National High Court Decision 2006No4527 (207.08)

Whether the calculation of transfer value is legitimate in stock exchange transactions

Since the actual transaction price applied to the exchange transaction of stocks is the equivalent value and the equivalent value can be confirmed by the related documents, the transfer income tax related to the exchange of stocks in this case shall be calculated based on 15,973 won per share, which is the above appraised value recognized as the actual transaction price.

The contents of the decision shall be the same as attached.

Article 94 (Scope of Transfer Income Tax)

Article 96 (Transfer Price)

1. The plaintiff's request shall be made.

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

The defendant's refusal to request correction against the plaintiff on July 30, 2006 shall be revoked.

1. Details of the disposition;

The following facts may be acknowledged in light of the overall purport of the pleadings in the descriptions of Gap evidence 1, 2, and 3-1, 2, and 6-1, 2, Gap evidence 7, 8, and Eul evidence 1, and the whole purport of the pleadings:

A. After September 16, 2004, the Plaintiff owned 53,541 shares of ○○○ Bioscience Co., Ltd. (hereinafter “○○○○○ Bioscience”) (hereinafter “instant shares”).

B. On May 31, 2005, 2005, ○○○ Incorporated Co., Ltd., a KOSDAQ-listed corporation (hereinafter “○○○○○”) concluded an all-inclusive share swap agreement with ○○ parent company and ○○○○ Bioscience as a wholly owned subsidiary by comprehensively exchanging shares with the ○○○ Bioscience. The said exchange agreement included a statement that the said share swap shall pay an amount calculated on the basis of the closing price of the first day listed on the Exchange market for a single share of less than one share as to a single share of less than one share in cash.

C. Following the conclusion of the above exchange contract, ○○○○ Bioscience and ○○○ Bioscience request ○○ Accounting Corporation first to assess the number of shares issued in 17,107 won per share of ○○○○ Bioscience and evaluated it as KRW 17,107 per share. Meanwhile, ○○○○○io Science and ○○○○○ Bioscience premised on the implementation of capital reduction that combines 3,76 shares issued in ○○○○○○ through one share of shares. On May 31, 2005, which is at the time of the above exchange contract, ○○○○○○○○○ioio & ○ Bioscience, one-month weighted average class price per week, and one-month weighted average class price per share of the last closing price, and the lower amount of the last closing price per share (the method stipulated in Article 36-12(1) of the Enforcement Rule of the Securities and Exchange Act) among the last 421 won (the method stipulated in Article 36-12(1)) of the Enforcement Rule).

D. After ○○○’s capital reduction procedure was conducted, the convertible bonds of ○○○ Bioscience were converted to stocks, the value per share of ○○○○○ Bioscience 15,973 won was revaluated, and accordingly, the exchange ratio was changed to exchange approximately 10,09 shares per share of ○○○ Bioscience 15,973±1,582.96).

E. On August 31, 2005, 2005 under the above share swap contract, ○○○○○ Bioscience was the complete parent company of ○○○○○ Bioscience. The ○○○ Bioscience was the complete parent company of ○○○○○○, and in the process, the instant shares owned by the Plaintiff were transferred to ○○○, and ○○, a listed company of the Plaintiff KOSDAQ, became the shareholders of ○○○○.

F. After November 30, 2005, the Plaintiff paid KRW 71,988,691 after filing a preliminary return of capital gains tax with the transfer value of the instant shares as KRW 15,973 per share, which is the above appraised value.

G. On May 30, 2006, the Plaintiff filed a request for rectification to the Defendant to the effect that the transfer value of the instant shares is not KRW 15,973 per share, which is the above appraised value, and that the Plaintiff would be KRW 6,143 per share calculated by taking an arithmetic mean of transaction examples of ○○○ Bioscience and Stocks at the time of the said share swap, and that the Plaintiff would have reported and paid the capital gains tax excessively. As such, the Plaintiff would have refunded KRW 47,367,723 to refund the capital gains tax excessively paid.

H. As to this, the defendant did not give any notice on the plaintiff's request for correction within 2 months, which is the notification period under Article 45-2 (3) of the Framework Act on National Taxes (the defendant, within 2 months from the date of receipt of the plaintiff's request for correction under Article 45-2 (3) of the Framework Act on National Taxes, shall accept the plaintiff's request for reduction and correction, and notify the plaintiff that there is no reason to determine or correct the tax base and tax amount, or to make any decision or correction within 2 months from the date of receipt of the request for correction. However, if the plaintiff does not give any notice within the above statutory period, the plaintiff may be deemed to have refused the request for correction and file an appeal against it (see, e.g., Supreme Court Decision 2001Du10639, Jun. 27, 2003). Accordingly, the defendant's rejection disposition against the plaintiff is deemed to have been

