Cho High Court Decision 201Do1322 ( October 26, 2011)

allocation by means of public offering of securities.

The board of directors passed a resolution to issue new shares only for 49 persons including the plaintiff, and accordingly the issuance of new shares does not constitute "distribution by the method of public offering of securities, which is an exception to the deemed donation due to the offering of new shares," and there is no data to deem that the issuance of new shares falls under the category of "distribution by the method of solicitation for subscription",

2011Guhap9676 Revocation of Disposition of Imposing Gift Tax

StateAA

Samsung Head of Samsung Tax Office

April 6, 2012

April 27, 2012

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Each disposition imposing gift tax on the Plaintiff on March 2, 2011 as listed in the separate sheet No. 1, which the Defendant rendered against the Plaintiff, shall be revoked.

1. Details of the disposition;

(a) BBro Ros (the trade name before the change was made, cCC straw, hereinafter referred to as 'non-party company'), which is a KOSDAQ-listed corporation, adopted a resolution on April 10, 2007, to issue 49 members including the Plaintiff in total by a third-party allotment method to 49 members including the Plaintiff, with a board of directors meeting on April 10, 2007.

B. On May 4, 2007, the Plaintiff participated in the above capital increase with the acquisition of 43,470 new shares on May 4, 2007, and paid 499,905,000 won on the same day, and the total of 49 members acquired 4,261,394 shares in total, and paid 00 won in total.

C. As of May 3, 2007, as of May 3, 2007, the Defendant calculated the “value per share before the date of payment of the stock price” and acquired new shares at a price below the market price of the Plaintiff since the value was 000 won. As a result, the Plaintiff deemed that the Plaintiff received 00 won in total from the existing shareholders through the capital increase with the above capital increase, and on March 2, 201, the Defendant decided and notified the Plaintiff on March 2, 201 pursuant to Article 39(1)1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter the “former Inheritance Tax and Gift Tax Act”).

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on March 22, 2011, but the Tax Tribunal dismissed the Plaintiff’s appeal on August 26, 2011.

[Reasons for Recognition] A without dispute, Gap evidence Nos. 1 through 3, Gap evidence No. 4-1 through 8, Gap evidence No. 8, Eul evidence No. 1-1 through 16, Eul evidence No. 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition is unlawful for the following reasons.

1) In a case where Article 39(1) of the former Inheritance Tax and Gift Tax Act provides that where new shares are allocated by means of a public offering of new shares pursuant to Article 2(3) of the former Securities and Exchange Act (amended by Act No. 8635, Aug. 3, 2007; hereinafter the same), the amount equivalent to profits acquired by being allocated at a price lower than the market price shall be excluded from the gift tax subject to gift tax; however, the Defendant provided that the amount equivalent to profits acquired by being allocated at a price lower than the market price should be excluded from the gift tax subject to gift tax. However, only when new shares are allocated

2) In calculating the capital increase profits pursuant to Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter referred to as the “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), the Defendant calculated the “value per share before the capital increase” as of the date of the public notice of the capital increase by calculating the “value per share before the capital increase” as of the date of the public notice of the capital increase, contrary to the existing national tax administration practices, the Defendant issued the instant disposition in violation of the principle of prohibition of retroactive taxation and Article 18(3) of the Framework Act on National Taxes that specify the principle

3) Since Article 39(2) of the former Inheritance Tax and Gift Tax Act is premised on the establishment of a taxation unit by donor, in cases where gift tax is levied as of May 4, 2007, a payment date for shares purchase price, based on the share ownership ratio as of May 4, 2007, the Defendant calculated the donation amount by donor based on the shareholder registry on the basis of the shareholder registry on December 31, 2006.

4) The Plaintiff acquired shares on the condition of rescission by concluding a new shares subscription contract with the non-party company on the condition of safeguard, and thus, the Plaintiff evaluated shares acquired by the Plaintiff under Article 65 of the former Inheritance Tax and Gift Tax Act. However, the Defendant assessed shares acquired by the Plaintiff under Article 63 of the former Inheritance Tax

5) The average amount of the Korean Stock Exchange’s market value publicly announced for two months before and after the date of acquisition of shares under Article 63(1)1 (a) of the former Inheritance Tax and Gift Tax Act with respect to the shares, the transaction of which is prohibited due to safeguard, cannot be deemed as the market value of shares. Although the former Inheritance Tax and Gift Tax Act does not stipulate otherwise the method of evaluating the shares, the Defendant assessed the Plaintiff’s shares acquired and disposed of the instant shares in accordance with the foregoing provision.

