Early High Court 201J 2819 ( October 12, 2011)

Non-taxable practice does not violate the principle of trust protection because it has not been established.

The allocation of new stocks by the third party allotment method does not violate the principle of trust protection because there is no explicit or implied public opinion suggesting that the allocation of new stocks by the third party allotment method shall not be included in the allocation by the method of securities offering, which is the exception that is not included in the value of donated property, and this provision does not impose gift tax

2012 disposition of revocation of imposition of gift tax

LAA et al.

Head of Namyang District Tax Office

August 28, 2012

September 25, 2012

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

The Defendant’s imposition of gift tax of KRW 000 on May 14, 201 with respect to Plaintiff LA and KRW 000 on Plaintiff EB shall be revoked.

1. Details of the disposition;

A. On July 8, 2008, the plaintiffs participated in the third party allotment method of CCCS Co., Ltd. (DDD on July 23, 2008, and EEEEEM Holdings Co., Ltd. on May 27, 2010; hereinafter referred to as "non-party company") and acquired 200,000 shares, and HaBEB acquired 917,440 shares (hereinafter collectively referred to as "the new shares in this case") each share by 00 won per share.

B. Under Article 39(1)1 (c) and Article 29 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21214, Dec. 31, 2008; hereinafter the same shall apply), the Defendant evaluated the value per share of the new stocks of this case as 00 won on July 8, 2008, and deemed that the Plaintiffs acquired new stocks at a price lower than their market price, and on May 14, 201, the Defendant made a determination on the gift tax amount of 00 won [(10 won - 00 won) x 200 x 300 x 400 x 400 x 4000 x 400 x 400 x 4000 - 4000 x 3000 - 4001 x 14000 - 3000 - 4000

C. On July 29, 2011, the Plaintiffs filed each appeal with the Tax Tribunal, and the tax court.

On October 12, 2011, the Board made a partial decision to correct the tax base and tax amount on the following grounds: (a) calculated the Plaintiffs’ donated gains by dividing them into each shareholder who did not receive new shares; and (b) did not add additional tax for the return and payment in good faith.

D. On November 1, 201, the Defendant issued a correction and notification of KRW 000 of the gift tax and KRW 000 of the gift tax to Plaintiff LA as well as KRW 000 of the gift tax to Plaintiff EB (hereinafter “instant disposition”).

[Grounds for Recognition] 1 to 12 of the facts without dispute, Gap evidence 1, and 2, Gap evidence 3, and Eul evidence 1, and Eul evidence 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The plaintiffs asserts that the disposition of this case by the defendant is unlawful for the following reasons, and thus revoked.

(i)the allotment of new stocks by means of offering of securities excluded from the provisions of deemed donation;

The allocation of new shares in this case is based on the method of deemed public offering of new shares under Article 2-4 (4) of the Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20947, Jul. 29, 2008; hereinafter the same) and the definition of "in the case of deemed public offering, solicitation of subscription" under Article 2-4 (5) of the same Act is not applied, and the plaintiffs are ultimately entitled to the allocation of new shares by "the method of public offering of new shares under Article 2 (3) of the Securities and Exchange Act (amended by Act No. 8985, Mar. 21, 2008; hereinafter the same shall apply) excluded from the deemed public offering of new shares under Article 39 (1) of the Inheritance Tax

(2) Violation of the principle of trust protection.

The defendant's disposition of this case, which lost the plaintiffs' trust, is contrary to the principle of protecting trust provided for in Article 18 (3) of the Framework Act on National Taxes, since it did not impose gift tax on the increase in the market price by using a third-party stock allotment method for a period of five years, in consideration of the clear policy that the promotion of the business investment environment is intentional or implicitly, since it did not impose gift tax on the increase in the market price by using a third-party stock allotment method for five years.

B. Relevant statutes

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

C. Determination

(1) As to the assertion of allocation of new shares by means of offering of securities excluded from the deemed donation provision

(A) Where a corporation issues new stocks at a price lower than the market price under Article 39(1)1 (a) and (c) of the Inheritance Tax and Gift Tax Act, and where a corporation issues new stocks at a price lower than the market price to increase its capital, a person who is not a shareholder of the corporation concerned shall levy gift tax by deeming the amount equivalent to such profits as the value of property donated to the person who has acquired such profits. However, where a stock-listed corporation or Association-registered corporation under the Securities and Exchange Act allocates new stocks through a public offering method of securities under Article 2(3) of the Securities and Exchange Act, it shall be excluded. Article 2(3) of the Securities and Exchange Act provides that "public offering of new stocks is recommended to acquire new stocks issued under the conditions as prescribed by the Presidential Decree." Article 2-4(1) of the Enforcement Decree of the Securities and Exchange Act provides that "not less than 50 persons who are solicited to acquire new stocks issued by the public offering of new stocks shall be recommended to do so from the public offering of new stocks to the public offering of new stocks" under Article 2(3) of the Securities and Exchange Act.

