Seocho 2016 Schedules-3367 ( December 12, 2016)

A person who transfers shares to the plaintiffs constitutes a related party to the plaintiffs.

The specially related person under Article 26 (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act includes a person who was an executive officer of the relevant company for whom five years have not passed

Article 35 of the Inheritance Tax and Gift Tax Act: The method, etc. for calculating profits accrued from a provisional transfer at a low price under Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

2017Guhap5643 Revocation of Disposition of Imposition of Gift Tax

CivilA et al. 3

BB Director of the Tax Office

August 31, 2017

October 12, 2017

1. The plaintiffs' claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 31,310,30 (including additional tax; hereinafter the same shall apply) of gift tax against Plaintiff A on March 2, 2016, the imposition of KRW 46,631,060 on the gift tax against Plaintiff Y, and the imposition of KRW 46,631,060, respectively, shall be revoked.

1. Details of the disposition;

A. The plaintiff is the representative director of the ○○○○○○ (hereinafter referred to as the "the corporation in this case"), and the plaintiff Parkboo is the wife of the plaintiff, and the plaintiff YY and the privateS are the children of the plaintiff Y and the privateS.

B. On March 26, 2013, KimCC retired from the company’s internal director, and thereafter retired from the company. On June 26, 2013, the Plaintiff transferred 1,500 shares totaling 300 shares of the company of this case, Plaintiff Park GY, privateY, and privateS (hereinafter “the shares of this case”) totaling 1,500 shares per share to 7,500,000 won per share (hereinafter “the instant transaction”).

C. From November 17, 2015 to December 18, 2015, the head of the Korea Tax Office conducted an integrated investigation of corporate tax and changes in stocks with respect to the instant company for the business year 2013 from November 17, 2015. On the ground that the market price of the instant shares at the time of the instant transaction was not verified, the head of the Korea Tax Office notified the Defendant of the acquisition of stocks under Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter the same shall apply) and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015) by deeming that the Plaintiffs were related parties to the instant taxation under Article 261-2 of the Enforcement Decree of the Korea Tax and Gift Tax Act (amended by Presidential Decree No. 25196, Feb. 21, 2014).

D. Accordingly, on March 2, 2016, the Defendant: (a) considered the amount obtained by subtracting 30/100 of the said appraised amount from the difference between the said appraised amount of the instant shares and the transaction value of the instant shares by the Plaintiff as the gift gains under Article 35(1) of the Inheritance Tax and Gift Tax Act; and (b) determined and notified the Plaintiff’s gift tax amount of KRW 31,310,300, and the Plaintiff’s tax amount of KRW 46,631,060, respectively, to the Plaintiff’s Z and YY, and privateS (hereinafter “instant disposition”).

E. The Plaintiffs were dissatisfied with the instant disposition and filed an objection with the director of the Seoul Regional Tax Office on May 11, 2016, but were dismissed on June 9, 2016. The Plaintiffs filed an appeal with the Tax Tribunal on September 2, 2016, but dismissed on December 12, 2016.

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) The part of Article 12-2 (1) 3 (a) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act means only the "executive of an enterprise group" as provided by Ordinance of the Ministry of Strategy and Finance, and the "executive for whom five years have not passed after his retirement" means all the executive officers under the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

2) However, the instant company does not fall under a business group affiliated with the business group as prescribed by Ordinance of the Ministry of Strategy and Finance, and thus, the KimCC, who already retired as an executive officer of the instant company prior to the instant transaction, does not constitute an employee under Article 12-2(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and otherwise, the Plaintiffs and KimCC did not have a special relationship under Article 12-2(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. In the event that the Plaintiffs and KimCC did not have a special relationship, the instant disposition by the Defendant on the premise that the Plaintiffs and Kim

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) The instant company is a company established on July 2, 2004 and engaged in the business of manufacturing electronic equipment and parts, etc., and the stock holding status of the instant company before and after the instant transaction is as listed in the following table.

2) Plaintiff A continues to serve as a representative director after the establishment of the instant company, and KimCC served as a director from July 2, 2007 to July 1, 2010, and as a director or internal director of the instant company from July 2, 2007 to March 26, 2013.

