Seoul Administrative Court-2017-Gu 7429 ( October 21, 2019)

Appellate Court 2016No4314 (Law No. 11, 2017)

When a public-service corporation makes a judgment on the excess of the non-taxation (5%) of the stocks received by it, the simple aggregate of the number of stocks and the number of stocks received by the public-service corporation is legitimate.

It is reasonable to simply add more simply without giving weight (1/2 or (2) to the increased shares of other faithful public corporations (10% non-taxable limit) when determining the excess shares of non-taxation (5%) of the public interest corporations (5% non-taxation limit).

Article 48 of the Inheritance Tax and Gift Tax Act

2019Nu41340 Revocation of Disposition of Imposition of Gift Tax

00. Docium et al.1

00. Head of tax office

on October 05, 2019

October 17, 2019

1. Revocation of a judgment of the first instance;

2. All plaintiffs' claims are dismissed.

3. The costs of the lawsuit are assessed against the Plaintiffs.

1. Purport of claim

The Defendant’s imposition of gift tax of KRW 1,344,519,730 (including additional tax of KRW 308,308,308,290) on September 20, 2016 against the Beneficiary Association of the Republic of Korea, 7,356,532,423 won, and December 1, 2018 on the Plaintiff’s Confidential Art Gallery.

2. Purport of appeal

The same shall apply to the order.

1. cite of the reasons for the written judgment in the first instance;

The reasoning of this Court concerning this case is as follows, and thus, it is consistent with Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

○ From 12 17th to 16th 15th son on the grounds of the judgment of the first instance court shall be as follows:

In full view of all the following circumstances, including the principle of no taxation without law and the legislative history of the proviso of Article 48(1) of the Act and the purport of the introduction of the public interest corporation, it is reasonable to simply aggregate the total sum of the stocks donated to the public interest corporation and the stocks donated to the public interest corporation by the public interest corporation without considering the difference in the taxable value of the public interest corporation. The Plaintiffs’ primary assertion is without merit.

① Strictly interpreting the requirements for taxation as well as the requirements for non-taxation in accordance with the legal language and text accords with the principle of no taxation without the law. In calculating whether the limit of non-taxation exceeds the limit of the taxable value of a public-service corporation, there is no provision distinguishing the general public

Therefore, in calculating whether the taxable value of a public-service corporation exceeds the non-taxable limit, it is reasonable to evaluate the possession of stocks by simply adding the number of stocks issued by a public-service corporation with good faith and the number of stocks issued by a public-service corporation (hereinafter referred to as "a simple cumulative method") without considering the difference in the non-taxable limit. Unlike this, the method of adding up stocks issued by a public-service corporation with 1/2 weight applied to the stock owned by a public-service corporation without any specific legal basis (hereinafter referred to as "aggravated cumulative method") goes against the principle

② The Inheritance Tax and Gift Tax Act amended by Act No. 8828, Dec. 31, 2007, introduced an external audit and public disclosure system, etc. to enhance transparency of revenue and expenditure of public-service corporations, which are the premise for promoting donation culture. In order to encourage the contribution of stocks, etc. to faithful public-service corporations performing such duty of disclosure, etc., the tax restriction on stock ownership of public-service corporations was mitigated (see the reason for amendment of Act No. 8828, Dec. 8, 2008). In light of the purport of the faithful public-service corporation’s introduction, the Act and the Enforcement Decree of the Act provide for the restriction on the non-taxation of taxable value at 10% only for the faithful public-service corporations. In addition, it seems that not only induces the promotion of donation culture by relaxing the scope of tax restriction that can be received by the public-service corporations, but also induces the public-service corporations seeking donation to ensure transparency of revenue

Therefore, in calculating whether the taxable value exceeds the non-taxable limit, interpreting that a conscientious public corporation is able to receive additional tax benefits, rather than a general public corporation, is more consistent with the purpose of the introduction of a faithful public-service corporation. If so, in calculating whether the limit of non-taxation exceeds the limit of the taxable value of the general public-service corporation, it is more reasonable to simply aggregate method that does not consider the difference in the non-taxable limit, rather than an aggravated aggregate method that takes into account the difference in