6) As for the capital increase in the method of allocating the third party, the Plaintiff calculated the “value per share before the capital increase” based on the date of the public notice of capital increase, and assessed the shares that the Plaintiff acquired based on the date of public notice of capital increase in accordance with the practices of national tax administration, and thus, the Plaintiff did not report and pay gift tax because it did not incur any profit from the capital increase. Therefore, there was a justifiable reason not to cause any negligence on the Plaintiff’s neglect of

B. Relevant statutes

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

C. Determination

1) Determination on the first argument

(1) Article 39 (1) of the former Inheritance Tax and Gift Tax Act provides that if a corporation issues new stocks at a lower price than their market price to increase its capital, such profits shall be levied as the value of donated securities of the person who obtains such profits: Provided, That the same shall not apply to cases where a corporation or Association-registered corporation under the former Securities and Exchange Act allocates new stocks by means of public offering of new stocks under Article 2 (3) of the former Securities and Exchange Act for the purpose of increasing its market price. Article 2 (3) of the former Securities and Exchange Act provides that the former Enforcement Decree of the Securities and Exchange Act provides that the issuance of new stocks shall be excluded from the issuance of new stocks at a lower price than their market price. The former Enforcement Decree of the Securities and Exchange Act provides that the issuance of new stocks shall be excluded from the issuance of new stocks at a lower price than their market price under Article 2 (1) of the former Securities and Exchange Act for the purpose of issuing new stocks at a lower price than their new stocks and the issuance of new stocks at a lower price than their new stocks.

Furthermore, in order to constitute “distribution by means of a public offering of securities” under Article 2-4(5) of the former Enforcement Decree of the Securities and Exchange Act, which is an exception that does not include profits arising from the issue at a low price in the value of donated property, the public offering of securities should be permitted, namely, advertisements through newspapers, broadcasting, magazines, etc., distribution of printed matters, such as notice and promotion leaflets, holding of an investment presentation meeting, and electronic communications, etc., but the activities should be conducted either by notifying the issuance or sale of securities or by providing information on the acquisition procedure at least by using a similar or similar method. In addition, the tax law is governed by the regulation itself, which is a rapid and diverse economic phenomenon, and the purpose of various economic policy and social security. Thus, a combined interpretation that takes into account the motive, purport and purpose of the legislation should be permitted to the extent that it does not seriously undermine the legal stability and predictability oriented by the principle of no taxation without the law (see, e.g., Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act).

B) On April 10, 2007, the board of directors passed a resolution on the issuance of new shares only with respect to 49 persons including the plaintiff on April 10, 2007. Accordingly, the issuance of new shares can not be deemed as falling under the "distribution by the method of public offering of new shares", which is an exception to the constructive donation due to the offering of new shares under Article 39 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act, and there is no evidence to deem that the non-party company had undergone the procedure of soliciting the offer under Article 2-4 (5) of the former Enforcement Decree of the Securities and Exchange Act. Thus, the plaintiff

2) Judgment on the second argument

A) As to the calculation of the gains deemed to have been donated at a low price under Article 39(1)1 (c) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the amount shall be calculated by multiplying the value obtained by subtracting the subscription price per share from (the total number of outstanding shares before increase x the number of outstanding shares x the number of outstanding shares issued before increase x the number of shares increased by the increase x the number of new shares) to the value obtained by deducting the subscription price per share from (the number of shares increased by the increase x the number of shares issued before increase x the number of shares increased by the increase 9) by the number of forfeited shares or new shares allocated to the purchaser (c). Article 29(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended on December 30, 202) provides that the calculation of profits under paragraph (3) of the same Article shall be based on the payment date of shares.

Meanwhile, the principle of retroactive taxation prohibition stipulated in Article 18(3) of the Framework Act on National Taxes applies only to cases where there are special circumstances that, even if the principle of legality is sacrificeed, the protection of taxpayer’s trust is deemed to conform to the justice. The practice of national tax administration generally accepted by taxpayers under that provision refers to the erroneous practice that, even if it is erroneous, it is acknowledged that it is not unreasonable for taxpayers to trust such practice. The mere fact that there was an expression of public opinion on the standard of interpretation of tax law does not necessarily mean that such a practice has been committed. The burden of proving such interpretation or practice is the taxpayer (see, e.g., Supreme Court Decisions 91Nu13670, Sept. 8, 1992; 2005Du2858, Jun. 29, 2006).

B) Under Article 29(3)1 through 3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the term "in the case of listed corporations and KOSDAQ-listed corporations under Article 63(1)1 (b) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the value per share before the capital increase shall be the average value of the Korea Securities and Futures Exchange published by the day immediately before the capital increase occurred. According to subparagraph 3 of the above Article and the purport of the argument, it is reasonable for the Commissioner of the National Tax Service to regard the cancellation date of rights as the date of publication of the above facts as the date of the above general provisions on June 28, 2004. However, since Article 29(4)3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act of December 30, 202 explicitly stated that the calculation of profits under Article 29(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act should be based on the payment date of the shares, it is difficult to view that the above portion of the appraisal price per share should be calculated based on the date of national tax increase.

