Cho Jae-2017-China-2748 ( December 29, 2017)

The plaintiffs acquired the shares of this case at a price significantly lower than the market price without justifiable grounds in light of transactional practices.

Since the plaintiffs acquired the shares of this case at a price significantly lower than the market price without justifiable grounds in light of the transactional practice, the disposition imposing gift tax is legitimate.

Inheritance Tax and Gift Tax Act Article 35 (Donation, etc. of Profits from Transfer at Low or High Price)

2018Guhap62707 Revocation of Disposition of Imposition of Gift Tax

AA, BB,CC,DD, EE

O Head of the tax office and one other

July 17, 2018

September 4, 2018

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

Each imposition disposition listed in the separate sheet No. 1 that the Defendants made against the Plaintiffs shall be revoked.

1. Details of the disposition;

A. FFF Co., Ltd. (hereinafter “FFF”) is a company established for the purpose of OO’s comprehensive design business around 2003. At the time of its establishment and the number of shares held at the time of capital increase for new shares in 2008 are as shown in attached Table 2.

B. The Plaintiffs received each of the shares of the instant company from GG, HH, III, JJ, JJ, and KK as shown in attached Table 3 between 2008O.O.O. and 2014O.O.O., respectively (hereinafter “each of the instant transactions”).

C. As a result of the assessment under Article 63(1)1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”) 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; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), the director of the regional tax office determined that the Plaintiffs acquired property from a specially related person at a price lower than the market price or acquired property at a price significantly lower than the market price without justifiable grounds (attached Table 3 No. 5).

D. Accordingly, the Defendants imposed gift tax under Article 35 of the former Inheritance Tax and Gift Tax Act on the remaining transactions except for each transaction listed in the table Nos. 1, 3, and 4, the value of which falls short of the value of donated property on the Plaintiffs (hereinafter “each disposition of this case”).

E. From 2017O.O. to 2017O.O.O.O., the Plaintiffs filed an appeal against each of the instant dispositions. However, the Tax Tribunal dismissed each of the instant dispositions.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 3, 5, 9 (including additional number), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

Each of the instant transactions does not fall under the case of acquiring property at a price lower than the market price, and in particular, there are justifiable grounds for transaction practices between the related parties (excluding the transaction No. 5 attached Table 3) among each of the instant transactions. Nevertheless, each of the instant dispositions imposing gift tax by deeming that the Plaintiffs acquired property from a related party at a price lower than the market price or acquired property from a person who was not a related party at a price significantly lower than the market price without justifiable grounds is unlawful.

B. Relevant statutes

4. The same shall apply to 4

C. Relevant legal principles

1) As to the valuation of the value of unlisted stocks

In the case of unlisted stocks with low market value, where the transaction value is deemed the market value, the stock value shall be deemed the market value and the stock value shall not be evaluated by the supplementary evaluation method stipulated in the former Inheritance Tax and Gift Tax Act. However, since the market value means the objective exchange value formed by the general and ordinary transaction, in order to be recognized as the market value, the circumstances that can be seen as properly reflecting the objective exchange value at the time of the donation date should be acknowledged (see, e.g., Supreme Court Decision 2010Du26988, Apr. 26, 2012).

2) As to justifiable reasons in light of transaction practices

The legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to cope with an unlawful act of donation and to promote fair taxation by imposing gift tax on the profits earned by the other party to the transaction in a case where benefits equivalent to the difference between the price and the market price are de facto gratuitously transferred for the benefit of the other party to the transaction. However, since the transaction between the unrelated parties is not in conflict with one another, it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price. In light of the above, Article 35(2) of the Act provides for the taxation requirement that “for the transaction between unrelated parties, there is no justifiable reason in light of the transaction’s practice.” In light of the aforementioned, if the parties to the transaction who transferred or acquired property at low price were to have reasonable reasons to believe the transaction price at a reasonable price reflecting the objective exchange value of the transaction, it is reasonable to deem that the tax authority has no justifiable reason to prove such that there is no justifiable reason for the acquisition of property from the party to the transaction at a reasonable price.

D. Determination

In full view of the following circumstances, it is reasonable to deem that Plaintiff BB acquired the shares of each of the instant companies at a price lower than the market price from O.O.O. and JJ. (Attached Nos. 5), and the Plaintiffs acquired the shares of the instant company at a price considerably lower than the market price from each of the transferor listed in Appendix Nos. 6, 11, 12, 13, 20, 22, 23, 22, 23 (including the provisional number) and 9 (including the provisional number) by comprehensively taking account of the overall purport of the pleadings, it is reasonable to deem that the Plaintiff BB acquired the shares of each of the instant companies from each of the transferor listed in Appendix Nos. 2, 6, and 11 attached Table 3 at a price significantly lower than the market price from a reasonable economic perspective. Therefore, it is reasonable to deem that the transaction was not normal from

Therefore, each disposition of this case is justified and the plaintiffs' assertion is without merit.

