Cho-2017-China-1292 (2017.08)

propriety of the disposition imposing the gift tax by deeming that the key shares were transferred at a low price.

It is difficult to accept the Plaintiff’s note in light of the following: (a) lack of objective reasonable grounds in the calculation method of the transaction value of the stocks at issue; (b) lack of the transaction value of the stocks at issue; (c) the transaction value of the stocks at issue is considerably lower than the value by supplementary assessment methods under the Inheritance Tax and Gift Tax Act; and (d)

Article 63 of the Inheritance Tax and Gift Tax Act

Incheon District Court-2017-Gu 53587 (21. 2018.06.21)

O KimO

O Head of tax office

2018.05.31

8.06.21

1. All of the plaintiff's claims are dismissed.

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

1. Details of the disposition;

On July 2, 2015, the Plaintiff purchased 30,000 shares of Co., Ltd. (hereinafter referred to as “PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP

Considering that it is difficult to calculate the market price of the instant shares, the Defendant assessed the value per share of the instant shares as 76,659 won by applying the supplementary evaluation method under Articles 60(3) and 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter referred to as the “Inheritance Tax and Gift Tax Act”), and assessed the value per share of the instant shares as 76,659 won, without justifiable grounds, and accordingly, deemed that the Plaintiff’s acquisition of the instant shares without justifiable grounds constitutes a case where the Plaintiff took over the shares at a significantly lower price than the market price under Article 35(2) of the Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 201; hereinafter referred to as the “Inheritance Tax and Gift Tax Act”); and 300,000,000 won or less per share of the instant shares; 1630,016.6.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

In light of the fact that: (a) the Plaintiff did not have previously traded shares as non-listed shares; (b) the value per share of the instant shares calculated based on the share price ratio (PER) at the time of the Plaintiff’s purchase of the instant shares from Han○○○; (c) the Plaintiff was KRW 17,134 (1,713.4 won per share as of 2014’s net profit x average PER10); (d) the Plaintiff was in a situation that the Plaintiff was not good at the time of the purchase of the instant shares from Han○○○; and (c) the seller was trying to sell the instant shares; and (d) the Plaintiff’s household funds exceeded KRW 449,00,00,000 per share; and (e) the Plaintiff’s household funds exceeded KRW 13,333 won per share from Han○○○; and thus, (e) the instant disposition was unlawful in view of the fact that the Plaintiff’s purchase of the instant shares at a price substantially lower than the market price or there was no justifiable reason for transaction practices.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

In order for the taxation of gift tax under Article 35(2) of the Inheritance Tax and Gift Tax Act to be lawful, not only the fact that the transferee acquired the property at a price significantly lower than the market price from a person other than the person having a special relationship, but also that there is no justifiable reason for transaction practice (see, e.g., Supreme Court Decision 2011Du22075, Dec. 22, 2011). However, if the tax authority is a reasonable economy, it can be proven that there is no justifiable reason in light of the transaction practice by submitting the objective circumstance, etc. that the transferee would not make any transaction with such transaction terms and conditions under the circumstances at the time of transaction. If it is proved to a considerable extent, it is necessary to prove that there is a special circumstance that a taxpayer who is easy to submit specific data on the transaction details, the reason for determining the transaction terms and conditions, etc. in light of the difficulty of proof to reverse the said provision or the concept of fairness (see, e.g., Supreme Court Decision 2013Du24955, Feb. 12

The case holding that since the Plaintiff purchased 13,33 won per share of the instant shares from ○○○○○○○○○○○○○ in its entirety purport of statement and pleading as follows: ① the Plaintiff’s purchase of the instant shares from ○○○○○○○○○○ in its entirety, the Defendant applied a supplementary assessment method to deem it difficult to compute the market price of the instant shares as non-listed shares; and the Plaintiff’s purchase price per share is considerably low compared to the assessment price per share in accordance with supplementary assessment method (this is ○○○’s purchase price per share in its net assets as of December 31, 2014) and thus, it is difficult to view that the Plaintiff’s purchase price per share was substantially lower than the sale price per share of ○○○○○○○○○○○○ in its own market price without any justifiable reasons, including the Plaintiff’s purchase price per share of 70,013 (7,01,307,153,100,000).

