[1] The case holding that the court below's determination that Gap corporation's representative director Eul, a listed corporation, established a borrowed-name account in the name of Eul securities company Byung and deposited investment funds in the company Gap corporation's securities company Byung, and completed the transfer of ownership in the name of Eul corporation's shares (the first shares) through the above securities account; Eul sold the first shares and deposited the first shares in the securities account; Eul transferred the deposit amount to the above securities account, and the balance of deposit was zero won, and the transfer of ownership was completed again as to the remaining shares (the second shares) after Eul purchased the shares in the above securities account, and on the other hand, Eul established a borrowed-name account in the name of Eul before the first sale of the shares, deposited the investment funds, and then purchased the second shares in the name of Eul company's name (the third and fourth shares) through the above securities account, and then purchased the second shares in the name of Eul company and then completed the transfer of ownership under the name of the second or fourth shares under the name of the court below, but did not err in the misapprehension of legal principles as to the first or second shares under title trust of title trust.

[2] The base date for appraisal of the value deemed donated for the acceptance of new shares due to capital increase (=transfer date of new shares)

[1] The case holding that the court below's holding that Gap corporation's representative director, a listed corporation, established a borrowed-name account in the name of securities company Byung and deposited investment funds in the above securities account, and completed the transfer of ownership under the name of Jung corporation's name through the above securities account; Eul sold the first shares to the securities account; and then transferred the deposit amount to the above securities account in the name of zero won; and the transfer of ownership was completed again as to the remaining shares (the second shares) after depositing Eul's shares in the above securities account; on the other hand, Eul did not sell the first shares under the name of the securities account before selling the first shares; on the other hand, the court below's holding that the first and fourth shares was legitimate in light of the legal principles as to whether the first shares were sold under the name of Jung corporation's first and second shares, and the second shares were sold under the name of the new securities account under the name of the title trust (the second and fourth shares) and then the second shares were sold under the name of the new securities account under the title trust (the second and fourth shares).

[2] The main text of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “former Inheritance Tax Act”) provides that the value of the property shall be deemed to have been donated to the actual owner on the date when the title holder makes a transfer, etc. to the title holder on the date when the transfer to the title holder is made, subject to the donation of property that requires a transfer of the right or the exercise of the right to transfer. Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that the value of the property shall be based on the “market price as of the date of donation” (On the other hand, if the transfer to the title holder is not made due to the lack of the title holder’s list, the main sentence of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act may not be applied, and even if Article 45-2(3) of the former Inheritance Tax and Gift Tax Act is newly established, it can be determined by the statement of shareholders’ change and transfer.

In principle, the value of shares shall be appraised on the basis of the transfer date deemed the donation date pursuant to each of the above provisions in the case of shares. In the case of subscription for new shares due to capital increase, the standard date of appraisal of the donated value shall be

[1] Articles 41-2(1) and 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002) / [2] Articles 41-2(1) (see current Article 45-2(1)) and 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002); Article 45-2(3) (see current Article 45-2(4)) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 735 of Jan. 14, 2005)

Plaintiff 1 and one other (Bae, Kim & Lee LLC et al., Counsel for the plaintiff-appellant)

Gangwon Tax Office et al.

Seoul High Court Decision 2012Nu36974 decided December 4, 2013

Of the judgment of the court below against Plaintiff 1, the part of the disposition imposing gift tax and additional tax on the deemed donation on December 31, 2005, and the part of the judgment against Defendant Gacheon Tax Office is reversed, and that part of the case is remanded to Seoul High Court. The remaining appeals by Plaintiff 1, Plaintiff 2, and Defendant Dongdong Tax Office are all dismissed.

The grounds of appeal are examined.

1. Case summary

A. Yong-Nam Branch Co., Ltd. (hereinafter “ Yong-Nam Branch”) is a KOSDAQ-listed corporation that operates a subdivision business and feed processing business, etc., and the Nonparty is a representative director of Yong-Nam Branch.

