Seocho 2014west 2275 ( December 15, 2014)

A provision on deemed donation of a nominal trust property cannot be applied to new stocks for merger.

In the process of issuing new shares following a merger, the title truster did not have an actor who holds title trust with the title trustee, and the new shares through a merger are merely a modified substance or substitute substance of the merger principal. As such, the provision on deemed donation of property under title trust cannot be applied to the new shares

Donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2015Guhap53817 Revocation of Disposition of Imposition of Gift Tax

Park AA

○ Head of tax office

November 6, 2015

November 27, 2015

1. The Defendant’s imposition disposition of KRW 297,618,250 against the Plaintiff on February 3, 2014 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On April 12, 2007, ParkB, who was the representative director of ○○○ Electric Co., Ltd. (formerly before the change: ○○ Electric Telecommunications Co., Ltd.), acquired 10,00 shares of ○○○ Electric Co., Ltd. (hereinafter referred to as “instant merger”). On June 3, 2008, 16,130 shares of ○○ Electric Co., Ltd. were again acquired in the name of the Plaintiff on June 3, 2008. The number of shares of ○○○ Electric Co., Ltd. in the Plaintiff’s name was reduced from 26,130 shares to 10,191 shares (hereinafter referred to as “instant merger”).

B. On December 29, 2008, 000, 000 ○○○ Industries merged (hereinafter “the instant merger”) and the merger ratio was 53.71 shares per common share of 00 ○○○○○○○○ Industries. The Plaintiff was allocated new shares of 547,377 shares of 00 ○○○○ Industries on the ground of the instant merger (hereinafter “instant merger”).

C. Meanwhile, on the other hand, the ○○ Regional Tax Office deemed that ParkB, who was the representative director of ○○ Industries, was the Plaintiff on April 12, 2007 and June 3, 2008, the ○○○○○○○○○○ District Tax Office held that the Plaintiff was the title trust of each of the shares of ○○○○○tech. Accordingly, on December 10, 2013, the Defendant imposed KRW 8,566,715, gift tax on the Plaintiff for the year 2007, and KRW 10,032,335, gift tax on the year 2008.

D. Since then, the Defendant determined that ParkB-B, which the Plaintiff received as compensation for the instant merger agreement, was a title trust to the Plaintiff separate from the instant merger agreement owner, and imposed KRW 297,618,250 on February 3, 2014 (hereinafter “instant disposition”).

E. On April 17, 2014, the Plaintiff dissatisfied with the instant disposition, filed a petition for an inquiry with the Tax Tribunal, but was dismissed on December 15, 2014.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 11, Gap evidence 1 to 3, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The instant new shares for the instant merger are merely a substitute that the Plaintiff acquired in lieu of the instant merger owner due to the instant merger, and there is no new title trust, and there is no possibility of additional tax avoidance in addition to the possibility of tax avoidance due to the title trust for the instant merger owner. Therefore, the instant disposition is unlawful on the grounds that the provision on the title trust under the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”) cannot be applied to the new shares for the instant merger.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) Provisions on deemed donation of title trust property

Article 45-2 (1) of the Inheritance Tax and Gift Tax Act provides that "where the actual owner or the title holder of the property (excluding land and buildings) which requires a transfer or exercise of the right, is different, the value of the property shall be deemed donated to the actual owner on the date (where the property is subject to a transfer of the right, referring to the date following the end of the year following the date on which the acquisition date of ownership falls) on which registration, etc. is made to the actual owner, notwithstanding Article 14 of the Framework Act on National Taxes, the same shall not apply to cases where "where the property is registered, etc. in another person's name without any purpose of evading taxes, or where the title holder fails to transfer the ownership in the name of the actual owner who has acquired the ownership" in subparagraph 1 of the same Article. Such provision on deemed donation of title trust property applies to cases where the actual owner or the title holder makes a registration, etc. in the name of the nominal owner under an agreement or communication (see Supreme Court Decision 2007Du15780, Feb. 14, 2006).

2) Whether the act of title trust exists

In light of the above legal principles, in addition to the gift tax imposed under the title trust property legal fiction on the owner of the merger of this case, in order to impose gift tax on the newly issued stocks of this case acquired by the plaintiff following the merger of this case pursuant to the title trust property legal fiction, a new title trust act is required on the newly issued stocks of this case, which is different from the title trust relationship on the owner of the merger of this case, and for the following reasons, it cannot be deemed that a new title trust act has been conducted on the newly issued stocks of this case, which is different from the previous one.

