Cho High-2016-Seoul Government-1311 ( December 26, 2016)

Whether gift tax can be imposed on the profits acquired by a corporation through the exercise of preemptive rights

A person who has gained a benefit by exercising a preemptive right is merely a juristic person having a preemptive right, and the plaintiff cannot be deemed to have obtained a benefit from the exercise of the preemptive right, or to have obtained a direct or indirect benefit from a specially related person, by making it a shareholder

Article 40 of the Inheritance Tax and Gift Tax Act (Donation of Benefits Following Conversion, etc. of Convertible Bonds, etc.)

Seoul Administrative Court 2017Guhap59437

AA

BB Director of the Tax Office

December 7, 2017

January 11, 2018

1. The Defendant’s disposition of imposition of KRW 1,257,441,630 (including additional tax) on the Plaintiff on January 12, 2016 shall be revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A.CC Co., Ltd (hereinafter “CC”) was a corporation engaged in the manufacture, sale, maintenance, and service business of semiconductor-related equipment and components, and the total number of shares issued byCC as of March 2010 was 9,40,000 shares. Among them, the Plaintiff owned 80,80 shares (0.86%) and DDR, the father of the Plaintiff, 3,531,014 shares (37.56%) and 80,000 shares (0%) owned by EE, the Plaintiff’s birth, respectively.

B. FF Co., Ltd. (hereinafter referred to as “FF”) is a corporation engaged in the manufacture, sale, maintenance, and service of semiconductor-related equipment and parts; F’s total number of issued stocks is 60,000 shares; F’s total number is 24,000 shares (40%) and DD retains 12,00 shares (20%) respectively.

C. On April 6, 2010,CC entered into a contract with GG Capital Capital Co., Ltd. (hereinafter “GG Capital”) with the underwriter for the total face value of KRW 6,000,000,000, surface interest rate of KRW 0%, surface interest rate of KRW 4%, issue date of bonds 4%, April 7, 2010, maturity of April 7, 2013, bonds with warrants (hereinafter “instant bonds”) with maturity of KRW 1 year from the date of issuance ( April 7, 201) to KRW 30 days prior to the expiration of 30 days prior to the expiration of 2,521,07 ( March 8, 2013) with the preemptive right of KRW 40,00,000, the preemptive right of KRW 2,380 per share, and the preemptive right of KRW 50,01,06,00,000 transfer of the instant bonds with warrants to KRW 40,5016,06,060.

D. On January 12, 2016, the Defendant acquired the FF’s preemptive right and used it to gain profit from KRW 6,329,949,40, and thereby, deemed that the Plaintiff, a shareholder of F, was donated a profit equivalent thereto fromCC. On January 12, 2016, the Defendant determined and notified the Plaintiff of KRW 1,257,441,630 (including additional tax) of gift tax (hereinafter “instant disposition”).

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on February 17, 2016, but was dismissed on December 26, 2016.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, 6, 7, 9, 10, 12, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In order to raise new business funds,CC received the conditions of issuance of bonds from multiple underwriters, accepted the conditions presented by GG Capital Capital, and issued the bonds of this case, and GG Capital transferred the instant preemptive right to new business funds to FF according to the designation ofCC.

After that, F is not allowed to impose tax on the general provisions of Article 2(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”) on transactions and acts excluded from the subject of gift tax or the scope of taxation among transactions and acts governed by the provisions for calculating individual values, which are related to FF’s acquisition of the instant preemptive right by exercising the instant preemptive right by F. F is not applicable to F. Article 40(1)2 of the former Inheritance Tax and Gift Tax Act because it is not the largest shareholder ofCC or its specially related person, and it is difficult to view that the Plaintiff obtained direct or indirect benefit from FF’s specially related person by converting the instant preemptive right into stocks, and thus, Article 40(1)3 of the former Inheritance Tax and Gift Tax Act cannot be applied to F. 4 of the former Inheritance Tax and Gift Tax Act since the Plaintiff’s acquisition of the instant preemptive right by converting the instant right to new stocks into stocks.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Relevant legal principles

