[1] The meaning of "the appraised value per share after capital increase" under the proviso to Article 29 (3) 1 (a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (=market value)

[2] The standard date for appraisal of “market price” under Article 39(1)1 of the former Inheritance Tax and Gift Tax Act, which serves as the standard for determining whether new shares are to be issued at a low price (=the base date for assessment)

[1] The proviso of Article 29(3)1(a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012) provides that a stock-listed corporation shall calculate donation gains on the basis of the valuation when the “value per share after capital increase” in the case of a stock-listed corporation is less than the value per share calculated by the formula under the main sentence of (a). In light of the market value principle under the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007), “value per share after capital increase” refers to the market value.

[2] In full view of the language, structure, and legislative intent of Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Gift”) and Article 29(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012), it is reasonable to view the standard date for appraisal of “market price” as the basis for determining whether new shares are to be issued at a low price as the date of payment of shares.

[1] Article 39(1)1(c) and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 23591, Feb. 2, 2012) / [2] Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); Article 29(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 23591, Feb. 2, 2012)

Plaintiff 1 and one other (Law Firm Oi Law, Attorneys Park Sung-sung et al., Counsel for the plaintiff-appellant)

Sung Dong Tax Office et al.

Seoul High Court Decision 2013Nu11422 decided September 27, 2013

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. As to the principal tax

A. Article 39(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Gift”) provides that in case where a corporation issues new stocks to increase its capital at a price lower than the market price (referring to the price assessed under Articles 60 and 63) of the new stocks, the amount equivalent to one of the following profits shall be deemed the value of the property donated to the person who has acquired such profits. In addition, in item (c) of Article 39(3) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter “new stocks”) provides that “the profits acquired by a person who is not a shareholder of the relevant corporation by directly obtaining such new stocks from the relevant corporation” shall be deemed the value of the newly issued stocks 】 (the number of new stocks before the issuance price per share 】 (the number of new stocks 】 the value before the increase in the acquisition price per share 】 (Article 29(3)1)1 of new stocks per share

However, the proviso of Article 29(3)1(a) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that, in the case of a stock-listed corporation, etc., the “value per share after the capital increase” shall be calculated on the basis of the value assessed, if the “value per share after the capital increase” is less than the value per share calculated on the basis of the formula under the main sentence of subparagraph (a) above. In light of the principle of market value under the Inheritance and Gift Tax Act, the “value per share after the capital increase”

B. Meanwhile, the donation of profits from capital increase under Article 39(1)1(c) of the Inheritance and Gift Tax Act takes effect by a new shareholder at the time of payment of the new shares to the purchaser of the new shares. As such, the donation profits should also be calculated on the basis of the market price at the time of payment. Article 29(4) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that the basic date for calculating the “value per share after the capital increase” as “the date of payment of shares.”

In full view of the language, structure, legislative intent, etc. of the relevant provisions, it is reasonable to view that the standard date of appraisal of the “market price”, which serves as the basis for determining whether to issue new shares at the lower price, is the payment date of the shares.

C. In the same purport, the court below is just in rejecting the plaintiffs' assertion that when applying Article 39 (1) 1 of the Inheritance and Gift Tax Act, whether new shares have been issued at a price below the market price should be determined on the basis of the payment date of the stock price, and it should be deemed the date of resolution by the board of directors which decided the issuance of new shares. In so doing, the court below did not err by misapprehending the legal principles on the standard date of appraisal

2. As to the additional tax

In light of the relevant legal principles and records, the court below is just in holding that there is no justifiable reason to believe that the plaintiffs are not liable to pay the gift tax of this case on the grounds as stated in its reasoning, and there is no error in the misapprehension of the legal principles as to the justifiable reason for exempting

3. Conclusion

Therefore, all appeals are 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 Kim Shin (Presiding Justice)