The disposition to apply the provision on the denial of wrongful calculation by deeming that the transaction of unlisted stocks constitutes high-priced purchase is justifiable.

The method of evaluation of unlisted stocks subject to Article 54 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act is reasonable, and a disposition to notify the seller of changes in the amount of income that stocks are deemed illegally purchased from a specially related person

Article 52 (Dispudiation of Wrongful Calculation)

2013Guhap173 Notice of Change in Amount of Income

0000 Stock Company

00. Head of tax office

January 14, 2014

February 4, 2014

1. The plaintiff's claim is dismissed.

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

On June 8, 2012, the Defendant’s notice of change in income amount issued to the Plaintiff is revoked.

1. Details of the disposition;

The following facts may be recognized by taking into account the respective descriptions of Gap's 1, 2, 3, 12, 13, 14, 18, 19, 20, Eul's 1, Eul's 2 and 3, and the whole purport of arguments and arguments.

A. The Plaintiff is a corporation established on January 21, 2002 for the purpose of manufacturing and selling waste vinyl processing machinery, power generation equipment, and factory machinery manufacturing and selling business. The Plaintiff is a non-listed corporation established on February 22, 2007 for the purpose of design, manufacturing and selling aircraft, manufacturing and selling business, air transportation business, aviation coordination and maintenance training business, etc.

B. AA is the Plaintiff’s former representative director and the current intra-company director, BB is the representative director of the non-party company from February 22, 2007 to February 28, 2010, and thereafter, AA is an intra-company director, and AA is the representative director of the non-party company from February 8, 2010 to July 6, 2013, and CCC is working as the representative director of the non-party company from July 6, 2013 to the date.

C. On December 20, 2010, the Plaintiff purchased 80,000 shares of the AA (32% shares; hereinafter “instant shares”) of the non-party company’s 250,000 shares of the non-party company’s non-listed shares at KRW 10,000 per share (hereinafter “the instant transaction”). On the same day, the Plaintiff purchased 30,000 shares (12%) of the BB’s shares of KRW 300,000 per share and KRW 150,000 per share (6%) of the CCC’s shares of KRW 150,000.

D. On June 8, 2012, the Defendant: (a) determined that the Plaintiff purchased the instant shares of AA with a special relationship; (b) applied Article 52 of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter the same) to the Plaintiff; (c) Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013; hereinafter referred to as “Inheritance Tax and Gift Tax Act”); (d) Article 54(1) and (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013; hereinafter referred to as “the Inheritance Tax and Gift Tax Act”); and (d) disposed of the instant shares appraised by the supplementary method of assessment of the non-listed shares under Article 283,040,000 (3), the difference between the purchase price of KRW 80,000,000,00.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on August 22, 2012, but the said appeal was dismissed on April 9, 2013.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In light of the fact that AA purchases non-party company’s shares from DD before the instant transaction, the Plaintiff purchased non-party company’s shares at KRW 10,000 per share from other shareholders of the non-party company at the time of the instant transaction, and as seen below, the Plaintiff assessed the instant shares at net asset value at KRW 8,857 per share, and the aviation business is a special business with a large initial investment cost, it is difficult to deem that the Plaintiff’s purchase of the instant shares at KRW 10,000 per share, which is an economic rationality.

2) The non-party company passed a resolution at the general meeting of shareholders to pay a total of KRW 30,00,000 as an officer’s remuneration in 2008, and did not include it in the account book on the ground that it did not pay it in the expenses. However, once once again calculated in accordance with the substance over form principle, the business year 2008 did not incur losses. Since the non-party company sustained losses in the business year 2007, 2008, and 2009, the non-party company sustained losses in the business year, the shares of this case should be assessed as net asset value in accordance with Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Article 54(4)3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the share value of this case is 8,857 won per share if it is assessed as net asset value. Nevertheless, the defendant assessed the net asset value and net asset value of the shares of this case in accordance with Article 54(1) of the Enforcement Decree of the Inheritance Tax Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the instant transaction constitutes a high-priced purchase