(B) Article 39(1)1 (a) and (c) of the Inheritance Tax and Gift Tax Act provides that when a corporation issues new stocks at a price lower than the market price to increase its capital, a person who receives allocation shall obtain profits equivalent to the difference between the market price and include the equivalent amount of such profits in the value of donated stocks, and shall exclude the allocation of new stocks through the method of securities offering under the Securities and Exchange Act, and in the case of public offering even though there are persons who gain profits due to the issuance of new stocks through the method of securities offering, gift tax shall be exempted in the case of public offering. This is reasonable to view that even if a stock-listed corporation or Association-registered corporation issues new stocks through the procedure of public offering under the Securities and Exchange Act and other relevant Acts and subordinate statutes, the appropriate value should be determined again through the fair competition trading process between unspecified and unspecified persons, and that discount issuance within a certain limit should be made easily to raise funds of a listed corporation or Association-registered corporation, such as the Securities and Exchange Act and other related Acts and subordinate statutes, even if the market price is lower than the market price of stocks.

2) Meanwhile, the provision of Article 2-4 (4) of the Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 2-4 of the Securities and Exchange Act) is a system newly introduced at the time of partial amendment on February 24, 1998 in order to prevent the issuer from being subject to the regulation on publication for investor protection, not including the case where the issuer issued a single new stock against the minority of 50 thousands, and then resells it again to 50 or more persons again. Thus, it conforms with the purport of Article 2-4 (1) 1 (a) and (c) of the Inheritance Tax and Gift Tax Act, which is the exceptional ground for not including the profits accrued from low-price issuance in the value of donated property, in order to prevent the regulation on publication for the purpose of investor protection, and it conforms with the purport of Article 2-4 (1) 1 (c) and (c) of the Enforcement Decree of the Securities and Exchange Act.

3) Furthermore, in order to constitute "distribution by the method of public offering of securities, which is an exception that does not include the benefit from issuing at a low price under Article 39 (1) 1 (a) and (c) of the Inheritance Tax and Gift Tax Act in the value of donated property," the procedures for soliciting an offer under Article 2-4 (5) of the Enforcement Decree of the Securities and Exchange Act, i.e., advertising through newspapers, broadcasting, magazines, etc., and distributing printed matters, such as notice and promotion leaflets, and holding an explanatory meeting for investment, or providing guidance on the acquisition of securities by at least equivalent or similar means (see Supreme Court Decision 2003Do7554, Feb. 13, 2004).

(C) Comprehensively taking into account the aforementioned legal principles, the entire arguments were presented. In relation to the allocation of new stocks in this case, the non-party company passed a resolution to issue new stocks only for about 30 persons including the plaintiffs who are specific persons from the beginning to the board of directors, and it is recognized that new stocks were issued accordingly. Thus, this is only a provision for deemed public offering under Article 2-4 (4) of the Enforcement Decree of the Securities and Exchange Act, and it is clear that the number of persons who are solicited to acquire the securities newly issued under Article 2-4 (1) of the Enforcement Decree of the same Act is not less than 50 persons, and it does not constitute a general public offering. Accordingly, the allocation of new stocks in this case is not included in the allocation of securities by the 'securities offering method', which is an exception for not including profits arising from the low price issuance under Article 39 (1) 1 (a) and (c) of the Inheritance Tax and Gift Tax Act, and it is not reasonable for the plaintiffs' previous assertion.

(2) As to the assertion of violation of the principle of trust protection

(A) The practice of non-taxation under Article 18(3) of the Framework Act on National Taxes refers to an erroneous interpretation or practice that is accepted by a general taxpayer, who is not a specific taxpayer, as legitimate, without objection, to the extent that it is not unreasonable for a taxpayer to trust such interpretation or practice (see, e.g., Supreme Court Decision 2007Du19294, Apr. 15, 2010). In order to establish non-taxation practices, there are objective facts that have not been taxed over a considerable period of time, and there must be an intent that the tax authority should not impose taxes due to any special circumstances even though it knows that the tax authority can impose taxes on the matter, and such public opinion or intent should be expressed explicitly or implicitly, but in order to include an implied indication, there must be circumstances that the tax authority expressed that it would not impose taxes on the status of non-taxation for a considerable period of time, unlike a simple omission of taxation (see, e.g., Supreme Court Decision 2007Du78555, Sept. 5, 2003).

(B) With respect to the instant case, the evidence alone submitted by the Plaintiffs alone is insufficient to recognize the Plaintiffs’ assertion that there was an objective fact that the Defendant did not impose gift tax over a considerable period of time on the increase in the low-price issuance of shares by the third party, or there is an explicit or implied public opinion statement that the Defendant would not impose gift tax over the increase in the market price of shares issued by the third party. Rather, there is no other evidence to acknowledge it. Rather, there is only objective fact that the Defendant imposed gift tax on the increase in the market price of shares issued by the third party on June 15, 2007, only the objective fact that the Defendant imposed gift tax

3. Conclusion

Therefore, the plaintiffs' claims of this case are dismissed as it is without merit. It is so decided as per Disposition.