The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003) does not stipulate any unique definition on the concept of "donations", but provides for the concept of "donations under the Civil Act by borrowing the concept of "donations" and expressing an intention to grant property to the other party without compensation by the other party and accepting it, and it is subject to gift tax in principle. However, with respect to the gratuitous transfer of a division which is not in accordance with a contract between the parties, the provision on the legal fiction of donation (Articles 32 through 42) was separately prepared and imposed on the gratuitous transfer of a division which is not in accordance with a contract between the parties (Articles 32 through 42). As a result, in the event of gratuitous transfer of a division by means of new financial techniques, capital transactions, etc.

Therefore, the Inheritance Tax and Gift Tax Act amended by Act No. 7010, Dec. 30, 2003, in order to realize fair taxation by allowing the taxation authority to impose gift tax on not only the taxable object originally intended but also the transaction and act that is identical or similar to that of the economic substance as well as the original taxable object in lieu of the provision of the tax law, was introduced by comprehensively defining the taxable object of gift tax including not only the donation under the Civil Act, but also the direct and indirect free transfer of the property, and the increase in the value of the property by another person's contribution, as well as the concept of donation, and by converting the previous provision on the deemed donation in the previous method into the provision on the time of donation and calculation of the value of the property (hereinafter referred to as "the provision on the calculation of

Therefore, in light of the introduction of the concept of comprehensive gift under the tax law to cope with the changing inheritance and gift in advance, and the uniform conversion of the previous provision on deemed gift into the regulation on the calculation of the value, in principle, if a transaction or act constitutes the concept of gift under Article 2(3) of the former Inheritance Tax and Gift Tax Act, it is possible to levy gift tax in accordance with Article 2(1) of the same Act.

On the other hand, however, the conversion of the provision on the calculation of the value of donated property into the item of Section 2 of Chapter 3 on the deemed donation from "the legal fiction of donation, etc." to "Calculation of the value of donated property", and the amendment of the provision on the deemed donation from "the legal fiction of donation" to "the donation" and "the expression of each provision shall be deemed to have been donated" to "the value of donated property." As a result, the contents related to the taxation requirements, such as the taxable object and the scope of taxation, which have been regulated by the previous provision on the deemed donation, remain as they remain.

In other words, the provision on the assessment of individual value requires that a special relationship exists between the parties to a transaction with a certain type of transaction or that the difference between the market price and the transaction price is at least 30% of the market price, or that the amount of the gift tax is at least a certain amount. Such a provision on the assessment of individual value has been amended from time to time. In order to promote the predictability of taxpayers and stability of the tax law relations and to prevent any confusion in taxation due to the introduction of the full universal taxation system, it shall be deemed that the legislative intent to maintain the matters concerning the taxable object of gift tax and the scope of taxation, which have been governed by the previous provision on the deemed donation,

Therefore, in cases where a provision on the assessment of individual value limits only a certain transaction or act to the subject of gift tax and limits the scope of taxation of gift tax by prescribing the scope and limit of taxation of gift tax in order to ensure taxpayers’ predictability, even if the transaction or act excluded from the subject or scope of taxation of gift tax among the transaction or act regulated by the provision on the assessment of individual value conforms to the concept of gift under Article 2(3) of the former Inheritance Tax and Gift Tax Act, gift tax may not be imposed (see, e.g., Supreme Court Decision 2013Du13266, Oct. 15, 2015).

2) Whether Article 40(1)2 and 3 of the former Inheritance Tax and Gift Tax Act is applicable

Article 40 (1) of the former Inheritance Tax and Gift Tax Act provides that "in cases where any of the following profits is acquired by converting, acquiring, or transferring convertible bonds, bonds with warrant (referring to warrant certificates if the warrant certificates are separated) or bonds with rights to underwrite stocks (hereinafter referred to as "convertible bonds, etc.") into, exchanging with, or acquiring stocks through convertible bonds, etc., or by converting, exchanging, or acquiring stocks through convertible bonds, etc., the amount equivalent to such profits shall be deemed the value of property donated to the person who has acquired such profits." subparagraph 2 (b) of the same Article provides that "in cases where the largest shareholder of the corporation that issued convertible bonds, etc. or his/her specially related person acquires convertible bonds, etc. from the corporation in excess of the number of stocks entitled to receive convertible bonds, etc. under equal conditions in proportion to the number of stocks owned by the corporation and subparagraph 1 or 2 of the same subparagraph provides that "in cases where profits are acquired by converting, exchanging, or acquiring convertible bonds, etc. with stocks, the method and profits acquired by directly or indirectly from the specially related person".