A) Article 88(1)1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22951, Jun. 3, 2011; hereinafter “former Enforcement Decree”), one of the subjects of wrongful calculation under Article 52(1) of the former Corporate Tax Act, refers to a case where the assets are purchased or received as investment in kind at a price higher than the market price, or the assets are depreciated in excess of the market price. The “market price” refers to an objective exchange value formed through a general and normal transaction (see, e.g., Supreme Court Decisions 94Nu8013, Dec. 23, 1994; 2002Du1588, Sept. 23, 2004); and barring any special circumstance, it is difficult to view that the face value determined as the issue price of new stocks or new stocks issued by a corporation at the time of issuing new stocks or new stocks issued, as an adequate market price reflecting the objective exchange value (see, e.g., Supreme Court Decision 2006Du684868).

B) In addition to these legal principles, the Plaintiff acquired 125,00 shares of the instant shares and BB and CCC shares (50% shares) among the non-listed shares of the non-party company, without considering the value of financial statements and net income. Although the transaction between the Plaintiff and BB andCCC does not constitute a transaction between related parties, it is reasonable to view the transaction value of the instant shares as the market price at an objective exchange value formed by a general and normal transaction, based on the following factors: (a) the transaction between the Plaintiff and the aforementioned two parties are closely related to the instant transaction in light of the date, details and scale of the transaction; (b) BB,CC andAA; (c) the relationship between the Plaintiff and the non-party company; and (d) the transaction between the Plaintiff and the above parties appears to be accompanied by the instant transaction with AA; and (e) the price of the instant shares as seen earlier is considered to be KRW 3,538 per share.

C) Therefore, the instant transaction constitutes a high-priced purchase. On August 31, 2000, a written contract in which AA and DD traded 22,500 shares of a non-party company at KRW 10,000 per share (Evidence A6) or the initial investment cost is much high, should not be deemed differently considering the unique characteristics of the aviation industry.

2. Whether there was an error in the evaluation method of the stock value of this case

A) Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act provides that “The value of stocks not listed on the Korea Stock Exchange shall be appraised by the method prescribed by Presidential Decree, taking into account the assets, earnings, etc. of the relevant corporation.” According to the delegation, Article 54(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The value of stocks (non-listed stocks) not listed on the Korea Stock Exchange shall be calculated based on the weighted average value of the net profit and loss value per share and net asset value per share in the ratio between 3 and 2 (the ratio between 2 and 3).” However, Article 63(4)3 of the same Act provides that “The total amount of losses which falls or will fall or will fall within the business year preceding the business year in which the base date of appraisal falls, shall be appraised as net asset value under paragraph (2) of the same Article.” In this context, whether the total amount of losses which falls or will fall within the relevant business year is determined in accordance with the language and text of the Corporate Tax Act or the amount of losses.”

B) As seen earlier, as the Plaintiff purchased the instant shares from AA on December 20, 2010, the Plaintiff reported the amount of loss of KRW 135,239,756 in the business year 2007,208, and KRW 173,578,839 in the business year 2009, when the Plaintiff reported the income under the Corporate Tax Act (referring to the amount obtained by deducting the total amount of losses belonging to the business year from the total amount of the gross income belonging to the business year) for the business year before the business year belonging to the base date of appraisal, and the Plaintiff reported the amount of loss of KRW 20,310,98 in the business year 208, and the amount of loss of KRW 173,578,839 in the business year 209.

Therefore, in this case where there is no evidence to prove that the non-party company corrected the income reported in 2008 through due process, even if the expenses of KRW 30,000,000,000 to be paid to the non-party company as an officer in the business year 2008 as the plaintiff's assertion were generated, such fact alone is difficult to view the above KRW 30,000,000 as deductible expenses under the Corporate Tax Act that will continue or belong to "208 business year." Ultimately, it is difficult to view that the loss had occurred to the non-party company continuously from the business year before the business year 2010 to which the date

C) Therefore, applying Article 54(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, it is reasonable to consider the net value of the instant shares, which is non-listed shares, as the weighted average of the net value of the profit and loss and the net asset value in 30,538 won per share, respectively, by applying Article 54(1)

3) Therefore, the Plaintiff’s assertion is without merit.

3. Conclusion

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