Seoul Administrative Court 2013Guhap17763 ( October 10, 2014)

It shall not be deemed that there is no justifiable reason in light of the practice of transaction in a non-specific high-priced transfer.

It is reasonable to deem that the parties to the transaction who transferred or acquired the shares of this case did not have any reasonable ground to believe the transaction price at a normal price which properly reflects the objective exchange value, and that there was an objective reason to deem that the transferee’s acquisition of shares by the above transaction price was improper from the perspective of a reasonable economic person.

2014Nu43426 Revocation of Disposition of Imposing gift tax

KimA

○ Head of tax office

Seoul Administrative Court Decision 2013Guhap17763 decided January 10, 2014

October 17, 2014

November 1, 2014

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposition of KRW 1,450,780,060 against the Plaintiff on May 19, 2012 is revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. The Da○○○○ Co., Ltd. (hereinafter referred to as the “instant company”) produces and produces film media, including motion pictures;

It is a company that runs the distribution business and the business of video media such as motion pictures.

B. The Plaintiff participated in the capital increase for new shares of the instant company on February 22, 2006 and acquired 70,000,000 shares (28.17% per share; hereinafter referred to as “instant shares”) for the total of 82,000 shares of the instant company on February 25, 2006 (5,000 won per share) (the Plaintiff became the largest shareholder of the instant company). On March 14, 2006, the Plaintiff transferred the instant shares to ○○○, a corporation registered on KOSDAQ, to KRW 3,850,000 per share (27,500 won per share).

C. The Defendant’s former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006)

Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19899, Feb. 28, 2007; hereinafter referred to as the "former Enforcement Decree of the Inheritance Tax and Gift Tax Act") and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19899, Feb. 28, 2007); and on May 1, 2012, under Article 35 of the former Inheritance Tax and Gift Tax Act and Article 26 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the Defendant assessed the net asset value per share (8,488 won) of the instant shares as the value of the instant shares on the premise that the income amount from 2003 to 205 of the instant company is incidental (8,488 won). However, the amount of income for the instant company's 205 business year is 16,225,030 won (No. 4-3), 1084 won and 288 won per share.

D. On June 8, 2012, the Plaintiff appealed and filed a petition for a trial with the Tax Tribunal, but the said petition was dismissed on April 5, 2013.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 3, Eul evidence 1 through 7, 18 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The costs of the Plaintiff’s production of a large number of show films, such as the Act on ○○, etc.,

The participation in capital increase was intended to make film production based on the contribution contract with Lee ○○, which entered into with the Plaintiff’s personal planning, scenarios secured for film production, the Plaintiff’s contribution to the film to be produced.

At the time of the Plaintiff’s transfer of shares, the instant company planned a film called “P○○” by ging ○○, which had contained a detailed description through the film called “Wang○○” as its main subject.

‘Pum○○' was expected to have a significant interest in the media, and it was expected that the media had a considerable interest.

The transfer value of the shares in this case shall be 33,254 won calculated by ○ Accounting Corporation as the value of the shares in this case.

It is the amount at a discount above.

The Plaintiff did not have a special relationship with ○○ at the time of transferring the shares, and Ga○○ was the instant Association

The purchase of shares of the company was entirely aimed at the interest of ○○○, regardless of the Plaintiff’s purchase of shares, and thus, ○○ had no reason to purchase shares of the company from the Plaintiff at a price significantly higher than the market price.

Therefore, without justifiable cause, the plaintiff's price significantly higher than the market price under transaction practices.

It cannot be deemed that the instant shares were transferred.

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

(1) The Plaintiff produced a film from around 1985 to a large number of entertainment movies such as the “○○○”, etc.

The production was made from around 2003 to 2007, and the president of the ○○○ Association served as the president.

(2) The financial status of the instant company from 2003 to 2005 is as follows.

The same shall apply.

(3) The instant company’s offering of new shares via five times in total from February 22, 2006 to March 8, 2006

On February 22, 2006, 118,00 won per share, 5,000 won per share, 122,000 won per share, 10,000 won per share on February 25, 2006, 10,000 won per share on March 1, 2006, 10,000 won per share, 52,000 won on March 7, 2006, 11,346 won per share, 75,000 won on March 8, 2006, 200 won per share, 20,000 won per share, 20,000 won per share of the company (○○○○○○○○○○○○○○○○○○○○○○○○○○○○ KRW 17,00 won per share, 20,000 shares of the company (the shares ratio of the company in question).

(4) On the other hand, ○○, a KOSDAQ-listed corporation, manufactures and sells security-related sub-wawa and sub-waits.

