Busan District Court 201Guhap4689 (2012.04.05)

Cho High Court Decision 2010Du3673 (Law No. 29, 2011)

It is that capital increase is included in the object of gift tax on stock listing marginal profits.

(1) It is difficult to view that the value of donated property is deemed as being at the price after listing in imposing gift tax on stocks itself, including gratuitous capital increase, shareholders allocation, capital increase increase with capital increase, and capital increase with capital increase allocated to a third party, and that the value of donated property is deemed as being at the price after listing.

2012Nu1549 Revocation of Disposition of Imposition of Gift Tax

XX

Head of Eastern Tax Office

Busan District Court Decision 2011Guhap4689 Decided April 5, 2012

October 5, 2012

October 19, 2012

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The disposition of imposing gift tax of KRW 000 (including additional tax) imposed on the Plaintiff on July 5, 2010 shall be revoked.

1. Details of the disposition;

A. 1) On December 29, 2003, the Plaintiff donated 20,000 shares of the non-party company (hereinafter referred to as “the non-party company”) to an executive officer of the company XX (hereinafter referred to as “the non-party company”).

2) On October 5, 2004 and November 5, 2004, and December 22, 2005, the non-party company issued new shares with capital increase on three occasions. At each time of the above capital increase, the Plaintiff acquired 10,000 shares per share in a total of 30,00 shares (hereinafter referred to as “instant new shares”) by acquiring 10,000 shares per share in KRW 100.

3) On July 1, 2007, the non-party company divided its par value into KRW 000 per share (However, the non-party company listed it on KOSDAQ on January 25, 2008.

B. The Busan regional tax office has conducted an integrated tax investigation with respect to the non-party company from August 10, 2009 to September 30, 2009. At the time of the above donation, it judges that the above donation constituted the largest shareholder, etc. under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003). The Busan regional tax office imposed gift tax on the plaintiff for KRW 000 on the profits accrued from the listing of the initial shares issued at the time of the donation (the plaintiff did not dispute whether the Plaintiff is the largest shareholder, etc. of the non-party company and paid gift tax) and the gift tax was not imposed on the profits accrued from the listing of the new shares issued at the price

C. 1) On January 25, 2010, the Board of Audit and Inspection issued a request to impose a tax on KRW 000 of the interest accrued from the listing of the instant shares for consideration after auditing the business of the Busan Regional Tax Office.

2) On July 5, 2010, the Defendant imposed a gift tax of KRW 000 (including additional tax of KRW 000) on the Plaintiff as the value of donated property with the listed gains of KRW 000 as the value of donated property (hereinafter “instant disposition”).

[Ground for recognition] Unsatisfy

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Not only is the largest shareholder, etc. but also the Plaintiff is not a person specially related to the ship.

Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") refers to only one shareholder, among the largest shareholders groups, who holds the largest shares, and does not include any person other than the one shareholder, such as the largest shareholder, etc.., but the largest shareholder of the non-party company at the time of the initial donation is not a NABB where the non-party company holds 45% shares issued by the non-party company.

Even if LA constitutes the largest shareholder of the non-party company, the plaintiff is not a person with the special relationship of LAA, since the non-party company's employee is not an employee of LA.

Therefore, insofar as Article 43(1) of the former Inheritance Tax and Gift Tax Act does not apply to the shares originally issued as to the shares, the said provision does not apply to the shares issued as to the shares for consideration, so the instant disposition is unlawful.

2) Listing marginal profits on the instant shares for consideration are not subject to gift tax.

Article 41-3(1) of the former Inheritance Tax and Gift Tax Act provides that where the value of stocks increases as a person having a special relationship with the largest shareholder, etc. receives a donation of stocks from the largest shareholder, etc. or obtains the stocks for consideration on the securities market within five years, gift tax shall be imposed on the person having a special relationship with the largest shareholder, etc. by deeming the excess profits as the value of donated stocks when he obtains the profits exceeding the original donation price or acquisition price. In applying Article 41-3(1) of the same Act, the acquisition of stocks shall include

