluctuations, around October 29, 2007, following the listing on the KOSDAQ market, the share price was KRW 7,650 per share, but the subsequent decline was thereafter brought down to KRW 1,695 on November 20, 2008, and around November 30, 2008, on the due date for the bond, KRW 1,755 on November 30, 2008.

(2) Determination

In full view of the following circumstances revealed from the above facts, it cannot be deemed that the Plaintiff unfairly reduced the gift tax by means of an indirect method via DD, two or more acts or transactions. Thus, Articles 2(4) and 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be the basis for the first disposition.

① On September 2005, AA was merely 1 billion won sales in the previous year, and there was a lack of funds to produce a large amount of non-organic products, and even if they made efforts to contact with financial institutions several times, the AA would be deemed to have issued convertible bonds to DD who expressed his/her intention of borrowing. Funds raised from DD were used as funds for the production and operation of products supplied to H.

② At the time of acquiring the instant convertible bonds, the Plaintiff exercised the convertible right more than two years after the acquisition of the instant convertible bonds, and at the time, the share price of the AA was the lowest level. However, if the Plaintiff anticipated a change in the share price of the AA and obtained profits from the conversion, the Plaintiff appears to have exercised the convertible right at the time when it was the highest level.

③ Since it is no less favorable for DD to collect loans from the Plaintiff as early as repayment from the Plaintiff as well as AA, DD seems to have a provision on early repayment.

④ In light of the terms and conditions of the agreement and the details of transactions specified in the instant convertible bonds subscription agreement, DD appears to have entered into the instant convertible bonds subscription agreement in order to gain profit as an investor, and it conflicts of interest between the Plaintiff and its related parties, and thus, it seems that there is no reason for the Plaintiff to participate in avoiding the burden of gift tax.

C) As to the second disposition of this case

(1) Facts of recognition

In full view of the above facts, the following facts can be acknowledged in light of the statements in Gap evidence 20, the fact-finding results in JJJ Co., Ltd. and witness GG testimony.

(A) AA increased both sales and costs due to the production and supply of weapons of HH around 2006, but the recovery period for claims against HH was approximately 90 days from the date of sale, and therefore, it was necessary to operate funds for 1-2 months to produce the original products.

"(B) The Small and Medium Business Corporation has decided to collect bonds issued by a large number of small and medium enterprises and to issue asset-backed securities (P-CBO), and the J has been selected as the main securities company of the UN P-CBO in 2006 and has promoted the issuance of overseas bonds with warrants by means of financing of small and medium enterprises including AA on August 24, 2006." (c) AAA entered into a bond acquisition agreement with the JJ on December 7, 2006, with the following contents:

1. Name of bonds: The first non-guaranteed overseas privately placed bonds; and

2. Types of bonds: Bonds with a newly issued overseas private placement type of non-guaranteed bonds.

3. Total face value of bonds: JPY 370,000,000

4. Conditions for issuing bonds;

(a) Par value of each bond: JPY 1,000,000;

(b) Issuance value of bonds: 100% of the face value of each bond;

(c) the surface interest rate of the bonds: 5.40% per annum;

(f) Due date: November 25, 2009

10. Matters pertaining to events;

A) Conditions of events

i. Amount of bonds available: 100% of the face value of the bonds issued;

ii. Exercise price: 35,000 won;

vi. Adjustment of the price of exercise;

- In the case of market decline: The price of the event on December 12, 2007 and every three months thereafter, on which one year has elapsed from the date of the above issuance of the bonds in the case of a listed corporation, shall be adjusted, and the price of the event shall be calculated on the date preceding the date of commencing the exercise price adjustment [the average closing price of one month + the average closing price of one week + the recent closing price of the day + the recent closing price of the day] and the price of the event at a lower price between the higher of the last closing price and the immediately preceding exercise price.

