Seoul Administrative Court-2016-Gu Partnership-50488 ( October 06, 2016)

Article 26 (8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not be deemed null and void.

Article 26 (8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act does not go against the principle of no taxation without law.

Article 35 of the former Inheritance Tax and Gift Tax Act: Donation of Benefits from Transfer at Low Price and High Price

2016Nu69293 Requests, etc. to revoke the disposition of gift tax imposition.

1. AA;

2. BB

1. The director of theCC;

June 16, 2017

August 11, 2017

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked.

The imposition of gift tax of KRW 1,489,642,580 (including additional tax) on May 7, 2015 against Plaintiff AA, the imposition of KRW 25,972,820 (including additional tax) on May 1, 2015, and the imposition of KRW 159,943,730 (including additional tax) on Plaintiff BB as of May 6, 2015, and the imposition of KRW 6,269,30 (including additional tax) on securities transaction tax of KRW 6,30 (including additional tax) on May 8, 2015.

Preliminaryly, the Defendant’s imposition of KRW 603,80 (including additional taxes) on May 7, 2015 against Plaintiff AA, the imposition of KRW 25,972,820 (including additional taxes) on the securities transaction tax of May 1, 2015, the imposition of KRW 885,836,80 on the gift tax of June 3, 2015, and the imposition of KRW 85,618,600 (including additional taxes) on Plaintiff BB on May 6, 2015, and the imposition of KRW 6,269,30 (including additional taxes) on the gift tax of KRW 85,618,60 (including additional taxes) on the gift tax of KRW 6,269,30 on May 8, 2015, and the imposition of KRW 74,325,130 on the gift tax of KRW 4,630 on June 4, 2015.

1. Quotation of the reasons for the judgment of the first instance;

The reasons for this judgment are as follows, among the reasons for the judgment of the court of first instance, with the exception of adding the judgment as to the matters alleged by the plaintiffs in the court of first instance as set forth in paragraph (2) above, and therefore, it is identical to the reasons for the judgment of the court of first instance. Thus, it is cited by the Article 8 (2) of the Administrative Litigation Act

○ 12 pages 11 to 21 are as follows:

In light of the following circumstances, it is difficult to view that Plaintiff BB and D had reasonable grounds for believing that the transaction price of this case was properly reflected in the objective exchange value, and it is difficult to view that Plaintiff BB and D had reasonable grounds for reliance on the transaction price of this case from a reasonable economic point of view that the transfer of the stocks of this case was normal from a reasonable economic point of view. Accordingly, it is reasonable to deem that Plaintiff BB did not have justifiable grounds for reliance on the transaction practice for Plaintiff BB’s transfer of the stocks of this case.

① The specially related parties of the Plaintiff AA and EE. The Plaintiff BB is the head of the Plaintiff AA’s Spans Interest EE, and the share transaction between the Plaintiff BB and D is the same price as the share transaction between the Plaintiff BB and DD. In addition, the Plaintiff BB was the transferee designated by the Plaintiff A and the transferee designated by the Plaintiff BB participated in the instant secondary share transaction. Therefore, it is difficult to view the share transaction between Plaintiff BB and D as identical to the share transaction between the non-specially related parties.

② On March 19, 2014, the date of the instant sales contract, the share price of the instant company was KRW 19,150,000, and the share price of April 22, 2014, which was the date of the settlement of sale price, was KRW 31,050, which was the date of the settlement of sale price, and there was a big difference between KRW 15,900 per share, which is the instant transaction. Furthermore, DD held 50% of the shares of the instant company. Since it was deemed that management right premium was recognized and the instant shares were the largest shareholder, the instant transaction price should have been higher than the share price as of the date of the instant sales contract, and KRW 15,90 per share, which is the transaction price of the instant case, was considerably lower than KRW 19,150 per share, which was the share price as of the date of the instant sales contract. Therefore, it is difficult to find no other objective evidence to determine the transaction price of the instant case at a lower price.

③ Meanwhile, Plaintiff AA and EE purchased 32,108 shares of the instant company at KRW 73,374 per share (8,600 KRW 8,50 per share) on condition that they acquire part of management rights of the instant company from D on October 28, 2011, and paid a management premium equivalent to KRW 2 billion in advance, the Plaintiffs asserted that the transaction price of the instant company is low. Considering the foregoing, it is difficult to view that the transaction price of the instant case was lower. In light of the content of the sales contract of October 28, 201 (Evidence 23,000,00 KRW 73,374 per share as above, and that the management price of the instant company was included in KRW 2,00,000 per share and KRW 73,000 per share, but it cannot be deemed that the sales contract of the instant case was less than the sale price of the instant company after the lapse of 25 years.181,201.

