Seoul High-2014-0459 ( October 24, 2014)

any debt exemption for a closed juristic person shall be the donation.

Article 41(1) of the former Inheritance Tax and Gift Tax Act provides that the purport of delegation to the Presidential Decree is to determine whether not only the shareholder's profit is calculated, but also the shareholder's profit is calculated. Ultimately, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that a delegation provision under the former Enforcement Decree of the Inheritance Tax and Gift Tax Act cannot be

2014Guhap7480 Revocation of Disposition of Imposition of Gift Tax

AA, EB

Head of the District Tax Office

May 14, 2015

June 11, 2015

1. The plaintiffs' claims are dismissed.

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

Cheong-gu Office

The Defendant imposed a gift tax of KRW 147,581,310 on Plaintiff EA on January 1, 2014 and revoked the imposition of KRW 53,634,940 on Plaintiff EB, respectively.

1. Details of the disposition;

A. The plaintiff Lee Dong-A was the son's son's son, and the plaintiff LeeB was the son's son, and on December 31, 2010, the shares ratio of the plaintiffs and the non-party corporation D (hereinafter referred to as "non-party corporation") owned by thisCC as of December 31, 201 is as follows.

B. On December 31, 2010, thisCC renounced its loan claims of KRW 1,167,66,111 against non-party corporations (hereinafter “instant debt exemption”).

C. On January 1, 2014, the Defendant: (a) applied Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “former Inheritance Tax and Gift Tax Act”); (b) Article 31(6) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”); and (c) Article 147,581,310 won (amended by Presidential Decree No. 23591, Feb. 2, 201; hereinafter referred to as “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) to the Plaintiff, a shareholder of the non-party corporation, (i) KRW 343,293,836 won (=based on KRW 1,66,111 x 0.294); (b) 53,6340 won (hereinafter referred to the Plaintiff

D. The Plaintiffs were dissatisfied with the instant disposition and filed a request for review with the Board of Audit and Inspection on March 7, 2014, but was dismissed on October 24, 2014.

[Ground of Recognition] Facts without dispute, Gap evidence 1, 2, Gap evidence 3-3, Gap evidence 4, Gap evidence 5-3, Gap evidence 6, Gap evidence 12-2, Gap evidence 13, the purport of the whole pleadings, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) Article 41(1) of the former Inheritance Tax and Gift Tax Act delegates only "the calculation of the profit" to the Enforcement Decree on the premise that the largest shareholder, etc. has obtained the profit through transaction such as gratuitous provision of property with a specific corporation. Thus, even if there is a gratuitous provision of property to a specific corporation, if there is no actual profit, the shareholder, etc. shall be exempted from the subject of gift tax. Nevertheless, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is contrary to the purport of Article 41 of the same Act by deeming the shareholder, etc. to have obtained the profit, and thereby is null and void as it goes against the purport of delegation by deeming the shareholder, etc. to have obtained the profit, and goes against the principle of clarity of the requirements for taxation.

2) Even if Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act does not become null and void, Article 41(1) of the former Inheritance Tax and Gift Tax Act is still applicable only to the case where the largest shareholder, etc. has acquired profits through transaction, such as gratuitous provision of assets with a specific corporation. Since the value per share of stocks of the non-party corporation is all incidental before and after the debt exemption of this case, the Plaintiffs, a shareholder of the non-party corporation, did not have obtained profits from the increase in the value of stocks, the Defendant deemed the amount of debt exemption of this case as the profits earned by the shareholders, thereby making it unlawful to calculate the value of donated assets by multiplying

3) At the time of the instant exemption from liability, the non-party corporation was virtually in a state of business closure, and thus, the company’s continuity requirement was not satisfied (the non-party corporation is a state of completion of liquidation as of the date of closing of argument in the instant case) and the subject of gift tax under the proviso of Article 31(2)1 of the former Enforcement Decree

B. Relevant statutes

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

C. Determination

1) Whether Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is invalid beyond the scope of delegation under Article 41 of the same Act) ① Article 41(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”) provides that “where a person who has a special relationship with a shareholder or investor of a corporation that has losses or is under suspension or discontinuance of business (hereafter referred to as a “specific corporation” in this Article) obtains profits through transactions falling under any of the following subparagraphs with the specific corporation, an amount equivalent to such profits shall be deemed the value of donated property to the shareholder or investor of the specific corporation.” ② Article 31(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1817, Dec. 30, 2003; hereinafter referred to as the “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that “the profits calculated by the number of shares or investors” under Article 16(17).

