Examination-Gift-2019-0028 ( October 02, 2019)

It is insufficient to recognize that there was no tax avoidance purpose in the nominal trust of shares, and there is no other evidence to acknowledge it.

It is only for the purpose of avoiding compulsory execution from creditors, but it is argued that there was no tax avoidance purpose, but even after the possibility of compulsory execution has been extinguished by the full repayment of the debt, it cannot be recognized that there was no tax avoidance purpose.

Donation of trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2019Guhap21888 Revocation of Disposition of Imposition of Gift Tax

KimA

○○ Head of tax office

August 30, 2019

October 18, 2019

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s disposition of imposition of gift tax of KRW 11,211,090 against the Plaintiff on September 5, 2018 is revoked.

1. Details of the disposition;

A. On March 30, 2004, KimB, the Plaintiff, and LA established △△△△ Co., Ltd. (hereinafter “instant company”) for the purpose of new sales business, new sales business, and new sales business, etc. on March 30, 2004. At the time of incorporation, KimB’s establishment of 100,000,000 capital (i.e., total number of issued stocks 10,000 x 10,000 won per share) invested KRW 50,000 per share and acquired 50,000 shares of the instant company (50%) for each of 2,50 shares for each of the instant companies, and the Plaintiff and LAF acquired 25,00,000 shares for each of the instant companies by investing KRW 25,500,000 per share.

B. Around December 2006, KimB made a title trust to the Plaintiff with 1,500 shares out of 2,500 shares of the instant company, which were held in a title trust with KimF (hereinafter “instant shares”), and again made a title trust with 1,500 shares out of 2,500 shares of the instant company, which were held in a title trust with thisA, to the Plaintiff, and 1,500 shares out of 2,500 shares of the instant company, which were held in a title trust with thisA around 2009, to the Plaintiff, and 1,500 shares out of 2,50 shares of the instant company, which were held in a title trust with the Plaintiff, were again held in a title trust with the remaining 1,00 shares out of 1,50 shares of the instant company from KimB.

C. After that, on June 22, 2015, the Plaintiff transferred 5,000 shares of the instant company owned by the Plaintiff to 00 won (i.e., 5,000 shares x 873,000 shares transfer value per share x 8700 shares transfer value per share) to 00 shares of the instant company (i.e., 2,182,500 shares of the instant company x 2,500 shares (i.e., 2,500 shares x 873,000 shares transfer value per share).

D. As a result of the corporate integration investigation conducted with respect to the instant company from November 23, 2017 to January 10, 2018, the ○○ Regional Tax Office discovered that the Plaintiff received title trust of 1,000 shares of the instant company from the KimB, the actual owner, around December 2006, and notified the Defendant of the taxation data.

E. Upon receipt of the above taxation data from the ○○ Regional Tax Office, the Defendant decided and notified the Plaintiff of the gift tax of KRW 11,211,090 on September 5, 2018 (hereinafter “instant disposition”), and designated the title trustor KimB as a joint and several person liable for tax payment, in accordance with the provision on deemed donation under the title trust of the instant shares.

F. Accordingly, the Plaintiff filed a tax appeal with the Tax Tribunal on October 30, 2018, but the Tax Tribunal dismissed the appeal on February 15, 2019.

[Ground of recognition] A without dispute, Gap evidence 1, Gap evidence 2, Eul evidence 17, Eul evidence 17, Eul evidence 3, Eul evidence 5, witness KimB's testimony, the purport of whole pleadings

C. After that, on June 22, 2015, the Plaintiff transferred 5,000 shares of the instant company owned by the Plaintiff to 00 won (i.e., 5,000 shares x 873,000 shares transfer value per share x 8700 shares transfer value per share) to 00 shares of the instant company (i.e., 2,182,500 shares of the instant company x 2,500 shares (i.e., 2,500 shares x 873,000 shares transfer value per share).

D. As a result of the corporate integration investigation conducted with respect to the instant company from November 23, 2017 to January 10, 2018, the ○○ Regional Tax Office discovered that the Plaintiff received title trust of 1,000 shares of the instant company from the KimB, the actual owner, around December 2006, and notified the Defendant of the taxation data.

E. Upon receipt of the above taxation data from the ○○ Regional Tax Office, the Defendant decided and notified the Plaintiff of the gift tax of KRW 11,211,090 on September 5, 2018 (hereinafter “instant disposition”), and designated the title trustor KimB as a joint and several person liable for tax payment, in accordance with the provision on deemed donation under the title trust of the instant shares.

F. Accordingly, the Plaintiff filed a tax appeal with the Tax Tribunal on October 30, 2018, but the Tax Tribunal dismissed the appeal on February 15, 2019.

[Ground of recognition] A without dispute, Gap evidence 1, Gap evidence 2, Eul evidence 17, Eul evidence 17, Eul evidence 3, Eul evidence 5, witness KimB's testimony, the purport of whole pleadings

2. Judgment on the plaintiff's assertion

A. The plaintiff's assertion

From April 20, 1996, KimB closed the business on December 31, 2003, when it operated a new technology manufacturing company under the name of "CCB". At the time, KimB closed the business on April 31, 2003. At the time, the debt amount including the amount of goods unpaid to a financial institution or a business partner, etc. was 381,509,59,590 won, and the amount of national tax in arrears was 16,60,280 won, and 398,169,870 won. Under this circumstance, KimB continued the business around 2004, and established the company in this case when the shareholder name of the company in this case is KimB himself, it was impossible to continue the business due to the concern of compulsory execution due to the above existing debt, and thus, the disposition of this case was unlawful since there was no reason for tax evasion after KimB failed to pay taxes.

