Cho High Court Decision 2010Da3682 (Law No. 1106.30)

It includes capital increase in consideration of the object of gift tax on stock listing marginal profits.

The scope of ‘acquisition' of shares is stipulated in the form of expanding the scope of ‘acquisition' of shares to the issuance of new shares, as it does not expand the scope of ‘stocks'. Thus, the imposition of gift tax is legitimate since the scope of ‘stocks' is not extended.

2011Guhap4672 Revocation of Disposition of Imposition of Gift Tax

Kim XX et al.

Head of North Busan District Tax Office

March 8, 2012

April 5, 2012

1. All of the plaintiffs' claims are dismissed.

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

The Defendant’s imposition of each gift tax on July 5, 2010 against Plaintiff KimB and the imposition of each gift tax on July 7, 2010 against Plaintiff JA shall be revoked.

1. Details of the disposition;

A. On December 1, 2004, the Plaintiffs received 3,000 shares issued by the non-party company, who was an employee of the company XX (hereinafter referred to as the “non-party company”), and Plaintiff KimB donated 3,00 shares issued by the non-party company, who was an unlisted company at the time of the Non-party company’s largest shareholder on December 8, 2004 (hereinafter referred to as “the non-party company’s issued shares”).

B. On December 22, 2005, the non-party company offered new shares with capital increase, and the plaintiffs acquired 750 shares each of the 750 shares they own (hereinafter referred to as the "new shares with consideration") at KRW 5,000 per share of the above new shares with capital increase. The shares of the non-party company were listed to the KOSDAQ on January 25, 2008.

C. The Busan regional tax office conducted an integrated investigation with respect to the non-party company from August 10, 2009 to September 30, 2009, and imposed gift tax on the Plaintiffs on the profits accrued from listing 3,000 shares originally issued. However, gift tax was not imposed on the profits accrued from listing the new shares with compensation in this case.

D. On January 25, 2010, the Board of Audit and Inspection issued a request to audit the business affairs of the Busan Regional Tax Office to impose taxes on each of the plaintiffs' interest ○○○○○○ (including additional tax ○○○) based on the listing of the instant good-faith. On July 5, 2010, the Defendant imposed each of the instant dispositions on the Plaintiffs on the gift tax ○○○○ (including additional tax ○○○) (hereinafter referred to as “each dispositions”).

E. On September 17, 2010, the Plaintiffs dissatisfied with each of the instant dispositions, filed an appeal with the Tax Tribunal on September 17, 2010, but the Tax Tribunal dismissed the appeal on June 30, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2 (including provisional number; hereinafter the same shall apply), Eul evidence 1 to 5, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

1. The assertion that the listed marginal profits from stocks issued with capital increase are not subject to gift tax

① The language and text of Article 41-3(6) of the Inheritance Tax and Gift Tax Act provides that “in the application of the provision of paragraph (1), new shares acquired through capital increase shall be included.” Since shares received through capital increase do not meet the requirements of paragraph (1) because they were not donated or acquired with compensation from the largest shareholder, it does not constitute Article 41-3(6) of the same Act. If gift tax is imposed on the listed marginal profits from stocks acquired through capital increase on the ground that

② Meanwhile, even if shares issued with capital increase are issued under the Commercial Act, it constitutes an independent shares separate from the original shares issued with capital increase, and is not an incidental right to the previous shares. Therefore, it cannot be deemed that the previous shares issued with capital increase are subordinate interests, and thus, they cannot be deemed as subject

③ In addition, in calculating the listing marginal profit under Article 31-6(4) and (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the amount of increase in the stock value from the date of donation to the date of listing by multiplying the amount obtained by the number of shares issued as of the date of donation as of the date of the date of settlement of accounts, and the listing marginal profit is calculated by deducting the amount from the increase in the stock value by considering the company’s net value as of the date of listing the amount of profit from the date of donation to the date of listing. The above provision does not fully take into account the change in the real value of the company’s capital increase in the calculation of the listing marginal profit on the premise that the said provision includes only the shares received by the capital increase without compensation, which does not change any change in the real value of the company. Thus,

④ It is reasonable to interpret that the gift tax is imposed only on the shares issued through the shareholders allocation method as well as on the third party’s allocation method. It is unreasonable to interpret that the taxation is not imposed on shares issued through the third party’s allocation method.