B) Period for claiming an event: From December 12, 2007 to October 25, 2011

(D) Meanwhile, according to the UN P-CB. (asset-backed securities) dedicated to small and medium enterprises, the term "in order to ensure the management and safety of major shareholders, it provides that the additional purchase of preemptive rights shall be permitted if major shareholders desire to do so, and the emergency-based enterprise shall purchase up to a maximum of 50% (including a compulsory purchase 25%) of the total outstanding preemptive rights (including a compulsory purchase 1.% of the total face value at the time of compulsory purchase, and 5% of the total face value at the time of additional purchase)." On December 15, 2006, the Plaintiff purchased 50% of the first preemptive rights securities of this case including 25% of the total compulsory purchase by major shareholders from SPC.

(E) The major shareholder’s provision on the purchase of warrant certificates and additional purchase was commonly applicable to about 50 companies that intend to raise funds through P-CB. The price of non-listed company participating in P-CB. was set at 5 to 10% of the face value, and thus, the Plaintiff’s purchase price of warrant certificates was determined as 10% (mandatory purchase) or 5% (additional purchase) that is similar to the Plaintiff’s purchase price of warrant certificates.

(f) On December 15, 2006, SPC transferred 24.86% of the instant first Preemptive Rights to JJ, and 10% of the instant Preemptive Rights to AA on February 8, 2007. The JJ transferred 20% of the warrant certificates it acquired to AA on February 8, 2007, and AA transferred 30% of the warrant certificates it acquired to the executive director and employees of AA on April 18, 2007.

(G) On September 14, 2009, at the time of the Plaintiff’s exercise of the instant preemptive right, the share price of AA was KRW 20,450 per share, but the Plaintiff acquired KRW 604,368 shares of AA in KRW 2,450 per share through adjustment from KRW 3,50 per share, which is the initial exercise price, and the exercise price so adjusted is determined within the scope of the exercise price calculated by the method determined by the Small and Medium Business Corporation in charge of the issuance of P-CBO and the Small and Medium Business Corporation in charge of the issuance of the P-CBO and the Small and Medium Business Corporation in lieu of the securities.

(2) Determination

In full view of the following circumstances known from the above facts, it cannot be deemed that the Plaintiff unfairly reduced the gift tax by an indirect method via SPC, or by a method involving two or more acts or transactions. Thus, Articles 2(4) and 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be the basis for the second disposition of this case.

① Generally, financial institutions offer funds through investment in preemptive rights to new stocks, which are classified as investment assets rather than general loans, to companies with weak financial structure or lack of security. Moreover, financial institutions intend to sell preemptive rights for a long time, rather than obtaining investment returns, and collect investment returns early, and accordingly, take over the preemptive rights immediately by largest shareholders, etc. as conditions for acquisition of new stocks.

(2) The participating companies in P-CB0 shall be unable to obtain general loans from financial institutions.

In light of the credit rating and financial status of the company, it is anticipated that the demand for warrant certificates issued in the light of the company's credit rating and financial status is limited, so it was necessary to make major shareholders purchase the warrant certificates.

③ At the time, the Plaintiff was in need of raising funds through P-CB0 goods, and due to low demand for the First P-B0 Securities, the Plaintiff appears to have been bound to purchase up to 50%, which is the maximum permissible limit as a major shareholder, and 30% of the remaining warrant certificates were purchased by AA and its employees.

(4) The adjustment of the exercise price of preemptive rights shall be to protect investors with respect to the decline, etc. of stocks due to the decline of stock prices in the market and the increase in the number of stocks issued due to capital transactions, and it shall be applied almost in all cases to issue new stocks

⑤ After acquiring the instant first preemptive right, the Plaintiff exercised the warrant certificates in around 2009, around three years ago, and the share price of AA had repeated rise and decline until maturity after acquiring the instant first preemptive right. The Plaintiff shall be deemed to have obtained profits equivalent to the difference between the share price because it had incurred risks arising from stock price fluctuations for three years after acquiring the instant first preemptive right.

6) In light of the contents of the instant underwriting agreement and the developments leading up to the transactions and the structure of P-CBO goods, and the JJ and SPC are in conflict of interests between the Plaintiff and its related parties, and thus, there is no reason for the Plaintiff to be involved in evading gift tax burden.