3. Conclusion

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

Related Acts and subordinate statutes

former Inheritance Tax and Gift Tax Act (Amended by Act No. 13557, Dec. 15, 2015)

Article 35 (Donation, etc. of Profits from Transfer at Low or High Price)

(1) When the relevant property is acquired or transferred to any of the following persons, an amount equivalent to the difference between the price and the market price, which is equivalent to the profits prescribed by Presidential Decree, shall be deemed the value of donated property:

1. Where a person takes over property from a third person at a price lower than the market price, the transferee of such property;

(2) In applying paragraph (1), where property is acquired or transferred between persons who are not specially related persons prescribed by Presidential Decree, without justifiable grounds, by transfer or transfer of property at a price significantly lower than the market price or at a price significantly higher than the market price in light of transaction practices, the amount equivalent to profits prescribed by Presidential Decree shall be presumed to have been donated to the person who has acquired such profits, as

(3) In applying paragraph (2), the scope of significantly low or high values shall be prescribed by Presidential Decree.

Article 60 (Principles, etc. of Appraisal)

(1) The value of property on which inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value (excluding cases falling under Article 63 (2)) appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b)

(2) The market price referred to in paragraph (1) shall be the price generally recognized as a transaction between many and unspecified persons, including the expropriation price, public sale price, appraisal price, and others recognized as the market price, as prescribed by Presidential Decree.

(3) Where it is difficult to compute the market price in applying paragraph (1), the value appraised by any method prescribed in Articles 61 through 65 in consideration of the type, scale, transaction status, etc. of the relevant property shall be deemed the market

Article 63 (Evaluation of Securities, etc.)

(1) Securities, etc. shall be appraised by any of the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares other than those under item (b), which are not listed in the Exchange, shall be appraised by the methods prescribed by Presidential Decree, in consideration of the assets, profits, etc.

Enforcement Decree of the former Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 26960, Feb. 5, 2016)

Article 26 (Calculation Method, etc. of Profits Arising from Transfer of Low Price or High Price)

(2) The term "high value" in Article 35 (1) 2 of the Act means the value of the transferred property (excluding those falling under any subparagraph of paragraph (1)) minus the market price, in cases where the market price differs by not less than 30/100 of the market price or the difference is not less than 300 million won.

Article 54 (Appraisal of Unlisted Stocks)

(1) Stocks and equity shares not listed in an exchange under Article 63 (1) 1 (c) of the Act (hereafter in this Article and Article 56-2, referred to as "non-listed stocks") shall be the weighted average value of the net asset value per share in the ratio of 3 to 2 of each of the following formula (hereinafter referred to as "net profit and loss value") and the net asset value per share: Provided, That in cases of a corporation in excess of real estate (referring to a corporation falling under Article 158 (1) 1 (a) of the Enforcement Decree of the Income Tax Act) 1 (referring to a corporation falling under Article 158 (1)

The value per share = The weighted average amount of net profits and losses per share for the latest three years ¡Àthe interest rate determined and publicly announced by the Minister of Strategy and Finance in consideration of the yield of circulation of three-year corporate bonds guaranteed by financial companies, etc. (hereinafter referred to as the "net profit and loss

(2) The net asset value per share under paragraph (1) shall be the value appraised by the following formula:

The value per share = the net asset value of the corporation ± the net asset value of the corporation ± (hereinafter referred to as the “net asset value”).

(3) In applying paragraphs (1) and (2), where a corporation that has issued stocks and investment shares under Article 63 (1) 1 (c) of the Act owns stocks and investment shares not exceeding 10/100 of the total number, etc. of outstanding stocks of a corporation that has issued other unlisted stocks, the assessment of such other unlisted stocks may be based on the acquisition price provided for in Article 74 (1) 1 (e) of the Enforcement Decree of the Corporate Tax Act, notwithstanding paragraphs (1) and (2): Provided, That where any market price provided for in Article 60 (1) of the Act exists