Therefore, in light of the interpretation of Article 41-3(1) and (6) of the Inheritance Tax and Gift Tax Act, the listed marginal profits of the shares issued with capital increase are not included in the subject of gift tax, and thus, each disposition of this case imposing gift tax on the listed marginal profits of new stocks

2) The assertion that Article 41-3(6) of the Inheritance Tax and Gift Tax Act, which is the basis for each disposition of the instant case, is unconstitutional.

Article 41-3(1) and (6) of the Inheritance Tax and Gift Tax Act includes gains from listing stocks that are issued with capital increase; ① Article 41-3(6) of the Inheritance Tax and Gift Tax Act imposes gift tax on the listed stocks that are issued with capital increase and acquired with capital increase. This is irrelevant to the legislative purpose of Article 41-3(1) through (3) of the Inheritance Tax and Gift Tax Act, which seeks to achieve a balance in taxation by imposing on the profits accruing from listing when the listed stocks are listed with capital increase without consideration. Since the purport is to achieve the legislative purpose by imposing gains from listing on the stocks issued with capital increase, it violates the adequacy of means, minimum damage, and balance of legal interests, and ② The legal act is contrary to the principle of excessive prohibition under the Constitution, i.e.,, the value of donated stocks, the amount of gift tax, regardless of the legal stability and predictability of the taxpayer and the amount of gift tax imposed on the newly issued stocks issued with capital increase and the amount of gift tax imposed with capital increase without consideration on the company.

3) The assertion that there are justifiable grounds for not imposing additional tax

Even if the listing marginal profits of new stocks with consideration in the instant case are subject to gift tax, the Defendant imposed tax pursuant to the opinion of the Board of Audit and Inspection after being pointed out by the Board of Audit and Inspection even though it conducted a tax investigation on August 10, 2009, on the basis that it did not impose gift tax on the listing marginal profits of new stocks with consideration. Whether to impose gift tax on the listing marginal profits of stocks with consideration to be paid with consideration constitutes a conflict of views under tax law among the tax authorities. Therefore, since the Plaintiffs cannot expect the return and payment of gift tax on the premise that it is subject to taxation from the beginning, the Plaintiffs’ failure to pay gift tax cannot be expected as a justifiable reason for the Plaintiffs’ failure to pay gift tax, the portion of penalty tax in each of the instant dispositions is unlawful. Even if there is no justifiable reason due to the comparison of opinion under the interpretation of the Family Tax Act, the Defendant notified the erroneous result that the Plaintiffs did not be subject to taxation on August 10, 2009. Since it was entirely erroneous by the Defendant’s notice that the Plaintiffs did not pay the estimated tax amount.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) The legislative intent of Article 41-3 of the Inheritance Tax and Gift Tax Act is to determine that the listed marginal profits of stocks issued with capital increase are not subject to gift tax. The legislative intent of the amendment is to impose gift tax on a specially related person, who, by imposing tax on listed stocks in order to prevent a change in the listed value of assets or transfer of stocks, where the largest shareholder, etc., donated stocks to a specially related person, such as his/her children, or transferred stocks for consideration with an intent to obtain enormous market gains through the listing of the Korea Securities and Exchange (referring to those listed on the securities market or the KOSDAQ market) by using internal information that is not open to the public on the management of the company. Meanwhile, Article 41-3(6) of the Inheritance Tax and Gift Tax Act is newly established by the amendment on December 18, 202. The amendment seems to have been subject to gift tax even if Article 41-3 of the Inheritance Tax and Gift Tax Act only takes the listed marginal profits directly obtained from the largest shareholder or acquired with compensation for the same economic effect as those subject to gift tax, it does not intend to transfer or use of stocks as a specially related person.

B) In addition, the language and text of Article 41-3(6) of the Inheritance Tax and Gift Tax Act merely provides that “the acquisition of stocks shall include new stocks that a corporation has accepted and allocated as a result of the issuance of new stocks to increase its capital (including the amount of investments).” It does not distinguish whether the new stocks are capital increase or capital increase without consideration, and whether the new stocks are stock increase or capital increase or a third party is stock increase or not. Therefore, according to the language and text of the above provision, it is interpreted that the scope of “acquisition of stocks, etc.” is included in both capital increase, capital increase, capital increase, and capital increase, and capital increase, even among the requirements of paragraph (1) of the same Article. In addition, the language and text of the above provision does not expand the scope of “stocks”. Accordingly, it cannot be said that the above provision only provides for capital increase, which is the same as the original stock split.

