It cannot be readily concluded that there was no intention of tax avoidance in the title trust of shares.

As long as it does not seem that it is legally impossible for a title truster to allocate new stocks in the context of issuing new stocks with capital increase, it is difficult to readily conclude that there exists a clear different purpose from that of tax avoidance solely on the ground that the new stocks were simply allocated in proportion to existing stocks.

Legal fiction of donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2014Guhap32510 Revocation of Disposition of Imposing gift tax

IsaA

Deputy Director of the Tax Office

May 8, 2015

June 5, 2015

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of KRW 1,300,00 as gift tax for the year 1999 and KRW 616,324,800 as gift tax for the year 2001 shall be revoked on August 7, 201.

1. Details of the disposition;

A. ○○○ Co., Ltd. (hereinafter “instant company”) was established on April 27, 199 for the purpose of gold-type manufacturing business.

B. At the time of establishment, the instant company issued KRW 40,000 (Capital 200,000,000) at the face value of 5,000 won at the time of establishment. At the time of establishment, the shareholder registry of the instant company stated that the newB, which participated in the said company’s shareholder registry, 32,000 shares, 4,000 shares, 00 shares, 2,00 shares, and 2,00 shares, were respectively acquired by the Plaintiff who participated in the said company’s shareholder registry.

C. On December 29, 2001, the instant company issued new shares of 200,000 shares (capital 1,000,000,000 shares). The statement on the state of changes in stocks, etc. of the said company stated that the company’s new shares of 160,000 shares, 20,000 shares, 10,00 shares, and Plaintiff 10,000 shares, who participated in the shares of the said company, were subscribed for shares of 160,00 shares at the time of establishment.

D. After acquiring all of the shares of the instant company by newB, the Defendant respectively held a title trust to the Plaintiff as promoters and the Plaintiff who participated in the shares of the instant company. According to the above details of changes in the shares of the instant company, the Plaintiff rendered the instant disposition imposing KRW 1,300,000 upon the Plaintiff’s establishment of the instant company on April 27, 199, and ② KRW 10,000 as at the time of capital increase by issuing new shares on December 29, 2001, on the ground that each title trust was held, pursuant to Article 45-2(1) of the Inheritance Tax and Gift Tax Act’s donation of title trust property, deeming the Plaintiff to have donated each shares from newB as above, and on August 7, 2013, imposed the gift tax of KRW 1,300,00 and KRW 616,324,800 for the year 201.

E. On October 24, 2013, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition. On July 15, 2014, the Plaintiff filed the instant lawsuit upon receipt of a decision of dismissal.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, 7, 8, 9, Eul evidence Nos. 1 and 13 (including each branch number, if any; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

At the time of the incorporation of the instant company, the Plaintiff received shares of the instant company only for the number of promoters and the number of subscribers for the establishment of the company required under the Commercial Act. At the time of capital increase, the Plaintiff, a title trustee, acquired the shares in order to avoid the ever-to-date procedure; due to title trust, there is no tax evaded with respect to the secondary liability for tax payment and deemed acquisition tax of oligopolistic stockholders; and the global income tax and dividend income tax are merely a minor reduction of tax. Therefore, each of the instant dispositions imposed on the Plaintiff by applying the constructive provision of title trust donation, deeming that the Plaintiff was not subject to tax avoidance even if the Plaintiff was entrusted with the nominal ownership of the instant company’s shares

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Relevant legal principles

The legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) is to recognize exceptions to the substance over form principle in the purport that the act of tax avoidance using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, if the title trust was recognized as having been made for any reason other than the purpose of tax avoidance, and it is merely a minor reduction of tax incidental to the said title trust, it cannot be readily concluded that there was a "tax avoidance purpose" in the title trust. However, in light of the legislative purpose as above, it cannot be deemed that there was a deemed donation purpose by applying the proviso to the above provision only where the purpose of tax avoidance is not included in the purpose of the title trust, and it cannot be said that there was no other main purpose and intent of tax avoidance. In this case, the burden of proving that there was no purpose of tax avoidance exists a nominal person who asserts it (see, e.g., Supreme Court Decision 2009Du3131397, Apr. 29, 2009).