D) As to the disposition No. 3 of this case

(1) Facts of recognition

According to the above evidence, Gap evidence No. 14-2, Gap evidence No. 15, 16, 20, 21, and 22, and the court's fact-finding results on EE, the following facts can be acknowledged.

(A) AA had a short-term net loss of KRW 4 billion in the second half of 2007, and KRW 7.6 billion in the first half of 2008, due to the KAO currency option contract concluded in order to avoid exchange rate fluctuations, and there was a short-term net loss of KRW 7.6 billion in the second half of 2007, and there was a shortage of cash liquidity. However, financial institutions showed a critical attitude in lending because of the situation where AA’s financial status worsens and there was concerns over additional losses in the second half.

(B) AA concluded a contract to underwrite privately placed bonds with warrants with the following content on the condition that he/she purchases the warrant certificates, which he/she was separated from the bonds with warrants, or seeks to find the purchaser.

Article 1 Conditions of Issuance

1. Name of the debentures: Type II bearer domestic bonds with warrants; and

2. Type of bonds: Unregistered private placement bonds with warrant.

A separate type means a type that can be transferred by separating "securities with preemptive rights" that indicate a right to request issuance of new stocks from the bonds, and the non-Separate type refers to a form that can not be transferred separately from the bonds and can be transferred by combining them.

3. Total face value of bonds: 5,000,000 won (5,000,000 won).

5. Issuance price of bonds: 100% of the face value;

6. Interest rate of the debentures: 7.40% per annum.

10. Redemption date of bonds: April 8, 201

Article 4 Matters relating to the exercise of preemptive rights

1. Conditions for exercising the preemptive rights;

(b) The value of events: 4,110 won (amounting to 500 won);

In cases of listed companies, bonds with warrants shall be issued in accordance with the Regulations on Issuance and Public Notice of Securities.

The average closing price for one month retroactive from the date of the resolution of the board of directors for B shall be the average closing price for each week, the average closing price for each week, and the average closing price for the last day, and shall be at least the higher of the closing price for the last three trading days before the date of the resolution of the board of directors for B.

3. Period for exercising preemptive rights: From April 8, 2009 to March 8, 2011;

(C) Of the instant 2 preemptive rights, 50% of the instant 2 preemptive rights were purchased by the Plaintiff, and 14% were purchased by the regular managers of the AA, 26% was sold to the general public, and the remainder of 10% was not found by the AA, and the EE was ultimately sold to LL.

(D) On April 8, 2008, the Plaintiff acquired the instant securities with the face value of KRW 75,000,000, the face value of KRW 2,500,000, and at the time the securities were traded from the preemptive rights to KRW 4-5%.

(E) On April 8, 2008, the Plaintiff acquired the instant securities of the instant 2nd preemptive right, with KRW 4,090 per share, and at the time of April 20, 2010, with the share price of KRW 22,00 per share as of April 20, 2010, the Plaintiff acquired the shares of KRW 2,877 per share by undergoing an adjustment according to the decline in market price at KRW 4,110 per share, which is the exercise price, and the Plaintiff acquired shares of KRW 4,877 per share.

(F) The exercise price of the second preemptive right of this case is determined as “in accordance with the provisions on the issuance and public disclosure of securities, the average closing price of one month prior to the date of the resolution of the board of directors for the issuance of bonds with warrants, the average closing price of one week, and the closing price of the last day, the average closing price of the last day, and the highest closing price of the last three transaction days prior to the payment date.”

(2) Determination

In full view of the following circumstances revealed from the above facts, it cannot be deemed that the Plaintiff unfairly reduced the gift tax by an indirect method via EE, two or more acts or transactions. Thus, Articles 2(4) and 40(1)2(b) of the Inheritance Tax and Gift Tax Act cannot be the basis for the disposition No. 3 of this case.

① At the time of issuance of 2nd bonds with warrants, AA seems to have no choice but to accept the request of the foreign exchange bank, which expressed its intent on the condition that the large shareholder would acquire warrant certificates and find the purchasing place as the financial institutions refused to lend loans in an urgent situation.

