Cho-2014-China-507 ( December 31, 2014)

The propriety of the disposition imposing the gift tax by deeming forfeited stocks to be acquired at low price upon capital increase;

If a shareholder of the relevant corporation has acquired new shares in excess of the number of shares owned by him/her, he/she is liable to pay gift tax since he/she gains profits in comparison with other shareholders, and it cannot be deemed that capital increase is made through the method of shareholders allocation as all procedures. The application of the above provision cannot be deemed excluded solely on the ground that

Article 39 of the Inheritance Tax and Gift Tax Act

2015 Gohap5775 Revocation of Disposition of Imposition of Gift Tax

EOOO

O Head of the tax office

August 21, 2015

September 11, 2016

1. The plaintiffs' respective claims against the defendants are dismissed in entirety.

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

Cheong-gu Office

Each gift tax disposition stated in the attached Table 1 attached hereto, which the Defendants issued against the Plaintiffs, shall be revoked.

1. Details of the disposition;

A. The plaintiffs are shareholders of start-up business investment companies established on December 21, 2001 (hereinafter referred to as "OO"), who participated in the allocation of forfeited shares issued by the company, Co., Ltd. (hereinafter referred to as "OOOO") on July 15, 2005, and the above company was an unlisted corporation at the time of the instant case, and another corporation that changed the trade name after the merger with BB, Co., Ltd. to AAA on May 21, 2008, and were allocated shares to the face value (5,000 won per share) (hereinafter referred to as "the forfeited shares of this case").

B. After that, the Plaintiff CCC and DD participated in the third party’s capital increase issued on August 17, 2005 and received 1,527 shares in the Plaintiff CCC and 3,055 shares in DD, respectively (hereinafter “third party allocation”).

C. The Defendants, when allocating forfeited stocks of this case and allocating the excess stocks to a third party, increase in capital 1

주당 가액을 매매사례가액인 20,000원으로 평가하고, 원고들이 구 상속세 및 증여세법(2006. 12. 30. 법률 제8139호로 개정되기 전의 것, 이하 '법'이라고 하고, 그 시행령, 시행규칙을 각각 '시행령', '시행규칙'이라 한다) 제39조 제1항 제1호의 저가 유상증자에 따른 증여이익을 얻은 것으로 보아 별지1 과세처분목록 기재와 같이 원고들에게 증여세 합계 XXXXX원을 결정・고지하였다(이하 실권주 배정에 관한 부과처분을'이 사건 제1처분'이라 하고, 제3자 배정에 관한 부과처분을 '이 사건 제2처분'이라한다).

D. The Plaintiffs filed an appeal with the Tax Tribunal on October 6, 2014, but the Tax Tribunal has made the appeal.

On December 31, 2014, the plaintiffs' appeals were dismissed in entirety.

2. Related statutes;

Attached Form 2 shall be as stated in the relevant statutes.

3. Whether the first disposition in this case is lawful

A. As to whether an accelerator’s forfeited share allocation is applicable

1) The plaintiff's assertion

In the event that the share swap ratio for the acquisition and merger between the O and the OO is already established and the OO participates directly in the capital increase with capital increase, it is nothing more than that of the Plaintiffs, who are the listed shareholders, bypass, in accordance with the O ownership ratio in order to avoid the spread that may arise in the process of financing, the calculation of contingent remuneration, the exchange ratio, and the property appraisal. Since the Plaintiffs received the notice of allocation from the OO and received the notification of the payment of the share price directly from the OO, there was no direct allocation of forfeited shares, such as transfer of the shares to the OO, etc., even if the gift tax from the free transfer of preemptive rights between the OO and the OO is imposed on the Plaintiffs, it is unlawful to impose gift tax on the forfeited share under Article 39(1)

(ii) the facts of recognition

A) On May 13, 2005, the board of directors held 3,000 common shares (one share price: 5,000,000 won in total, 15,000,000 won in total) with a subscription to new shares as of June 17, 2005. As of June 17, 2005, the board of directors allocated shares to shareholders listed on the register of shareholders at the rate of 0.143937426 shares per share, and the payment date of shares was July 15, 2005, and the remaining shares below the subscription result were decided to be dealt with separately by the board of directors.

B) On July 12, 2005, the board of directors adopted a resolution on the portion of forfeited stocks of theO that occurred after subscription through the shareholder allocation method to deal with the same as that of theO and its investment association or its designated person by the third party allocation method.

C) At that time, the OO given the following notice to the Plaintiffs: (a) given up giving up subscription from the capital increase on July 15, 2005; (b) from July 13, 2005 to July 14, 2005, to the effect that it is expected to distribute the waivers to shareholders and partners in the share ratio; and (c) the Plaintiffs deposited shares, etc. for shares to be distributed to the O account in accordance with the above notice.

