Whether the principle of taxation on the beneficial owner under Article 14(1) of the former Framework Act on National Taxes applies mutatis mutandis to a legal relationship concerning local taxes pursuant to Article 82 of the former Local Tax Act (affirmative); and the standard for determining whether a person is an oligopolistic shareholder liable to pay acquisition tax pursuant to the main sentence of Article 105(6) of the former Local Tax Act

Article 14(1) of the former Framework Act on National Taxes (Amended by Act No. 911, Jan. 1, 2010); Article 105(6) of the former Local Tax Act (Amended by Act No. 8835, Dec. 31, 2007; see current Article 7(5)); Article 78(2) of the former Enforcement Decree of the Local Tax Act (Amended by Presidential Decree No. 21975, Jan. 1, 2010; see current Article 11(2))

Supreme Court en banc Decision 2008Du8499 Decided January 19, 2012 (Gong2012Sang, 359) Supreme Court Decision 2014Du36266 Decided September 4, 2014 (Gong2015Sang, 210) Supreme Court Decision 2011Du26046 Decided March 10, 2016 (Gong2016Sang, 584)

Plaintiff (Attorney Kim Tae-Gyeong et al., Counsel for the plaintiff-appellant)

Market for the United States

Seoul High Court Decision 2014Nu3800 decided September 30, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. The main text of Article 105(6) of the former Local Tax Act (amended by Act No. 8835, Dec. 31, 2007; hereinafter the same) provides that “When a person becomes an oligopolistic stockholder by acquiring the stocks of a corporation, such oligopolistic stockholder shall be deemed to have acquired the real estate, etc. of the relevant corporation” with respect to the liability to pay deemed acquisition tax, and the proviso provides that “if a person becomes an oligopolistic stockholder by acquiring the stocks issued at the time of establishment of the corporation, this shall not apply to the case where a person becomes an oligopolistic stockholder by acquiring the stocks issued at the time of establishment of the corporation.” Here, the term “ oligopolistic stockholder” refers to one stockholder as prescribed in subparagraph 2 of Article 22 of the former Local Tax Act, and his relatives and other persons

Meanwhile, Article 78(2) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 21975, Jan. 1, 2010; hereinafter the same) provides that where a shareholder who has already become an oligopolistic shareholder has increased the share ratio by acquiring stocks of the relevant corporation, acquisition tax shall be imposed by deeming the increased portion as acquisition. However, the proviso provides that acquisition tax shall not be imposed if the increase in the shares ratio is not increased than the maximum share ratio held by the relevant oligopolistic shareholder within five years before the increase as of the date of the increase in the shares ratio.

The principle of taxation on the beneficial owner under Article 14(1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010) among the principle of substantial taxation is because, in cases where there is a person to whom it substantially reverts differently from the nominal owner with respect to the subject of taxation on income, profit, property, transaction, etc., such as income, etc., belongs, the nominal owner should be the person to whom it actually reverts rather than the nominal owner due to type or appearance. This principle applies mutatis mutandis to the legal relationship on local taxes pursuant to Article 82 of the former Local Tax Act. In addition, the main sentence of Article 105(6) of the former Local Tax Act provides that the acquisition tax shall be imposed on an oligopolistic shareholder who is deemed to have acquired the corporation’s property against the oligopolistic shareholder, and thus, it is not significantly different from the actual possession of the corporation’s property directly. Thus, whether it constitutes an oligopolistic shareholder liable to pay acquisition tax pursuant to the above provision ought to be determined based on whether it actually exercises voting rights, etc.

Therefore, whether stocks are acquired by an oligopolistic shareholder pursuant to the main sentence of Article 105(6) of the former Local Tax Act, and whether the ratio of stocks of an oligopolistic shareholder has increased pursuant to Article 78(2) of the former Enforcement Decree of the Local Tax Act should also be determined based on the stocks actually exercising shareholder'

2. A. Based on the adopted evidence, the court below found the following facts: ① The plaintiff, as the actual shareholder of the Heavy Construction Co., Ltd. (hereinafter referred to as the "Large Construction") on May 28, 199, title trust with 80% of the issued shares at the time of the incorporation of the above company to Nonparty 1, 2, etc.; on May 31, 2005, part of the shares was re-title trust with Nonparty 3 and 4; ② on May 31, 2005, the plaintiff acquired 6,000 shares in the name of Nonparty 5, 2, 4,500 shares from the transfer to Nonparty 6, 30 shares of the former Construction Co., Ltd. (the transfer to Nonparty 3, 4,500 shares to Nonparty 5, 2, 300 shares of the former Construction Co., Ltd. (the transfer to Nonparty 6, 400, 306, 300, 305 shares of the Plaintiff and the transfer to Nonparty 6.

B. On the following grounds, the lower court determined that the instant disposition, based on the premise that the Plaintiff and Nonparty 3 acquired shares with each of the instant transfer titles, thereby becoming an oligopolistic shareholder, was unlawful.

(1) The acquisition of part of the shares in title trust by Nonparty 5, etc. constitutes a security for transfer to preserve investment funds in middle-friendly construction, not for exercising rights as a shareholder of middle-sized construction. Thus, the Plaintiff’s return of the said security and completion of each transfer of ownership in this case does not constitute “a case where a person becomes an oligopolistic shareholder by acquiring shares,” pursuant to Article 105(6) of the former Local Tax Act.

(2) Even if not, the Plaintiff was one shareholder who owns all shares issued in the name of the Plaintiff or a third party from May 28, 1999 to May 30, 2005, which was before the transfer of ownership by Nonparty 5, etc. was made by Nonparty 5, etc., and thus, even if the transfer of ownership by each transfer of ownership of this case acquired shares by Nonparty 5, etc. during the preceding five years, it does not exceed the highest share ratio held by Nonparty 5, etc., and thus, it is subject to exemption from acquisition tax, etc. pursuant to the proviso of Article 78(2) of the former Enforcement Decree of the Local Tax Act.

3. Examining the reasoning of the lower judgment in light of the aforementioned provisions, legal principles, and records, the lower court’s determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal principles on oligopolistic shareholders,

4. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)