Seoul Administrative Court-2016-Gu Partnership-5049 ( October 28, 2016)

The Savings Bank does not constitute an underwriter, and this disposition is unlawful as a donation of the exercise interest of the preemptive right.

The relevant savings bank shall not be deemed to have acquired preemptive rights through a bypass transaction, such as not obtaining authorization from the Financial Services Commission, and it shall not be deemed to have acquired the preemptive rights by means of a bypass transaction, and it is difficult to conclude that there is no justifiable reason under the business practice

Article 40(1) of the Inheritance Tax and Gift Tax Act

Article 2(3) of the Inheritance Tax and Gift Tax Act

Seoul High Court 2016Nu76154

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○ Head of tax office

Seoul Administrative Court Decision 2016Guhap5049 decided October 28, 2016

April 26, 2017

July 12, 2017

1. Revocation of a judgment of the first instance;

2. The Defendant’s rejection of correction of KRW 583,556,432, which was made against the Plaintiff on September 16, 2014, shall be revoked.

3. All costs of the lawsuit are borne by the Defendant.

The same shall apply to the order.

1. Details of the disposition;

This part of the judgment of the court is identical to the corresponding part of the judgment of the court of first instance except for the modification of 13 of the 2 pages of the judgment of the court of first instance to "the plaintiff". Thus, this part of the judgment is cited in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the

2. Whether the instant disposition is lawful

A. Whether Article 40 (1) 2 (b) of the former Inheritance Tax and Gift Tax Act is applicable

1) The plaintiff's assertion

Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act provides that “A underwriter shall obtain authorization from the Financial Services Commission or register with the Financial Services Commission (Article 6 and Article 8(1) of the former Capital Markets Act) (Article 9 and Article 8(1) of the former Capital Markets Act) and a third party shall acquire securities with the intent to acquire such securities (Article 9 and Article 11(12) of the former Capital Markets Act).CC Mutual Savings Bank did not have obtained authorization from the Financial Services Commission or registered with the Financial Services Commission, and since it acquired the instant bonds with warrants for investment purposes, it does not constitute a “takeover” under Article 40(1)2(b) of the former Inheritance Tax and Gift Tax Act. Therefore, the instant disposition to which Article 40(

2) Determination

A) Article 40 (1) 2 (b) of the former Inheritance Tax and Gift Tax Act provides that "the largest shareholder of a corporation that issued bonds with warrants (referring to bonds with warrants, if such bonds are separated) or his/her specially related person, who is a shareholder, has acquired and acquired bonds with warrants in excess of the number entitled to receive them under equal conditions in proportion to the number of its stocks held by the corporation, shall be the value of assets donated to the person who acquired the profits." Article 40 (1) 1 (b) of the former Inheritance Tax and Gift Tax Act provides that "the amount equivalent to the profits acquired by exceeding the converted value, etc. of the stocks issued or to be issued in accordance with the warrant certificates shall be the value of assets donated to the person who acquired the profits."

Meanwhile, according to Article 9(12) of the former Financial Investment Services and Capital Markets Act, "subscriber" means a person who has obtained authorization from the Financial Services Commission or registered with the Financial Services Commission to engage in a financial investment business (Article 11, Article 17, Article 44 subparag. 1 and Article 45 subparag. 1 of the former Financial Investment Services and Capital Markets Act (Article 6(1)1 and Article 6(2) of the same Act) with respect to a financial investment business (Article 6(1)1 and Article 6(2) of the same Act (Article 6(1) of the same Act provides that a financial investment business entity shall punish a person who engages in a financial investment business by acquiring all or part of the securities from a third party for the purpose of acquiring the securities or by acquiring the remaining amount when there is no person who has acquired the securities in whole or in part.

However, Article 40 (1) 1 (b) of the Inheritance Tax and Gift Tax Act (amended by Act No. 14388, Dec. 20, 2016; hereinafter "the amended Inheritance Tax and Gift Tax Act") was amended to include "in the case of acceptance or acquisition by other methods prescribed by Presidential Decree, other than acceptance or acquisition by an underwriter under Article 9 (12) of the Financial Investment Services and Capital Markets Act," and Article 29 (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act ("the amended Enforcement Decree of the Inheritance Tax and Gift Tax Act") which was newly enacted on February 7, 2017 upon delegation of the above provision, "in the case of acquisition or acquisition by the method prescribed by Presidential Decree" means "in the case of acquisition by a person who has acquired all or part of the securities from a third party" for the purpose of acquiring the securities from each third party.