C) Meanwhile, as alleged by the plaintiffs, Article 41-3 (6) of the Inheritance Tax and Gift Tax Act applies only when new shares meet the requirements of Article 41-3 (1) of the Inheritance Tax and Gift Tax Act. Thus, where the provision applies only when new shares are issued with the funds received from the largest shareholder, since shares received without compensation from the relevant corporation are also acquired without compensation from the relevant corporation, so it would result in unreasonable consequences not meeting the requirements of Article 41-3 (1) of the Inheritance Tax and Gift Tax Act, and Article 41-3 (6) of the Inheritance Tax and Gift Tax Act provides that "in applying the provision of paragraph (1) of the same Article, the acquisition of shares, etc. shall include new shares, etc. received by the corporation following the issuance of new shares (i.e., the acquisition of shares by the corporation), so it shall be deemed that Article 41-3 (1) of the same Act does not apply to the issuance of new shares, and it shall not be deemed that such interpretation is contrary to the principle of strict interpretation.

D) In calculating the listing marginal profit under Article 31-6(4) and (5) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the Plaintiffs merely calculates the listing marginal profit calculated by subtracting this amount from the increase in the stock value by considering the company’s profit cumulative amount from the date of donation or from the date of acquisition to the date of listing an increase in the actual value of the company, and do not consider the change in the real value of the company. Thus, the Plaintiffs asserted that it is premised on the premise that the stocks acquired as the reason for Article 41-3(6) of the Inheritance Tax and Gift Tax Act are not included in the stocks acquired as the reason for Article 31-6(5) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, but Article 10-4(1) of the Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 74 of Apr. 23, 2009; hereinafter the same) provides that the net profit and loss per share should be calculated as the amount of net profit and loss per share calculated under Article 56(3).

E) Therefore, in light of the legislative intent and contents of Article 41-3 of the Inheritance Tax and Gift Tax Act, it is interpreted that the new shares under Article 41-3(6) of the Inheritance Tax and Gift Tax Act include new shares resulting from capital increase with consideration. Therefore, this part of the plaintiffs'

2) The determination on the assertion that Article 41-3(6) of the Inheritance Tax and Gift Tax Act is unconstitutional

A) As seen earlier, Article 41-3 of the Inheritance Tax and Gift Tax Act provides that, for the purpose of obtaining large profits from the listing of stocks, etc. by using internal information on the company, where the largest shareholder, etc. donated unlisted stocks to a related party prior to the listing, etc. or transferred for a fee, etc., he/she shall be subject to the taxation by the largest shareholder, not by itself, but by allocating profits from the listing. In such a case, Article 41-3 of the Inheritance Tax and Gift Tax Act provides that the largest shareholder shall be subject to the taxation by allocating profits from the listing of stocks, etc. as well as stocks donated by the largest shareholder. Likewise, even if a person with special interest, such as the largest shareholder, etc., who is in a position to use information that is not disclosed on the company’s management, etc., obtained listed profits above the standard prescribed by the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the taxation on the listing profits is imposed, where both the largest shareholder, etc., who received directly or indirectly stocks through the listing profits, and received the same stocks issued without compensation.

Meanwhile, Article 41-3(1) of the Inheritance Tax and Gift Tax Act limits the scope of the donee to the specially related persons such as the largest shareholder, etc. who are in the position of using information that is not open to the public regarding the company's business management, and limits the scope of the listing marginal profits subject to taxation to the degree that the size of the listing marginal profits should exceed the standard prescribed in Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. In the case of listing stocks, the said provision limits the scope to five years

Therefore, the provision on the inclusion of new shares received as a result of the reason of Article 41-3(6) of the Inheritance Tax and Gift Tax Act does not violate the principle of excessive prohibition or the principle of equality.

