Seoul Administrative Court 2008Guhap37985 ( December 18, 2009)

Examination Donation 2008-0031 (Law No. 26, 2008)

deemed donation of stock title trust;

It cannot be readily concluded that there was no tax avoidance purpose, such as reducing income tax burden through title trust, and otherwise, it cannot be concluded that there was no other obvious purpose, not for the purpose of tax avoidance, but for other obvious purpose, or that the progress of tax reduction is minor or minor.

The contents of the decision shall be the same as attached.

1.Maximum ○○

2.The largest Dolle;

3.Maximum Doz.

1. Distribution director of the tax office;

2.The superintendent of the Yeongdeungpo Tax Office;

3. Class 3 of the Tax Office:

1. All appeals by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The decision of the first instance court shall be revoked. The imposition of each gift tax stated in the balance (including additional tax) of the separate disposition shall be revoked on January 16, 2008, which was made by the director of the first instance court to the Plaintiff LA as of January 10, 2008 by the director of the first instance court, against the Plaintiff LAB as of January 10, 2008 by the director of the first instance court.

1. Quotation of judgments of the first instance;

The reasoning for this Court concerning this case is as stated in the reasoning of the first instance judgment, except for adding the judgment as described below 2. The reasoning for this case is as stated in Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Additional Judgment

(1) The plaintiff asserts that the title trust relationship is not established since the person to whom new shares were reverted due to the increase in the capital is the nominal shareholders, and that the remaining part except the amount of payment required for the acquisition of new shares is divided by the existing shares like the capital increase without compensation, and that the new title trust was not established as to that part, and that there is no possibility of tax avoidance because the share ratio before and after the increase in the capital does not affect the designation of the dividend income or the secondary taxpayer. Thus, the prior disposition of this case on different premise is unlawful.

However, the provision on constructive gift of title trust property under Article 41-1(1) of the former Inheritance Tax and Gift Tax Act is one of the exceptions to the substance over form principle, and it is limited to donation to the extent that the purpose of realizing tax justice is to effectively prevent abuse as a means of tax avoidance, and thus, does not change whether the property under title trust belongs to the property under title trust. Thus, the actual owner of the property under title trust is still the title truster notwithstanding the provision on constructive gift (see Supreme Court Decision 2004Du11220, Sept. 22, 2006).

In the instant case where HongD’s shares were held in title trust under the name of the plaintiffs, the preemptive right to the shares issued in this case belongs to HongD, the actual owner of the shares initially held in title trust, and HongD’s shares paid in the name of the plaintiffs by exercising the above preemptive right to new shares and thereby held in title trust to the plaintiffs (Supreme Court Decision 2008Da96963 Decided February 25, 2010 cited by the plaintiffs does not determine the ownership of the shares issued in title trust, and the issue of this case differs from the issue of this case), and there is no ground to view that HongD’s shares issued in this case were limited to the payment made by HongD as the purchase price of new shares (whether HongD deemed to have held in title trust of the shares issued in this case, and not to be deemed to have held in title trust), even if HongD’s shares were the same before and after the capital increase, and therefore, it cannot be deemed that there was no other purpose of tax avoidance in light of the fact that each income tax related to each of this case was actually avoided by title trust.

(2) In applying the provision on the constructive gift for title trust, the plaintiff should determine whether each of the instant title trusts has the objective of tax avoidance. The plaintiffs had already been subject to the highest tax rate under the Income Tax Act even if each of the instant title trusts was not made, and since HongD was not able to reduce income tax through each of the instant title trusts, there was no tax avoidance purpose in relation to each of the instant title trusts, and the acquisition of new shares by legitimate allotment of preemptive rights is recognized as having no purpose of tax avoidance, and the acquisition of each of the instant new shares was made for the purpose of disclosing the company of ○○○, and thus, even if each of the instant new shares was made through the capital increase for new shares, the purpose of tax

However, in the instant case where: (a) there was a result of avoiding comprehensive income tax on dividend income through each of the instant title trusts; (b) the evaded amount of tax reduction cannot be deemed to be minor (the annual amount of tax avoidance is the same as indicated in the reasoning of the judgment of the first instance); and (c) each of the instant cases cannot be deemed to have no tax avoidance purpose at the time of each of the instant title trusts (which is separate from whether the Plaintiffs were subject to the highest tax rate under the Income Tax Act); and (d) there is no ground to conclude that the purpose of tax avoidance cannot be recognized in the case of acquisition of new stocks through legitimate allocation of preemptive rights. In addition, even if each of the instant new stocks is related to the disclosure to △△△ Company, even if the acquisition of each of the instant new stocks was made with a certain portion of the public interest of △△△ Company, there was an objective and conclusive purpose of tax avoidance, to the extent that the Plaintiffs did not have any tax avoidance purpose in each of the instant each of the instant title trusts; and (b) it cannot be concluded that there was no justifiable reason for the Plaintiffs’ trust property.

3.In conclusion

Thus, the plaintiffs' claim of this case should be dismissed in entirety as there is no reason to do so.

The judgment of the first instance court is just in its conclusion, and the plaintiffs' appeal is dismissed in its entirety as it is without merit. It is so decided as per Disposition.