On the other hand, the Ministry of Strategy and Finance, even though it is not a securities company authorized to engage in financial investment business on July 28, 2016, issued the revised tax law with the content of amending Article 40 of the former Inheritance Tax and Gift Tax Act and Article 30 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act in order to include it in the subject of gift tax in consideration of the same economic substance even if it has been acquired or acquired by a person who actually takes over it.

Table Omission of the Table

The purport of the amended Inheritance Tax and Gift Tax Act and the Enforcement Decree thereof is to extend the scope of "acquisition and acquisition" under Article 40 of the Inheritance Tax and Gift Tax Act, which is not authorized by the Financial Services Commission, but also include cases where convertible bonds, etc. are acquired or acquired from a person who intends to acquire them (see the reason for the amendment of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). In addition, in the revised bill of the tax law in 2016 of the Ministry of Strategy and Finance, the term " underwriter" under the former Enforcement Decree of the Inheritance Tax and Gift Tax Act means a securities company authorized for financial investment business, and in consideration of the same economic substance, it is reasonable to comprehensively interpret the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and the Enforcement Decree of the same Act to include a person who actually takes over and acquires them after January 1, 2017. Article 2 of the Addenda of the amended Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "The former Enforcement Decree does not apply to the acquisition or transfer of stocks from the Financial Services Commission without the enforcement of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act."

SinceCC mutual savings bank is not a securities company authorized by the Financial Services Commission or registered with the Financial Services Commission, it does not constitute an underwriter under the former Capital Markets Act. Accordingly, with respect to the profits accruing from stock conversion by exercising the instant preemptive right acquired by the Plaintiff fromCC mutual savings bank, gift tax cannot be imposed directly by applying Article 40(1)2 (b) of the former Inheritance Tax and Gift Tax Act.

B) Even if the Defendant’s assertion that “an underwriter who did not obtain authorization to engage in financial investment business” includes an underwriter under the former Capital Markets Act, the following facts and circumstances, which can be acknowledged by adding the entire purport of pleadings to the statements in Gap evidence Nos. 1, 3 and 18, and Eul evidence No. 11, i.e., ①CC does not have to pay fees for acquiring the instant bonds with warrants (in exchange for acceptance). There is no content that the instant bonds with warrants (Evidence No. 11) bears the risks arising from the issuance of the bonds with warrants. ② As seen earlier, the instant company appears to have been seeking to secure profits of 4% per annum and recover funds early, rather than at the time of the issuance of the bonds with warrants, under the premise that the Plaintiff would have purchased the instant bonds with warrants under the condition that the Plaintiff would have purchased the instant bonds with warrants (CC) only for the purpose of acquiring and selling profits of 50% on the date of issuance of the bonds with warrants (CC).

B. Whether Article 2(4) or 40(1)2(b) of the former Inheritance Tax and Gift Tax Act is applicable

1) The defendant's assertion

Even thoughCC’s mutual savings bank is not an underwriter under the former Capital Markets Act and cannot be directly applied to Article 40(1)2 of the former Inheritance Tax and Gift Tax Act, in light of the fact that the sales partner was determined by the Plaintiff and KimD from the time of issuance of the instant bonds with warrants, the Plaintiff’s transaction bypassing that it directly acquired the instant preemptive right from the instant company, thereby imposing gift tax pursuant to Articles 2(4) and 40(1)2(b) of the former Inheritance Tax and Gift Tax Act.

2) Relevant legal principles

Article 2(1) of the former Inheritance Tax and Gift Tax Act provides that where any donated property is donated by another person’s gift, such donated property shall be subject to gift tax. Article 2(3) of the former Inheritance Tax and Gift Tax Act provides that “Where the donated property shall be deemed to have been unjustly reduced in the inheritance tax or gift tax by indirect means via a third party or by means of two or more acts or transactions, it shall be deemed that the relevant party has directly traded or by deeming that the relevant property is a single act or transaction in succession, regardless of the name, form, purpose, etc. of the relevant act or transaction, and the provisions of paragraph (3) shall apply to such case.”

