Seoul Administrative Court-2015-Guhap-5684 ( October 27, 2016)

It is reasonable to view that the Plaintiff engaged in the bypassing transaction that is different from the Plaintiff’s direct acquisition of the warrant certificates of this case from the issuing corporation.

This case’s private equity fund constitutes an underwriter under the former Capital Markets Act, and it is reasonable to view that the Plaintiff was involved in the transaction bypassing that the Plaintiff directly acquired the warrant certificates of this case from the issuing corporation having a special relationship, even if it does not correspond to an underwriter. As such, Articles 2(4) and 40(1)2(b) of the former Inheritance Tax and Gift Tax Act can be deemed as

Article 40 of the former Inheritance Tax and Gift Tax Act (Donation of Benefits Following Conversion of Convertible Bonds, etc.)

2016Nu54635 Revocation of Disposition of Imposition of Gift Tax

IsaA

YThe director of the tax office

Seoul Administrative Court Decision 2015Guhap5684 decided May 26, 2016

May 25, 2017

December 14, 2017

1. Of the judgment of the first instance court, the part against the plaintiff falling under the order to revoke below shall be revoked.

The Defendant’s disposition of imposition of gift tax of KRW 3,056,243,520 against the Plaintiff on June 9, 2014, in excess of KRW 2,858,779,330, shall be revoked.

2. The plaintiff's remaining appeal is dismissed.

3. Of the total litigation costs, 19/20 shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The judgment of the first instance shall be revoked. The disposition of imposition of KRW 3,056,243,520 against the plaintiff on June 9, 2014 by the defendant shall be revoked.

1. Partial citement of judgment of the first instance;

The reasoning of the judgment of this court is as follows, for the following reasons: "1. The details of the disposition of this case are legitimate; (a) the plaintiff's assertion, (b) the relevant statutes; (c) the facts of recognition; (d) whether taxation can be imposed pursuant to Article 42 (1) 3 of the former Inheritance Tax and Gift Tax Act; (a) the legislative history and legislative intent of Article 42 (1) of the former Inheritance Tax and Gift Tax Act; (b) the interpretation of the relevant part of the grounds of the judgment of the court of first instance (Articles 4 through 10, 15, and 16), except for cases where some of the contents are discovered, added, or deleted, it is identical to the corresponding part of the grounds of the judgment of the court of first instance (Article 8 (2) of the Administrative Litigation Act; and Article 420 of the Civil Procedure Act).

Part which is removed or added or deleted.

○ Following the third page “1,699” in Part 6 below shall read “1,69,” and shall read “her less than 10 weeks”.

○ Following the third page list, the phrase “before it was amended by Act No. 13557, Dec. 15, 2015” is read as “before it was amended by Act No. 11609, Jan. 1, 2013.”

The Inheritance Tax and Gift Tax Act, which is the 15th attached table on the third page, is revised as the "former Inheritance Tax and Gift Tax Act".

The "3,056,273,520 won" in the fourth 4th 8th 8th 1,000 won is "3,056,243,520 won".

○ On the 4th page, the following shall be added to the following activities:

1) It is difficult to conclude that a series of acts from the issuance of the instant warrant to the Plaintiff’s acquisition of the instant warrant certificates and the acquisition of the instant warrant certificates at an interval of two years from the time to the acquisition of the Plaintiff’s instant warrant certificates as well as the acquisition of the instant warrant certificates as a series of acts, in substance, are an act or transaction with the Plaintiff, who is the largest shareholder and the representative director, identical to the donation of the difference between the market price and the exercise price of the instant warrant certificates, and thus, it is difficult to conclude that the Defendant’s additional disposition is a single act or transaction,

○ 4th 17th 17th 17th 1th 2th 2th 2th 2th 3th 2th 2th 3th 3th 3th 3th 3th 3th 3th 1

○ 5 page 14 "On December 3, 2010, which is the date of the issuance of the instant bonds with warrants" means "before the issuance of the instant bonds with warrants and on December 3, 2010, which is the date of resolution of the board of directors."