① A merger of a company is a legal fact under the Act of the Company which comprehensively succeeds to all rights and obligations of a dissolved company or a newly incorporated company and accepts its employees without undergoing liquidation procedures. The essence of the merger is: (i) two or more subsidiaries of the extinguished company, (ii) dissolution without liquidation procedures; (iii) succession to the surviving company or the newly incorporated company of the rights and obligations of the dissolved company to the surviving company or the newly incorporated company; (iv) expropriation of the members of the dissolved company in principle; (v) series of legal procedures and legal personality. In other words, the merger can be deemed to be a single company through legal procedures; (v) the extinguished company’s merger does not require liquidation procedures for the continuity of the company; and (v) the effect of the surviving company or the surviving company’s shareholder rights of the surviving company or the newly incorporated company upon the acquisition of the shares of the surviving company or the surviving company in accordance with the merger ratio and allocation methods as a matter of course, and thus, the dissolved company’s shareholder is not a shareholder of the extinguished company or the newly incorporated company.

② Therefore, in a case where a shareholder of the merged company acquires the shares of the surviving company or the newly incorporated company (merger) in lieu of the shares of the merged company due to a merger between the merged company and the surviving company, the replacement of such merged shares with such merged shares is not a shareholder’s disposal of the merged shares at his/her own will and the replacement of such merged shares is merely a substitution of the merged shares, which is assets owned by the relevant shareholder, due to the merger with another company (see Supreme Court Decision 2008Du2330, Feb. 10, 201).

(3) Thus, the title trust agreement between the title truster and the title trustee constitutes a formal transfer of property pursuant to the title trust agreement. Even if the provision on constructive gift of title trust property under Article 45-2(1) of the Inheritance Tax and Gift Tax Act is an exception to the substance over form principle, the title truster at least the title truster’s act of title trusting the property to the title trustee under the title trustee’s taxation requirement for the formal act of title trust to the title truster. In order to be subject to the above provision, the title truster’s act of title trust should be premised on the title truster’s act of title trust to the title trustee. In the case of a corporate merger such as this case’s merger, the new shares are automatically issued to the shareholders who become the title truster at the time of the merger, regardless of whether the former share was nominal or not, as at the time of the merger, regardless of the existence of the shareholder’s intention, even if the title trustee was the title trustee and there was no objection to the transfer of the right to purchase the shares of the merger, as in the ordinary shareholders.

④ In addition, the provision on the constructive gift of trust property under Article 45-2(1) of the Inheritance Tax and Gift Tax Act provides that gift tax shall be imposed on an independent property which requires the transfer or exercise of the right to transfer or exercise of the right by way of its formal act as a taxation requirement if it differs from the actual owner or the nominal owner. In the case of the merger of this case, the Plaintiff merely received new shares of this case holding the same value as the usual shareholders under the merger agreement entered into between ○○○ Dup, a merged corporation, and ○○○○c, a merged corporation, and ○○○○○c, a merged corporation, and the merged corporation, and did not receive separate funds in the process of the merger. Thus, the merger of new shares issued by the Plaintiff on behalf of the merged corporation is merely a modified object or a substitute object of the merger of this case, and it is difficult to view it as a separate property from the original owner of the merger of this case. Thus, it seems reasonable to interpret that the existing title trust relationship with the merger of this case with the merged corporation continues to exist even the above new shares.

On the other hand, the Defendant asserts that, in a case where a person who received a title trust of shares receives new shares from a complete parent company under his/her name due to an all-inclusive share swap and completed a transfer of title, the new shares are a new title trust relationship different from the previous title trust relationship between the title truster and the title trustee. Thus, barring special circumstances, such as there is no purpose of tax avoidance regarding such new shares, this would be subject to the deemed donation of trust property under the name of the title trust under Article 45-2(1) of the Inheritance Tax and Gift Tax Act (see Supreme Court Decision 2013Du5791, Aug. 23, 2013), barring any intrinsic difference from the comprehensive share swap, the provision on deemed donation of trust property under the name of

However, since an all-inclusive share swap constitutes a commercial transfer of assets as stipulated in Article 88 (1) of the Income Tax Act, the new shares of a complete parent company to which the shareholders of the company becoming a complete subsidiary receive in return for the disposal of the shares transferred by the relevant shareholders, and cannot be deemed as a substitute or modified substance of the shares previously held by the relevant shareholders, as seen earlier, the replacement of the merged principal and the new shares is merely a substitution of the merged principal according to the relevant shareholders' own will, and the replacement of the merged principal and the shares is not a substitution of the merged principal. As a result of the merger between the merged principal and another company, it is merely a substitution of the merged principal and the shares held by the merged principal regardless of their intent. In this case, the new shares acquired by the shareholders of the merged company shall be deemed as a substitute or modified substance of the merger principal and the shares acquired by the merged principal. Thus, it cannot be equally treated in the case of a corporate merger and a comprehensive exchange of shares.

3) Sub-decisions

Therefore, the instant disposition is unlawful without having to further examine whether there was an objective of tax avoidance against the new shares issued through the instant merger.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.