B) The taxation requirement under Article 41-3 of the Inheritance Tax and Gift Tax Act provides that ① a person having a special relationship with the largest shareholder, etc. of an unlisted corporation shall either donate or acquire stocks of the unlisted corporation from the largest shareholder, etc. or obtain new stocks for consideration, ② the relevant stocks shall be listed within five years from the date of donation or acquisition, ③ a person having a special relationship shall obtain profits above the standard under Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act due to an increase in the value of stocks under the listing. Therefore, all taxation requirements shall be satisfied only when a person having a special relationship obtains profits from the listing of stocks. As such, Article 41-3(2) of the Inheritance Tax and Gift Tax Act provides that the listed gains shall be calculated on the basis of the settlement base date as of the three-month period from the listing date.

In addition, Article 41-3(1) of the Inheritance Tax and Gift Tax Act provides that the gift tax shall be imposed by calculating the profits acquired by the listing under Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act in relation to the taxation of the gift tax on the profits accruing from the listing. However, Article 41-3(3) of the Inheritance Tax and Gift Tax Act provides that a person who gains from the listing shall calculate the tax base of the gift tax and the amount of the tax in addition to the original taxable amount of the gift tax shall be imposed. It is limited to a provision that provides that the issue of the gift tax on the stocks itself and the gift tax on the profits accruing from the listing of the stocks shall be imposed, including not only where the stock price increases due to the listing but also where the stock price drops, it shall not be deemed that the said provision provides that the gift tax on the stocks itself shall be imposed by deeming the donated stocks at the price after the listing. Therefore, the Plaintiffs’ assertion that Article 41-3(6) of the Inheritance Tax and Gift Tax Act

C) In addition, Article 41-3 of the Inheritance Tax and Gift Tax Act, unlike the donation of a different kind of property, is subject to taxation, rather than the said property itself, and the size of the benefit can be assessed properly only after the listing is actually completed. Thus, it cannot be deemed that there is a discrimination against the case of donation of a different kind of property without reasonable grounds.

D) Therefore, Article 41-3(6) of the Inheritance Tax and Gift Tax Act cannot be deemed as unconstitutional against the principle of excessive prohibition, the principle of clarity of the requirements for taxation, the principle of equality of taxation, and the principle of ability to respond. Therefore, the Plaintiffs’ assertion on this part is without merit.

3) Determination as to the assertion on additional tax portion

A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed under the conditions as prescribed by the individual tax law in cases where a taxpayer violates various duties, such as a return and tax payment, without justifiable grounds, and it is unreasonable for the taxpayer to be aware of such duties, and thus, it is unreasonable for the taxpayer to be reasonably present or to expect the performance of such duties to be carried out by the party concerned, etc., if there are justifiable grounds that make it unreasonable for the taxpayer to be unaware of such duties, imposition may be exempted (see, e.g., Supreme Court Decision 2003Du4089, Apr. 15, 2005).

B) In light of the above facts, the Busan regional tax office conducted a tax investigation with respect to the non-party company from August 10, 2009 to September 30, 2009 and imposed gift tax on the profits accrued from the listing of the original shares with respect to the profits accrued from the listing of the shares with respect to the stocks with respect to which the gift tax was not imposed on the profits accrued from listing the shares with respect to the stocks with respect to the profits accrued from the listing of the instant shares. According to the statement in the Eul evidence No. 4, according to the public official of the Busan regional tax office, the public official of the Busan regional tax office may recognize the fact that

However, the following circumstances, which are acknowledged by the National Tax Service, based on the overall purport of the oral argument in the statement Eul evidence No. 5, that is, the "Case of Tax Investigation on Stock Change, distributed by the National Tax Service on or around March 2008," stated that when calculating the gift profits from listing marginal profits as taxation cases for the listed marginal profits, it constitutes the entire acquisition for consideration, capital increase with consideration, capital increase with consideration, capital increase without consideration, and stock dividend, etc. The above public official in charge appears to have omitted taxation on the new stocks for consideration without examining the above case collection, and Busan regional tax office has notified the Plaintiff of gift tax imposition on the listing marginal profits of the issued stocks after the above tax investigation, and there is no evidence to prove that it explicitly notified the Plaintiffs that "the listed marginal profits of the issued stocks for consideration are not subject to gift tax." Thus, it is difficult to accept this part of the plaintiffs' assertion on the above facts alone.

3. Conclusion

Therefore, all of the plaintiffs' claims are dismissed. It is so decided as per Disposition.