B) However, the Supreme Court en banc Decision 2006Du19693 Decided March 19, 2009 ruled that Article 41(1) and (2) of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20062, Mar. 19, 2009) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 2006Du19693) delegated only the calculation of the profit in cases where the corporation actually obtained the profit by receiving the donation from the corporation, but Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20068, Jan. 19, 2009) provided that the shareholder shall be deemed to have

C) Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) (amended by Act No. 9916, Feb. 1, 2010; hereinafter referred to as "Article 41 of the former Inheritance Tax and Gift Tax Act") (amended by Act No. 41; hereinafter referred to as "the same as Article 41 of the former Inheritance Tax and Gift Tax Act") which was amended by the said Supreme Court ruling was revised to read as "where a person who has a special relationship with a shareholder or investor of a corporation (hereafter referred to as "specific corporation" in this Article) who has a loss or a suspended or discontinued business, makes any of the following transactions with the specific corporation and thereby

D) Comprehensively taking account of the purport of the Supreme Court’s decision under the above B and the language and text of Article 41(1) of the former Inheritance Tax and Gift Tax Act, it is reasonable to deem that Article 41(1) of the former Inheritance Tax and Gift Tax Act is the purport of delegation to the Presidential Decree as to whether not only the shareholder’s profit is calculated, but also the shareholder’s profit. Ultimately, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act does not become null and void because the delegation clause under the parent law was newly created. (On the other hand, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, on the premise that Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is null and void beyond the scope of delegation under Article 41 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act,

E) Therefore, this part of the plaintiffs' assertion is without merit.

2) Whether the Defendant’s calculation method of donated property is legitimate

Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The profit which a shareholder or an investor of a specific corporation is deemed to have been donated under Article 41(1) of the Act shall be calculated by multiplying the number of shares or equity shares increased by “the amount equivalent to the profit gained by exempting, accepting, or repaying the obligations of the specific corporation”, and thus, the same interpretation as the plaintiffs can be possible. However, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, applicable to this case, provides that “the profit under Article 41(1) of the same Act shall be calculated by multiplying the “amount equivalent to the profit gained by exempting, accepting, or repaying the obligations of the specific corporation” by the ratio of shares or equity shares of the non-listed corporation under Article 41(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and thus, it shall not be deemed that the value of the donated shares cannot be calculated by the specific non-listed corporation under Article 41(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, regardless of the purpose of the gift Tax Act.

3) Whether the proviso of Article 31(2)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is applicable

Article 31(2)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that one of the transactions with a specific corporation subject to Article 41 of the same Act shall be exempted, acquired, or repaid by the relevant corporation: Provided, That the same shall not apply where a shareholder or investor of a corporation under dissolution (excluding dissolution by merger or division) or a person with a special relationship with him/her has exempted, acquired, or repaid the relevant corporation’s obligations, and there is no residual assets to be distributed to the shareholder, etc. of the relevant corporation. However, in this case, the evidence submitted by the plaintiffs alone is insufficient to acknowledge that the non-party corporation was dissolved at the time of the discharge of the relevant obligations, and there is no other evidence to acknowledge that the evidence submitted by the plaintiffs was undergoing the dissolution procedure. Considering the overall purport of the arguments in the evidence No. 11, 29, and 30, it is recognized that the non-party corporation was involved in the closure, dissolution, and liquidation procedure after September 30, 2014.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.