D) The total number of stocks abandoned by OO in its capital increase on July 15, 2005 is 384,995 shares, and the Plaintiffs acquired 9,394 shares in total in accordance with the OO shares ratio.

E) Meanwhile, the sales cases of OO on or before July 15, 2005 are as follows, and OO is a person who does not fall under a special relationship with O and Article 26 of the Enforcement Decree.

3) Determination

In light of the following circumstances acknowledged by the above facts, the allocation of forfeited stocks of this case can be deemed to have been directly allocated by the Plaintiffs to the forfeited stocks of the OOO. Therefore, the Plaintiffs’ assertion that only acquired stocks from the OO but did not receive the allocation of forfeited stocks cannot be accepted.

① TheO notified the Plaintiffs of the “Real Rights Assignment Notice” under the title of the “Real Rights Assignment Notice”, stating that the O’s waiver of the AA’s acceptance by the shareholders of the AA. The Plaintiffs received the notification of the acquisition of new shares as above from AA, and paid the documents necessary for the acquisition of new shares and its subscription money to AA, it seems that AA merely proceed with the procedures for allocating forfeited shares on behalf of the Plaintiffs for the convenience of the procedures for acquiring new shares.

② On July 12, 2005, the board of directors of the AA made on July 12, 2005 stated that the AA shall waive the acceptance of new shares and that the AA shareholders, including the plaintiffs, shall acquire the actual right to the subscription.

③ The instant forfeited shares were allocated to the Plaintiffs prior to the arrival of July 15, 2005, which was the initial payment date of the subscription for new shares issued, and the forfeited shares were allocated to the Plaintiffs on the payment date of the said subscription price. Although the subscription date for new shares issued or the subscription payment deadline for new shares was due to the failure to pay the subscription price or the subscription price, there are ordinary cases in which the forfeited shares were allocated thereafter. However, in the instant case, it can be deemed that the forfeited shares had already been paid by clearly expressing the intent not to accept the subscription amount of AAAA’s new shares issued before the payment date of the subscription price, by clearly expressing the intention not to receive the subscription amount of new shares issued to the Plaintiff prior to the expiration date of the original

④ The shareholders of AA must be clearly distinguished from that of A. If AA did not waive their preemptive rights, the Plaintiffs, the shareholders of the AA, did not have any way to directly allocate the new shares of the AA. As long as the Plaintiffs, such as the instant forfeited shares, did not acquire shares from A, but rather acquired new shares from AA, it is difficult to deem that the Plaintiff acquired shares of the A.

B. As to whether there was a gift profit

1) The plaintiff's assertion

The allocation of forfeited stocks of this case was made due to the acquisition and merger between AA and F by means of a stock exchange method, and since the loss suffered by the plaintiffs due to the said stock exchange transaction is larger than the profit of deemed donation acquired by the allocation of forfeited stocks of this case, there is no gift value subject to taxation.

2) Determination

Article 39(1)1(a) of the Act provides that benefits acquired by a person who received allocation of forfeited stocks by allocating forfeited stocks at a price lower than the market price shall be deemed as gift gains. This refers to the difference between the market price of new stocks and the price actually allocated. As such, the loss suffered by the Plaintiffs due to the exchange of forfeited stocks cannot be deemed as an element to consider in calculating gift gains. The Plaintiffs’ assertion on this part cannot be accepted

C. Therefore, the first disposition based on Article 39(1)1(a) of the Act is lawful.

4. Whether the second disposition of this case is legitimate

A. The plaintiff's assertion

The third party allocation of this case is based on the agreement that the AA gives shareholders who suffered high risk and participated in the capital increase with rights on April 13, 2004 to participate in the capital increase with rights during the period of 2005. As such, it was made pursuant to the equal condition (e.g., par value KRW 5,00 per share) as agreed in advance, and it cannot be deemed that there was any disadvantage to other shareholders of AA or third party. Nevertheless, the gift tax imposed pursuant to Article 39(1)(c) of the Act is unlawful.

(b) Fact of recognition;

1) On July 25, 2005, the board of directors of AA made a resolution on April 13, 2004, with a capital increase of KRW 20 billion, and approved the third party’s allocation of capital increase for the following reasons: (a) the shareholder participating in the capital increase to be given an opportunity to participate in the capital increase with KRW 10 billion to be made in 2005, limited to the shareholder participating in the capital increase.

2) In accordance with the resolution of the board of directors on August 17, 2005, the shareholders paid 5,000 won per share to the shareholders of the capital increase on August 17, 2005, and were allocated 2,00,000 common shares issued, Plaintiff CCC was allocated 1,527 shares, and Plaintiff DD was allocated 3,055 shares, respectively.

3) Meanwhile, the sales cases before and after August 17, 2005 of AA shares are as follows.

