Changwon District Court 2009Guhap803 ( December 10, 2009)

The amount received in excess of the acquisition value of equity shares after transferring equity shares shall be deemed the income of deemed dividend.

The acquired real estate falls under the "property acquired due to the reduction of investment shares" of the plaintiff, and the amount exceeding the acquisition value of the plaintiff's investment shares out of the value of real estate shall be deemed a dividend and shall be included in the plaintiff's income. Therefore, the disposition imposed as constructive dividend

2010Nu382. Detailed income and revocation of disposition

Gangwon A

○ Head of tax office

Changwon District Court Decision 2009Guhap803 Decided December 10, 2009

January 12, 201

January 28, 201

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

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

1. Purport of claim

The Defendant’s disposition of imposition of global income tax of KRW 327,94,840 against the Plaintiff on April 2, 2007 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. On March 10, 2005, the Plaintiff completed the registration of ownership transfer in the name of the Plaintiff on the ground of ○○○○○-dong 601-34, 1,024.8 square meters, 601-35 square meters, 1,024, 771.162/1,024,800 square meters of equity among 601-35 square meters and 1,024.8 square meters, and its ground buildings (hereinafter referred to as “real estate of this case”) on May 19, 2003, on the ground of ○○ District Court’s protocol under the Transfer Agreement.

B. The Defendant imposed global income tax of KRW 419,729,030 on the Plaintiff on April 2, 2007, on the ground that the Plaintiff acquired the instant real estate in return for the transfer of 8,183 equity shares, and on the ground that the transfer margin constitutes the constructive dividend under Article 17(2)1 of the Income Tax Act, imposed on the Plaintiff KRW 419,729,030 on the global income tax for the year 2005. On July 12, 2007, the tax amount remaining after ex officio reduction of KRW 91,734,186 on the global income tax of KRW 327,94,840 on the global income tax of KRW 327,94,840 (hereinafter “the disposition of this case”).

[Reasons for Recognition] Unsatisfy, Gap evidence 3, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition should be revoked on the grounds that it is unlawful for the following reasons.

(1) The Plaintiff acquired the instant real estate in return for the transfer of the Plaintiff’s equity shares in accordance with an agreement between the Plaintiff and the Plaintiff, who is the largest equity share holder of △△ Traffic, and thus, the instant disposition taken by the transferee on the premise that the transferee is △△ Traffic is unlawful against the principle of substantial taxation as to the person to whom

(2) Since the Plaintiff’s equity shares did not be retired up to the present date but constitute △△ Traffic’s capital, the instant disposition based on the premise that the said equity shares were retired is unlawful against the principle of substantial taxation as to the substance of the transaction.

(3) Even if the Plaintiff’s acquisition of the instant real estate is deemed as income from constructive dividend under Article 17(2)1 of the Income Tax Act, since it had already been transferred on March 31, 1995, the time when the right to taxation was reverted should also be deemed as 195, and the global income tax for which 5 years have passed thereafter had already expired.

(4) As of 2005, in evaluating the acquisition value of the Plaintiff’s investment shares, there was an error of law that did not determine the tax base by reflecting the increase in value of real estate owned by △△ Traffic

(b) Fact of recognition;

(1) Merger, etc. with ○○ Transportation

(A) On February 1989, three companies, including a limited liability company AAsi operated by the Plaintiff, a limited liability company BBsi operated by the Plaintiff, KimB, and a limited liability company (CCB) operated by the Plaintiff, are merged into BB taxi by a limited liability company to overcome managerial difficulties, and the name of the company was changed to △△ Transport, and regular AA, the representative director, the Plaintiff, and the KimB was appointed as directors, respectively.

(B) On the other hand, after the above merger, ○○ Transportation continued to operate the business in the place where the limited liability company BB taxi is running the business, and around 192, the previous 192 agreement was reached between the plaintiff, the plaintiff, the regular representative director, the plaintiff, the regular representative director, the plaintiff, the regular representative director, the KimB, and thisCC by establishing the limited liability company AAsi and the location where the limited liability company (hereinafter referred to as the "△△△ Improvement") had been operating the business.

(A) While the Plaintiff, KimB, thisCC, and Jung-A was jointly involved in the management of ○○ Transportation, the Plaintiff and KimB concluded the following agreements (hereinafter referred to as the “instant agreement”) by determining their shares around March 3, 1995 as a result of the dispute arises among them, and by dividing the property including the management right of ○○ Transportation, ○○ Transportation, and △△△ Improvement.