However, in light of the following various circumstances, Article 41-3(6) of the former Inheritance Tax and Gift Tax Act applies only to the new stocks donated by or acquired with compensation by the largest shareholder, etc., and it should be interpreted that it does not apply to the new stocks for consideration. Thus, the disposition of this case imposing gift tax on the Plaintiff on the new stocks acquired from the non-party company based on the originally donated stocks that the Plaintiff received from the non-party

① Under the premise that Article 41-3(6) of the former Inheritance Tax and Gift Tax Act is applicable, the taxation requirements for the shares acquired by a specially related person from a company that is not the largest shareholder, etc., on the premise that Article 41-3(6) of the same Act provides for the taxation requirements for the shares acquired by a company that is not the largest shareholder, etc... Of new shares acquired and allocated by a company following the issuance of new shares are the same as those acquired by a company through the division of shares (see Supreme Court Decision 2006Du20600, Mar. 12, 2009). As such, Article 41-3(6) of the former Inheritance Tax and Gift Tax Act applies to new shares free of charge as to new shares received from the largest shareholder, etc., but since shares purchased by a specially related person by paying new shares to a company for the acquisition of shares, they cannot be deemed as having been received from the largest shareholder, etc., as such shares cannot

(2) The shares issued with capital increase shall be clearly distinguishable from the shares so that they are not acquired due to the decision-making of shareholders who intend to receive new shares from the company after paying the price of new shares and acquiring them under the decision-making of shareholders who intend to acquire them from the company, and thus, from the shares issued with capital increase.

(3) If the interpretation of Article 41-3(6) of the former Inheritance Tax and Gift Tax Act applies to shares issued as well, gift tax is imposed on the specially related person who received shares issued as a result of the shareholder allocation; and there is unreasonable result that gift tax is not imposed on the specially related person who received shares issued as a result of the third party allotment.

④ In the case of capital increase, the capital structure of the company is changed due to the payment of capital increase, and the corporate value or the stock value is affected. The imposition of gift tax on the listed marginal profits on the stocks acquired by the specially related persons is not generated from the stocks originally donated, i.e., the amount of capital increase paid by the specially related persons or the listed marginal profits generated from the influence thereof. (In calculating the listed marginal profits under Article 31-6(4) and (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the changes in corporate value per se due

⑤ Article 31-6 (3) through (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is a provision delegated under Article 41-3 (1) of the former Inheritance Tax and Gift Tax Act. Under the strict interpretation principle, acquisition under each of the above provisions refers to only the acquisition from the largest shareholder, etc., as stated in Article 41-3 (1) of the former Inheritance Tax and Gift Tax Act. Since shares acquired from the company and shares acquired through capital increase with consideration are not included, there is no provision that calculates the taxable value of the shares

(iii) there are justifiable grounds for non-performance of obligation.

A) Even if the listing marginal profits of the instant new stocks are subject to gift tax, the Defendant did not impose gift tax on the listing marginal profits of the instant new stocks despite conducting a tax investigation with respect to the Nonparty Company on August 10, 2009, according to the Board of Audit and Inspection’s opinion on January 25, 2010. The issue of whether to impose gift tax on the listing marginal profits of the stocks issued with capital increase constitutes a matter of conflict among the tax authorities.

Therefore, since the Plaintiff cannot expect the return and payment of gift tax with the knowledge that the listed marginal profits of the instant shares are subject to taxation from the beginning, it shall be deemed that there exist justifiable grounds for the Plaintiff’s nonperformance of duty of return and payment, and thus, the portion of penalty tax is unlawful

B) Even if there is no justifiable reason due to the comparison of opinions on the interpretation of the Family Tax Act, the Defendant notified the wrong tax investigation result that the shares issued with capital increase is not subject to taxation on August 10, 2009. Since the notification of the above, the Plaintiff’s failure to pay gift tax on the exchange marginal profits of new shares issued with capital after the notification was made entirely by the Defendant’s notice of the result of the Defendant’s wrong tax investigation, the portion of the late payment for the erroneous payment that occurred from August 10, 2009 to

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

1) Determination on the first assertion (the assertion that the AA does not fall under the largest shareholder, etc. of the non-party company and that the plaintiff was not a person with a special relationship of the AA)

A) First, we examine whether, at the time of donation to the Plaintiff, it constitutes the largest shareholder, etc. of the non-party company.

