[1] The case affirming the judgment below holding that in case where Gap donated shares held in Eul's name after title trust, and Byung reported and paid gift tax including additional tax on Eul to the head of tax office with the donor Eul as Eul, and the head of tax office did not notify Byung of the increase and correction of the principal gift tax and the general non-reported additional tax on the total amount of the gift tax increased due to the same re-donation and stock revaluation, etc., and thereafter notified Byung of the increase and correction of the additional tax on the ground that the additional tax on the non-reported return should be imposed, the head of tax office without filing a report after the due date can impose additional tax on Byung on the total amount of the gift tax on Byung on the ground that even if the increase and decrease due to the stock revaluation, etc. were made after the due date, the imposition of additional tax on general non-reported return is legitimate, but it is difficult to view that Byung and Eul did not report the taxable value and tax base by fraudulent or other unlawful means just on the ground that Byung prepared the gift contract with false entries.

[2] The case affirming the judgment below holding that in case where Gap donated shares held in Eul's name under title trust to Byung et al., and Byung reported and paid gift tax to the head of the competent tax office on Eul et al., and the head of the competent tax office corrected and notified each increase in the principal tax and the additional tax due to revaluation of the value of shares to Byung et al., and thereafter, the principal tax and Byung et al. on the gift tax due to the calculation of the deduction amount of shares and the deduction amount of gift tax, etc. as the donor Eul et al. as the donor Eul were invalid and notified of the return and payment of the gift tax on the total amount of the calculated tax, since Byung et al. reported the taxable value and tax base of the gift tax on each share donation within the statutory due date of return, it cannot be deemed as a non-reported return, and thus, the imposition of additional tax and the imposition of additional tax on each failure to report the gift tax should be revoked since

[1] Articles 45-2 and 68(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); Articles 47-2(1) and 47-2(2) (see current Article 47-2(1) and (2)) of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007); Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 20622 of Feb. 22, 2008; Article 3(6) of the former Enforcement Decree of the Punishment of Tax Evaders Act / [2] Articles 45-2 and 68(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); Article 27(2)6(1) and (2) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 208128(2)

Plaintiff 1 (Law Firm LLC et al., Counsel for the plaintiff-appellant)

Plaintiff 2 and nine others (Law Firm LLC et al., Counsel for the plaintiff-appellant)

The Head of Gangnam District Tax Office (Law Firm Gaon et al., Counsel for the plaintiff-appellant)

Director of the Yongsan Tax Office and three others (Law Firm Gaon et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2017Nu32496 decided September 14, 2017

All appeals are dismissed. The costs of appeal by Plaintiff 1 are assessed against Plaintiff 1, and the costs of appeal by the Defendants are assessed against the Defendants.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Determination on the grounds of appeal regarding the donation of August 10, 2007

A. As to Plaintiff 1’s grounds of appeal Nos. 1, 2, and 3

For the reasons indicated in its reasoning, the lower court determined that a tax investigation conducted on the donation of stocks by father-young Co., Ltd. (hereinafter “Non-Decree”) on August 10, 2007 in violation of Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 12162, Jan. 1, 2014; hereinafter the same shall apply in this paragraph) cannot be deemed an illegal reinvestigation.

In light of the relevant legal principles and records, the lower court’s reasoning was partially inappropriate, but its conclusion that the said tax investigation constituted a tax investigation permissible under the former Framework Act on National Taxes is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on the interpretation of exceptional reasons

B. As to Plaintiff 1’s ground of appeal No. 4

1) citing the reasoning of the judgment of the court of first instance, the lower court acknowledged the following facts: (a) on August 10, 2007, the Plaintiff 1, who was the son of Nonparty 1, donated KRW 758,980 to the Plaintiff 1, who was the son of Nonparty 2, who was the son on August 10, 207; (b) on March 17, 2008, the Plaintiff 1 reported gift tax, including additional tax, to the son 2, the donor on March 17, 2008; and (c) on January 11, 2013, the head of Gangnam District Tax Office revised and notified the amount of principal gift tax increased due to the son 1; and the additional tax for general non-report on the total amount of the calculated tax amount; and (c) on the ground that the penalty tax should be imposed on June 19, 2014, the amount of additional tax should be corrected and notified.

2) The lower court, on the following grounds, determined that Defendant Gangnam-gu Tax Office may impose a general non-reported tax on the increased portion arising from the revaluation of donated property after the due date on the grounds that the director of the tax office of Gangnam-gu failed to fulfill his duty to report on the donation of stocks held by the Plaintiff 1 on the Plaintiff on August 10, 207.

(1) Since a return after the deadline is only a system introduced to ensure the convenience of taxpayers and facilitate the imposition and collection of national taxes, there is no change in the fact that the taxpayer did not report the tax base, etc. within the statutory due date of return even if the principal and additional taxes were paid upon the deadline.

(2) The main sentence of Article 47-2(1) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same) provides that the criteria for imposing penalty taxes without filing a report shall be “calculated tax pursuant to tax-related Acts” and there is no limitation on imposing penalty taxes without filing a report only at the time of the initial decision, or on imposing penalty taxes without filing a report at the time of revision after the initial decision.

(3) From August 10, 2007, Plaintiff 1 did not report the tax base of gift tax from August 10, 2007, to November 10, 2007, which is within the statutory due date of return stipulated under Article 68(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax Act”). In the event of a non-report, there is no provision that excludes “where the amount of gift tax increases due to the difference in the assessment methods under the former Inheritance Tax and Gift Tax Act” from the penalty tax subject to the imposition of additional tax.

(4) The mere fact that Plaintiff 1 paid part of the penalty tax without filing a return after the due date cannot be deemed to be subject to the imposition of under-reported penalty tax after the due date, since Plaintiff 1’s status, which is subject to the penalty tax without filing a return after the due date, cannot be deemed to be changed to the subject matter of

(5) Therefore, even if there was an increase or decrease in the amount of gift tax due to the revaluation of stocks, etc. after the return after the deadline, the head of Gangnam-gu Tax Office may impose on Plaintiff 1 general non-reported penalty tax on the total amount of gift tax

3) Examining the records in light of the relevant legal principles, although the lower court’s reasoning was somewhat inappropriate, the conclusion that the imposition of general non-reported penalty tax against Plaintiff 1 by the chief of Gangnam-gu District Tax Office is legitimate is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on

C. As to Plaintiff 1’s ground of appeal No. 5

In light of the circumstances stated in its holding, the lower court determined to the effect that it is difficult to deem that there is a justifiable reason for Plaintiff 1 to have failed to fulfill the duty to report donation of non-permanent shares on August 10, 207.

In light of the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on justifiable grounds for exempting penalty, contrary to what is alleged in the grounds of appeal.

D. As to the ground of appeal No. 2 by Defendant Gangnam-gu Tax Office

1) Article 47-2(2)1 of the former Framework Act on National Taxes provides that an amount equivalent to 40/100 of an amount calculated by multiplying the calculated tax amount by the ratio of an amount equivalent to the unreported tax base to the tax base without filing a return by unjust means shall be added to, or a refund from, an amount payable as an additional tax for filing a return without filing a return, where a taxpayer has a tax base without filing a return by unjust

In addition, Article 47-2(2) of the former Framework Act on National Taxes defines the meaning of “unfair method” as “the method prescribed by the Presidential Decree, in which a taxpayer violates the duty to report the tax base or amount of national tax on the basis of the concealment or disguise of all or part of a fact that serves as the basis for calculating the tax base or amount of national tax.” Article 27(2)6 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 20622, Feb. 22, 2008) defines “any other fraudulent or other unlawful act to evade, receive a refund or deduction of national tax” as one of the “unfair method.”

2) citing the reasoning of the judgment of the court of first instance, the lower court acknowledged the following facts: (a) citing the reasoning of the judgment of the court of first instance, the Plaintiff 1 made a donation contract with the Nonparty 2 stating the Nonparty 2’s wife and children as the observer, and on August 10, 2007, that the non-party 2 donated 758,980 shares of non-permanent shares from Non-party 2 (hereinafter “instant donation contract”); and (b) upon reporting after March 17, 2008, the Plaintiff 1 submitted the instant donation contract.

In full view of the following circumstances, the lower court determined that: (a) it is difficult to deem that Plaintiff 1 prepared the gift contract of this case in which the donor was falsely recorded, and that the taxable value and tax base of gift tax were not reported by unjust means, such as fraud and other unlawful acts; and (b) the act of Nonparty 1 and the deceased Nonparty 2 cannot be assessed to the same extent as “an act of failing to report the tax base by unlawful means, such as fraud and other unlawful acts,” of Plaintiff 1, the taxpayer of the gift tax; (c) thus, it cannot impose penalty tax on Plaintiff 1 on the ground that Plaintiff 1 failed to fulfill the duty to report the gift tax on the gift

(1) It is difficult to readily conclude that a title truster, a real shareholder, has evaded gift tax by means of fraud or other unlawful act, which is a criminal punishment under the Punishment of Tax Evaders Act (see Supreme Court Decision 2004Do817, Jun. 29, 2006) by changing the title of the shares held in title trust in the name of the donee, without taking the form of withdrawing the shares held in title trust and donating them to the donee, and without promptly transferring them to the donee (see Supreme Court Decision 2004Do817, Jun. 29, 2006). Here, the same meaning can be construed as “Fraud or other unlawful act” in the context of “where there is a tax base without filing a report by fraudulent or other unlawful means,” which is the requirement

(2) Although the actual shareholder pretended that the shares were donated by Nonparty 2, who was merely the title trustee, even though the shares were actually donated by Nonparty 1, the title truster, but Plaintiff 1 did not manipulate the donation of shares, which was August 10, 2007, into trade, etc., in preparing the instant donation contract.

(3) Under the instant gift contract, the donee, who is the principal taxpayer for the gift of the above subordinate shares, specified as Plaintiff 1.

(4) As a result, the principal gift tax on donation of non-permanent shares as of August 10, 2007 was collected by making payment of non-permanent shares upon reporting after the due date by Plaintiff 1.

(5) Unless there is any evidence that Nonparty 1 and Nonparty 2 constituted Plaintiff 1’s agent or performance assistant, etc., it cannot be considered in determining whether Plaintiff 1’s unfair non-declaration of gift tax was made by actively concealing and causing Nonparty 1 and Nonparty 2 to conceal the title trust of stocks held in the territory.

3) Examining the record in light of the foregoing provision and related legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the penalty tax for failing to report under Article 47-2(2)1 of the former Framework Act on National Taxes, contrary to what is alleged in the grounds of appeal. Meanwhile, the Supreme Court’s decision cited in the grounds of appeal is different from the case,

2. Determination on the grounds of appeal regarding the gift of September 28, 2002

A. As to the Defendants’ ground of appeal No. 1

With reference to the reasoning of the judgment of the court of first instance, the court below: ① donated 300,000 shares of the Dong-dong Housing Industry Co., Ltd. (hereinafter “Dong-dong Housing”) held in the name of Nonparty 3 (hereinafter “Dong-dong Housing”) on September 28, 2002 to the Plaintiffs, respectively; ② The Plaintiffs reported gift tax to the head of each competent tax office on December 26, 2002 to Nonparty 3, and paid in cash the tax amount calculated as KRW 18,456 per share of the Dong-dong Housing Stocks; ③ The head of each competent tax office, upon the filing of a gift tax report to the donor as Nonparty 3, paid in cash the tax amount calculated as KRW 18,456 per share of the Dong-dong Housing Stocks; ③ The head of each competent tax office, on August 23, 2004 and August 4, 2005, based on the revaluation of the value per share of each Dong-dong Housing Stocks and additional tax on November 1 and 4, 20138.

Based on its stated reasoning, the lower court determined that: (a) as long as the Plaintiffs filed a return on the taxable value and tax base of gift tax on shares donated in the same mineral house within the statutory due date of return; (b) thus, the Defendants’ imposition of additional tax on the Plaintiffs on November 1, 2013 and November 4, 2013; and (c) imposition of penalty tax on the Defendants’ failure to file a return on each gift tax (the portion exceeding the amount of penalty tax imposed on the Defendants’ failure to pay gift tax as of August 4, 2005, exceeds the amount of penalty tax imposed on the Defendants’ failure to file a return on each

Examining the record in light of the relevant legal principles, such determination by the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on non-reporting

B. As to the Defendants’ ground of appeal No. 3

The ground of appeal on this part is that, since the plaintiffs under-reported and paid gift tax by fraudulent or other unlawful acts, a long-term statute of limitations should apply to the penalty tax not paid, the court below erred by omitting judgment on the defendants' assertion pointing this out and failing to exhaust all necessary deliberations.

Examining the records in accordance with the relevant regulations and relevant legal principles, it is difficult for the Plaintiffs to view that they underreporting gift tax by fraud or other unlawful act. Thus, even if the lower court omitted this part of the judgment and failed to exhaust all necessary deliberations, this cannot affect the conclusion of the judgment, and thus, cannot be the ground for

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal by Plaintiff 1 are assessed against Plaintiff 1, and the Defendants’ portion of appeal by the Defendants is assessed against each other. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jong-hee (Presiding Justice)