B. After investigating the details of stock change in Yong-Namon system, the director of the Seoul Regional Tax Office notified the disposition agency of each gift tax to the Plaintiffs regarding the title trust of the above shares (hereinafter “each shares of this case”) on the ground that the Nonparty purchased the shares of Yong-Namon under Plaintiff 1’s name from October 24, 2000 to November 15, 2005, or received the shares of Yong-Namon 97,285, or received the shares of Yong-Namon 1, and from October 17, 2000 to November 21, 200, Plaintiff 2 purchased or received the shares of Yong-Namon 368,741 shares of Yong-Namon 368,741 shares under Plaintiff 2’s name.

C. Accordingly, on May 3, 2010, the head of Gangnam District Tax Office imposed a disposition imposing gift tax and additional tax on Plaintiff 1, and on May 6, 2010 on Plaintiff 2, 2010 (hereinafter “the first disposition”).

D. Meanwhile, while the instant lawsuit is pending, the Defendants revoked the imposition of additional tax ex officio and imposed additional tax with the same content in order to separately describe the type of penalty tax and the grounds for calculation in the tax payment notice (hereinafter “instant disposition”).

2. Regarding the plaintiffs' appeal

A. As to the plaintiffs' grounds of appeal on the establishment of title trust relationship and actual owner of shares

This part of the grounds of appeal is that, even if the actual owner of each of the instant shares is not the Nonparty, or there was no specific agreement between the Nonparty and the Plaintiffs on the trading size, type, and quantity of shares, the determination by the lower court, which was otherwise deemed to be unlawful. This is merely an error in the selection of evidence or the fact-finding that belongs to the exclusive right of the lower court, which is a fact-finding court, and thus does not constitute a legitimate ground of appeal. Furthermore, even if examining the lower court’s decision in light of the records, it

B. As to the plaintiffs' grounds of appeal that have no tax avoidance purpose

Article 41-2(1) main text of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “instant legal provision”) provides that “where the actual owner and the nominal owner are different from each other, the value of the relevant property shall be deemed to have been donated to the actual owner on the date when the transfer, etc. is made to the nominal owner, notwithstanding Article 14 of the Framework Act on National Taxes.” Meanwhile, Article 41-2(2) main text of the same Act provides that “where a transfer, etc. of property is made to another person’s name without tax evasion, it shall be presumed that the purpose of tax evasion exists” (Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is presumed to have been amended by Act No. 7010, Dec. 30, 2003).

Considering that the transfer income tax and global income tax that was reduced or will be reduced by the title trust of each of the instant shares are considerable, the lower court determined that there was insufficient proof by the Plaintiffs on the fact that there was no tax avoidance purpose in each of the instant title trust.

Examining the record in light of the aforementioned provisions and relevant legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the purpose of tax avoidance of deemed title trust donation, or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

C. Regarding the plaintiffs' grounds of appeal on market price

According to Articles 60(1), 63(1)1(a) and (b) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “former Inheritance Tax Act”), stocks of a KOSDAQ-listed corporation shall be deemed to be the market price, the average of the standard price for the securities business association every day announced every two months before and after the base date of appraisal.

The lower court rejected the Plaintiffs’ assertion that each of the instant shares was unlawful on the ground that it was based on the market price formed by price manipulation on the grounds that the market price at the time of market price can be seen as an objective exchange price because it was freely traded among many and unspecified persons as KOSDAQ

Examining the record in light of the aforementioned provisions and relevant legal principles, the lower court did not err by misapprehending the legal doctrine on the calculation of the taxable value of donated property, as otherwise alleged in the grounds of appeal

D. As to the Plaintiff 1’s ground of appeal that the constructive gift for title trust cannot be applied in duplicate

1) In cases where the actual owner and the nominal owner are different with respect to property requiring the transfer of rights or the transfer of rights thereto, the value of such property shall be deemed to have been donated to the actual owner on the date when the transfer of rights is made to the nominal owner, notwithstanding Article 14 of the Framework Act on National Taxes.