Article 41-3 (1) of the former Inheritance Tax and Gift Tax Act provides that "the person falling under any of the following subparagraphs, who is deemed to be in a position to use information that is not open to the public in relation to the management, etc. of a company, shall be subject to gift tax on listed profits donated to the largest shareholder, etc. by a person who is in a special relationship with the largest shareholder, etc.," and Article 22 (2) 1 of the same Act provides that "the largest shareholder or the largest investor under Article 22 (2)" and Article 41-3 (1) 2 of the same Act provide that "the person who holds at least 25

In addition, Article 31-6 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21292, Feb. 4, 2009; hereinafter "former Enforcement Decree") provides that "any person who holds not less than 25/100 of "25/100" under Article 41-3 (1) 2 of the former Enforcement Decree means any of the relevant shareholders in cases where he/she holds not less than 25/100 of the total number of stocks, etc. owned by a person in a relationship falling under any of the subparagraphs of Article 19 (2).

If the above provisions are gathered, if the shareholder and his relatives own not less than 25/100 of the total number of shares issued by the company concerned, the shareholder is the largest shareholder under Article 43-3 (1) 2 of the former Inheritance Tax and Gift Tax Act.

Based on the above facts, it is without dispute between the parties that the above three persons owned 10% of the total issued shares of the non-party company at the time of LAA’s donation of the original shares of the non-party company to the Plaintiff. According to the above facts, LA constitutes the largest shareholder, etc. under Article 43-3(1)2 of the former Inheritance Tax and Gift Tax Act (the plaintiff is alleged as above on the ground of Supreme Court Decision 2010Du1559 Decided May 10, 2012. However, LA does not constitute the largest shareholder, etc. under Article 43-3(1)2 of the former Inheritance Tax and Gift Tax Act, but it appears that EA applied the above subparagraph 2 to the listed profits of the non-party company under subparagraph 2 of Article 43-3(1) of the former Inheritance Tax and Gift Tax Act.

B) Next, we examine whether the Plaintiff is a person having a special relationship with the shipA.

Article 43-3(8) of the former Inheritance Tax and Gift Tax Act delegates to the Presidential Decree on the scope of “a person in a special relationship” under Article 43-3(1). Accordingly, “a person in a special relationship” under Article 31-6(1) of the former Enforcement Decree refers to a person in a relationship under any subparagraph of Article 19(2). Article 19(2)2 of the former Enforcement Decree provides for “an employee” as one of the persons in a special relationship. Meanwhile, Article 13(9)2 of the former Enforcement Decree provides that “an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply) prescribed by Ordinance of the Ministry of Strategy and Finance or an employee who maintains his livelihood with the assets of the inheritor.” Article 13(1)2 of the former Enforcement Decree provides that “a person who has a special relationship under Article 19(2) and Article 31-6(1) of the former Enforcement Decree shall make an investment in a corporation under Article 19(2)10 through 9(10 of the former Enforcement Decree.”

If the above provisions are gathered, the employees of the company in which the shareholder and his relatives hold more than 30% of the total number of shares issued and outstanding are also the employees of the shareholder concerned.

Based on this, the Plaintiff was an employee of the Plaintiff, since there was no dispute between the parties on the fact that the Plaintiff was an officer of the non-party company, and the Plaintiff was an employee of the non-party company. The Plaintiff is an employee of the non-party company. The Plaintiff was an employee of the non-party company.

C) Therefore, the Plaintiff’s assertion on this part is without merit.

2) The judgment on the second assertion (the assertion that Article 41-3(6) of the former Inheritance Tax and Gift Tax Act does not apply to the new shares for consideration of the case)

A) The Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003) amended on Dec. 30, 2003 stipulated the constructive gift of listed methods as well as the general donation premised on the contract between the parties as the subject of the gift tax prior to the amendment. However, inasmuch as the new type of property not listed as above is not taxed, even if the type of taxation is not listed daily, the gift tax can be imposed if it falls under the de facto gratuitous transfer of property, and the regulation on deemed donation was introduced, such as conversion of the regulation

Accordingly, Article 2(3) of the same Act was newly established to include the transfer (including the transfer at a remarkably low price) of tangible or intangible property, regardless of the name, form, purpose, etc. of the act or transaction, to another person without compensation, or the increase of the property value of another person by the contribution. In the event that the gift tax is deemed to have been unjustly reduced by indirect or indirect means through a third party under paragraph (4) of the same Article, or by means of two or more acts or transactions, it was newly established that the provision of paragraph (3) shall be applied by deeming the transaction directly by the party or by deeming the continuous one act or transaction as a single transaction.

