[Judgment of the court below]

The Head of Sungnam District Tax Office (Law Firm Dcaro temperature, Attorneys Seo-ho et al., Counsel for the defendant-appellant)

March 4, 2015

Suwon District Court Decision 2013Guhap12837 Decided September 18, 2014

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s imposition of gift tax of KRW 5,564,683,370 against the Plaintiff on February 6, 2013 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of judgment of the first instance;

The reasoning for this Court’s explanation concerning this case is as follows, except for the addition of the judgment of the defendant as to the additional argument in the trial under Paragraph (2) below to the part of the reasoning for the judgment of the court of first instance. Thus, this Court shall accept it as it is in accordance with Article 8(2) of the Administrative Litigation Act and the main text of

2. The addition;

A. Determination as to the timing of donation

1) The defendant's assertion

The Plaintiff’s money received from Nonparty 2 from December 8, 2005 to December 13, 2005 cannot be deemed as the amount of share acquisition received from Nonparty 1 (non-party: non-party 1). Even if so, the above amount was specified as the amount of share acquisition, and even if shares were allocated in the Plaintiff’s name as the result of payment, the donation was made only when the non-party 1 wishes to dispose of the shares. According to the evidence No. 7, the non-party 1 confirmed that the donation date was around December 31, 2005, and thus, the donation was made on the part of the non-party 1’s intent to dispose of shares.

2) Determination

In light of the following circumstances, i.e., ① the Plaintiff’s new bank account from December 8, 2005 to December 13, 2005, deposited KRW 170 million in the name of Nonparty 2; ② the Plaintiff deposited KRW 160 million from the above account on December 19, 2005 to the check; ③ the above check was presented for payment of KRW 100 million on December 20, 2005 to the Korean bank, which was an institution dealing with the payment of shares; ④ the Plaintiff’s basic number of shares issued from the Plaintiff’s new bank account from December 8, 2005 to December 13, 2005; ④ the Plaintiff’s statement on the change of shares issued from the Plaintiff’s 10th of shares (the number of shares issued from the 20th of shares issued from the 20th of the 10th of the 1st of the 20th of the 20th of the 1st of the 20th of the 1st of the 6th of the shares.

In addition, if the plaintiff received a donation from the non-party 1 for the payment of the purchase price of shares, the donation will be made at the time of receiving the money, or the non-party 1's separate intention of disposition is not required, so the time of donation cannot be seen as December 31, 2005.

Therefore, this part of the defendant's argument is without merit.

B. Determination as to whether Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Gift”) is directly applied

1) The defendant's assertion

Even if the Plaintiff acquired new shares by receiving a donation from Nonparty 1 prior to the establishment of S&A, the “minimum investor” under Article 41-3 of the Inheritance Tax and Gift Tax Act refers to the investor of the corporation, “shares”, and “investment amount,” etc. in the form of shares before the issuance of share certificates from the corporation under establishment of S&A. Thus, Article 41-3(1) of the Inheritance Tax and Gift Tax Act applies to the acquisition of shares of a new corporation.

2) Determination

(1) In the process of the establishment of a corporation, the term “investment” means (i) the transfer of money or property to pay the subscription price for shares in cash and (ii) the transfer of shares to receive shares (see Articles 290 subparag. 2 and 295 of the Commercial Act); (iii) even if the ownership ratio of shares in the company can be anticipated after its establishment, it is difficult to regard the payment of the subscription price and the performance of the investment in kind before the incorporation of the company as a definitive shares; (iv) Article 41-3(1) of the Inheritance Tax and Gift Tax Act provides that “stocks or investment shares (hereinafter referred to as “stocks”) are listed; and (iv) Article 42(4) of the Inheritance Tax and Gift Tax Act provides that “stocks or investment shares of the corporation shall be listed on the securities market, including those indicated as “stocks or investment shares”; and (v) Article 42(1) of the same Act provides that “stocks or investment shares of the corporation are not listed on the securities market.”