Article 2(4) of the former Inheritance Tax and Gift Tax Act provides that gift tax shall be imposed by deeming it as a continuous act or transaction according to the economic substance in cases where it is deemed that an act or transaction subject to gift tax has been reduced unfairly by two or more acts or transaction. In order to achieve the effect of gift through a variety of stages of transaction bypassing or transforminging the transaction, and to cope with the act of tax avoidance which unfairly reduces gift tax, it is intended to deny such various transaction forms and to levy tax depending on the substance. The purpose of tax equity is to determine one of the forms of application of the substance over form principle in terms of gift tax in order to ensure fair taxation. On the other hand, a taxpayer may choose one of the various legal relations selected by the parties in order to achieve the same economic purpose (see Supreme Court Decision 200Du963, Aug. 21, 2001). In addition, the aforementioned act may not be deemed as either a loss or a transaction subject to gift tax, and thus, it may not be readily concluded that the result of the said act or transaction was 2015.

Therefore, under Article 2(4) and (3) of the former Inheritance Tax and Gift Tax Act, in order to constitute a gift subject to gift tax, deeming the legal form or legal relationship, such as various stages of transactions, conducted by the parties to the transaction, as a gift through a direct transaction, as a gift by reconcing the legal form or legal relationship thereof, the legal form or process of the transaction chosen by the taxpayer is merely a means to achieve the purpose of tax avoidance from the beginning and thus, the substance of the transfer of the property can be evaluated as identical to that of the direct gift. Such determination should be based on the following circumstances: (a) whether there are other reasonable grounds, such as the purpose of the transaction form; (b) the purpose of the transaction form; (c) the involvement of the third party; and (d) the process of the transaction through the process of the transaction; and (c) whether there are the need for business other than the reduction of tax burden; (d) the time interval between each transaction or act; and (e) the possibility of

3) Determination

Considering the aforementioned facts and evidence, as a whole, the following facts and circumstances, which can be acknowledged by adding the overall purport of the pleadings to the statements in the evidence No. 9, 16, 19, and 12 as seen earlier, the following facts and circumstances are comprehensively taken place from the issuance of the instant bonds with warrants to the acquisition of the Plaintiff’s new stocks to the acquisition of the instant bonds with warrants and the acquisition of new stocks by the instant company for about one year and seven months, without any particular business purpose, in order to unjustly avoid or reduce gift tax without any particular business purpose, and its substance is difficult to readily conclude that the Plaintiff, the largest shareholder of the instant company, and the Plaintiff, the second shareholder of the instant company, obtained new stocks at low price in excess of the share ratio, thereby having to acquire them at low price, and thus, it cannot be subject to gift tax by applying Article 2(4) of the former Inheritance Tax and Gift Tax Act.

A) On April 27, 2010, the instant company borrowed 30,000,000 won from SS Savings Bank, etc. (hereinafter “SS”) to raise funds for the purchase of private houses from a large number of financial institutions on a yearly interest rate of 8.5%. On June 1, 2010, the company was responsible for short-term loans of 37,129,66,000 won and its current liabilities exceeded current assets. The instant company intended to convert the short-term loans into long-term loans and to convert the interest rate of 00,000,000 won into 0,000 annual interest rate of 0,000,000 won to 0,000,000 won with a high interest rate of 0,000,000 won with a maximum interest rate of 0,000,000 won as collateral for the remainder of 15, 2005,700,0005,000.

