Early High Court Decision 2014J 3406 ( November 28, 2016)

The disposition imposing gift tax by applying the supplementary evaluation method under the Inheritance Tax and Gift Tax Act on the title trust of the shares of this case is justifiable.

In the valuation of unlisted stocks, taxation disposition is not erroneous in light of the following: (a) the amount of the paid-in capital of the corporation at the time of the increase in the market price is not the transaction amount recognized as the market price; (b) the amount of the stock price is difficult to evaluate the value of the stock as net asset value because there is no capital change from the commencement of the business to the increase in the new shares after the commencement of the business; (c)

Article 29 of the Enforcement Decree of Inheritance Tax and Gift Tax Act

The revocation of revocation of the imposition of gift tax by the District Court 2017Guhap10727

SouthO

OO Head of the tax office

2017.08.29

2017.09.19

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposing gift tax of KRW 163,665,110 (including additional tax) on the Plaintiff on February 11, 2016 that exceeds KRW 56,54,340 (including additional tax) shall be revoked.

1. Details of the disposition;

A. On October 1, 1999, the Plaintiff was engaged in the manufacturing and wholesale business of hhhhh, with the trade name of "hhhhh", and on May 27, 2005, established "hhh" (hereinafter "the company of this case"), and was appointed as the representative director of the company of this case.

B. At the time of the establishment of the instant company, the Plaintiff trusted 3,000 shares out of the total 10,000 shares of the instant company to the Plaintiff’s wife Kima, and 1,000 shares to the Plaintiff’s Republic of Korea.

C. On May 24, 201, the Plaintiff acquired 9,000 shares out of total 30,000 shares of the instant company’s capital increase with capital increase, in the name of Kimaa, 3,000 shares under the name of South Ss (hereinafter “instant shares”) and paid 5,000 shares for the instant shares with capital increase (5,00 won per share).

D. On April 28, 2014, Kima and South Ss paid KRW 45,00,000 per share of capital increase when deeming the instant shares as the subject of deemed donation of title trust and paid KRW 5,000 per share of capital increase with the value of KRW 15,00,000 per share as the taxable value of gift tax, respectively, was reported and paid after each due date.

E. The defendant on this issue is complementary to the Inheritance Tax and Gift Tax Act (hereinafter referred to as the "Inheritance Tax and Gift Tax Act").

By applying the appraisal method, the market price of the instant shares is calculated as KRW 50,524 per share, and the taxable value of the instant shares is deemed to be under-reported, and on February 11, 2016, Kima rendered a notice to Kima of the determination of KRW 131,271,930 (including additional tax for arrears 37,740,090) of gift tax and KRW 32,393,180 (including additional tax for arrears 9,352,030) of gift tax and notified the Plaintiff of the payment of KRW 163,65,110 (hereinafter referred to as the “disposition”).

F. The Plaintiff appealed and filed an appeal with the Tax Tribunal on September 7, 2016 on May 9, 2016. However, the Tax Tribunal dismissed the Plaintiff’s appeal on November 28, 2016.

Facts that there is no dispute with recognition, Gap evidence 1, 3 (including branch numbers, if any, hereinafter the same shall apply), Eul evidence 1 through 5, and the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) As to the method of assessing the value of the instant shares

In principle, the assessment of non-listed shares identical to the shares of this case shall be based on Article 63(1)1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 10854, Jul. 14, 201; hereinafter the same shall apply) and Articles 54, 55 and 56 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23040, Jul. 25, 201; hereinafter the same shall apply). Article 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The weighted average amount of net profit and loss for the preceding three years per share under Article 54(1) shall be the value under subparagraph 1, but it may be the value under subparagraph 2 where it is unreasonable to make the value under subparagraph 1, and Article 17(1)3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance, Jul. 26, 20111>

The appraisal base date of the instant shares is as of May 24, 201, when the instant company issued new shares for consideration and acquired the instant shares by Kimdd, South Ss, etc., the date of appraisal, and the instant company as of the appraisal base date.

As a result, since the capital increase was made on May 24, 201 during the period from the first day of the business year (i.e., January 1, 2008) to the day before the base date of appraisal (i.e., May 24, 201), it falls under cases prescribed by Ordinance of the Ministry of Strategy and Finance as unreasonable to make the value under Article 56(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. Therefore, Article 56(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is required to calculate the net profit and loss amount for the last three years per share. Since Article 56(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is limited to cases where a return is filed within the base date of gift tax return, it is difficult to apply Article 56(1)2 of the former Enforcement Decree of the Inheritance Tax

As such, in cases where both Article 56(1)1 and 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act are not applicable, the value shall be calculated by applying the objective and reasonable method among the supplementary evaluation methods such as Article 54(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. Article 54(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the net asset value under paragraph (2) (net asset value ± total number of shares issued) shall be calculated, notwithstanding paragraph (1). The fact that the net asset value per share after the capital increase of the company of this case calculated pursuant to Article 54(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is 24,841 won per share is not a dispute between the parties. Thus, the value of

Nevertheless, it is unlawful that the Defendant’s arbitrary calculation of the value of shares of this case is made by applying Article 39 of the former Inheritance Tax and Gift Tax Act and Articles 29 and 54 through 56 of the former Enforcement Decree of the Inheritance Tax