Therefore, the defendant's assertion on this issue is without merit, and the above provision cannot be applied directly to the acquisition of the shares by the plaintiff, in full view of the legislative intent, amendment process, and language of Article 41-3 of the Inheritance and Gift Tax Act, as well as the legislative intent, amendment process, and language of Article 41-3 of the Inheritance and Gift Tax Act.

Therefore, this part of the defendant's argument is without merit.

C. Determination on whether an analogical application of Article 41-3(1) of the Inheritance and Gift Tax Act is applied by analogy

1) The defendant's assertion

Even if there is no provision on the acquisition of shares by the new corporation under Article 41-3 of the Inheritance Tax and Gift Tax Act, (1) the profits from the listing of the shares in this case fall under the subject of gift tax pursuant to the complete comprehensive taxation of the gift tax under Article 2(3) of the Inheritance Tax and Gift Tax Act; (2) Nonparty 1, who actually controls Mocb and Mambnb, established LAB to list the shares for the purpose of listing the corporation, and listed the shares after combining Mocb and Mamb; (3) such series of acts can be deemed as identical to the case of directly listing Moc and Mamb and Mamb; and (4) in the process, giving the Plaintiff a donation of the acquisition price of the shares in this case, the economic substance is the same as the donation of the shares of the corporation to be listed. Therefore, it can be inferred to apply Article 4

2) Determination

A) The system of introducing the complete comprehensive gift tax system and the provision of gift tax law

(1) The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax Act”) borrowed the concept of donation under the Civil Act with no definition provision on the concept of donation. There is no way to prevent the avoidance of gift tax through an irregular donation without following the form of donation under the Civil Act. Therefore, the tax authorities have several regulations on deemed donation (Articles 32 through 42 of the former Inheritance Tax Act). However, such individual deemed donation regulations alone have pointed out the problem that it is impossible to cope with new types of modified donations due to new type of derivatives, financial instruments, and various capital transactions, etc. In order to realize fair taxation by establishing the legal basis for the imposition of gift tax on the transfer of various forms of gratuitous donation, and changing the concept of gift tax from the previous provision on comprehensive donation under the Civil Act (amended by Act No. 7010, Dec. 30, 2003; 2003).

(2) Article 2(1) of the Inheritance Tax and Gift Tax Act amended by Act No. 7010 of Dec. 30, 2003 provides that donated property from another person’s donation is subject to gift tax. Article 2(3) of the same Act provides that “The term “donation” means a free transfer (including transfer at a remarkably low price) of tangible and intangible property (including transfer at a remarkably low price) to another person by direct or indirect means, or an increase in property value of another person by which economic value can be calculated, regardless of the name, form, purpose, etc. of the act or transaction, or an increase in property value of another person.” As such, the concept of donation distinct from donation under the Civil Act was formulated separately from donation under Articles 33 through 42 of the same Act, and the previous provision on deemed donation was amended to the calculation of donated property provisions by supplementing

(3) As seen above, in order to impose gift tax on the gratuitous transfer of various forms of property or increase in property value that have not been predicted, the scope of taxation of gift tax has been expanded by introducing the concept of donation based on the complete universalism under Article 2(3) of the Inheritance and Gift Tax Act. In light of the structure with other provisions, such as the change of the existing regulation on deemed gift tax in the calculation of the value of donated property, it is difficult to simply interpret Article 2(3) of the Inheritance and Gift Tax Act as a confirmatory and declaration provision (where Article 2(3) of the Inheritance and Gift Tax Act is simply viewed as a confirmatory and declaration provision, there is a problem in which the taxable basis for the issue equivalent to the existing deemed gift tax exists), etc., in light of the background, legislative purport, content, structure, etc. of the introduction of Article 2(3) of the Inheritance and Gift Tax Act, it is reasonable to deem that the imposition of gift tax based on Article 2(3) of the Inheritance and Gift Tax Act can be possible (see, e.g., Supreme Court Decision 2018Du7828, Apr.

