[1] Whether Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is invalid beyond the scope of delegation pursuant to Article 18(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (negative)

[2] The requirements under Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act to fall under “family business” under Article 30-6(1) of the Restriction of Special Taxation Act and Article 18(2)1 of the former Inheritance Tax and Gift Tax Act where an enterprise is operated in the form of a corporation

[1] The purport of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) and the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; hereinafter “former Special Act”) stipulating the special taxation of inheritance tax and gift tax as to the succession of family business is to provide tax support on the succession of a specific family business and donation so as to maintain small and medium enterprises’ integrity and promote economic vitality; succession of family business needs to be accompanied by ownership succession; therefore, the heir or donee should also maintain the scope of shares or equity (hereinafter “stocks, etc.”) to a certain extent; Article 18(5)1 and 30-6(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the scope of shares held by the heir and gift tax should be determined within the scope of the scope of shares held by the heir and gift tax to be delegated by Presidential Decree No. 2. 8 of the former Enforcement Decree of the Inheritance Tax Act.

[2] In a case where an enterprise is operated in the form of a legal entity, it is required to hold shares in stocks, etc. in excess of a certain percentage by combining shares or equity shares (hereinafter “stocks, etc.”) of a person with a special relationship with the largest shareholder or maximum investor for at least ten consecutive years under Article 30-6(1) of the former Restriction of Special Taxation Act and Article 18(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) (amended by Presidential Decree No. 22042, Feb. 18, 2010).

[1] Article 30-6(1) and (2) of the former Restriction of Special Taxation Act (Amended by Act No. 921, Jan. 1, 2010); Article 18(2)1, (4), and (5)1 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22042, Feb. 18, 2010); Article 30-6(1) of the former Restriction of Special Taxation Act (Amended by Act No. 9921, Jan. 1, 2010); Article 18(2)1 and (4)1 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 201); Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 20181, Feb. 214, 20101)

Plaintiff (Law Firm LLC, Attorneys O Tae-hwan et al., Counsel for the plaintiff-appellant)

port of origin

Seoul High Court Decision 2013Nu6130 decided July 24, 2013

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 2

A. Article 30-6(1) of the former Restriction of Special Taxation Act (amended by Act No. 921, Jan. 1, 2010; hereinafter “former Special Provision Act”) provides that “where a resident aged 18 or older has been donated stocks or equity shares (hereinafter “stocks, etc.”) for the purpose of succeeding to the pertinent family business from a parent aged 60 or older who has engaged in the family business under Article 18(2)1 of the Inheritance Tax and Gift Tax Act for at least ten consecutive years, and succeeds to the family business as prescribed by Presidential Decree, the gift tax shall be imposed at a rate of 10/100 after deducting KRW 500 million from the taxable value subject to the gift tax, notwithstanding Articles 53(1) and 56 of the Inheritance Tax and Gift Tax Act.”

Meanwhile, Article 18(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Inheritance Tax and Gift Tax Act”) defines “family business” as “a small or medium enterprise prescribed by Presidential Decree and continuously run for at least ten years.” Article 18(4) of the same Act provides that “The requirements for, and methods of, inheritance of stocks, etc. of an ancestor and an heir in applying paragraph (2) shall be prescribed by Presidential Decree, such as the applicable method of inheritance, and other necessary matters.” Article 15(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that “the largest shareholder of a corporation or a small or medium enterprise, etc., who holds at least 0/10 of the total number of stocks issued by the relevant corporation is included in the Korea Stock and Futures Exchange (hereinafter “the largest shareholder”).

B. One of the important criteria for determining whether a provision of the Enforcement Decree deviates from the scope of delegation by the mother law is possible. This means that the content of the pertinent Enforcement Decree is already specifically delegated by the mother law, and it must be within the scope that can be predicted by anyone from the mother law itself. The existence of such predictability is not determined by only one of the pertinent specific provisions, but should be determined by systematically and systematically considering the legislative intent of the law (see Supreme Court Decision 2013Du1829, May 23, 2013, etc.).

Article 18(5)1 of the Inheritance Tax and Gift Tax Act and Article 30-6(2) of the former Special Provision on Trade, Industry and Energy provide that the special provision on taxation of inheritance tax and gift tax shall apply to succession to a family business in order to maintain the continuity of small and medium enterprises and promote economic vitality. Since succession to a family business requires ownership succession along with management succession, the heir or donee shall continue to engage in the family business, as well as shares, etc. should be maintained to a certain extent. Accordingly, Article 18(5)1 of the Inheritance Tax and Gift Tax Act and Article 30-6(2) of the former Special Provision on Trade, Industry and Energy clearly stipulate that the inheritance tax and gift tax should have been imposed upon the heir or donee in cases where shares, etc. are reduced, the scope of inheritance tax and gift tax should be determined by delegation of Article 18(4) of the former Special Provision on Trade, Industry and Energy to the extent that the majority shareholder can possess shares in accordance with the Presidential Decree within the scope of delegation of taxation, such as the scope of shares held by the largest shareholder.

C. In the same purport, the court below is just in holding that the provision of the Enforcement Decree of this case cannot be seen as an exemplary provision, and that it cannot be seen as an invalid provision beyond the scope of delegation, and there is no error of law by misunderstanding the legal principles as to the effect of the enforcement decree of this case or the limitation of delegated legislation, as

2. As to the grounds of appeal Nos. 1 and 3

A. In a case where a person is an individual, he/she can be deemed to succeed to a family business if the heir or donee succeeds to or donates the assets for family business from his/her parents and continues to operate the company, but in the case of a legal entity, the subject of corporate management is merely a legal entity, not a shareholder of the legal entity, and even if his/her heir or donee was succeeded to or donated the shares of a legal entity from his/her parents, such as its largest shareholder, and was succeeded to the business as a representative body of the legal entity, he/she cannot be deemed to have succeeded to a family business. However, the Inheritance Tax and Gift Tax Act and the former Special Act provide that where the parents of the legal entity run the legal entity as the largest shareholder, etc., they hold shares of the legal entity to the extent that it can control the legal entity by adding shares of a person with special relationship to shares of the legal entity, etc., and if the heir or donee maintains the status as it is, they grant the special taxation of inheritance tax and gift tax under certain conditions by deeming that they did not significantly differ from the case of family business succession.

B. On May 195, the lower court determined that the Plaintiff’s disposition was lawful on the ground that: (a) on December 24, 2009, the Nonparty, a non-listed corporation (hereinafter “non-listed corporation”) established Cos S&C (hereinafter “non-listed corporation”) and was in office as the representative director for about 15 years; (b) held 100% of the total number of outstanding shares until the date of donation since 2005, but only held 48% of the total number of outstanding shares during the period from 1999 to 2004; and (c) even if the non-party was a largest shareholder and a representative director, even if he operated the non-party company, it did not hold shares, etc. more than the percentage prescribed in the Enforcement Decree of the instant case, on the ground that the Plaintiff did not receive a donation for the purpose of succession to the family business; and (d) the disposition of this case was not subject to the special taxation on succession to the gift tax under Article 30-6(1) of the former Special Treatment Act.

Examining the reasoning of the judgment below in light of the above provisions and legal principles, such judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the meaning of family business under Article 30-6 (1) of the former Act and Article 18 (2) 1 of the Inheritance and Gift Tax Act and the requirements for application of special taxation, as alleged in the grounds of appeal

3. Conclusion

The appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)