B) The legislative intent of Article 41-3 of the former Inheritance Tax and Gift Tax Act is to impose gift tax on the profits per se increased by the listing of stocks in order to prevent a large amount of assets from being excessively changed by taxation on the listing profits where the largest shareholder, etc. donates unlisted stocks to his/her children, etc. or transfers them for consideration with the aim of obtaining enormous profits from the listing of stocks on the securities market by using internal information that is not open to the public on the business management.

In addition, Article 41-3(6) of the former Inheritance Tax and Gift Tax Act was newly established by the amendment on December 18, 2002. The amendment is intended to add the case where only the listed marginal profit acquired directly or with compensation from the largest shareholder was subject to taxation, and where it could be abused as a means of tax avoidance because it was excluded from the taxable object despite the same economic effect. In other words, the largest shareholder recognized as having the status of using non-disclosure information as a means of tax avoidance, even if he did not directly donate or transfer his shares to the specially related person, even if he did not directly donate or transfer his shares to the specially related person, the largest shareholder who is recognized as having the status of using non-disclosure information as a means of tax avoidance is added to the donation of funds for acquisition of shares (this part was added to the subject of taxation by the amendment under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act at the time of the amendment). Thus, the purpose of legislation is to add the case where the specially related person obtains listed marginal profit by issuing new shares to the specially related person through the exercise of management

C) Based on each of the above provisions and legal principles, Article 41-3(6) of the former Inheritance Tax and Gift Tax Act applies only to the new stocks that are received or acquired with compensation from the relevant corporation on the basis of the stocks donated by the largest shareholder, etc. or acquired with compensation from the relevant corporation, and comprehensively taking account of the following circumstances, it is reasonable to interpret the above provision as applicable not only to the new stocks

① In applying the provision of Article 41-3(6) of the former Inheritance Tax and Gift Tax Act, the acquisition of stocks, etc. includes new stocks acquired and allocated by the corporation to increase its capital (including the amount of investments). In light of the language and text, it is clear whether the above new stocks are stocks with or without compensation, or by a third party allocation method in the case of stocks with compensation.

② Although it cannot be denied that there is a difference between free capital increase and capital increase with respect to the payment of subscription price, as alleged by the Plaintiff, there is no difference in the substance that the exchange marginal profit arising from the above capital increase is transferred to the related party, and the former Inheritance Tax and Gift Tax Act requires that gift tax be imposed with regard to the transfer of listing marginal profit.

③ As seen above, since the amendment on December 30, 2003, the Inheritance Tax and Gift Tax Act declared the complete comprehensive taxation. Article 41-3(6) of the former Inheritance Tax and Gift Tax Act also has to be interpreted in line with the legislative intent of the amendment. It is reasonable to interpret that the said provision imposes gift tax on a specially related person as being received from the largest shareholder, etc. gains from the listing of new stocks issued by the relevant corporation on the basis of stocks donated or acquired with compensation from the largest shareholder, etc. and acquired funds from the largest shareholder, etc.

(4) If the interpretation that Article 41-3 (6) of the former Inheritance Tax and Gift Tax Act applies only to new stocks without compensation as alleged by the Plaintiff is made, the imposition of gift tax on capital increase with no compensation may be avoided by receiving capital increase at a very low price.

In the case of this case, the Plaintiff did not pay gift tax (record 84 pages) by accepting the instant shares with a value of KRW 000 per share, thereby gaining exchange marginal profits of KRW 000 including KRW 000 per share (new shares with a value of October 5, 2004) or KRW 000 per share (new shares with a value of December 22, 2005).