② The acquisition price of the instant second preemptive right is determined as 5% of the face value in the face value, and the share price at the time of acquisition of the instant second preemptive right is determined as 4,090 won below the exercise price of KRW 4,110, and thus, it is not deemed that it was acquired under particularly favorable terms.

③ The share price of AA repeats the rise and decline from the acquisition of the 2nd preemptive right to the maturity after the acquisition of the 2nd preemptive right to new shares, and the Plaintiff, for two years after the acquisition of the 2nd preemptive right to new shares, shall be deemed to have obtained profits equivalent to the difference between the share price and the risk resulting from the

④ In light of the content of the instant underwriting agreement and the details of the transaction, and the foreign exchange bank is in conflict of interest between the Plaintiff and its related parties. Therefore, it seems that there is no reason for the Plaintiff to participate in avoiding the gift tax burden.

3) Whether Article 42(1)3 of the Inheritance Tax and Gift Tax Act is applicable

Article 42(1)3 of the Inheritance Tax and Gift Tax Act, and Article 42(1)3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that where profits are acquired from transactions such as conversion, acceptance, and exchange of stocks by convertible bonds which increase or decrease the capital of the corporation above the standard prescribed by the Presidential Decree, such profits shall be the value of donated property of the person who acquired such profits, and where stocks are converted, such profits shall be the value less the value of conversion, etc. from the value of the stocks as at the time of the conversion of stocks. In applying Article 31-9(1)1 of the Inheritance Tax and Gift Tax Act, where there is a justifiable reason for transaction practice, those who are in a special relationship under Article 42(3)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not apply to those who have a relationship under each subparagraph of Article 19(2)1 of the same Act, and Article 19(2)6 of the Enforcement Decree of the same Act provides that "one person who acquires stocks from a special relationship with the shareholder and his relative, etc." shall not apply to 30% or more of the total issued stocks.

B) First, we examine whether the Plaintiff’s act of acquiring and exercising the instant convertible bonds and each of the warrant certificates constitutes a transaction between specially related persons. There is no evidence to prove that the Plaintiff had a special relationship with DD, SPC, and EE at the time of acquiring the instant convertible bonds and each of the warrant certificates. The Plaintiff was the representative director and the largest shareholder of AA at the time of exercising the instant convertible bonds and each of the warrant certificates. However, according to the entries in Gap’s evidence No. 23, the Plaintiff and his relatives did not hold more than 30% of the shares AA at the time, and thus, it cannot be deemed that there was a relationship under each subparagraph of Article 19(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Accordingly, all of the other parties to the transaction at the time and exercise of the instant convertible bonds and each of the warrant certificates are not a specially related person

C) Next, we examine whether there is a legitimate reason for a transaction practice.

"As seen above, AA issued the instant convertible bonds and bonds with warrants according to the necessity of financing. The funds raised therefrom are used as operational funds of AAA, and the method of issuing convertible bonds and bonds with warrants seems to be attributable to the intent of the financial institution. The exercising price was adjusted due to the decline in the share price of AA after the issuance of each of the instant bonds with warrants. After holding the instant convertible bonds and each of the warrant certificates, the Plaintiff held them for 2 to 3 years, and exercised them at maturity. The Plaintiff’s profit gained from the exercise of the instant convertible bonds and bonds with warrants is due to the growth of AA and the Plaintiff’s risk of stock price change for a considerable period of time. In full view of the following, Article 42(3) of the Inheritance Tax and Gift Tax Act provides that “The Plaintiff has justifiable grounds under the practice of trading” under Article 42(3) of the Inheritance Tax and Gift Tax Act with respect to the acquisition and exercise of the instant convertible bonds and bonds with warrants, and therefore, there are no justifiable grounds for each disposition under Article 42(3)4(1)4)2) of the Inheritance Tax Act.

4) Ultimately, each of the instant dispositions against which gift tax is imposed on the Plaintiff by applying Article 2(4) of the Inheritance Tax and Gift Tax Act and Article 40(1)2(b) or Article 42(1)3 of the same Act is unlawful.

3. Conclusion

If so, the plaintiff's claim is reasonable, it is decided to accept it and it is also decided as ordered.