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Although the transfer value of the instant shares is calculated based on the actual transaction value, the transfer value of the instant shares should be calculated based on the actual transaction value, the transfer value of KRW 15,973 per share is merely an appraised value, and thus, it cannot be deemed as the actual transaction value. Therefore, the transfer value of the instant shares is deemed as KRW 6,143 or KRW 5,500 per share, a transaction example example, pursuant to the provisions of the Income Tax Act, and if it is unreasonable, the transfer value is deemed as either KRW 6,143 or KRW 6,500 per share or KRW 6,500

(b) Related statutes;

Article 94 (Scope of Transfer Income Tax)

Article 96 (Transfer Price)

C. Determination

According to Articles 94 (1) 3 (c) and 96 (2) of the Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005; hereinafter the same), when calculating the transfer income tax accruing from the transfer of stocks not listed in the Exchange, the transfer value shall be based on the actual transaction at the time of transfer. According to Article 11 (5) of the Income Tax Act and Article 176-2 (1) 1 and (3) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005; hereinafter the same shall apply), even if the transfer value is determined based on the actual transaction value, if there is no book, sales contract, receipt, and other documentary evidence necessary to confirm the actual transaction value at the time of transfer, or if it is impossible to recognize or confirm the actual transaction value at the time of transfer or acquisition due to lack of material parts, the transfer value may be determined or corrected by an estimated investigation.

In general, the term "real value of transfer income tax" means the value received by the transferor as a price for the transfer of the relevant asset at the time of transaction, which is objectively recognized by the sale contract or other documentary evidence, and it does not refer to the value based on the objective exchange value at the time of transfer identified by the market price appraisal retrospectively at the time of transfer (see, e.g., Supreme Court Decision 91Nu10848, May 12, 1992): Provided, That where a transaction subject to the transfer income tax is simple exchange, the actual transfer value cannot be confirmed if it is an exchange accompanied by settlement procedures on the difference between the appraisal value by the market price appraisal of the object to be exchanged, but in such case, where the owner of the object to be exchanged receives in cash the difference between the appraisal value of the object to be acquired by the exchange, the actual transfer value shall be the exchange value of the object to be acquired by the exchange (see, e.g., Supreme Court Decision 91Nu10860, Feb. 11, 1997).

In this case, the following facts are acknowledged by the facts of recognition. In other words, ○○○○○○ Accounting Corporation, a KOSDAQ-listed corporation, entered into a contract on the comprehensive exchange of shares with ○○○○○○○○ Biochemical as a wholly owned subsidiary by comprehensively exchanging shares between ○○○○○ Biochemical and concluding the contract on the comprehensive exchange of shares with ○○○○○○○ Biochemical as a wholly owned subsidiary, and the shares in this case were exchanged as ○○○○○○○○○○ Bioscience’s shares in the process of executing the exchange. At the time of the exchange, the value per share of ○○○○ Bioscience’s shares, a listed company, was assessed on the basis of the appraised value of ○○○ Accounting Corporation’s shares, based on the actual trading value at the actual exchange, and the valuation value per share of ○○○○○ Accounting Corporation, a listed company, has been assessed on the basis of the average trading value per share as claimed by the Plaintiff, and there was no objective evidence to prove that the appraisal value per share was erroneous.

When acquiring stocks by means of a comprehensive stock exchange, a number of new stocks equivalent to the evaluated value after evaluating the value of the stocks exchanged are acquired in the process, and the agreed value is settled in cash and the exchange can be seen as an exchange, and in case of acquiring listed stocks through a stock exchange, it can be seen as different from the case where the stocks are acquired by means of a stock exchange which is difficult to liquidate and assess through a stock exchange in the process of stock exchange. In light of all the circumstances, 15,973 won assessed as the value per stock of ○○ Bioscience Science in the process of stock exchange is the actual transaction price applied to the stock exchange transaction in the process of stock exchange, which can be confirmed by related documents, and thus, the transfer income tax related to the stock exchange in this case should be calculated based on 15,973 won per stock, the above appraised value

In addition, such determination is reasonable in direct agreement between the Plaintiff and the ○○○○ Tech. Such determination is not based on the direct agreement between the Plaintiff and the ○○ Tech. Such determination is not based on a direct agreement between the Plaintiff, but was based on the fact that ○○ Accounting Firm evaluated as KRW 4,512 per share on July 11, 2005 as a result of a re-assessment of the stock value of the ○○○ Bioscience Science after the share swap was conducted, and it is not different on the ground that ○○ Accounting Firm decided to settle the shares in cash on the basis of the first day on which new shares are listed, which are not the stock exchange at the time of the date of the exchange contract, based on the closing price on which the new shares are listed. Accordingly, unlike the above determination, the Plaintiff’s assertion that it is unreasonable to calculate capital gains tax on the transfer of the shares of this case on the basis of KRW 15,978 per share of the said appraised value, and the disposition

3. Conclusion

Thus, the plaintiff's claim of this case seeking revocation of legitimate disposition is dismissed as it is without merit.