⑤ Since the language and text of Article 41-3(6) of the former Inheritance Tax and Gift Tax Act includes the fact that the issuer of new shares is a corporation (the fact that shares are acquired from a corporation), the part "the largest shareholder" under Article 41-3(1) of the same Act should be interpreted as not being applicable to the application of the above provision, and such interpretation does not contravene the principle of strict interpretation.

(6) In calculating the listing marginal profit under Article 31-6 (3) through (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the Plaintiff only calculates the listing marginal profit by regarding the company’s profit cumulative amount from the date of donation or the acquisition date until the date before the listing as the actual value increase in the company’s stock value, and does not consider the change in the real value of the company. Thus, it is alleged that it is premised on the premise that the company does not include the shares acquired as the reason for Article 41-3 (6) of the Inheritance Tax and Gift Tax Act. However, Article 31-6 (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 10-4 (1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 74 of Apr. 23, 2009; hereinafter the same) stipulate that the net profit per share should be calculated as the actual value per share in calculating the listing marginal profit from the listing marginal profit directly received from the largest shareholder.

3) Judgment on the third argument

A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under tax law is an administrative sanction imposed under the conditions as prescribed by individual tax laws in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and thus, it is unreasonable for the taxpayer to be aware of such obligations, and thus, if there are circumstances that make it difficult for him/her to properly present his/her obligations or there is a circumstance that it is unreasonable for the taxpayer to expect to fulfill his/her obligations, etc., the imposition may be exempted (see Supreme Court Decision 2003Du4089, Apr. 15, 2005).

B) On August 10, 2009 through September 30, 2009, the Busan Regional Tax Office conducted a tax investigation with respect to the non-party company, and imposed gift tax on the profits accrued from the listing of the original shares with respect to the profits accrued from the listing of the shares with respect to the stocks with respect to which the gift tax is not imposed on the profits accrued from listing of the shares with respect to the stocks with respect to the consideration in this case, as seen earlier, and according to the record Eul evidence 2-2, the head of Busan Regional Tax Office carefully reviewed on March 22, 2010 whether the gift tax on the profits accruing from listing of the shares with respect to the consideration in this case may be imposed on the board of directors, but the answer was confirmed to the effect that the head of Busan Regional Tax Office omitted the gift tax on the profits accrued from listing of the shares with respect to

(4) The case holding that on September 14, 2009, the public officials of the Busan Regional Tax Office in charge of an integrated tax investigation into the non-party company from August 10, 2009 to September 30, 2009, the public officials of Busan Regional Tax Office, who were in charge of an integrated tax investigation into the non-party company, shall be deemed to be subject to gift tax, and on the date of investigation, the statement of calculation of listing marginal profits and the amount of tax calculated until the amount of tax are stated as the item of the gift tax, the public officials of the Busan Regional Tax Office, who were in charge of an integrated tax investigation into the non-party company, shall not be deemed to have been issued with the approval of the director of the regional tax office of Busan Regional Tax Office on the date of the tax investigation into the non-party company's opinion on September 21, 2009, and the auditor shall not be deemed to have been issued with the approval of the director of the regional tax office of Busan Regional Tax Office on the tax investigation of the non-party company's opinion.

The above facts are as follows: i) The director of the Busan Regional Tax Office confirmed on March 22, 2010 that it is difficult to believe that it is possible to impose gift tax on marginal profits from listing of new stocks at issue on the Board of Audit and Inspection on March 22, 2010; ii) there was no court's decision as to whether the Plaintiff can impose gift tax on marginal profits from listing of new stocks issued by the relevant corporation on the basis of the stocks donated by the largest shareholder, etc. at the time of receiving each of the above new stocks issued by the Plaintiff. However, as seen earlier, it is clear that new stocks are included in the language and text of Article 41-3(6) of the former Inheritance Tax and Gift Tax Act as mentioned above. Considering the legislative intent of Article 2(3) and (4) of the same Act, it is difficult to view that there is difficulty or doubt in interpretation as to whether new stocks are applied for the first reason of Article 41-3(6) of the former Inheritance Tax and Gift Tax Act, iii) as long as it is necessary to interpret for each tax official.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed and it is so decided as per Disposition.