B) The fact that the other party to the sale of the warrant certificates and the amount were scheduled from the time of the issuance of the instant warrant certificates, and the fact that the Plaintiff and KimD purchased the warrant certificates of this case on July 21, 2010, which was immediately after the issuance thereof, seems to have been upon the request of a new mutual savings bank to purchase the warrant certificates of this case. However, since the Plaintiff and KimD appears to have purchased the warrant certificates of this case, as the Plaintiff and KimD could not sell the warrant certificates separated from the circumstances of the instant company at the time of the issuance of the instant warrant certificates of this case, it was anticipated that it was difficult to sell them to a third party, the major shareholder was required to purchase a certain portion of the warrant certificates of this case as well as to recover investment profits from the issuance of the warrant certificates of this case by separating them, and there was an advantage that the Plaintiff as well as the Plaintiff could minimize management restrictions under the contract

C) The right to early redemption of the instant bonds to underwrite the instant bonds with warrants is deemed to have been granted upon the request ofCC Mutual Savings Bank. TheCC Mutual Savings Bank, by granting early redemption right, has the advantage of securing 4% interest income per annum and collecting the funds early. The Plaintiff also has the advantage of securing funds to operate the instant company and at least the management restriction under the instant bonds with warrants while securing the funds to operate the instant company. Therefore, it cannot be said that there is no business purpose other than the purpose of tax avoidance in issuing the instant bonds with warrants and purchasing the preemptive rights to new stocks.

라) 이 사건 신주인수권의 행사가격은 유가증권의 발행 및 공시 등에 관한 규정 제63조 제1항, 제61조 제1항에 의한 기준가격[이 사건 신주인수권부사채 발행을 위한 이사회 결의일 전일로부터 소급한 1개월 평균 종가, 1주일 평균 종가 및 최근일 종가를 산술평균한 가액과 최근일 종가 및 청약일(청약일이 없는 경우는 납입일) 3거래일 전 종가 중 높은 가액 이상]인 597원으로 정하여졌는바, 원고 및 김DD과 특수관계가 없는 CC상호저축은행 사이에 객관적으로 결정되었다. 한편 원고는 이 사건 신주인수권증권을 이 사건 신주인수권부사채 발행 당시 공고된 신주인수권증권의 1주당 이론가격인 106원의 약 4분의 1에 불과한 1주당 25원에 취득하였으나, 블랙-숄즈 옵션가격 결정모형은 신주발행 또는 배당으로 인한 주가 하락, 발행법인의 신용위험이나 중개수수료 등의 거래비용을 반영하지 못하기 때문에 이에 따라 산정된 이론가격보다 실제 신주인수권의 거래가격이 낮은 것이 일반적인 점, 원고가 신주인수권증권을 취득할 당시 신주인수권의 행사기간이 1년 정도 남아 있었던 점, 뒤에서 보는 바와 같이 이 사건 신주인수권의 행사기간이 도래할 때까지 이 사건 회사의 주가의 등락이 있었던 점, 매수가격은 원고 및 김DD과 특수관계인이 아닌 CC상호저축은행과 사이에 객관적으로 정하여진 것으로 보이는 점 등을 종합적으로 고려하면, 이 사건 신주인수권증권의 매입가액이 이론가격보다 낮다는 점만으로는 원고가 사업상 목적 없이 증여세를 회피할 목적으로 이 사건 신주인수권부사채를 발행하여 이 사건 신주인수권증권을 매수하였다고 보기는 어렵다.

E) The share price of the instant company was KRW 610 won at the time of issuance of the instant warrant certificates, but the period for exercising the instant warrant rights became due to the due date of July 14, 201, when the period for exercising the instant warrant rights, fell below KRW 372, which was lower than KRW 597,00,000, the exercising price of the instant warrant certificates, and repeated increase and decrease in the share price since December 2011, and became KRW 3,555, which was at the time of the exercise of the instant warrant rights. As such, the acquisition of the instant warrant certificates and profits from the exercise of the preemptive rights, premised on the premise that the Plaintiff was able to decline due to credit risk, etc. from business activities of the instant company, and it is difficult to readily conclude that the Plaintiff acquired the preemptive rights that can be exercised at least one year after the date of its issuance, and that the Plaintiff’s share price increase was sufficiently anticipated to be an excessive increase in the instant company’s acquisition and exercise of the instant warrant rights from the beginning.