The issue is that ① the largest shareholder of the corporation that issued convertible bonds, etc. or his/her specially related person, who is the shareholder, etc. in excess of a certain number, shall apply to the case where the FF is the largest shareholder ofCC or his/her specially related person, not the shareholder. ② Article 40(1)2 of the former Inheritance Tax and Gift Tax Act provides that "the profits earned by converting, exchanging, or acquiring shares through convertible bonds, etc." is similar to the methods and profits under subparagraph 1 or 2 of Article 3 of the former Inheritance Tax and Gift Tax Act, and "the profits earned directly or indirectly from the specially related person by trading convertible bonds, etc. or converting the shares with convertible bonds, etc." is the value of property donated to the person who acquired the profits acquired from the specially related person by trading convertible bonds, etc., and Article 40(1)2 of the former Inheritance Tax and Gift Tax Act provides that the person who acquired profits by exercising the preemptive rights of this case is only FF shareholder, and it cannot be seen that the Plaintiff's profits were directly or indirectly obtained from the company of this case.

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

In addition to donations under Articles 33 through 39, 39-2, 39-3, 40, 41, 41-3 through 41-5, 44, and 45 of the former Inheritance Tax and Gift Tax Act, 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 of 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 shall be the value of donated property of the person who has acquired such profits," and subparagraph 3 of the same Article provides that "the profits shall be the profits acquired from the transactions such as increase or decrease in the capital (including the amount of investment) of the corporation, such as conversion, acquisition, transfer, exchange, or exchange of stocks through convertible bonds, etc. under Article 40 (1) or the profits acquired from such change in the ownership shares or value of the corporation. In such cases, such profits shall be the value subtracting the value of stocks at the time of stock conversion, etc.

However, Article 42(1)3 of the former Inheritance Tax and Gift Tax Act provides that "the profits acquired by the change in ownership shares or value of the profits from the transactions that increase or decrease the corporation's capital through the conversion, acquisition, exchange, etc. of shares by convertible bonds, etc. pursuant to Article 40(1) shall be deemed as the value of the property donated to the person who acquired the profits." The person who acquired profits by the exercise of the preemptive right of this case is only the FF that had been holding the preemptive right, and it cannot be deemed that the plaintiff was the FF's shareholder immediately obtained profits from the exercise of the preemptive right of this case.

② As examined below, in light of all the circumstances such as the fact that F cannot be seen as merely an intentional company as the Plaintiff’s instrument to acquire the benefit from the exercise of the instant preemptive right, it is reasonable to view that Article 42(1)3 of the former Inheritance Tax and Gift Tax Act cannot be the ground for the instant disposition. Therefore, the Plaintiff’s assertion on this part is with merit.

4) Whether Article 2(3) of the former Inheritance Tax and Gift Tax Act is applicable

On the other hand, Article 2(3) of the former Inheritance Tax and Gift Tax Act was introduced in order to solve problems that could not be dealt with in advance with a new type of modified gift. As seen earlier, the acquisition of profits from the exercise of preemptive right is the type of transaction stipulated in Articles 40(1) and 42(1) of the former Inheritance Tax and Gift Tax Act, and cannot be deemed as a new type of modified gift that could not be predicted. In other words, Articles 40(1) and 42(1) of the former Inheritance Tax and Gift Tax Act stipulate a specific type of transaction and act as a gift tax in order to ensure the predictability, etc. of taxpayers, Article 40(1) and Article 42(1) of the former Inheritance Tax and Gift Tax Act provides that only a specific type of transaction and act is subject to gift tax, and the scope of taxation was limited by prescribing the scope of taxation. Therefore, gift tax may not be imposed on the Plaintiff by applying