○, Nos. 6 and 7 of the 6th page “the Plaintiff entered into a purchase contract with the instant private equity fund for KRW 200 million again on January 11, 2012,” which read “the Plaintiff, on January 11, 2012, changed the payment date of the purchase price under Article 3 between the instant private equity fund and the private equity fund on December 5, 201 and January 11, 2012, and the remaining details as “the Plaintiff entered into the purchase contract of the instant securities as of December 3, 2010, and entered into the purchase contract of the instant securities as of December 3, 2010.”

○ “2,942,900 shares” in Part 6, paragraph 8, shall be added to the following:

○, on the 6th page 13, " December 30, 2012" shall be read as " December 13, 2012".

○ Rule 7 sets forth in the Table 7, which reads 1'B' as 'B' the witness of the court of first instance.

○ The following shall be added to the third table below set forth in the column 7:

1) Whether the taxation under Articles 2(4) and 40(1)2(b) of the former Inheritance Tax and Gift Tax Act is possible

Whether or not

A) Contents of legal provisions

Article 2(4) of the former Inheritance Tax and Gift Tax Act provides that "where it is deemed that the inheritance tax or gift tax has been unjustly reduced by indirect methods via a third party, or by means of two or more acts or transactions, it shall be deemed that transactions have been conducted directly by the party concerned, or such acts or transactions have been conducted consecutively, and Article 40(1) of the former Inheritance Tax and Gift Tax Act provides that "this shall apply to bonds with warrants (referring to warrant certificates where such bonds are separated)" (hereafter referred to as "bonds with warrant" in this Article) shall be acquired, acquired, or transferred through convertible bonds, etc., or where any of the following profits has been acquired by converting into or exchanging stocks with convertible bonds, etc., or transferring convertible bonds, etc., to a third party, it shall be imposed on such profits by considering the amount equivalent to the value of the property donated." Article 2(1)2 provides that "profit falling under any of the following items acquired by acquiring or exchanging stocks with convertible bonds, etc., or by transferring them to a third party" in accordance with Article 18(2) of the former Capital Markets Act.

B) In the instant case:

(1) In light of the following circumstances, it is reasonable to view that the private equity fund of this case is deemed to have acquired the entire securities for the purpose of acquiring the warrant certificates of this case to the Plaintiff, a third party, and that the private equity fund of this case constitutes an underwriter under Article 9(12) of the former Capital Markets Act. Since the Plaintiff acquired the warrant certificates of this case from the private equity fund of this case, Article 40(1)2 (b) of the former Inheritance Tax and Gift Tax Act can be deemed as the ground for the disposition of this case. Even if the private equity fund of this case does not constitute an underwriter under the former Capital Markets Act, even if the private equity fund of this case does not correspond to an underwriter under the former Capital Markets Act, it is reasonable to view that the Plaintiff engaged in a transaction without bypassing the same as directly acquiring the warrant certificates of this case from ○○○ Industries, which has a special relationship with the private equity fund of this case. Thus, Articles 2(4) and 40(

① On December 7, 2010, 2010, ○○○ Tech issued the instant bonds with warrant, and the instant private equity fund acquired the instant bonds with warrant on the date of the issuance. On December 3, 2010, the date of the resolution of the board of directors on the issuance of the instant bonds with warrant, the Plaintiff entered into a contract with the instant private equity fund to sell the instant bonds with warrant certificates separately from the instant bonds with warrant certificates to purchase KRW 200 million, half of the total face value of the instant bonds with warrant certificates. Meanwhile, according to the relevant laws and regulations, such as Article 270(4) of the former Capital Markets Act, the instant private equity fund, in principle, could not dispose of equity securities, etc. within a period of less than six months from the date of investment corresponding to Article 270(1)1 or 2 of the former Capital Markets Act, notwithstanding the fact that the instant private equity fund had not been able to sell the instant bonds with warrant separately to the Plaintiff prior to the issuance of the instant bonds with warrant.