2) As to the imposition of additional tax

Article 45-3(3) of the former Framework Act on National Taxes (amended by Act No. 10621, May 2, 201) provides that the head of a competent tax office shall determine the tax base and the amount of the relevant national tax pursuant to the tax-related Acts, if a return of tax base after the deadline is filed, within three months from the date of the report, due to extenuating circumstances. However, where the return cannot be made within three months from the date of the report due to extenuating circumstances, the reason must be notified to the reporter. On February 28, 2014, the Plaintiff failed to notify the Plaintiff of the determination of the tax base and the amount of tax or notify the Plaintiff of the inevitable reasons within three months from the date of the report. If the Defendant did not violate Article 45-3(3) of the former Framework Act on National Taxes, the Plaintiff would faithfully cope with the return. Thus, the period for calculating the amount of additional payment for unfaithful payment should be limited to the period from February 28, 2014 to May 31, 31.

Therefore, the imposition of penalty tax that exceeds the above period is illegal.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

1) As to the method of assessing the value of the instant shares

A) Article 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the weighted average amount of net profit and loss for the preceding three years per share of unlisted stocks shall be the weighted average amount of net profit and loss for the preceding three years as stipulated in subparagraph 1 (hereinafter “value as stipulated in subparagraph 1”). However, in cases where the pertinent corporation’s calculation of net profit and loss for the preceding three years is unreasonable due to a temporary contingent case, such as an abnormal increase in the amount of net profit and loss for the preceding three years, the value as stipulated in subparagraph 2 of the same paragraph (hereinafter “value as stipulated in subparagraph 2”) may be deemed as reasonable. Furthermore, each subparagraph of Article 17-3(1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act provided by delegation, where it is unreasonable to calculate the amount of net profit and loss for the preceding three years, or where it is difficult to expect the amount of profit and loss for the preceding three years to continue in a abnormal or future, it shall be deemed unreasonable to calculate the amount of profit and loss per share.

Therefore, unless there are special circumstances, the net profit and loss value per share cannot be calculated on the basis of the value under subparagraph 1, and the value under subparagraph 2 cannot be calculated on the basis of the value under subparagraph 2, because the value under subparagraph 2 was not calculated or the value under subparagraph 2 is not satisfied.

Even in cases where it is impossible to apply, it would be the same as far as it is unreasonable to follow the value of subparagraph 1.

B) Comprehensively taking account of the purport of each statement in Eul evidence Nos. 2 through 4, the defendant calculated the value of the shares in this case by applying mutatis mutandis Article 29(3)1 (a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. First, the defendant calculated the value of the shares in this case by applying mutatis mutandis Articles 55(1) and 56(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act as KRW 187,099, and then multiplied by the amount calculated by multiplying the total number of shares issued before the capital increase by 187,000,000, and by the number of shares increased by 5,000,000, by the total number of shares issued before the capital increase by 10,000, and finally dividing it by the number of shares increased by 30,524,00.

C) In light of the following circumstances that can be seen by comprehensively taking account of the provisions of the relevant laws and the aforementioned evidence and the purport of the entire argument, the Defendant’s Enforcement Decree of the Inheritance Tax and Gift Tax Act

The instant disposition that calculated the value of shares by applying mutatis mutandis Article 29(3)1 (a) is lawful. Unlike this, the Plaintiff’s assertion that the method of calculation is unlawful is contrary to the purport of the former Inheritance Tax and Gift Tax Act and the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, or is not objective

(1) Article 56 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act among the provisions on supplementary evaluation methods of unlisted stocks, is not applicable in cases where an increase in the capital is made during the period from the business year in which three years have passed before the evaluation base date falls to the evaluation base date

Article 56(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 54(4)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the amount of net income for the last three years per share shall not be calculated, as well as Article 56(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. ② Article 54(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the assessment of stocks of a corporation, corporation prior to the commencement of its business, corporation under suspension or discontinuance of business, corporation under suspension or discontinuance of business, or corporation under suspension or discontinuance of business, shall be based on net asset value under Article 54(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and thus, it is inappropriate to assess the value per share solely on the net

③ The Defendant calculated the value of the instant shares by applying mutatis mutandis Article 29(3)1 (a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is a provision on the method of calculating profits accrued from capital increase, on the grounds that it is reasonable to assess and impose the value of new and old values as an average value added to a title trust, where new shares issued by a person who has received a

2) As to the imposition of additional tax

According to the tax law, in order to facilitate the exercise of taxation right and the realization of tax claims, administrative sanctions imposed on taxpayers who violate the reporting and tax liability prescribed by the law without justifiable grounds are not considered. In full view of the fact that the taxpayer's intentional and negligent negligence is not considered. In addition, the additional tax is an administrative sanctions that lead taxpayers to pay in good faith, secure the performance of their duty to pay, and are imposed on the amount not paid by the due date for return and payment, deeming that financial benefits have been received for the amount not paid by the due date for return and payment, and accordingly, it is legitimate

3. Conclusion

Thus, the plaintiff's claim is dismissed as there is no ground.