On the premise that gift tax under the legal provisions of this case may be imposed on the stocks acquired again with the proceeds from sale of the stocks first title trust, the lower court determined that the portion within the legitimate tax scope among the disposition of this case, among the deemed donation of Plaintiff 1-1 on December 31, 2001, the deemed donation portion on December 31, 2004, the deemed donation portion on December 31, 2004, and the imposition of gift tax and additional tax on the deemed donation portion on December 31, 205,

However, Supreme Court Decision 201Du10232 Decided February 21, 2017 following the pronouncement of the lower judgment held that “The shares acquired as the sale price of the shares held in title trust which are subject to the first deemed donation and are subject to taxation or taxation, and then transferred under the name of the same person again, barring any special circumstance, such as the first title trust shares and the time of the first title trust shares and the new shares deemed to be separated in view of their nature, and thus, cannot be subject to gift tax as they are subject to taxation.” Therefore, the lower court’s determination on this part was difficult to maintain as it is.

2) Review of the reasoning of the lower judgment and the record reveals the following facts.

A) Around the end of November 200, the Nonparty opened a borrowed-name account with Plaintiff 1 (hereinafter “Korean Investment Securities account”) in Korea Investment Securities Co., Ltd. and deposited investment money. The Nonparty acquired 25,000 shares in total in the process of issuing new shares for shares via the securities account (hereinafter “first shares in the name of Plaintiff 1”) on December 7, 2000, and completed the transfer of ownership in the name of Plaintiff 1 on December 31, 200.

On May 26, 2005, the Nonparty sold all the primary shares in Plaintiff 1’s name, and on September 9, 2005, purchased 33,250 shares in Yong-Nam Nam, but sold 2,602 shares out of November 15, 2005.

The Nonparty completed the transfer of ownership on December 31, 2005 with respect to the shares remaining after purchase and sale in the year 2005 (hereinafter “second shares of Plaintiff 1”) 30,648 shares.

B) On May 26, 2005, KRW 90,611,250, which was sold in the Plaintiff’s name on May 26, 2005 deducted commission, etc. from the first share sale price, was deposited in the Korea Investment Securities account on May 30, 2005. On June 2, 2005, the balance of the deposit received in the said Securities Account became zero won.

From June 7, 2005 to July 8, 2005, KRW 20,309,377 was deposited in the said securities account. On July 22, 2005, the balance of the deposit received again became 0 won.

Since then, 125,00,000 won was deposited into the securities account on September 9, 2005, and 124,975,865 won out of September 13, 2005 was deposited with the purchase price, etc. of Yong-Nam-Nam shares purchased on September 9, 2005.

C) Meanwhile, around September 200, the Nonparty opened a borrowed-name account with Plaintiff 1 (hereinafter “Korea Investment Securities account”) in Korea Investment Securities Co., Ltd. and deposited investment money. On January 8, 2001, the Nonparty purchased the Yong-Nam stocks of 35,000 shares on January 8, 2001, but sold 5,100 shares of the shares on February 1, 2001, and purchased the Yong-Nam stocks again on July 9, 2001.

As above, the Nonparty completed the transfer of ownership on December 31, 2001 with respect to 30,800 shares remaining after purchase and sale in the year 2001 (hereinafter “third shares of Plaintiff 1”).

The Nonparty completed the transfer of ownership on December 31, 2004 with respect to total 10,837 shares purchased on May 12, 2004 and May 13, 2004 (hereinafter “Plaintiff 1’s fourth shares”).

D) In applying the instant legal provision to the title trust of the Plaintiff 1’s primary or fourth shares, the head of Gangseo-dong Tax Office and the head of Leecheon Tax Office imposed gift tax and additional tax on each of the said shares on Plaintiff 1.

3) First, we examine Plaintiff 1’s three and fourth shares.