D. Determination

1) Article 35(1)1 of the Inheritance Tax and Gift Tax Act provides that where a person acquires an asset from another person at a price lower than the market price, the amount equivalent to the difference between such price and the market price, which is equivalent to profits prescribed by Presidential Decree, shall be deemed as the value of donated property. In applying Article 35(2) of the Inheritance Tax and Gift Tax Act, where a property is acquired or transferred between a person who is not a specially related person prescribed by Presidential Decree, and where a property is acquired or transferred between a person and a person who is not a specially related person, without justifiable grounds, the amount equivalent to the difference between such price and the market price shall be presumed to have been donated to the person who has acquired the benefit

As a result, Article 26 (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the specially related person under the Presidential Decree" refers to a transferor or transferee and a person who has a relationship falling under any subparagraph of Article 12-2 (1). Article 12-2 (1) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "an employee (including an employee of a corporation controlled by investment; hereinafter the same shall apply) or a person who maintains his/her livelihood with his/her own property shall be a specially related person." Article 12-2 (1) 3 (a) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter referred to as "Article 12-2 (1) 3 (a) of the Inheritance Tax and Gift Tax Act") provides that "an employee of a corporation under Article 26 (2) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter referred to as "employee of a corporation") who has de facto influence over the management of an officer, and subparagraph 2 (1) of Article 20) of the Enforcement Decree shall also include an employee.

2) In full view of the following circumstances acknowledged by the contents of the pertinent statutes and the purport of the entire pleadings, it is reasonable to interpret that the “specially related person” under Article 26(4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act includes a person who was an executive officer of the pertinent company in whose case five years have not passed since his/her retirement. As alleged by the Plaintiffs, it cannot be said that the said retired executive officer is included in the specially related person only in the case of an

① Article 20(1)4 of the Enforcement Decree of the Corporate Tax Act provides that “executive” refers to an executive officer under Article 20(1)4 of the Enforcement Decree of the Inheritance Tax Act and a person who was an executive officer in whose case five years have not passed since his retirement; hereinafter the same shall apply) and Article 12-2(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 26(4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which stipulate that “the scope of a specially related person shall include an executive officer in the scope of an employee of a specially related person, shall be defined as an executive officer under the same Article.

② As the Enforcement Decree of the Inheritance Tax and Gift Tax Act was amended by Presidential Decree No. 23591 on February 2, 2012, Article 26(4) is amended to change the scope of “a related party prescribed by Presidential Decree” to “a person who has a relationship falling under any of the subparagraphs of Article 12-2(1) with a transferor or transferee,” and the scope of a related party under Article 12-2 was newly established. The former Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree of the Inheritance Tax Act prior to the amendment”) has defined the definition of “executive” as “Article 13(7)1.” However, the above provision does not include the contents concerning executive officers of a company belonging to an enterprise group prescribed by Ordinance of the Ministry of Strategy and Finance, and the Enforcement Decree of the Inheritance Tax Act, before the amendment, directly stipulates the scope of a related party.

③ In order to clarify the scope of specially related persons under the Enforcement Decree of the Inheritance Tax and Gift Tax Act amended by Presidential Decree No. 23591, Feb. 2, 2012, the definition of officers is deemed to have been stipulated in Article 12-2, which is located before Article 13(7)1, and the definition of officers is not deemed to have been stipulated in this case for the purpose of applying the above definition only to the executives of an enterprise belonging to the enterprise group, as alleged by the Plaintiffs. Therefore, the definition of officers under the Enforcement Decree of the Inheritance Tax and Gift Tax Act is reasonable to interpret that all of the provisions apply to officers stipulated in the same below regardless of before and after the amendment, barring any special circumstance. Considering the language and content of the provision of this case and the developments leading up to the establishment thereof, such interpretation does not constitute an extended interpretation beyond the scope of the language and text.

3) In addition, at the time of the transaction in this case, the plaintiff YY, and ZZ invested more than 30/100 of the total number of shares issued by the company in this case, and the plaintiff YY, SS is the plaintiff YY, YY, and ZZ, and the plaintiff YY and SS are the children of ZZ, which are ultimately controlled by the investment in this case (Article 12-2 (3) 1 and (1) 6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). The KimCC transferred the shares in this case to the plaintiffs since five years have not passed since she retired from the officers of the company in this case controlled by the plaintiffs' investment. At the time of the transaction in this case, the KimCC was an employee under Article 12-2 (1) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act and the disposition in this case is legitimate, and the defendant's assertion that the plaintiffs and KimCC did not have a special relationship is no longer reasonable.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in entirety as it is without merit. It is so ordered as per Disposition.

shall be ruled.