3) Judgment on the third argument

(a)a fact of recognition;

According to the purport of Gap's evidence 3, 7, Eul evidence 2, Eul evidence 4 through 7, Eul evidence 8-1, 2, and Eul evidence 9-1 through 4, as a whole, the defendant has examined the detailed changes in the shares from January 1, 2007 to May 4, 2007 by referring to the shareholders' holding and reporting obligation under the relevant Acts and subordinate statutes 1) as of December 31, 2006, referring to the total number of shares held and reporting obligation of non-party company 20, 740, 70, 740, 740, 70, 704, 70, 704, 70, 706, 706, 70, 706, 704, 70, 707, 704, 706, 706, 706, 306, 306, 400, 74, 7, 707, .

B) The Plaintiff did not secure the shareholders' list as of May 4, 2007 and disposed of this case without reflecting only the changes in the shares of the shareholders holding 5% or more of the total number of the non-party company issued on December 31, 2006 and without reflecting the changes in the shares of the shareholders holding less than 5%. Thus, the instant disposition is unlawful as it goes against the principle of substantial taxation and the burden of proof of taxation requirements. However, the following circumstances acknowledged by the whole evidence and arguments, i.e., Kim E, Park F, and Park GG (this case's shares were owned by the non-party 200-2 (1) of the former Securities and Exchange Act and the non-party 20-7 shares were owned by the non-party 70-7 shareholders of the non-party company, and the non-party 1 and the non-party 20-party 2 were not sold from 70-77 shareholders of the non-party company.

Therefore, the plaintiff's above assertion on different premise is without merit.

4) Judgment on the fourth argument

Article 65(1) of the former Inheritance Tax and Gift Tax Act provides that the term "conditional right" means a right, the validity or extinction of which depends on the gender of an uncertain fact in the future. Therefore, "Conditional right" means a right for which the fulfillment of the condition has not become final and conclusive and which has the expectation or possibility that one of the parties would benefit from the fulfillment of certain conditions (see Article 149 of the Civil Act). In full view of the overall purport of arguments in the statement of health class, Gap, No. 1, No. 3, and No. 5 with regard to this case, it can be recognized that the fact that the plaintiff was able to protect the non-party company's new stocks that the plaintiff acquired on May 4, 2007 was issued to the Korea Securities Depository (the name of the Korea Securities Depository is changed to the Korea Securities Depository on February 2, 2008) for a period of four months after the issuance of the new stocks, and thus, it cannot be viewed as a condition for the plaintiff's claim for the above part of the new stocks.

5) Judgment on the fifth argument

In principle, Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that “The value assessed by the method of evaluation as provided in Article 63(1)1(a) shall be considered as the market price in order to exclude arbitraryness and ensure objectivity in the evaluation.” In full view of the legislative purport of Articles 60 and 63 of the former Inheritance Tax and Gift Tax Act regarding the method of appraisal of listed stocks, barring special circumstances, the latter part of Article 60(1) of the former Inheritance Tax and Gift Tax Act shall be based on the latter part of Article 60(1) of the former Inheritance Tax and Gift Tax Act, and only the average value of the issued shares of the Korea Stock Exchange shall be deemed as the market price for listed stocks, which are publicly announced every two months before and after the base date of appraisal calculated pursuant to Article 63(1)1(a) of the former Inheritance Tax and Gift Tax Act (see Supreme Court Decision 2008Du470, Jan. 13, 2011). The Plaintiff’s assertion that the value of new shares acquired by the Plaintiff cannot be calculated as the market price for shares.

6) Determination on the fifth argument

Under the tax law, in order to facilitate the exercise of the right to impose taxes and the realization of tax claims, where a taxpayer violates various obligations, such as a return and tax payment, under the law without justifiable grounds, the taxpayer’s intentional and negligent acts are not considered, and the site, mistake, etc. of the law does not constitute justifiable grounds that are not attributable to the breach of duty (see, e.g., Supreme Court Decisions 9Du3515, Aug. 20, 199; 2002Du10780, Jun. 24, 2004). In this case, health expenses, 39-29-292 of the former General Rules of the Inheritance Tax and Gift Tax Act, as seen earlier, were prescribed “in the case of a KOSDAQ-listed corporation, the appraised value per share before the date when the right is extinguished,” and thus, it cannot be seen that the Plaintiff’s return of tax payment under the provisions of Article 29(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act explicitly stated that there were justifiable grounds for the Plaintiff to pay the profits.

3. Conclusion

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