○○ KimB and thisCC’s joint shares: 31.6% [(((GeB and DoD shares 8,810 + 1,555) ± total shares 32,800}

(1) ○○-si ○○-dong 601-36 Site 310 square meters and above-ground buildings in ○○-si ○○-si.

(2) Part of 5 smoking and principal floor buildings of 201 square meters and second floor buildings of ○○○-dong 601-35 Site, 201, and second floor, in ○○-si, ○○-si

○ Equity Holdings: 34.5% (=Share 11,316 ± Total Equity Holdings 32,800)

(1) 10 110 cabs for business of △△ Transportation (vehicle and license).

(2) Site north Myeon of ○○ City 600 square meters

○○ 3.9% of the Plaintiff’s shares (=1,119 of the Plaintiff’s and relatives’ shares ¡À32,800 of the entire shares)

(1) ○○-si ○○-dong 601-34 Site 310 square meters and above-ground buildings, at ○○-si ○○-dong.

(2) ○○-si, ○○-dong 601-35 Housing Site 108 square meters, 5 Hobbebs, and part of a building with two different types of buildings, each of which is located.

(3) Right to permit factories and premiums on △△ Improvement;

(B) Although regular A was unable to establish a new corporation on the grounds of the regulation, etc. of relevant laws and regulations and transfer all the taxi for business purposes and the license rights thereof, it has been independently managed by the Plaintiff, KimB, and thisCC in accordance with the instant agreement while the Plaintiff was excluded from the Plaintiff, KimB, and thisCC, and the Plaintiff alone has operated △△△ Improvement.

(C) On the other hand, the procedure for the registration of ownership transfer under the instant agreement was not implemented due to the difference in opinions about the burden of tax and public charges due to the Party’s reduction and the transfer of the project. On June 3, 1998, the Plaintiff and thisCC notified the Party of their intent to terminate the instant agreement.

(3) The Plaintiff’s permission to convene a general meeting of members and the Plaintiff’s request to appoint an inspector against △△ Traffic

The Plaintiff asserted that he is a member of ○○ Transportation, and filed a request for a general meeting of members to appoint an inspector to investigate the business and property status of the last three years (○○ District Court 98Da1017), and the above court already implemented the agreement of this case. As such, the Plaintiff’s expression of intent to terminate the agreement of this case is null and void, and the Plaintiff’s contribution shares are legally transferred to Ma○ Transportation, and the Plaintiff’s decision to dismiss the Plaintiff’s application on the ground that he is no longer a member of ○○ Transportation.

(4) Action filed against the plaintiff et al. to confirm the membership rights of the appropriate AA.

(A) On the other hand, on March 29, 2002, AA brought a lawsuit against the Plaintiff, thisCC, and the inheritors Kim E-E of KimB, etc. seeking confirmation that he/she has the right to the relevant employee on the ground that he/she had been transferred the shares of △△ Transportation from the Plaintiff, KimB, thisCC, etc. in accordance with the instant agreement (○○ District Court 2002Gahap1611).

(B) On May 29, 2003, where the lawsuit in question is pending, △△ Transportation participated in as a participant in the conciliation and mediation between the parties concerned (hereinafter referred to as “instant conciliation”).

The remaining investors except ○ regular AA are entitled to raise all equity shares in ○○ Transportation to the adjusted intervenors.

○ △△ Traffic:

① The procedure for the registration of transfer of ownership on the ground of a transfer agreement on May 19, 2003 with respect to buildings, such as 01-34, 35, 36 above ground, 1, 2, and 601-34, 601-34, 1,024.8 square meters and 1,024.8 square meters, and 601-34, 35

② On May 19, 2003, the procedure for the registration of ownership transfer on the ground of a transfer agreement on May 19, 2003 with respect to the buildings, such as the office Nos. 34, 35, 36 above ground Nos. 601-34, 35, and 36 above ground Nos. 601-34, 35, and 36 above ground No. 1,024,

③ With respect to 1,024,800 771/80 of 1,024, among 01-35 0,024 00 00 0,024 601-35 102 771/80, and with respect to 253/8 1,024,638 shares, thisCC shall each implement the procedure for the registration of ownership transfer on May 19, 2003 with respect to each other.

To ○A, the Plaintiff shall pay KRW 50 million to the Plaintiff, and Kim E-E and thisCC shall jointly and severally pay KRW 200 million to the time of implementation of each of the above procedures for transfer of ownership, and if not, in addition to the annual rate of KRW 10,000,000.

