early 2014 Heavy3568 ( December 10, 2014)

Whether there is a purpose of tax avoidance in relation to the title trust of shares transacted in the securities account

In a case where the title trust of shares is difficult to be deemed to have not been aimed at evading global income tax when the capital gains tax was paid upon the transfer of shares, and gift tax is imposed upon the donation of shares under the title trust, the title truster shall be designated as a joint and several taxpayer.

Legal fiction of donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2015 Gohap62027 Revocation of Disposition of Imposition of Gift Tax, etc.

AA et al. 5

GG Head of the tax office and 2

August 9, 2016

August 23, 2016

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

별지 1 증여세 부과처분 목록(이하 '별지 1 목록'이라 한다) 중 '② 피고'란 기재 각 피고가 '③ 처분일'란 기재 각 해당일자에 '① 원고'란 기재 각 원고에 대하여 한 '⑨ 취소를 구하는 세액'란 기재 각 세액에 관한 각 증여세 부과처분(가산세 포함) 및 별지 2 증여세 연대납세의무자 지정처분 목록(이하 '별지 2 목록'이라 한다) 중 '② 피고'란 기재 각 피고가 '③ 처분일'란 기재 각 해당일자에 '① 원고'란 기재 각 원고에 대하여 한 '⑨ 취소를 구하는 세액'란 기재 각 세액에 관한 각 증여세 연대납세의무자 지정처분을 각 취소한다.

1. Details of the disposition;

A. Plaintiff AA was the operator of K Group composed of KK and KLLL, etc., who operated the housing construction project, and operated the incidental business related thereto. Plaintiff BB is the wife of Plaintiff AB. Plaintiff CCC is the person of Plaintiff BB, Plaintiff EE is the person of Plaintiff AA, Plaintiff EE is the person of Plaintiff AA, Plaintiff FF is the person of Plaintiff EE, Plaintiff FF is the person of Plaintiff EE, and Plaintiff DD is the person of Plaintiff AA.

B. From 2010 to 2012, Plaintiff AA and B B opened a securities account in the name of the Plaintiff CCC, DDD, EE, and FF (hereinafter “Plaintiff CCC, etc.”) and purchased and sold shares in the name of MM securities and NB.

C. As of December 31 of each year, the date of closing the register of shareholders as listed below, the director of the PP Regional Tax Office: (a) deemed that Plaintiff AA and BB held shares through each of the above securities accounts (hereinafter “instant shares”) under title trust with Plaintiff CCC, etc., and notified the Defendant, a title trustee, of the imposition of gift tax.

D. Accordingly, on November 5, 2013, the head of the Defendant HH Tax Office confirmed that the Plaintiff CCC’s 25,222,710 won, 33,860,210 won, Defendant JJ Tax Office’s 394,285,90 won, 692,051,790 won, Defendant GG Tax Office’s 42,551,900 won, 29, 29, 742,389 won, and Plaintiff FF’s 159,480, 640, 48, 50, 077 won, and the amount of the gift tax should be reduced to Plaintiff BB’s 39,480, 50, and 077 won, and the Plaintiff BBA’s 39,285,000 won and the amount of the gift tax should be reduced to Plaintiff BB’s 1,200.

E. On February 5, 2014, the Plaintiffs were dissatisfied with the Defendants’ initial disposition, and filed a request for a trial with the Tax Tribunal on June 25, 2014. However, the Tax Tribunal dismissed all the Plaintiffs’ claims on December 10, 2014.

F. Meanwhile, on July 8, 2016, the director of the JJ Tax Office changed the penalty tax on non-declaration of duty from the initial disposition on July 11, 2016, and the director of the JHH Tax Office on July 12, 2016 to the general non-declaration of duty, and the director of the JHH Tax Office decided to reduce ex officio the amount stated in the column of "ex officio cancelled tax amount" in the attached Tables 1 and 2, which are equivalent to the difference thereof (hereinafter "the disposition in this case").

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 8, Eul evidence Nos. 1, 2, 9 through 11 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

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

A. The plaintiffs' assertion

1) Since the transfer of title to the instant shares was not made in the future such as Plaintiff CCC, it cannot be said that the requirements for deemed donation of title trust property under Article 45-2(1) of the Inheritance Tax and Gift Tax Act with respect to the instant shares were met, among Plaintiff AA, BB and Plaintiff CCC, etc.

2) Plaintiff AA and BB used the securities account in the name of Plaintiff CCC, etc. for the purpose of psychological pressure and re-raising funds for the guaranteed debt due to the default by the KK Group operated by Plaintiff AA. As such, it cannot be deemed that the said title trust had the purpose of tax avoidance. Thus, the provision on deemed donation of title trust property should not be applied.

3) Plaintiff DD and FF have acquired stocks with funds sold for the first time. The taxation of new stocks purchased by applying the provision on deemed donation to the newly purchased stocks constitutes a double taxation against the fact of a single gift.

B. Relevant statutes

Attached Form 3 is as shown in the relevant statutes.