② On December 3, 2010, 000, ○○○x publicly announced the details of the resolution of the board of directors on the issuance of the instant bonds with warrants on December 3, 2010, on the part of the “matters concerning the sale of the instant warrant certificates” among the matters concerning the preemptive rights, which was entered into between the Plaintiff and the instant private equity fund on December 3, 2010.

③ Since December 3, 2010, the Plaintiff failed to pay KRW 200 million to the Plaintiff by December 5, 2011, which was the date of payment under the contract for the purchase and sale of the instant warrant certificates. As such, the instant private equity fund did not terminate the contract even if it was possible to terminate the contract due to the occurrence of the right to terminate the contract under Article 7(2) of the said contract, and concluded a sales contract again with the Plaintiff on January 11, 2012, and accordingly, the Plaintiff remitted KRW 200 million to the instant private equity fund on January 11, 2012. If the instant private equity fund did not sell the instant warrant certificates again to the Plaintiff on January 11, 2012, it was difficult for the Plaintiff to have made an economic effort to sell or sell the instant warrant certificates to the Plaintiff on the condition that the Plaintiff would not easily have any other economic interest (i.e., the share price - KRW 2,495 won per share - the exercise price).

④ On the other hand, around March 20, 2014, the instant private equity fund agreed to sell the instant warrant certificates to the Plaintiff at KRW 200 million at the time when the instant private equity fund acquired the instant warrant certificates from ○○○○ Tech on December 7, 2010, upon the request of the Seoul Regional Tax Office, based on the official title stating that “the reply to the request for submission of relevant data, such as a sales contract,” and that the instant private equity fund sold the instant warrant certificates to the Plaintiff at KRW 5 billion on January 11, 2012 under the conditions agreed at the time of investment.

⑤ The Plaintiff’s purchase price of the instant warrant certificates is about KRW 68 per share (=20 million ± 2,942,900 ± 1,690 mar). According to the publication data on the issuance of the instant warrant certificates on December 3, 2010, the theoretical value of the instant warrant certificates was KRW 519 per share. At the time of conclusion of the contract on January 11, 2012, 00 ○○○ mar’s share price was KRW 2,495 per share, and the theoretical value of the preemptive right at the time was KRW 796 per share (=2,495 - 1,699 won per share price adjusted after gratuitous increase on June 29, 201). Accordingly, the Plaintiff’s acquisition price of new shares was considerably below the theoretical value at the time of December 3, 2010 1,000 per share and KRW 1,699 per share.

④ On November 30, 2012, the Plaintiff acquired 2,942,900 shares as to the instant warrant certificates, and sold 1.1 billion won around December 12, 2012 and around December 13, 2012, and sold 5.2 billion won in total, as to May 3, 2013 and May 6, 2013, the Plaintiff sold approximately KRW 1.1 billion in total to approximately 5.5 billion [3 billion in total + KRW 107 billion in sales price of the above 2.2 million - KRW 2.2 billion in acquisition price of the instant warrant certificates x KRW 169 billion in exercise price of the instant warrant rights x 2.9 billion in acquisition price of the instant warrant certificates x 2.6 billion in acquisition price of the instant shares x 2.9 billion in total x 2.6 billion in acquisition price of the instant warrant certificates x 2.9 billion in consideration of the fact that the Plaintiff acquired the instant shares within 2.2.

7) The Plaintiff asserted that the instant warrant certificates were purchased upon the request of the instant private equity fund, based on the evidence Nos. 18-1 and 2, but such evidence alone cannot be deemed as entirely leading the process of concluding the instant warrant certificates. As alleged by the Plaintiff, even if the proposal of the instant private equity fund was made, a series of acts was conducted from the issuance of the instant warrant certificates to the Plaintiff’s acquisition of the instant warrant certificates upon the consent of the Plaintiff and ○○○○ Tech, and during that process, the Plaintiff, as the largest shareholder of ○○○ Tech and the representative director, selected the method of issuing the instant warrant certificates to raise ○○ ○○ Tech, as the method of issuing the instant warrant certificates to raise ○○ ○○ Tech, and prepared a plan to separate the instant warrant certificates from the instant warrant certificates to sell them to the Plaintiff himself.