B) Whether it is unlawful in calculating the value of donated property by applying Article 41-3(1) of the Inheritance and Gift Tax Act

(1) However, Article 2(3) of the Inheritance Tax and Gift Tax Act only provides for the subject of taxation subject to the application of the "comprehensive gift tax complete taxation" and does not directly provide for the method of calculating the value of the donated property acquired through the gift. This seems to be due to the fact that Article 2(3) of the Inheritance Tax and Gift Tax Act directly provides for the method of calculating the value of the donated property with regard to various and new types of modified donations is impossible in the legislative form of "comprehensive gift tax complete taxation." As seen earlier, the legislators introduced the comprehensive gift taxation principle, thereby expanding the scope of taxation of the gift tax; while, regarding the calculation of the value of donated property, Article 3 through 42 of the Inheritance Tax and Gift Tax Act applied mutatis mutandis to the calculation of the value of donated property by converting the existing provision on individual donated property under the title "Calculation of the value of donated property" in Section 2 of Chapter 3 of the Inheritance Tax and Gift Tax Act to the example of calculating the value of donated property. In light of the background, legislative purport, etc. of the introduction of the complete comprehensive gift taxation principle, it cannot be deemed as contrary to the taxation requirement of taxation principle.

(2) In light of the above legal principles, comprehensively taking account of the facts acknowledged in the reasoning of the judgment of the first instance court cited by this court as the ground for the judgment and the following circumstances that can reveal the overall purport of the arguments adopted by this court, Article 41-3(1) of the Inheritance and Gift Tax Act cannot be inferredly applied in calculating the profits (value of donated property) accruing from the instant donation.

Therefore, this part of the defendant's assertion is without merit.

(1) As seen earlier, Article 41-3(1) of the Inheritance and Gift Tax Act provides that the donor shall be the largest shareholder or largest investor of the relevant corporation. This means either based on the total number of issued and outstanding shares of the relevant corporation, or in the case of a corporation other than a stock company, the largest shareholder, or in the case of a corporation other than a stock company, the said personal conditions may not be met at the pre-establishment stage

② Article 41-3 of the Inheritance and Gift Tax Act explicitly states that the subject matter of acquisition of stocks, etc. shall also be subject to regulation in cases where a corporation issues new stocks, etc. to increase its capital, including new stocks acquired and allocated as a result of the issuance of new stocks, but no provision is required in cases of issuance of new stocks to establish a company.

③ If a certain restriction conditions are clearly set in individual example provisions and the taxation requirements are clearly regulated, taxpayers’ predictability related to the legal principle of taxation requirements is more strongly required. In determining whether the pertinent transaction that does not meet such conditions can be taxed through the application by analogy of the comprehensive taxation of gift tax and individual example provisions, it is necessary to interpret more restrictively as to whether it is identical to the example provisions.

(4) The act of acquiring shares issued at the time of incorporation by promoters constitutes the act of establishing a company with independent corporate personality. Thus, barring any special circumstance, such an act is difficult to deem the same as “an act of acquiring shares of an already established company with different ownership relations” and its economic substance.

⑤ Moreover, the act of Nonparty 1’s donation of the acquisition price of the stocks at the time of the establishment of S&A cannot be deemed to be the same as the act of donation of the stocks of S&A after the establishment of L&A and the act of donation of the stocks at the time of the establishment of L&A. The same handling of each of the above acts cannot be deemed to infringe on the predictability of taxpayers by excessively expanding the scope of application under Article 41-3(1) of the Inheritance Tax and Gift Tax Act.

3. Conclusion

Thus, the plaintiff's claim of this case shall be accepted for the reasons, and the judgment of the court of first instance is just in conclusion, and the defendant's appeal is dismissed as it is without merit.

Judges Sung Pung-tae (Presiding Judge)