Suwon District Court 2012Guhap7801 (2013.02.01)

The burden of proving that there was no tax avoidance purpose is the nominal person who asserts it.

If the purpose of title trust is not included in the purpose of tax avoidance, it cannot be deemed as a deemed donation, and it is deemed that there was the intent of tax avoidance as well as the other main purpose, it cannot be deemed that there is no purpose of tax avoidance.

Article 41 of the Inheritance Tax and Gift Tax Act

2013Nu9801 Revocation of Disposition of Imposition of Gift Tax

KimA

port of origin

Suwon District Court Decision 2012Guhap7081 Decided February 1, 2013

October 16, 2013

November 13, 2013

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The imposition of the gift tax of 2008 on the Plaintiff on January 6, 2011 by the Defendant shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

(1) On July 18, 2008, the Plaintiff acquired 4,424,00 shares of the subject company (hereinafter “instant shares”) by participating in the third party allotment of CCC (CCC was merged with DD Development Co., Ltd. on August 16, 2010; hereinafter “subject company”) in the name of SongB, and paid OO of the acquisition price.

(2) The Defendant applied the provision of Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax and Gift Tax Act”) to “the deemed donation of title trust property” on the acquisition of the instant shares by the Plaintiff under the name of SongB, and imposed and notified the Plaintiff on January 6, 201, who is a trustee, and a joint and several taxpayer under Article 4(5) of the former Inheritance Tax and Gift Tax Act (hereinafter “instant disposition”).

(3) On May 22, 2012, the Plaintiff filed an objection against the instant disposition with the Tax Tribunal, and filed an appeal, but the said claim was dismissed.

[Reasons for Recognition] Unsatisfy, Gap evidence Nos. 1, 2, Eul evidence Nos. 1, 2 and 6, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Since the Plaintiff disposed of and refunded the instant shares within the short period and held a title trust for the purpose of repaying obligations, such as provisional payment, to DD Development Co., Ltd. (hereinafter “DD Development”), the instant disposition that imposed the pertinent gift tax on the Plaintiff on the ground that the Plaintiff was a title trust for the purpose of tax avoidance, even though it cannot be deemed that the Plaintiff did not have the purpose of tax avoidance.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Relevant legal principles

The legislative purport of the provision on deemed donation is to recognize an exception to the principle of substantial taxation by effectively preventing the act of tax avoidance using the title trust system. Thus, if it is recognized that the title trust was made for any reason other than the tax avoidance purpose, and only a minor reduction of tax incidental to the said title trust occurs, it cannot be readily concluded that there was an objective of tax avoidance in the title trust. However, in light of the legislative purport as seen above, it cannot be deemed that there was an intention of tax avoidance only when the purpose of the title trust is not included in the purpose of tax avoidance, and thus, it cannot be deemed that there was an intention of tax avoidance. In this case, the burden of proving that there was no purpose of tax avoidance is against the person who asserts it (see, e.g., Supreme Court Decisions 2007Du1931, Apr. 9, 2009; 2007Du17175, Sept. 8, 2011; 2007Du1640, Sept. 26, 2016).

(2) Facts of recognition

The following facts may be acknowledged by the parties to a dispute, or by the purport of Gap evidence 2 to 17 (including the paper number), each part of Eul evidence 2 to 8 (including the paper number), and the testimony and the whole pleading of the witness E in the first instance trial:

(A) Since around 2008, DD Development promoted the procedure for round-up listing through mergers with target companies listed on KOSDAQ for listing on the KOSDAQ market, and as a result, DD Development was merged into target companies around August 6, 2010.

(B) The Plaintiff, as the representative director and the largest shareholder of DD development, transferred 122,40 shares of DD development to the target company on July 9, 2008 as part of the above merger procedure. On the same day, the Plaintiff was the largest shareholder of the target company by acquiring shares of 13,33,00 shares of the target company (37.54% of total shares issued) in the name of the Plaintiff by participating in the third party allocation of DD development shares.

(C) At the time, the Plaintiff was obligated to pay the total amount of KRW 7 billion for DD development, and the total amount of capital gains from the transfer of DD development shares was paid.

(D) In order to repay the above debt, the Plaintiff acquired additional stocks of the target company whose stock price increase was anticipated to rise at the time, and disposed of and refunded them, and raised necessary funds. However, Article 22-3(1)2 of the Regulations on Listing of the KOSDAQ (amended by Presidential Decree No. 368 of Sep. 12, 2008) was enforced at the time, the Plaintiff acquired important assets (limited to stocks issued by the relevant closed corporation) from the largest shareholder, etc. of the closed corporation, and issued stocks, etc. by a third party within 6 months from the date of submission of the report on the acquisition of assets, the said largest shareholder, etc. shall continue to hold the stocks for 2 years from the date of issuance. Accordingly, the Plaintiff, as the largest shareholder of the DD development, acquired the stocks of the target company under its own name, was unable to dispose of the said stocks for 2 years in accordance with the said provisions.

(E) Accordingly, on May 208, the Plaintiff borrowed the name of DD development personnel, etc. to acquire the shares of the target company additionally, and took over the amount equivalent to the OOOO of the target company in the name of EE, etc., who is the employee of DD development fund team. On July 18, 2008, the Plaintiff acquired the shares of this case (the amount equivalent to 11.07% of the total issued shares) in the name of EB, which is the former employee of DD development.

(F) After acquiring the instant shares, the Plaintiff disposed of all of the said shares from July 28, 2009 to September 21, 2009, and repaid the debt of the said provisional payment for D development due to the proceeds from the realization of the shares.

(G) The subject company did not pay dividends from 2008 to 2009, which is the Plaintiff’s holding period of stocks. However, in 205 and 2006, the Plaintiff, prior to holding the shares of the subject company, the distributable profits came out of the OO members.

(h) Meanwhile, the Plaintiff’s global income amount attributed to year 2008 is an OO member, and the calculated tax amount is an OO member under the Income Tax Act. However, the global income amount attributed to year 2008 by SongB is an OO member, and the calculated tax amount is limited to 8% tax rate, and the calculated tax amount is limited to OO member.

(3) Judgment on the Plaintiff’s assertion

The following facts are acknowledged based on the above facts and evidence. ① The Plaintiff: (a) disposed of and refunded the shares of the target company within a short period within the scope of time, and (b) paid the target company of OOO for the purpose of preparing a considerable portion of the capital gains tax due to the transfer of DD development + OOOO on the transfer of shares; (b) although the Plaintiff was able to use the said shares for debt repayment, etc. by paying the said shares to DD development or the tax authorities, it seems that the acquisition of the target company’s shares was expected that the price of the shares of the target company would have increased short-term in the KOSDAQ market through the merger of D development; and (c) even if the target company did not actually distribute the shares during the period of sale of DB, it is difficult for the Plaintiff to recognize that the Plaintiff did not own the shares of the target company for the purpose of tax evasion for the purpose of 200 years prior to the date of the title trust, and thus, (c) the Plaintiff did not have any income from the subject company’s global income tax evasion for 20 years prior to the transfer.

Therefore, the plaintiff's above assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and since the judgment of the court of first instance is unfair with different conclusions, the defendant's appeal is accepted and the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed as per Disposition.