B. Relevant statutes

Attached Form 3 is as listed in the "relevant Acts and subordinate statutes".

C. Determination

1) Relevant regulations and legal principles

A) Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") provides that "where the actual owner and the nominal owner are different from the property (excluding land and buildings; hereinafter the same shall apply in this Article), the value of the property shall be deemed to have been donated to the actual owner on the date when the actual owner and the nominal owner are registered as the nominal owner (where the property requires a change of ownership, referring to the date following the end of the year following the year in which the date of acquisition of ownership falls), notwithstanding Article 14 of the Framework Act on National Taxes, the value of the property shall be deemed to have been registered as the actual owner and, if the property is registered under another person's name or the ownership is not transferred under the actual owner's name without any purpose of evading taxes, it shall be presumed that the main sentence of paragraph (2) of the same Article provides that "where the actual owner and the actual owner are not converted under a title."

B) The legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the principle of substantial taxation to effectively prevent tax avoidance using the nominal trust system, and realize tax justice. In light of the aforementioned legislative intent, if the title trust was recognized to have been conducted for any reason other than the purpose of tax avoidance, and only a minor reduction of tax incidental to the said title trust occurs, it cannot be readily concluded that there was a "tax avoidance purpose". However, it cannot be deemed that there was no other main purpose and intent of tax avoidance, as it cannot be deemed that there was an intention of tax avoidance by applying the proviso of the said provision only if the purpose of tax avoidance is not included in the title trust (see, e.g., Supreme Court Decision 2007Du17175, Sept. 8, 2011). Furthermore, the burden of proving that there was no tax avoidance purpose, 2007Du17160, supra, should be proven to the extent that there was no objective and objective purpose of tax avoidance in the future (see, 2010).

2) Specific determination

A) The fact that KimB held the title trust of the instant shares to the Plaintiff around December 2009 is as seen earlier. Therefore, barring any special circumstance, it is presumed that the purpose of tax avoidance exists pursuant to Article 45-2(2) of the former Inheritance Tax and Gift Tax Act, barring any special circumstance. The Plaintiff asserts that KimB’s title trust of the instant shares to the Plaintiff is merely for avoiding compulsory execution from the creditors of the obligations owed in the course of the operation of theCC company by establishing the instant company and commencing its business.

B) First of all, according to Gap evidence 3 to Gap evidence 16 (including the number of branch numbers), KimB operated a new food company under the name of "CC company" from April 20, 1996 and discontinued the above company on December 31, 2003. At the time KimB held the title trust of the issue shares of this case to the plaintiff, KimB was recognized as 174,206,217, 200, 300, 307, 407, 507, 407, 507, 507, 507, 170, 507, 407, 507, 170, 507, 507, 507, 507, 507, 507, 507, 507, 507, 507, 307, 507, 507, 407, 5007, 7007, 1.

C) However, in light of the following circumstances, the aforementioned legal principles and evidence Nos. 7, 8, and the entire purport of testimony and pleading by the witness KimB, it is insufficient to recognize that KimB did not have any purpose of tax avoidance in title trust with respect to the instant key stocks to the Plaintiff, and there is no other evidence to acknowledge otherwise.

(1) Even according to the Plaintiff’s assertion, KimB established the instant company and resumed its business to avoid compulsory execution or default on national taxes, and thus, KimB did not pay a total of KRW 29,545,651 (including additional dues) at the time of the title trust of the instant shares, and thus, the tax authority’s disposition on default on its property, including the instant shares, may be conducted. In light of the legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, it is reasonable to view that not only would be exempted from the future tax liability, but also tax evasion by falsely entering the state of the absence of property through the title trust is included in the “tax avoidance” under Article 45-2(1)1 of the former Inheritance Tax and Gift Tax Act, so long as KimB paid the instant shares in title trust to avoid the disposition on default, as alleged by the Plaintiff, KimB thereafter did not have the purpose of tax evasion over the period from August 1, 2009 to 31, 2017.

(2) From January 1, 2006 to December 31, 2016, the instant company began to accumulate 360,857,928 won in the un disposed earned surplus each year for the year 2006 (from January 1, 2006 to December 31, 2016), and accumulated a considerable amount of un disposed earned surplus each year for the year 2015 as listed in the following table. It is difficult to deem that the instant company was unable to pay dividends to surplus. Accordingly, KimB could sufficiently recognize the possibility of paying dividends to the Plaintiff for un disposed earned surplus at the time of title trust of the instant shares.

(3) In the event that the distribution of dividends is made to the 2,500 shares and 1,500 shares deposited in the instant company by title trust with respect to the remaining shares other than the instant shares, KimB would have been expected to pay dividends to the 50% shares held by the trustee through the title trustee. However, it seems that KimB could have been sufficiently probable that the 50% shares and the instant company shares owned by it would have been avoided due to the cumulative taxation on global income by title trust with the Plaintiff, ParkA, and LeeA.

(4) At around 2014, KimB appears to have repaid all obligations related to the operation of theCC company. However, even after the possibility of compulsory enforcement of the instant shares was lost due to the full repayment of obligations, KimB did not find out the name of the instant shares until the Plaintiff transferred 5,000 shares of the instant company, including the instant shares, to White on June 22, 2015.

D) Therefore, we cannot accept the Plaintiff’s assertion that there was no purpose of tax avoidance with respect to the title trust of the instant shares.

3. Conclusion

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