The ○○ Government shall waive the shares of the shares of the employee on △△ Improvement, which are held by regular A and trustee, and shall cooperate in the procedure for transferring the shares as desired by the Plaintiff, etc. after the next.

(C) Accordingly, as seen earlier, the registration of ownership transfer on the instant real estate was completed in the future of the Plaintiff.

(5) Whether to deal with the Plaintiff’s equity shares after the instant conciliation

Even if the instant real estate was transferred to the Plaintiff after the instant conciliation, and even if the instant disposition was issued, the Plaintiff’s share 8,183 shares on the account book of △△ Transportation remains in the name of the Plaintiff, and there was no procedure for the retirement of shares or transfer thereof to another person.

(6) Administrative litigation of KimE

KimE also filed a lawsuit seeking revocation of the disposition imposing global income tax for the year 2005 on the grounds of unification with the Plaintiff, but the judgment was finalized on November 26, 2010 on the loss of KimE (Seoul Administrative Court 2009Guhap15074, Seoul High Court 2009Nu3872, Supreme Court 2010Du16011).

[Reasons for Recognition] Facts without dispute, entry of Gap 1 through 4, 6, 8 through 10, witness testimony of the court of first instance and the purport of whole pleadings

C. Determination

(1) As to the first argument

As seen below, the other party to whom the Plaintiff’s equity shares are transferred among the contents of the instant conciliation should be called △△ Traffic. As such, this part of the Plaintiff’s assertion is without merit.

In other words, in cases where the same economic effect can be achieved through different legal components transactions, the tax requirements and effects should be determined on the basis of such transactions, unless there are circumstances such as false labelling, etc. that have been actually conducted, or denying the legal effect as an act of tax avoidance.

In the case of this case, it may be said that there may be a method in which Jung-A has the right to share of 100% after acquiring shares from the existing investors, such as the plaintiff, etc. from the existing investors. However, by allowing investors, other than Jung-A, to transfer each shares of △△ Transportation, such as the content of the instant adjustment, it may be said that △△△ Traffic has a practical right to share all remaining shares except for the shares transferred, and such transaction method shall also be respected in the judgment on the taxation requirements unless there is any circumstance to deny the legal effect.

Therefore, among the contents of the instant conciliation, the other party to whom the Plaintiff’s equity shares are transferred should be the △△ Traffic according to the legal method chosen by the parties. In light of the fact that in the instant conciliation, the Plaintiff and thisCC, and this KimE, agreed to pay KRW 250 million to Jung-A as requested by the Plaintiff, etc., the other party to whom the Plaintiff’s equity shares are transferred cannot be said to be the party to whom the Plaintiff’s equity shares are transferred, rather than △△ Traffic.

(2) As to the second argument

In light of the following circumstances revealed by the above facts, the real estate of this case constitutes "property acquired due to a decrease in the Plaintiff's share of investment," and the amount exceeding the acquisition value of the Plaintiff's share of investment among the value of the real estate of this case is deemed as dividend and included in the Plaintiff's income. Thus, the Plaintiff's assertion on this part is without merit.

In other words, the reasons why investors, including the Plaintiff, etc., transfer their shares in the instant conciliation are to have regular shareholders, who are the sole right holder of △△ Transportation. (2) After the instant agreement, the Plaintiff is not involved in the operation of △△ Transportation. ③ Under the same circumstances, such as the Plaintiff’s transfer of ownership of the instant real estate from △△ Transportation according to the instant conciliation, even though the Plaintiff still remains in the list of investors of △△△ Traffic until the end of 2005, even if the Plaintiff did not complete the procedures for retirement of the Plaintiff’s shares until the end of 2005, the Plaintiff is unable to exercise his/her right to share, and thus, the Plaintiff

(3) As to the third argument

The deemed dividend period of this case is around 2005 when the Plaintiff acquired ownership of the real estate in this case from △△ traffic according to the instant conciliation, and the Plaintiff actually decreased the Plaintiff’s equity shares. As such, the instant disposition was lawfully made within the exclusion period of imposition of global income tax, the Plaintiff’s assertion is without merit.

(4) On the fourth argument

The capital of a limited company, such as ○○ Transportation, is not changed unless it has gone through the procedures for capital increase or capital reduction. As such, based on the year 2005, it is not necessary to evaluate the acquisition value of the Plaintiff’s investment shares by reflecting the increase in the value of real estate owned by △△ Traffic. Therefore,

3. Conclusion

Therefore, the plaintiff's claim is dismissed, and the judgment of the court of first instance is unfair with different conclusions, so it is so decided as per Disposition by accepting the defendant's appeal.