(2) Meanwhile, the Plaintiff asserts to the effect that, even in the case of Article 40(1) of the former Inheritance Tax and Gift Tax Act, under the premise that Article 42(3) of the former Inheritance Tax and Gift Tax Act applies, there exists a justifiable reason for the transactional practice between the Plaintiff and the instant private equity fund, and thus, gift tax may not be imposed pursuant to Article 40(1)2(b) of the

However, in light of the language and text of Article 42(3) of the former Inheritance Tax and Gift Tax Act, it cannot be interpreted that the application of Article 40(1) of the former Inheritance Tax and Gift Tax Act is excluded from the application of Article 42(1) of the latter Inheritance Tax and Gift Tax Act. Even if Article 40(1) of the former Inheritance Tax and Gift Tax Act applies, considering the aforementioned circumstances, it is difficult to view that the instant private equity fund’s transfer of the instant warrant certificates to the Plaintiff at low price is a reasonable transaction between the entrepreneurs, and it cannot be deemed that the Plaintiff’s acquisition and use of warrant certificates of this case is justifiable in light of the transactional practice. Thus, the Plaintiff’s assertion

Pursuant to the list on the 7th page, the 4th page "(1)" shall be read as "(2)".

○ Parts 18 to 10 shall be deleted from the list on the 7 pages 18 to 8.

○ 6 & 7 shall be deleted from heading 10.

The entry of the relevant Acts and subordinate statutes in the attached Forms 15 and 16 shall be in accordance with the attached Form of this decision.

2. Parts that vary from the judgment of the first instance court;

D) In the instant case:

As seen earlier, the Plaintiff’s largest shareholder of ○○ ○○ Tech constitutes a specially related person. Although the Plaintiff accepted the warrant certificates of this case from the private equity fund of this case, it may be deemed that the Plaintiff was an underwriter under Article 9(12) of the former Capital Markets Act or engaged in bypassing transaction without any difference from the acquisition of the preemptive right of this case by ○ ○○ Tech, pursuant to Article 2(4) of the former Inheritance Tax and Gift Tax Act, so Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act shall apply. Therefore, it is reasonable to deem that Article 42 of the former Inheritance Tax and Gift Tax Act, which is a comprehensive provision of supplementary relationship with regard to Article 40(1) of the former Inheritance Tax and Gift Tax Act, is not applicable as a ground provision for the disposition of this case. Considering that Article 42 of the former Inheritance Tax and Gift Tax Act, which is a provision for calculating the value of donated property among persons other than the specially related parties, this part of the Plaintiff’s assertion is inconsistent.

(iii)the calculation of a legitimate tax amount;

According to the facts established earlier, on February 28, 2013, the Plaintiff reported and paid KRW 2,858,779,330 of the gift tax on November 30, 2012, which was calculated pursuant to Article 40(1) of the former Inheritance Tax and Gift Tax Act, and the Defendant subsequently notified the Plaintiff of KRW 197,464,190 of the gift tax on June 9, 2014 pursuant to Article 42(1)3 of the former Inheritance Tax and Gift Tax Act. Thus, the legitimate tax amount of the Plaintiff’s imposition of the gift tax on the acquisition of warrant certificates and the profits accrued from the acquisition of new shares is KRW 2,858,779,30 of the gift tax calculated pursuant to Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act.

3. Conclusion

Therefore, the part of the disposition of this case exceeding KRW 2,858,779,330, which constitutes a legitimate tax amount, shall be revoked. Since the part against the plaintiff falling under the above revoked part is unfair in the judgment of the court of first instance, which has concluded a different conclusion, part of the plaintiff's appeal shall be accepted, and the part exceeding KRW 2,858,779,330 among the disposition of this case shall be revoked, and the remaining appeal of the plaintiff shall be dismissed, and it is so decided as per Disposition.