Examining the above facts in light of the legal principles as seen earlier, since the first shares of Plaintiff 1 are the first title trust shares transferred to Plaintiff 1 in the future through the Korea Investment Securities Account by the Nonparty, and the third and fourth shares of Plaintiff 1 are separate title trust shares purchased through another securities account before the first shares are sold, they may be subject to taxation pursuant to the legal provisions of this case. Although the reasoning of the lower judgment is somewhat inappropriate or inadequate, the lower court’s conclusion that this part of the disposition on the deemed donation was lawful on December 31, 2001, and on the deemed donation on December 31, 2004, as otherwise alleged in the grounds of appeal by Plaintiff 1, was justifiable. In so doing, it did not err by misapprehending the legal principles on the deemed donation pursuant to the legal provisions of this case, contrary to what is alleged in the grounds of appeal by Plaintiff 1.

4) Next, we examine the second shares of Plaintiff 1.

Examining the above facts in light of the legal principles as seen earlier, the lower court should determine whether the second shares are subject to taxation under the legal provisions of this case after examining whether the Nonparty, the title truster, was in custody of the sales price of the first shares in Plaintiff 1, who was deposited in the Korea Investment Securities account and remitted to another account, and if the Nonparty was in custody of the first shares sales price, then whether the second shares were deposited in the Korea Investment Securities Account and used as the purchase price of the second shares.

Nevertheless, solely on the grounds indicated in its reasoning on different premise, the lower court determined that this part of the disposition on the deemed donation on December 31, 2005 by Plaintiff 1 was lawful. In so determining, the lower court erred by misapprehending the legal doctrine on the deemed donation under the instant legal provision, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The Plaintiff 1’s ground of appeal assigning this error is with merit.

3. As to the defendants' appeal

A. As to the ground of appeal by Defendant Kang Dong Tax Office and Leecheon Tax Office on new shares issued under Plaintiff 1’s name

1) Article 60(1) of the former Inheritance and Gift Tax Act provides that the value of the pertinent property shall be deemed to have been donated to the actual owner on the date when the title holder is deemed to have been donated, subject to the deemed donation of property requiring a transfer of right or a change of title thereto, and Article 45-2(3) of the former Inheritance and Gift Tax Act provides that the value of the relevant property shall be based on the “market price as of the date of donation” with respect to the appraisal of donated property (On the other hand, in cases where the transfer of ownership is not made because of the lack of the register of shareholders, the legal provision of this case cannot be applied, and even in such cases, the new legal provision of Article 45-2(3) of the former Inheritance and Gift Tax Act, amended by Act No. 7010, Dec. 30, 2003, thereby enabling the head of the tax office

In principle, the value of shares shall be appraised on the basis of the transfer date deemed the donation date pursuant to each of the above provisions in the case of shares. In the case of subscription for new shares due to capital increase, the standard date of appraisal of the donated value shall be

2) In the same purport, the lower court rejected the assertion of the Defendant Kang Dong Tax Office and the head of Leecheon Tax Office that the payment date of the purchase price of new shares is included in the “transfer date, etc.” as stipulated in the legal provisions of the instant case on the ground that the transfer date is the date of transfer, and determined that the imposition of gift tax on the said shares among the dispositions of the instant case on the date following the payment date of the share price was unlawful

3) In light of the language and text and legal principles as seen earlier, the lower court did not err in its judgment by misapprehending the legal doctrine on the standard date of appraisal of the value of donated property at the time of acquiring new shares with capital increase by issuing new stocks, contrary to what is alleged in the grounds of appeal by Defendant Kangdong Tax Office and the head of Leecheon Tax Office. The Supreme Court precedents cited in the grounds of

B. As to the ground of appeal by the Defendant-U.S. Director on new shares issued by Plaintiff 2

1) Review of the reasoning of the lower judgment and the record reveals the following facts.

A) On October 24, 200, the Nonparty opened a borrowed-name account with Plaintiff 2 and deposited investment money to the Dongyang Integrated Financial Securities Company, and subsequently purchased the total amount of shares 283,647 shares of Yong-Nam (hereinafter “the first shares of Plaintiff 2”) using the securities account, and completed the transfer of ownership on October 24, 200 under Plaintiff 2.