C. Whether Article 42(1)3 of the former Inheritance Tax and Gift Tax Act is applicable

1) The defendant's assertion

The benefits derived from converting the Plaintiff into shares by exercising the warrant certificates of this case constitute “the profits acquired by the transaction that increases or decreases the corporation’s capital by means of conversion of shares pursuant to convertible bonds, etc.” under Article 42(1)3 of the former Inheritance Tax and Gift Tax Act. Furthermore, in light of the fact that the sales counterpart was scheduled as the Plaintiff from the time of issuance of the warrant certificates of this case, and the Plaintiff purchased the warrant certificates of this case at a price lower than 106 won per share, the base price of which is lower than 106 won per share, there is no justifiable reason in light of transaction practices. Accordingly, the Plaintiff is obligated to pay gift tax pursuant to Article 4

2) Relevant legal principles

In addition to donations under Articles 33 through 39, 39-2, 39-3, 40, 41, 41-3 through 41-5, 44, and 45, where profits falling under any of the following subparagraphs and above the standard prescribed by Presidential Decree have been acquired, such profits shall be deemed the value of donated property to the person who has acquired such profits", and subparagraph 3 of Article 42 of the former Inheritance Tax and Gift Tax Act provides that "the profits from the transactions of increase or decrease the capital (including the amount of investment) of the corporation, such as conversion, acquisition, exchange, etc. of stocks by convertible bonds, etc. under Article 40 (1) (hereafter referred to as "stock conversion, etc." in this Article). In such cases, the said profits shall be the value calculated by subtracting the value of stock conversion, etc. from the value of stocks as at the time of stock conversion, etc. In addition, Article 42 (3) of the Inheritance Tax and Gift Tax Act provides that "where a transaction between persons other than a special relationship has justifiable reasons as a trading practice, paragraph (1)

Article 42(1) of the Inheritance Tax and Gift Tax Act provides that gift tax shall be imposed on the profits earned by the other party to a transaction free of charge by an abnormal method. However, the legislative purport of the said provision lies in coping with an altered donation act and promoting fair taxation. However, it is an exceptional reason to allow the other party to obtain gift benefits by waiver of an opportunity for one’s own and easy benefit. As such, Article 42(3) of the Inheritance Tax and Gift Tax Act provides that if a transaction between an unrelated party and a related party does not have any reasonable ground to believe that the other party to the transaction would obtain benefit from the acquisition and exercise of preemptive rights, even if there were reasonable grounds to believe that the other party to the transaction were to obtain benefit from the acquisition and exercise of such rights, or that such transaction from a reasonable economic perspective is unreasonable, and thus, it is difficult to deem that the said provision does not constitute an “justifiable reason” under Article 42(1) of the Inheritance Tax and Gift Tax Act where the taxation authority does not have any reasonable ground to view that the transaction partner would have any specific duty to obtain benefit from the transaction terms and practice.

3) Determination

As seen earlier, the instant company issued the instant bonds with warrants as required to raise funds, and the sale of the instant warrant certificates to the Plaintiff and KimD after the issuance of the instant bonds with warrants seems to be attributable to the intent of theCC Mutual Savings Bank. In light of the fact that the Plaintiff’s profits from the exercise of the instant warrant rights after the issuance of the instant bonds with warrants with a considerable period of time to accept the possibility that the stock price of the instant company would decline, and the timing of exercising the instant warrant rights and the change in the stock price of the instant company, it is difficult to view thatCC Mutual Savings Bank was able to directly exercise the preemptive rights at the time of the sale of the instant bonds with warrants, and that the Plaintiff andCC Mutual Savings Bank were able to set the market price by taking due account of the anticipated profits from the exercise of the preemptive rights. Furthermore, according to the evidence evidence No. 10, it is difficult to readily conclude that the Plaintiff’s sale of the instant warrant certificates with the largest shareholder on the date of issuance through private placement from July 1, 2009 to November 30, 20194.

D. Sub-committee

Therefore, gift tax cannot be imposed on the profits accruing from stock conversion acquired by the Plaintiff by exercising the preemptive right of this case by applying Articles 40(1)2(b), 2(4), and 40(1)2(b) or 42(1)3 of the former Inheritance Tax and Gift Tax Act. The instant disposition is unlawful.

3. Conclusion

If so, the plaintiff's claim will be accepted on the ground of its reasoning. The judgment of the first instance court, which different conclusions, is unfair, so the judgment of the first instance is revoked, and the disposition of this case