③ The Plaintiffs asserted that it is more consistent with the purport of the introduction of a faithful public-service corporation to determine whether the amount exceeds the limit of non-taxation in the taxable value by discriminating between the shares owned by the faithful public-service corporation and the shares owned by the general public-service corporation, given that it is relatively lower than that of a faithful public-service corporation than that of a public-service corporation in the event of a sincere public-service corporation’s abuse of a means of control over a domestic corporation. However, in light of the fact that the Act does not impose any special restriction on the exercise of voting rights of a domestic corporation’s shares held by the faithful public-service corporation, the voting rights of the shares owned by the faithful public-service corporation are not reduced to half of the voting rights of the shares owned by the general public-service corporation, and the possibility of abuse is affected by the “number of shares owned by the public-service corporation” and that it is irrelevant to the “ratio to the non-taxation limit” of the stocks held by the public-service corporation.

Even based on the Plaintiffs’ assertion, it is difficult to view that the possibility of abuse is accurately and objectively against the non-taxation limit. In particular, the Inheritance Tax and Gift Tax Act (amended by Act No. 15224, Dec. 19, 2017) amended by Act No. 1524, among bona fide public corporations, permits 20% of the total number of issued and outstanding shares in cases of bona fide public corporations meeting the requirements, such as having no special relationship with the enterprise group subject to the restriction on mutual investment among those corporations, and having no voting rights, and grants 1/4 weight when calculating the non-taxation ratio. However, there is no basis to interpret the possibility of abuse through the shares owned by the public-service corporation that does not exercise

④ In the case of simple cumulative method, the Plaintiffs claim that the calculation method of the portion of non-taxable stocks should vary depending on whether the general public corporation and the faithful public corporation have received the same contribution or received the contribution in succession. However, in calculating whether the Act and the Enforcement Decree thereof exceed the non-taxable limit, it is natural to be discriminated against in the order of receiving the contribution, as long as it takes the method of adding the whole amount of the contributed stocks in the calculation of the non-taxable limit, and this is also the same in the case of an aggravated cumulative method. Rather, according to the Plaintiffs’ assertion, where the general public corporation has received the contribution first 5%, the number of shares of the public-service corporation should be added in calculating the non-taxable limit of the taxable value of the faithful public-service corporation by applying the weight of 2 times in calculating the non-taxable limit of the taxable value of the public-service corporation.

(iv) The method of calculating the excess portion of non-taxation where stocks of the same domestic corporation are contributed to a large number of public-service corporations

The proviso of Article 48(1) of the Act and Article 37(1)1 of the Enforcement Decree of the Act provide that when a public service corporation, etc. acquires stocks, etc. by means of contribution, it shall be calculated on the basis of “the date of acquisition” to the extent that it exceeds the limit of non-taxation in the taxable value of the public service corporation. Therefore, even if multiple public service corporations have acquired stocks at the time prior to the acquisition

Meanwhile, the proviso of Article 48(1) of the Act and Article 37(7)3 of the Enforcement Decree of the Act stipulate that “in calculating the limit on the non-taxation of the taxable value of a public-service corporation, stocks, etc., owned by another public-service corporation that received property from the contributor or his/her related party prescribed by Presidential Decree at the time of contribution or acquisition shall be added to the taxable value of the public-service corporation.” The Act and the Enforcement Decree do not have clear provisions as to whether the stocks, etc. contributed by another public-service corporation should be added to the stocks, etc., if the contribution to the stocks, etc. was made on the same day. However, in light of the legislative history and the purport of the introduction of the public-service corporation as seen earlier, it is reasonable to view that all of them should be added in calculating the limit on the non-taxation of the taxable value even if the contribution to stocks, etc. was made on the same day. If the contributor contributes stocks on the same day, regardless of the size

The plaintiffs' preliminary assertion is without merit.

2. Conclusion

All of the plaintiffs' claims shall be dismissed due to the lack of reasonable grounds. Since the judgment of the first instance is unfair with different conclusions, the defendant's appeal is accepted, and the plaintiffs' claims are dismissed.