Since its main business was established on January 24, 1984 and registered with the KOSDAQ on November 2001. Ga○○○ was designated as an issue subject to management due to cumulative losses on April 16, 2005, and was published on March 13, 2006, immediately before the acquisition of the shares of this case, as investment oil due to not less than 50% of capital erosion and cumulative losses. Ga○○ decided to acquire shares of the company of this case from the Plaintiff, etc. for the purpose of adding "production, screening, and sale of various video works, etc." as of March 8, 2006, and to enter into film production and entertainment businesses. The shareholders of the company of this case, including the Plaintiff, etc. (hereinafter referred to as "Plaintiff, etc."), while considering ways to smoothly raise funds necessary for film production in the future, ○○○ et al. were fully transferred to the Plaintiff, etc., to acquire the entire shares of the company through subscription to new shares.

(5) The board of directors of ○○ on March 14, 2006

In order to procure the Plaintiff’s shares 2,127,60 shares of Ga○○○○ (8.04%) to increase the capital by allocating KRW 2,50,000,500 per share (1,175 won per share) (i.e., the Plaintiff became the largest shareholder of Ga○○○○). A resolution was adopted to issue convertible bonds equivalent to KRW 2,00,000,000 to Ga○○○, a shareholder of the instant company, and the representative director of the instant company. Meanwhile, a resolution was adopted to receive securities for one year from the date of issuance of new shares issued with capital increase to the Plaintiff, for which 8,48-type 2,127,60 shares were to be protected in the Korea Securities Depository, and according to the resolution, Ga○○○ shares owned by the Plaintiff were protected in the Korea Securities Depository.

(6) On March 14, 2006, 27,500 won per share of the shares of the instant company from the Plaintiff.

In addition to purchasing, on March 14, 2006, the company shares of this case were purchased at the price of 27,500 won per share on March 14, 2006, at the price of 200 won per share, and on March 22, 2006, the company shares of this case owned by ○○○ and ○○○ purchased at the price of 24,000 won per share. On March 24, 2006, the company shares of this case owned by ○○ and ○○○ were purchased at the price of 27,50 won per share, such as purchasing at the price of 27,50 won per share.

(7) On March 28, 2006, ○○○ appointed the Plaintiff as a representative director, and appointed ○○○ as a director. Around February 2006, 2006, the share price of KRW 700,000, but around March 14, 2006, the share price increased to KRW 1,640.

(8) ○○ Accounting Corporation: 8,488 won of the asset value of the instant shares; and profits from the instant shares

The value of the shares in this case was calculated as 49,764 won and assessed as 33,254 won, and the calculation details are as follows:

(A) Calculation of asset value

(9) A. ○○ is based on the value assessed by the accounting firm, but it is not clear that the film interest has been committed.

The transfer value of the instant shares was determined at the discounted price of 18.89%.

(10) On March 8, 2006, both○○ participated in capital increase for new shares of the instant company, and acquired KRW 75,000 per share to KRW 75,000 per share, and on March 22, 2006, transferred KRW 75,000 per share to ○○○○ on March 22, 2006. Accordingly, the head of AAA tax office issued a request for review to the National Tax Service on October 15, 2013 on the grounds that the disposition of imposing gift tax on ○○○ for the same reason as the instant case was defective, and both○○○ filed a request for review with the National Tax Service on October 15, 2013. The National Tax Service, after deliberation by the National Tax Examination Committee on December 18, 2013, issued a decision revoking the said disposition on the ground that “the National Tax Service fails to prove that shares were transferred at a remarkably higher price without justifiable reason.”

(11) The plaintiff on December 2005, which was before the film ○○○ had been protruding to the Wang○○○.

The film contribution contract with the U.S.A. ○○ was concluded, and around 2005, Japan opened and mobilized several million spectators in Japan, and prepared for production of Ma○○○ by securing the Mamerck-Camp tickets of the Pap○○○.The Ma○○○ was expected to be successful in entertainment, such as US$ 11,000,000,000,000,0000,0000,0000,000,000,000,000,000,000.

C. The instant company opened the “○○○” around 2007, but the actual sales considerably did not reach the expected sales.

D. Determination

(1) Legislative intent of Article 35(2) of the former Inheritance Tax and Gift Tax Act is the benefit of the other party to the transaction.

In fact, when profits equivalent to the difference between the price and the market price are transferred free of charge through abnormal methods that manipulate the transaction price, gift tax is imposed on the profits acquired by the other party to the transaction, thereby coping with and promoting fair taxation.

However, it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis of the fact that there is a difference between the price and the market price in the transaction between the unrelated parties. Article 35(2) of the former Inheritance Tax and Gift Tax Act added the taxation requirement that the transaction between the unrelated parties, unlike the transaction between the unrelated parties, requires that there is no justifiable reason in light of the transaction practices. In full view of these, it is reasonable to deem that the parties to the transaction, who transferred or acquired the property at a higher price, have reasonable grounds to believe the transaction price at a normal price that reflects the objective exchange value, as well as that there was a reasonable reason to believe that the transferee’s acquisition of the property at the transaction price was an abnormal from the reasonable economic perspective even if there was an objective reason to deem that the acquisition of the property at the transaction price was an abnormal reason from the reasonable economic perspective.

On the other hand, tax assessment under Article 35(2) of the former Inheritance Tax and Gift Tax Act is legitimate.

The tax authority should prove not only that the transferor transferred property at a price significantly higher than the market price to an unrelated party, but also that there is no justifiable ground for transaction practice (see, e.g., Supreme Court Decisions 2011Du22075, Dec. 22, 2011; 2013Du5081, Aug. 23, 2013).

(2) The shares of this case are transferred and taken over in light of the following: (1) through (6)

It is reasonable to deem that there was an objective reason to believe that there was no reasonable reason for the transaction parties to believe the above transaction price at a normal price that properly reflects the objective exchange value, and that the assignee’s acquisition of shares through the above transaction price was an improper reason from the viewpoint of a reasonable economic person.

① In light of the relationship between the Plaintiff prior to the instant stock transaction and the ○○○○, ○○

There is no circumstance to allocate special benefits to the Plaintiff. In addition, as at the time of the acquisition of the instant shares, ○○ was faced with business difficulties due to deepening capital erosion at the time of the acquisition of the instant shares, and as a means to overcome this, intended to take over the instant company that the Plaintiff is preparing for new film production, such as the “Real○○○”, etc. In light of the developments leading up to the acquisition of the instant shares by ○○○○, it is difficult to view that ○○ intended to transfer the instant company without compensation the benefits other than the actual share transaction price by abnormal methods that manipulate the transaction price to the Plaintiff in the process of acquiring the instant shares.

② The transfer value of the instant shares was calculated on the basis of the valuation of the said accounting firm by requesting a ○○ Accounting Firm to assess the value of the instant shares. The said accounting firm was the same.

Even if all movies planned by the instant company calculated the profit value of the instant shares on the premise that they will success in the entertainment, considering the Plaintiff’s film production experience, the film planning situation at the time, and the uncertainty of the parties to the film promotion, the value of the instant shares is determined at a price of 18.89% from the value calculated by the said accounting corporation, it cannot be readily concluded that the transaction value of the instant shares is an abnormal price that has not been appropriately reflected in the objective exchange value.

③ The Plaintiff had a career of producing a large number of shows motion pictures, such as the "Real○○", and the instant company

Around the time of participation in capital increase with capital increase increase, this paper concluded a film contribution contract with E-○, a U-S-S-S-S-S-S-S-S-S-S-S-S-S-S-S-S-S-S-

After the Plaintiff participated in the subscription to new shares of the instant company and became a major shareholder, the value of 1 share per share of the instant company increased to 20,000 won.

④ In fact, around February 2006, around 1, 2006, the share price of the instant case was KRW 700,000,000.

Around March 14, 2006, the share price increased to KRW 1,640. Considering this point, it cannot be readily concluded that the share of this case was excessively assessed.

⑤ In addition, the Plaintiff teaching an amount equivalent to 2.5 billion won out of the transfer price of the instant shares as Ga○○ shares.

In addition, in light of such circumstances, ○○ and ○○○○○○, among the motion pictures planned after the transfer of the instant shares, have played a role in the successful production of motion pictures planned by the Plaintiff, and the Plaintiff also has anticipated the successful promotion of motion pictures planned by the Plaintiff. Therefore, it seems that ○○ had an objective reason that it was difficult for ○○○ to deem that the acquisition of the instant shares by the said price was an abnormal act from a reasonable economic standpoint.

(6) The Commissioner of the National Tax Service shall acquire the shares of this case in 20,000 won by transfer, which are shareholders of the company of this case.

After doing so, a decision was made to revoke the disposition of imposition on the ground that "the disposal authority fails to prove that the shares were transferred at a price significantly higher than the market price without any justifiable reason," with respect to the shares transferred in KRW 24,000.

(3) Therefore, without justifiable grounds, the Plaintiff’s price significantly higher than the market price in light of transaction practices.

Therefore, it is difficult to view that the instant shares were transferred, and the Defendant’s disposition that differs from this premise is unlawful.

2. Conclusion

Therefore, since the imposition of gift tax in this case should be revoked illegally, the plaintiff's claim for this claim is justified, and the judgment of the court of first instance which concluded otherwise is unfair, so it is so revoked, and it is so decided as per Disposition by citing the plaintiff's appeal.