5) Whether Article 4-2 of the former Inheritance Tax and Gift Tax Act applies as well as the FF is a Do Governor

A) Relevant legal principles

Article 2(1) of the former Inheritance Tax and Gift Tax Act provides that gift tax shall be imposed on donated property if there is such donated property by another person’s donation. Article 2(3) provides that “The term “donation” means a transfer of tangible and intangible property which can calculate economic values, directly or indirectly, regardless of the name, form, purpose, etc. of such act or transaction (including a transfer at a remarkably low price) without compensation, or an increase of property values of another person by means of contribution.” Article 4-2 provides that “In cases where it is deemed that inheritance tax or gift tax has been reduced unreasonably by indirect method via a third party or by going through two or more acts or transactions, regardless of the name or form of such act or transaction, it shall be deemed that the said act or transaction has been traded directly by the party concerned according to its economic substance and thus, it shall be deemed that the said act or transaction has been carried out at least 20 in a way that the said person can easily be deemed as one of the economic substance and thus, it shall be deemed that the said act or transaction has been carried out in the same economic substance or transaction subject to taxation of gift tax.”

In addition, in order to constitute a gift tax subject to deeming that the legal form or legal relationship, such as transactions conducted by the parties to the transaction under Articles 4-2 and 2(3) of the former Inheritance Tax and Gift Tax Act, is a gift through a direct transaction and thus constitutes a gift subject to gift tax, the legal form or process of the transaction chosen by the taxpayer is merely a means to achieve the purpose of tax evasion from the beginning, and thus, the substance of the transfer of the property can be evaluated as identical to that of the direct gift. This should be determined by comprehensively taking account of the relevant circumstances such as the purpose of the transaction form, the purpose of the transaction form, the involvement of the third party, the process of the transaction through the process of the transaction, the circumstances leading to the involvement of the third party, and the possibility of risk burden in addition to the reduction of tax burden; the time interval between each transaction or act; and the possibility of loss and risk burden arising from the transaction form (see, e.g., Supreme Court Decision 2015Du469

B) Determination

In full view of the statements in Gap evidence Nos. 1, 4, and Eul evidence Nos. 1 through 8, the plaintiff and Dong EE received donations of KRW 120 million from DD, each of which was put before F, and reported and paid gift tax thereon, on April 6, 2010. At the time of holding the board of directors for taking over the preemptive rights of this case, FF signed the minutes of the board of directors' meeting with seals of representative D, directors, and EE, directors, affixed seals to the minutes of the board of directors' meeting. According to the certificate of proof of entry into and departure from Korea, the plaintiff was 10 billion won on May 17, 2010 and entered the minutes of the board of directors' meeting of 200 billion on the second quarter of 200,000 won on the second quarter of 20,000,000 won on the second quarter of 20,000 won on the second quarter of 20,010.

CC is a plan to use the money deposited by the issuance of the instant bonds as facility funds, but it actually uses the money to repay the loan in full.

However, in full view of the following circumstances, comprehensively taking account of the evidence mentioned above and the statements stated in Gap's evidence and Gap's evidence Nos. 3, 13 through 16, 19 through 25, 30 through 35 (including each serial number), and the overall purport of the pleadings, the gift tax may not be imposed by applying Article 4-2 of the former Inheritance Tax and Gift Tax Act to this part of the plaintiff's assertion on the following grounds: (a) a series of acts at intervals of 2 years and 11 months from the issuance of the bonds in this case to the acquisition of new stocks and the acquisition of new stocks upon the exercise of the preemptive right to new stocks in this case at intervals of 2 years and 11 months to unfairly avoid or reduce gift tax without any particular business purpose; and (b) the substance of such acts is to acquire new stocks at low price in excess of the share holding ratio and acquisition value to the plaintiff who is a shareholder ofCC.