C. Determination

1) Whether the change of entry was made

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter the same) provides that where the actual owner and the nominal owner are different in property that needs to be registered, etc. in the transfer or exercise of rights, the actual owner shall be deemed to have donated such property to the nominal owner on the date when the actual owner and the nominal owner register,

Meanwhile, the transfer of registered shares cannot be asserted against the company unless the acquisitor’s name and address are stated in the register of shareholders. Thus, in the property requiring a change of ownership in the transfer or exercise of the right which is a requirement for deemed donation under the Act, which is the requirement for the transfer or exercise of rights to be a de facto owner in the register of shareholders, the actual owner and the nominal owner are different (see, e.g., Supreme Court Decisions 2003Du13762, Feb. 27, 2004; 93Nu14196, Feb. 22, 1994). Generally, in the case of listed shares, the register of shareholders is closed on December 31 of each year, and the Korea Securities Depository notifies the issuer or the transfer agent of the list of shareholders recorded in the customers’ account book of a securities company as of the closing date of the register of shareholders (Article 315(3) of the Financial Investment Services and Capital Markets Act); the company that is represented by the issuer or the transfer agent shall prepare and keep the list of shareholders from 200 days to 31.

Therefore, this part of the plaintiffs' assertion is not accepted.

2) Whether there was an objective of tax avoidance or not

(1) The legislative purport 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 with the purport of effectively preventing the act of tax avoidance using the title trust system, and realizing the tax justice. Thus, the proviso of the same Article is applicable only where the purpose of tax avoidance is not included in the purpose of title trust, and in this case, the burden of proving that there was no purpose of tax avoidance. As to the absence of the purpose of tax avoidance, it can be proven by means of proving that there was a purpose other than the purpose of tax avoidance. However, as the title holder who bears the burden of proof, the title owner who bears the burden of proof has an obvious purpose of tax avoidance and unrelated to the tax avoidance to the extent that it is recognized that there was no purpose of tax avoidance in the title trust, and it is necessary to prove to the extent that there was no doubt if there was no tax avoidance at the time of the title trust or in the future, based on objective and conclusive evidence, to determine whether the pertinent property was donated in the title trust at the time of title trust, and whether taxes were actually evaded (see, 2000.

(2) In light of such legal principles, in light of the following circumstances, it is insufficient to recognize that Plaintiff AA and BB opened a securities account in the name of Plaintiff CCC, etc. by simply stating the items in subparagraphs 9 through 12 as to the instant case’s health class and the overall purport of the arguments as seen earlier, and that there was a clear purpose of having no tax avoidance nor tax avoidance at the time of title trust or in the future by establishing the securities account in the name of Plaintiff CCC, etc., and there is no other evidence to acknowledge otherwise.

① Plaintiff AA and BB merely asserted the instant shares in title trust with Plaintiff CCC, etc. in order to feel psychological pressure and raise rehabilitation funds due to the occurrence of enormous amount of guaranteed liabilities due to the default of the K Group. At that time, the creditors of the K Group did not present specific and objective evidence on the fact that there was a concern for the creditors of the K Group to attempt to enforce their personal enforcement against Plaintiff AA and BB’s personal property.

② With respect to the instant shares, KRW 23 million was generated in 201, KRW 4 million in 2012, KRW 13 million in 2012, and KRW 13 million in 2013. The purpose of tax avoidance was to determine as at the time of title trust. As such, even if the dividend income actually accrued was not included in the subject of global income tax, Plaintiff AA and BB could avoid applying the global income tax pursuant to the cumulative taxation on global income in relation to the dividend income due to the title trust of the instant shares, as long as there was considerable amount of dividend income as to the instant shares, so long as the dividend income actually accrued thereafter was not included in the subject of global income tax, Plaintiff AA and BB could have avoided the application of the cumulative taxation on global income in relation to the instant dividend income from the title trust of the instant shares. Furthermore, Plaintiff AA and BB had paid the global income tax from around 2004 to 209, even if the said amount reaches KRW 200 million.

③ Plaintiff AA and BB were delinquent in the value-added tax, transfer income tax, gift tax, etc. at the time of title trust for the instant shares, and they were paid the tax amount in arrears in 2013 to 2014, which was the termination of the title trust relationship with respect to the instant shares.

Therefore, we cannot accept this part of the plaintiffs' assertion.

3) Whether double taxation is illegal

In light of the purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, the requirement for deemed donation of shares is the case where the actual owner and the nominal owner are different from the property that requires a transfer of the right or an exercise of the right. However, even if new shares are acquired with the proceeds of sale of the first title trust, the above requirement is satisfied. ② As seen earlier, the legislative purport of the above provision is to recognize an exception to the substance over form principle in the purport that the tax justice is realized by effectively preventing the tax avoidance act using the title trust system. Thus, if each of the above provisions separately established timing meets the requirements for deemed donation, gift tax should be imposed. If each of the above provisions differently satisfies the requirements, such as the identity of the fund, which is the background of each title trust, and thus, it cannot be again examined whether the above requirements are met. ③ Since the property deemed as donation of shares by a trustee is a trust, not a purchase price, even if new shares are purchased with the funds of sale of the title trust shares, it cannot be deemed as a substitute for shares newly purchased, and thus, even if the first sale of shares cannot be imposed on the title trust.

Therefore, this part of the argument is not accepted.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed in entirety as it is without merit, and it is so decided as per Disposition.