(1) The plaintiffs specifically asserted that the acquisition price of shares falls under the market price of each of the instant transactions, and that the transfer of shares from the plaintiff EE 208O.O.G. by the plaintiff 3GGG was made for the repayment of the loan (attached No. 3 table 1) and submitted the financial transaction details (attached No. 9-2 or 4) transferred by the loan, etc., and that the plaintiff BB received shares from HH 209O.O.O.H. H. H.H., 209 (attached No. 3 table 2) was for the recovery of the investment amount and settlement of the same business relationship, and that the plaintiff BB or EE was transferred shares from the 2009OO.O.O. 3, the plaintiff 2009 list was submitted for the collection of shares from the 3GG 100, and that it was for the collection of shares from each of the plaintiff 3G J. 13, 2001.

(2) However, the transaction of the shares of the company in this case appears to have no case except for each transaction in this case. In light of the transferor and the plaintiffs who are directly and indirectly related to the operation of the company in this case, and the frequency and scale of other transactions, each transaction in this case cannot be deemed to have been made freely between many and unspecified persons. In addition, as seen thereafter, it cannot be deemed that the acquisition price is the price properly reflecting the objective exchange value in light of the circumstances of each transaction in this case between the plaintiffs and the transferor.

(3) Therefore, the market price of the shares of the instant company can be reasonably assessed according to the supplementary assessment method under Articles 60(3) and 63(1)1(c) of the former Inheritance Tax and Gift Tax Act, and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. Accordingly, the assessment of the market price is identical to the statement in the column in the column in the attached Table 3, and the assessment is considerably higher than the acquisition price of each of the instant transactions, and each of the instant transactions constitutes the “transfer of property, the market price of which is remarkably lower than the market price under Article 35(2) of the former Inheritance Tax and Gift Tax Act.”

(A) Article 35(3) of the former Inheritance Tax and Gift Tax Act is significantly low or significant in the application of Paragraph (2).

Article 26 (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "The scope of high value shall be determined by the Presidential Decree," and Article 35 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "if there is a difference between the market price of the acquired property and the price calculated by deducting the price from the market price of the acquired property, it refers to the price calculated by

(B) The plaintiffs acquired the shares of the company of this case from each transferor in the annexed Form 3, which is about 4.1% or about 10.8% of the amount stated in the annexed Table 3, which is recognized as the market price of the shares of the company of this case.

(4) Plaintiff BB owned 48.5% of the shares of the instant company as of 201O.O.O.O., and the JJ had a full-time director of the instant company from 2008O.O.O. to 201O.O.O.O., under Article 16(2) of the former Inheritance Tax and Gift Tax Act and Article 12-2(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the JJ and Plaintiff BB had a special relationship.

(5) The Plaintiffs asserted that the transferor was aware of the circumstances of each of the instant companies at the time of the instant transaction and submitted a written statement (Evidence No. 24) stating the same purport to the effect that the transferor was able to obtain information of the instant company in the course of performing duties, such as the director, auditor, etc. of the instant company, with the instant company. However, according to the vindication submitted by the transferor to the tax authority, etc., it is difficult to deem that the transferor was generally aware of matters such as the financial status, performance, etc. of the instant company. In addition, the Plaintiffs or the transferor did not undergo an objective evaluation procedure, such as appraisal by the appraisal corporation or the accounting corporation when determining the acquisition price of each of the instant companies, and no other evidence exists to deem that the transfer price was calculated according to the objective criteria.

(6) A part of each of the transactions in this case is about the future of the company in this case due to the decline around that time.

Although there was a concern about the aggravation of the performance, it is difficult to find out what concrete impact was on the calculation of the acquisition price. Furthermore, even though the net income of the company of this case was changed from 2008 to 2015, the sales or earned surplus have been gradually increased as a whole through a somewhat gradation.

(7) The plaintiffs asserted that there is no special relationship with the transferor, and there is no reason for the transferor to divide profits by transferring the shares of the company of this case to the plaintiffs at a low price. However, the gift tax based on the provision on deemed donation such as Article 35(2) of the former Inheritance Tax and Gift Tax Act may be levied without any purpose of evading gift or gift tax (see, e.g., Supreme Court Decisions 99Du2505, Feb. 11, 2000; 2004Du4727, Sept. 22, 2006). Thus, the circumstances that the parties to a transaction did not necessarily need to recognize or desire the transfer of the shares without compensation, and therefore there is no awareness or desire to do so, it is not a reason for exempting the application of the provision on deemed donation due to low price acquisition.

3. Conclusion

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