(1) 갑 제3, 32 내지 34호증(가지번호 있는 것은 각 가지번호 포함)의 각 기재에 변론 전체의 취지를 종합하면, ① CC는 2010년 말 기준 HH은행 외 4개 은행과 무역금융약정(한도 181억 2,000만 원)을 체결하였고, II은행 외 1개 은행과 협력사로부터 제공받은 물품 및 서비스의 대가를 회사의 구매전용카드로 지급하기로 약정(한도 60억 원)을 체결하였으며, JJ은행과 수입신용장개설약정을, II은행 외 2개 은행과 일반자금대출약정(한도 55억 원)을, JJ은행과 파생상품거래약정(한도 미화 3,500,000달러)을 각 체결한 사실, ② CC의 2010년 기준 단기차입금의 연 이자율은 HH은행 외 3곳의 무역금융의 경우에 4.7~5.2%, II은행 외 2곳의 일반자금의 경우에 5.4~5.8%, II은행의 외상매출채권 담보대출의 경우에 5.9%였고, CC의 2010년 기준 단기차입금 합계는 195억 4,000만 원, 2010년 기준 장기차입금 합계는 약 15억 3,592만 원인 사실, ③ CC는 2009. 6. 5. 22억 5,000만 원 상당의 제3회 무기명식 사모 전환사채(상환일 2012. 6. 4., 전환가격 주당 20,000원)를 발행하였고, 2009. 9. 22. 15억 3,500만 원 상당의 제4회 무기명식 사모 전환사채(상환일 2011. 9. 21., 전환가격 주당 3,070원)를 발행한 사실, ④ CC는 2009. 9.경 주식회사 KKK(이하 'KKK'이라 한다)과 공정기술 이전 도입계약을 체결하였는데, KKK이 보유한 사파이어잉곳및 웨이퍼(Wafer) 기판사업의 제조기술 및 특허를 사용하기로 하였으며, 그 대가로 KKK에게 15억 5,000만 원을 지급한 사실, ⑤ CC의 2010년 감사보고서상 CC는 2010년 건설 중인 자산 중 취득 및 자본적 지출이 약 151억 원, 기계장치 중 취득 및 자본적 지출이 약 14억 원인 사실, ⑥ CC는 2009. 9. 10. KKK과 사이에 KKK으로부터 그로잉 장비인 CHES-260TM Furnace 10units VCORETM Turnkey Boule Processing System을 2010. 9. 15.까지 대금 미화 650만 달러에 공급받기로 하는 계약을 체결하였고, 2009. 9. 25. KKK과 사이에 KKK으로부터 위 그로잉 장비를 2009. 9. 15.까지 미화 500만 달러에 공급받기로 하는 계약을 체결한 사실, ⑦ CC는 2010. 3. 31. 주식회사 LL(이하 '에인치엔씨'라 한다)와 사이에 그로잉 관련 공사(Growing Line Utility 공사)와 관련하여 대금 10억 2,300만 원에 계약을 체결하고 이에 관하여 2010. 4. 15. 대한설비건설공제조합으로부터 계약보증서를 발급받았고, 2010. 6. 25. LL와 사이에 웨이퍼링 관련 공사(Wafering Line Cleanroom 공사)와 관련하여 대금 12억 6,940만 원에 계약을 체결하고 이에 관하여 2010. 6. 28. 대한설비건설공제조합으로부터 계약보증서를 발급받은 사실, ⑧ CC는 2010. 5. 11.부터 2011. 7. 13.까지 자산금액 합계 약 124억 원 상당의 그로잉 장비를 입고할 예정이었고, 2010. 6. 15.부터 2010. 8. 31.까지 약 28억 원 상당의 웨이퍼링 장비를 입고할 예정이었던 사실 등이 인정된다.

According to the above facts,CC prepared an excessive manufacturing business by utilizing the production technology in the place of the high wave around 2010. From 2010 to 2011, it would be expected that the excessive equipment equivalent to approximately KRW 12.4 billion in total of the asset amount and about KRW 2.8 billion in around 2010 will be used, and due to this, a considerable amount of facility investment fund was required.