In addition, as the nominal owner who bears the above burden of proof, there was an obvious objective irrelevant to the tax avoidance to the extent that there was no tax avoidance purpose in the title trust, and should be proved to the extent that if ordinary is not doubtful by objective and correct evidence that there was no tax avoidance at the time of the title trust or in the future (see Supreme Court Decisions 2004Du11220, Sept. 22, 2006; 2010Du23569, Feb. 24, 201). Furthermore, it is reasonable to determine whether there was a purpose of tax avoidance or not, as at the time of the time of the title trust, whether the pertinent property was donated as gift in the title trust, and to determine whether there was any tax evasion after the title trust or not (see Supreme Court Decisions 2003Du4300, Jan. 27, 2005; 204Du12089, Dec. 29, 2004).

2) Determination as to the assertion that the requirements of three or more promoters required under the Commercial Act are met or that the procedure would be avoided.

A) According to the facts and evidence cited earlier, the following circumstances are recognized.

(1) Article 288 of the former Commercial Act (amended by Act No. 6488 of July 24, 2001) provides that three or more promoters shall be required to establish a stock company, so there was a need for more than three promoters around April 27, 199, which was at the time of the incorporation of the company of this case. However, there was a new BB, thisCC, and ParkD as promoters of the company of this case. The plaintiff subscribed the shares of the company of this case as subscribers who are not promoters.

The plaintiff asserts that it is necessary to establish a company by the recruitment procedure more promptly than the incorporation procedure, and at least four persons are promoters and subscribers. However, the promotion of incorporation and recruitment incorporation are identical in that there is a matter of modified incorporation under Article 290 of the Commercial Act, which requires the court to appoint an auditor. The company of this case did not have to request the court to appoint an auditor since there was no change of establishment and investment in kind under Article 290 of the Commercial Act at the time of incorporation. Therefore, the newB did not have a significant need to trust the shares of the company of this case as the plaintiff's subscribers while establishing the company of this case by the recruitment procedure.

(2) Inasmuch as there is no evidence to conclude that newB borrowed the Plaintiff’s name in consideration of the title trust on the shares issued with capital increase from the time of the incorporation of the instant company, it is reasonable to deem that the title trust on December 29, 2001, which was made after the lapse of about two years and six months after the establishment of the instant company, was a separate title trust from the title trust that was made at the time of the instant company’s establishment. Whether there was an objective of tax evasion in the title trust on the shares issued with capital increase should be determined individually at the time of the title trust, not at the time of the establishment of the instant company, but at the time of the instant company’s establishment, at the time of the instant company’s establishment, at the time of the title trust on the shares issued with capital increase. However, at the time of the title trust on December 29, 201, the Commercial Act was amended by Act No. 6488, Jul. 24, 2001, without any necessary restrictions on the shares issued under the Plaintiff’s name.

(3) Where a corporation issues new shares for the purpose of raising funds after its establishment, the existing shareholders have the right to be allocated new shares on the basis of the number of shares held by them (Article 418 of the Commercial Act), unless otherwise stipulated in the articles of incorporation (Article 418 of the Commercial Act). In the event a shareholder voluntarily renounces such new shares without exercising such right, the so-called forfeited shares may occur. With respect to such forfeited shares, the corporation may re-examine the forfeited shares to a third party, other than the relevant forfeited shareholders, through the prescribed procedure in order to achieve

Therefore, in order to resolve the title trust as of December 29, 2001, a newB should have acquired the Plaintiff’s shares prior to the issuance of new shares, arrange the Plaintiff’s shares by acquiring them, or had the Plaintiff waive the preemptive rights after the issuance of new shares, and have the Plaintiff accept such forfeited shares. As long as the instant company’s allocation of new shares to the newB, which is the title truster, is not legally impossible in the process of offering new shares for capital increase, it is difficult to readily conclude that there exists a clear separate purpose from the purpose of tax avoidance solely on the ground that the instant company simply allocated new shares to the Plaintiff in accordance with the existing shares ratio.