B) From November 3, 200 to November 21, 2000, the Nonparty purchased 89,680 shares in Yong-Nam Nam in the name of Plaintiff 2 twice, and sold 373,327 shares in Yong-Nam Nam via five times.

C) Meanwhile, the Nonparty acquired 85,094 shares (hereinafter “second shares of Plaintiff 2”) in the name of Plaintiff 2 in the process of capital increase with new shares issued on October 24, 2000 as of the date of new shares allocation as of October 24, 200, and paid the share price on December 7, 200, and completed the transfer of ownership in the name of Plaintiff 2 on December 31, 200.

D) As to the title trust of the Plaintiff 2’s 1 and 2 shares, the head of the employees’ tax office imposed gift tax and additional tax on each of the said shares on Plaintiff 2 by applying the instant legal provisions.

2) First, the issue of new shares issued under the name of Plaintiff 2 is examined as to the evaluation base date.

The lower court determined that the part on which gift tax was imposed on the shares of Plaintiff 2 on the ground that the date of appraisal of the second shares is the date of transfer of ownership is illegal, by setting the following day of payment of stock price as the base date of appraisal.

In light of the aforementioned legal principles, the lower court did not err in its judgment by misapprehending the legal principles on the assessment base date of donated property at the time of acquiring new shares with capital increase issued, contrary to what is alleged in the grounds of appeal by the

3) Next, we examine whether the second shares of Plaintiff 2 are transferred without selling them.

A) The lower court determined that the imposition of gift tax and additional tax is unlawful on the ground that the Nonparty’s second shares, which he accepted on October 24, 2000, can be included in 373,327 shares of the shares sold from November 3, 200 to November 21, 200, and thus, it cannot be readily concluded that the second shares constitute shares the transfer of which occurred on December 31, 200.

B) However, the lower court’s determination is difficult to accept for the following reasons.

(1) The lower court is premised on the Nonparty’s acquisition of the second shares of Plaintiff 2 on October 24, 200, which are the date of the allocation of new shares. However, Article 423(1) of the Commercial Act provides that “If the underwriter of new shares has made the payment, he shall have the shareholder’s rights and duties as a shareholder from the day following the due date of payment.” As seen earlier, the second shares were paid for the new shares with capital increase and the payment of the stock price was made only on December 7, 2000 as the new shares with capital increase. Therefore, there is no room to deem that the second shares were included in the shares sold from November 3, 200 to November 21, 200, the date of the payment of the stock price.

(2) Rather, according to Plaintiff 2’s statement of securities account transaction (Evidence A3-3) and shareholder list (Evidence A7) on December 31, 200, Plaintiff 2’s second shares were transferred to Plaintiff 2 on December 19, 200, after the sale of shares as above.

C) Nevertheless, the lower court determined that it is difficult to view that Plaintiff 2’s secondary shares were changed. In so doing, it erred by misapprehending the bounds of the principle of free evaluation of evidence against logical and empirical rules and thereby adversely affecting the conclusion of the judgment. The ground of appeal by the Defendant-U.S. Director of the Korea Tax Office pointing this out is with merit (However, according to the legal doctrine of Supreme Court Decision 2011Du10232 Decided February 21, 2017, supra, the second shares constitute the shares re- acquired in the same name using the first shares that were the subject of first deemed donation and thus, they may not be subject to taxation pursuant to the legal provisions of this case. Accordingly, the lower court pointed out that it is necessary to examine whether the second shares were re-registered with the sale price of the first shares that had already been changed).

4. Conclusion

Therefore, of the judgment of the court below against Plaintiff 1, the part on imposition of gift tax and additional tax as to the deemed donation on December 31, 2005, and the part on the disposition of loss against Defendant Gacheon Tax Office shall be reversed, and this part of the case shall be remanded to the court below for further proceedings consistent with this Opinion. The remaining appeals by Plaintiff 1, Plaintiff 2, and the appeal by Plaintiff 2, Defendant Dong-dong Tax Office, and Leecheon Tax Office are all dismissed. It is so decided as per Disposition by the assent

Justices Noh Tae-tae (Presiding Justice)