In around 2010,CC has received loans from financial institutions such as banks at the time, or has raised necessary funds by issuing convertible bonds at around 2009. Among the above, the annual interest rate on short-term loans as of 2010 was 4.7-5.2% in the case of trade finance such as HH Bank, etc., 5.4-5.8% in the case of general funds such as II Bank, and 5.9% in the case of loan on credit sales bonds of II Bank, 4% in the case of loan on credit sales bonds of II Bank, and 5.9% in the case of loan on bonds with warrant. If bonds are issued,CC may raise funds at a lower rate than that of this case. Even if it received loans up to the lending limit from financial institutions, it appears that the issuance of bonds in this case was in itself for business purposes. Therefore, even ifCC used funds raised by other loans in this case, it can be deemed that it used temporarily for repayment in the amount of 71 billion won in business year 201.

(2) The acquisition of the instant preemptive right by F was due to the fact that DD consulted with GG Capital at the time of the issuance of the instant bonds. At the time, GG Capital had a risk that the value of the instant bonds may vary due to the change in the stock price when holding the bonds until the maturity, thereby inducing the F to promptly dispose of part of the preemptive right at the risk reduction level rather than obtaining investment profits, and to promptly dispose of the preemptive right at the risk reduction level, rather than obtaining investment profits. In light of this, CC and the Plaintiff, while securing funds, could minimize business restrictions on the acquisition of the instant bonds with warrant. In short, it cannot be said that there was no particular business purpose other than tax avoidance purpose.

(3) Under Articles 5-24(1) and 5-22(1) of the former Regulations on Issuance and Public Disclosure of Securities (amended by Presidential Decree No. 2010-37, Nov. 8, 2010), the exercising price of the instant preemptive right is determined as KRW 2,380, which is the higher of the average of the weighted average of the prices of the third transaction days (in cases where there is no subscription date, the payment date) and the exercising price of the instant preemptive right was determined objectively and formally as a result of the foregoing provision and without any possibility of involvement in supervision.

(4) The share price ofCC was KRW 2,360 on April 7, 2010, the date of the instant bonds issued, and KRW 6,060 on March 7, 2013, when FF exercised the instant preemptive right, but the said KRW 6,060 during the period from April 7, 201 to March 8, 2013, when FF exercised the instant preemptive right, was not the maximum price. Since FF exercised the instant preemptive right prior to the expiration date of the period for exercising the preemptive right, it may be deemed that the Plaintiff owned the instant preemptive right to prevent dilution of the share ofCC by exercising the instant preemptive right through FF and exercised it at maturity.

(5) Inasmuch as the possibility of failure in the pertinent business due to the CC’s scambling, there is insufficient ground to readily conclude that FF acquired the instant preemptive right that can only be exercised after one year after the issuance of the instant bonds, and that the stock price increase at the time of its exercise is sufficiently anticipated. The premise that the acquisition of the instant preemptive right and the gains from the exercise of such preemptive right, based on the assumption that there was considerable possibility that the stock price decline due to the risk of business activity, etc., would have occurred during a considerable period of time. Therefore, it is difficult to deem that the Plaintiff planned from the beginning to obtain profits from the acquisition of CC’s new stocks through a series of acts such as the issuance of the instant bonds, the acquisition of the instant preemptive right, and the exercise of preemptive right

(6) The FF was established on March 11, 2010 and carried out local projects of the Philippines. On July 9, 2010, FF obtained approval for local investment in the Philippines. FF (PHIS) was established on August 9, 2010, and entered into a land lease agreement with the MF Development Corporation (C) around September 9, 2010; FF (PHIS) on October 13, 2010; FF’s business registration was completed; FF (FF) 30,04,683,340 won for domestic and foreign goods export; 4,105,57,859 won for 2012, 2013, 2013, 148, 2014, 2013, 36, 2016, 36, 206, 206, 2016, 36, 2016.

6) Sub-decisions

Therefore, the instant disposition is unlawful as it is not based on the former Inheritance Tax and Gift Tax Act, and thus, should be revoked.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and it is so decided as per Disposition.