④ The Plaintiffs asserted that the Supreme Court en banc Decision on the ordinary wages had adversely affected the corporate value of the instant company, and that the transaction value of the instant company was determined by taking into account such negative impacts. However, such negative impacts are deemed to have already been reflected in the share price of the instant company, and such circumstance is difficult to be deemed as a reasonable ground for determining the transaction price of the instant company lower than the share price of the instant sales contract date

⑤ It is possible to predict that Plaintiff AA et al., an infant of the founder of the instant company, purchases the instant shares, reflecting the market expectation, thereby raising the stock price. Therefore, the Plaintiffs seems to have sufficiently predicted that the stock price would increase from the date of the sales contract to the date of the settlement of the price.

Therefore, Plaintiff BB’s above assertion is not accepted (in addition, even if the special relationship between Plaintiff AA and D was not established, in light of the above circumstances, it is reasonable to view that Plaintiff AA did not have any justifiable reason in light of the transaction practice even for Plaintiff AA’s acquisition of shares of this case).

2. Additional matters to be determined;

A. Although Article 35 of the Inheritance Tax and Gift Tax Act stipulates that the date for calculating the value of donated property shall be the date for calculating the value of donated property, Article 26(8) of the Inheritance Tax and Gift Tax Act, which prescribes the date for calculating the value of donated property, goes beyond the limit of delegated legislation, and Article 26(8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulates the requirements for taxation without delegation under Article 35 of the Inheritance Tax and Gift Tax Act, thereby violating the Inheritance Tax and Gift Tax Act, thereby

B. However, in light of the contents of the provisions related to the Inheritance Tax and Gift Tax Act as seen below, Article 26(8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act does not deviate from the limit of the delegated legislation and does not go against the principle of no taxation without the law. Thus, the plaintiffs' above assertion on

1) The gift tax is established when the donee acquires the property through the gift. The subject matter of the gift tax is not the donation contract itself, but the acquisition of the property subject to the gift. Therefore, even in the application of Article 35 of the Inheritance Tax and Gift Tax Act, it is reasonable to calculate the value of the property based on the date of acquisition (the date of liquidation) which is the date of donation when the low-price transfer belongs to the low-price transferee (the plaintiffs' assertion that Article 35 of the Inheritance Tax and Gift Tax Act is to be the date

2) In determining whether the transfer price constitutes wrongful calculation in a case where the low-price transfer price differs from the time of transaction at which the purchase and sale contract was concluded and the time of transfer thereof was determined, while in calculating transfer margin of the land, it is reasonable to view that the sale price was determined based on the time of transaction at which the purchase and sale price was determined, and that it is unreasonable for both parties to regard the transfer price differently as the reason and standard different (see, e.g., Supreme Court Decisions 9Du1731, Jun. 15, 2001; 2007Du14978, May 13, 201). Since Article 35 of the Inheritance Tax and Gift Tax Act imposes tax on the profits acquired at low-price transfer, it is reasonable to view that the “price for calculating the value of property” and “market price” are not the date of sales contract, but the date of calculating the sale price as the date of the purchase and sale price per share ( even if the low-price was determined based on the date of the sale contract at home).

3) Article 35(1) of the Inheritance Tax and Gift Tax Act provides that "the amount equivalent to the difference between the price and the market price at the time of the transfer or acquisition of the pertinent property shall be deemed the value of donated property, which is equivalent to the profits prescribed by Presidential Decree." Accordingly, Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the amount equivalent to the difference between the price and the market price at the time of the transfer or acquisition of the pertinent property shall be determined as the value of donated property." According to the legislative intent and content of each of the above provisions, "the amount equivalent to the difference between the price and the market price at the time of the transfer or acquisition of the pertinent property" shall be prescribed as the value of donated property, and the specific method of calculating the value of donated property shall be prescribed by Presidential Decree. In order to calculate the value of donated property, it can be deemed that the above standard of calculation is an essential factor

4) In light of the fact that Article 35(4) (the determination on the date of acquisition or the date of transfer and other necessary matters shall be prescribed by Presidential Decree in the application of paragraphs (1) and (2)), which is the delegation provision on the date of calculating the value of donated property pursuant to the amendment of the Inheritance Tax and Gift Tax Act on December 15, 2015, Article 26(8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act asserts that the amendment of the said Inheritance Tax and Gift Tax Act is null and void because it exceeds the bounds of delegated legislation. However, it is difficult to view that the delegation provision was newly established only on the date of calculating the value of donated property through the amendment of the said

3. Conclusion

Therefore, the main claim and the conjunctive claim of the plaintiffs in this case shall be dismissed in its entirety due to the lack of reason. The judgment of the court of first instance is just in conclusion, and the plaintiffs' appeal is dismissed in its entirety due to the lack of reason. It is so decided as per Disposition.