In addition, since newB owned 100% of the shares of the company of this case and operated the company of this case alone, it is not deemed that considerable time and effort was needed to implement the procedure necessary to acquire the shares of this case or to take the method of acquiring forfeited shares.

Total amount of dividends for business year

Income Tax Act (units: 00,000 won) for each shareholder;

NewB (80%) IsCC (10%) ParkD (5%) Plaintiff (5%) to the year to which the Plaintiff (5%) belongs.

840 672 84 42 42 42 2004

204

2,040 1,682 204 102 102 2006

20,160 16,128 2,016 1,008 1,008 207

15,000 12,000 1,500 750 750 2007

20,400 16,320 2,040 1,020 1,020 1,020 208

10,080 8,064 1,008 504 504 2009

7,200 5,760 720 360 360 360 2010

7,200 5,760 720 360 360 360 2011

82,920 66,386 8,292 4,146 4,146

B) Comprehensively taking account of these circumstances, the evidence submitted by the Plaintiff alone cannot be deemed that the title trust of the instant company’s shares to the Plaintiff would result in either the purpose of meeting the requirements of the number of promoters required under the Commercial Act or the purpose of evading the procedure without tax avoidance, and there is no evidence to acknowledge otherwise, the Plaintiff’s assertion disputing this is without merit.

3) Determination as to the assertion that there is no tax actually avoided or is merely a minor reduction

A) According to the facts and evidence cited earlier, the following circumstances are recognized.

(1) The instant company made distributions to shareholders as follows.

(2) The earned surplus of the instant company was accumulated in KRW 17,463,921,94 in 2003, KRW 79,014,742,09 in 206, and KRW 35,531,387,49 in 2012. At the time of the instant disposition, the shares in the Plaintiff’s name were not transferred in the name of newB.

(3) The newB asserts that, regardless of title trust, if it held 80% shares of the instant company in appearance and if shares of the instant company are included in the shares of the instantCC, it constitutes 90% shares of the instant company, and thus, it does not aim at evading secondary tax liability of the oligopolistic shareholder. However, according to the proviso to Article 39 of the Framework Act on National Taxes, the liability to pay taxes by oligopolistic shareholder is limited to the amount calculated by multiplying the amount calculated by dividing the total number of shares issued by the instant company by the total number of shares issued by the relevant company or the total amount invested by the relevant oligopolistic shareholder by the number of shares or the amount invested by the oligopolistic shareholder, the scope of liability to pay taxes depends on the holding ratio of shares

(4) In 199, 199, at the time of the establishment of the instant company, NewB applied 40% of the global income tax base as the highest tax rate of KRW 247,219,581, but there was a difference in the tax rate applied by the Plaintiff with 20% of the global income tax base at KRW 30,131,914. In fact, in relation to the global income tax base, newB was subject to 35% of the statutory tax rate from 2005 to 2010, and the Plaintiff was also subject to the statutory maximum tax rate from 2006 to 2010, but the Plaintiff’s global income tax base at KRW 68,467,93, the tax rate for global income tax in 2005 was subject to 26%, and there was a difference in the tax rate applied by NewB (9%).

(5) In fact, due to the system of separate taxation on dividend income, newB was able to avoid the liability to pay income tax equivalent to KRW 136,000,000 from 203 to 2010.

B) In light of the above circumstances, it cannot be readily concluded that there was no intention of tax avoidance in the title trust of the shares solely on the grounds that the evidence submitted by the Plaintiff and the facts presented by this court were insufficient. Accordingly, the Plaintiff’s assertion of this issue is without merit.

3. Conclusion

Therefore, the plaintiff's claim against the defendant is dismissed as it is without merit. It is so decided as per Disposition.