4) Meanwhile, on August 17, 2005, the Defendants assessed the transaction value of KRW 5,000 per share at AAA’s capital increase and KRW 20,000 between FF and HH on August 16, 2005 and the transaction value of the shares traded within three months before and after the said capital increase, based on the market price under Article 60(2) of the Act, as the market price under Article 60(2) of the Act, and assessed the assessment value per share after the capital increase as KRW 18,849, respectively, and calculated the value of donated property under Article 29(3) of the Enforcement Decree.

C. Determination

1) Article 39(1)1 (c) of the Act provides that “Where any shareholder of the corporation concerned obtains profits by directly obtaining new stocks allocated in excess of the number entitled to be allocated under equal conditions in proportion to the number of stocks owned by him/her, as the corporation issues new stocks to increase its capital, the amount equivalent to such profits shall be deemed to be the value of donated property of the person who has acquired such profits

2) In light of the following circumstances, in view of the facts acknowledged earlier and the content and purport of the above provision, it is reasonable to view that in the third party allocation of the shares allocated to the Plaintiffs, the profits equivalent to the excess allocation exceeding the existing equity ratio constitute Article 39(1)1 (c) of the Act.

① The purport of the above provision is to acquire new shares at a market price below the market price under equal terms in proportion to the number of the shares held by the shareholders of the relevant corporation, and to acquire new shares at a price below the market price does not have received special benefits as well as there is no possibility of undermining the rights of other shareholders. Therefore, in the event that new shares are acquired in excess of the number of shares held, there is no need to regulate them as gift tax. However, in the event of acquiring new shares

② Even if the allocation to a third party was made for the shareholders who participated in the offering of new shares as of April 13, 2004, pursuant to an agreement with the shareholders who participated in the offering of new shares as of April 13, 2004, all shareholders of the AA are limited to only a part of the shareholders of the AA, and therefore, all shareholders did not receive new shares allocated

③ Even if all shareholders at the time of the subscription for new shares as of April 13, 2004 publicly notified that they may participate in the capital increase in the future, as long as the subscription for new shares as of August 17, 2005 was made by a third party separate procedure from that of the subscription for new shares as of April 13, 2004, it cannot be deemed that the subscription for new shares as of August 17, 2005 was made by the method of a shareholder allocation as of April 13, 2004, and it cannot be deemed that the application of the above provision is excluded just because it was publicly notified.

3) Therefore, the instant disposition 2 based on Article 39(1)1(c) of the Act is lawful.

5. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

2

Related Acts and subordinate statutes

(1) The former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006)

Article 39 (Donation of Profits Following Capital Increase)

(1) Where any profits have been acquired as a corporation issues new stocks or equity shares (hereafter in this Article, referred to as “new stocks”) in order to increase its capital (including the amount of investment; hereafter in this Article and Article 39-2, the same shall apply), the amount equivalent to the relevant profits shall be deemed the value of donated property of the person who has acquired such profits:

1. In case where new stocks are issued at a price lower than the market price (referring to the price assessed under Articles 60 and 63; hereafter in this paragraph and Article 40 the same shall apply), the benefits falling under any of the following items:

(a) In case where a shareholder of the relevant corporation (including an investor; hereafter in this Article, the same shall apply) has renounced wholly or partially the right to receive new stocks, and where such renounced new stocks (hereafter in this paragraph, referred to as " forfeited stocks") are allocated (excluding the case where a stock-listed corporation or Association-registered corporation under the Securities and Exchange Act allocates such forfeited stocks by the method of solicitation of securities under Article 2 (3) of the same Act; hereafter in this paragraph, the same shall apply), the benefits acquired by those who received

(c) Profits acquired by a person who is not a stockholder of the relevant corporation by directly obtaining an allocation of new stocks from the relevant corporation (including cases where he/she directly acquires and acquires the relevant new stocks from an underwriter under Article 9 (12) of the Financial Investment Services and Capital Markets Act; hereafter the same shall apply in this paragraph), or profits acquired by a stockholder of the relevant corporation by obtaining an allocation of new stocks in excess of the number entitled to receive an allocation

(1) Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1933 of Feb. 9, 2006)

Article 29 (Calculation Method, etc. of Profits Accruing from Capital Increase)

(1) The term "person in a special relationship with the person who has a special relationship under Article 39 (1) of the Act and the person who has rejected or has not accepted new stocks or real right stocks" means the person in a relationship under any subparagraph of Article 19 (2).

(2) The term "minority shareholders" in Article 39 (2) of the Act means shareholders, etc. who hold less than 1/100 of the total number of outstanding stocks, etc. of the relevant corporation and whose total face value is less than 300 million

(3) The profits pursuant to the provisions of Article 39 (1) of the Act shall be the profits calculated according to the classification falling under each of the following subparagraphs: Provided, That if the value per stock before and after the capital increase does not exceed zero, the profits shall be deemed nonexistent: