2017Du52979 Action for revocation of the imposition of securities transaction tax

School juristic persons public educational institutes

Law Firm Erasing Attorney

Attorney Kim Jong-mun et al.

Head of Pyeongtaek Tax Office

Seoul High Court Decision 2016Nu70620 Decided June 21, 2017

October 29, 2020

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Where a share donation contract is revoked by a judgment revoking a fraudulent act and shares are sold in the process of compulsory auction, the Securities Transaction Tax Act provides that the transfer of share certificates or shares (hereinafter referred to as “share certificates”) shall be subject to the securities transaction tax (Article 1 and the main sentence of Article 2), and the “transfer” refers to the transfer of ownership at a cost due to contractual or legal causes (Article 1-2(3)). The tax base is the transfer value of share certificates (Article 7); the taxpayer changes depending on the method of transferring shares or the alternative payment; the Korea Securities Depository, etc. shall collect securities transaction tax from the transferor of the share certificates and pay it directly by the transferor of the share certificates (Articles 3 and 9); the same applies to the former Securities Transaction Tax Act (amended by Act No. 9274, Dec. 26, 2008; hereinafter the same shall apply); and the location and expression of the provisions are different from those of the Securities Transaction Tax Act (see Articles 1 and 2(3) and 30(9)10).7).

The essence of the obligee’s right of revocation is to revoke the obligor’s fraudulent act and restore assets deviating from the obligor’s responsible property so that the obligee may enforce compulsory execution (see, e.g., Supreme Court Decision 2007Da84352, Apr. 24, 2008). Property that is revoked by exercising the obligee’s right of revocation and that is restored to the obligor’s name is treated as the obligor’s responsible property to the obligee, beneficiary, or subsequent purchaser (see, e.g., Supreme Court Decision 2015Da217980, Mar. 9, 201

In full view of the nature and effect of obligee’s right of revocation, and the language and text, contents, etc. of the Securities Transaction Tax Act and relevant provisions, in a case where a gift contract of shares is revoked by a judgment of revocation of a fraudulent act, and the shares reinstated in the name of an obligor were sold in the procedure for compulsory auction and the proceeds of sale are distributed to all creditors, a transferor of share certificates under Article 3 subparag. 3 of the Securities Transaction Tax Act (the same Article also applies to the securities transaction tax provisions of the former Securities Transaction Tax Act), which is established by transfer of ownership of shares at a cost

If the proceeds from a compulsory auction for the property restored to the original state in the name of the debtor by a judgment of revocation of a fraudulent act are distributed to the creditor, such property shall be appropriated for the repayment of the debtor's obligation and the debt shall be extinguished. In that the proceeds from the sale of such property are repaid to the debtor's obligation,

The securities transaction tax is a taxable act that is subject to taxation itself, and where stock certificates are transferred without going through a securities company outside the securities market, the transferor of the stock certificates becomes a taxpayer with interest on the subject of taxation. In the event a stock certificates restored to the debtor’s ownership by revocation of a fraudulent act are sold in the procedure for compulsory auction, the transferor of the stock certificates themselves are an obligor who is the nominal owner of the transfer of the stock certificates. Even though a fraudulent act is only restored to the debtor’s property for compulsory execution by the creditor, and the debtor does not directly acquire the right to the property, even if the ownership of the debtor was sold in the procedure for compulsory auction and the legal effect of the transaction that the sale price was effective by appropriating the shares owned by the debtor for repayment of the debtor’s obligation, as long as the shares owned by the debtor are consistent with the transactions sold in the procedure for compulsory auction, the tax authority should exercise its taxation right by deeming the transferor of the stock certificates as the debtor

2. The judgment of the court below and its propriety

A. According to the reasoning of the lower judgment and the record, the following facts are revealed.

(1) On August 28, 2002, the Plaintiff donated 98,000 shares of registered ordinary shares issued by Daejeon Cultural Broadcasting Co., Ltd. (hereinafter “instant shares”) from the Nonparty, and completed delivery and transfer of ownership. On May 10, 207, the bankruptcy trustee of the Non-Party’s bankruptcy debtor, the creditor of the non-party, brought a lawsuit against the Plaintiff seeking cancellation of the instant share donation contract and transfer of shares (Seoul High District Court 2003Gahap62656, 2004Gahap9560). The judgment became final and conclusive on May 10, 2007.

(2) According to the judgment of revocation of the above fraudulent act, the procedure for compulsory sale by official auction was commenced on April 24, 2008 with respect to the shares of this case that were transferred to the Non-party future, and on April 24, 2008, 60,000 shares out of the shares of this case were sold to 38,810,000 shares and the remaining 38,000 shares out of the shares were sold to the Masung Steel Co., Ltd. on May 14, 2008 to 3,810,000 shares, and all the remainder after deducting the execution costs out of the proceeds was appropriated for the repayment of obligations to the non-party'

(3) As to the sale of the instant shares, the Defendant: (a) deemed the Plaintiff as the transferor of the shares; and (b) imposed securities transaction tax of KRW 82,064,280 (including the penalty tax for failing to file a return and the penalty tax for failing to pay due diligence) as the tax base.

B. Examining these factual relations in light of the legal principles as seen earlier, inasmuch as the instant shares that were restored to the Nonparty’s name by a judgment revoking a fraudulent act were sold during the compulsory auction procedure and the sales proceeds were distributed to all creditors, the transferor of share certificates under Article 3 subparag. 3 of the former Securities Transaction Tax Act, which is liable to pay securities transaction tax established by transfer of ownership of shares at a cost, shall be deemed the Nonparty

In the same purport, the lower court determined that the Plaintiff, who did not receive any consideration in relation to the transfer of ownership of the shares in this case during the compulsory auction procedure, did not constitute a taxpayer of securities transaction tax under Article 3 subparag. 3 of the former Securities Transaction Tax Act. The lower court is justifiable in accordance with the foregoing legal doctrine. In so doing, the lower court did not err by misapprehending the legal doctrine on the validity

3. Conclusion

The Defendant’s appeal is dismissed as it is without merit, 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.

The presiding Justice shall mobilization by the presiding Justice

Justices Kim Jae-sik in charge

Justices Min Min-young

Justices Noh Tae-ok