Seoul Administrative Court 2010Guhap30482 ( November 04, 2010)

An employee of a person with a special relationship to be applied at the time of transfer by high-price refers to a commercial employee.

In order to apply the provision on deemed donation as it falls under the acquisition by transfer at a low price, there is a special relationship between the transferor and the transferee at the time of transfer of the property. An employee under Article 19 (2) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act refers to a commercial employee

2010Nu40030 Revocation of Disposition of Imposing gift tax

Song XX

head of Dongjak-gu Tax Office

Seoul Administrative Court Decision 2010Guhap30482 Decided November 4, 2010

June 15, 2011

June 29, 2011

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition imposing gift tax amounting to KRW 174,590,630 on the Plaintiff on October 1, 2009 shall be revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of disposition;

A. On November 10, 2003, the Plaintiff decided to transfer 50,000 shares of the company (hereinafter referred to as “the shares of this case”) from 25,000,000 won (hereinafter referred to as “the shares of this case”) to 25,000 won (hereinafter referred to as “the shares of this case”) and on November 11, 2003, the Plaintiff completed a transfer of shares on November 11, 200, from the largest shareholder, the representative director, KimA (the wife, together with 58.27% of the total shares issued by the company of this case).

The Plaintiff also retired from office on November 12, 2003, and was appointed as executive director of the instant company on December 1, 2003.

B. After investigating the change in shares to the company of this case, the director of the Seoul Regional Tax Office determined that the Plaintiff acquired the shares of this case at a price lower than the market price from a person with a special relationship pursuant to Article 35(1) of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18177 of Dec. 30, 2003; hereinafter the same shall apply) and Article 26(1) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 18177 of Dec. 30, 2003). The Seoul Regional Tax Office around that time assessed the shares price of this case at KRW 645,750,00 (=12,915 won per share x50,500 won) and notified the Defendant of the disposition of gift tax at KRW 645,750,500,005,7500,500,000 won after deducting the market price of this case from the market price of this case.

[Ground for Recognition: Facts without dispute, Gap 1, 2 evidence, Eul 1 through 3, each entry out of five through seven, and the purport of the whole pleadings]

2. Whether the disposition is lawful;

A. The plaintiff's assertion

Although the Plaintiff did not work for the instant company at the time of the contract, deeming the acquisition of the instant shares as a transaction between related parties and thus, was unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Legal principles

1) The scope of persons with a special relationship under Article 35 of the Inheritance Tax and Gift Tax Act is examined.

Article 35(1)1 of the Inheritance Tax and Gift Tax Act provides that where a person having a special relationship takes over an asset at a price lower than the market price, the transferee of the asset shall be deemed the donee and shall be deemed to have received the donation of an amount equivalent to a certain profit. Paragraph (2) of the same Article provides that the person having a special relationship as provided in subparagraphs 1 and 2 of paragraph (1), a lower price, and the scope of higher price shall be prescribed by the Presidential Decree. According to delegation under Article 35(2) of the Inheritance Tax and Gift Tax Act, Article 26(4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "a person having a special relationship as provided in Article 35(1)1 and 2 of the same Act with the transferor or transferee shall be deemed to be a person having a relationship as provided in any of the following subparagraphs. In this case, one shareholder, etc. shall be deemed to be a transferor, etc., and Article 19(2)2 of the Enforcement Decree of the same Act provides that "an employee and a person who maintains his livelihood as a property:

Therefore, in order to apply the provision on deemed donation because it falls under a low-price acquisition under Article 35 of the Inheritance Tax and Gift Tax Act, it must be related between the transferor and the transferee at the time of transfer of the property. An employee under Article 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act refers to a commercial employee under the Commercial Act.

On the other hand, the defendant asserts that Article 4 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 20 on April 30, 2008) provides that "an employee prescribed by Ordinance of the Ministry of Finance and Economy is an executive, a commercial employee, or any other person in an employment contract relationship" and thus, the employee, other than a commercial employee, is an employee prescribed by Ordinance of the Ministry of Strategy and Finance.

Article 13(6)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides for the scope of "a person in a special relationship under Article 16 of the Inheritance Tax and Gift Tax Act", which is a provision concerning non-taxation in the taxable value of the donated property of a public-service corporation, pursuant to delegation of Article 16(4) of the Inheritance Tax and Gift Tax Act, and Article 13(6)2 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act provides that "a person, other than an employee or an employee prescribed by the Ordinance of the Ministry of Finance and Economy, who maintains his/her livelihood with the property of an heir." Article 4 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act provides that "an employee prescribed by the Ordinance

Therefore, Article 4 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act is only applicable to the scope of "employee prescribed by the Ordinance of the Ministry of Finance and Economy" under Article 13 (6) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which provides for the scope of persons having a special relationship with Article 16 of the Inheritance Tax and Gift Tax Act, and it shall not be deemed that Article 19 (2) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax

It is reasonable to regard the standard time to determine whether the fixed price and the market price are in the position of a related party between the transferor and transferee.

D. Determination

1) On November 10, 200, the Plaintiff entered into a contract with KimA on November 10, 2003, with the payment of the down payment of KRW 2,500,000 on the contract date, and KRW 12,500,000 on December 10, 200, and the balance of KRW 10,000 on January 10, 2004, and to acquire the shares of this case. However, the Plaintiff entered into a contract for the acquisition of the shares of this case by stipulating that “the transfer of ownership and the transfer of the shareholder’s rights to the shareholders’ list shall proceed simultaneously with the contract” (Evidence 5). Under the above contract, the Plaintiff completed a transfer of ownership on November 11, 2003, and thereafter was appointed as the executive director of the instant company on December 1, 2003.

The Plaintiff also paid all the down payment, intermediate payment, and balance under a contract (the fact that there is no dispute, Eul 4 and 5 evidence, the purport of the entire pleadings), and thereafter made a preliminary return of capital gains tax on November 10, 2003 as the transfer date (Evidence A 2).

2) According to the above facts, the Plaintiff completed the transfer of ownership of the instant shares prior to the full payment of the purchase price of the instant shares. As such, the time of acquisition of the instant shares was November 11, 2003 when the transfer of ownership was made, and the Plaintiff did not have an employee relationship with the KimA at that time (see, e.g., Supreme Court Decision 2003Da110, Nov. 10, 2003 when the date when the transfer of the instant shares was entered into a contract for acquisition of the instant shares was deemed as the time of low price acquisition).

The instant disposition that deemed that the instant stock transaction constituted a case where shares were received from a person in a special transaction relationship is unlawful.

3. Conclusion

The judgment of the first instance shall be revoked. The disposition of this case shall be revoked.