In a case where Party B, who was the largest shareholder and representative director of Party B, transferred Party C’s shares to Party C, who was a KOSDAQ-listed corporation, and became the largest shareholder of Party C by acquiring shares through a third party’s shares offering, and again acquired shares by participating in Party C’s shares offering under the name of Party C, and the tax authority imposed gift tax on Party B by applying Article 45-2 of the former Inheritance Tax and Gift Tax Act with respect to the acquisition of Party B’s shares under the name of Party B, the case holding that the court below erred in the misapprehension of legal principles on the ground that the above disposition was lawful, although it was reasonable to

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

Plaintiff (Attorney Son Ji-yol et al., Counsel for the plaintiff-appellant)

port of origin

Seoul High Court Decision 2013Nu9801 decided November 13, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Based on evidence adopted, the lower court determined that: (a) the Plaintiff, who was the largest shareholder and the representative director of the Korea Development Bank (hereinafter “Korea Development Bank”) transferred 122,400 shares of the Korea Development Bank on July 9, 2008 to M&C, which is a KOSDAQ-listed corporation (hereinafter “subject company”); and (b) the Plaintiff was the largest shareholder of the subject company by participating in the allocation of shares to a third party of the subject company on the same day and acquiring 13,33,000 shares of the subject company under its name (37.54% of the total issued shares); (c) the Plaintiff could not be deemed to have acquired shares of the subject company for a short period of time on the grounds that it was difficult for the lower court to view the Plaintiff to have acquired shares under the name of the subject company to have been distributed to the third party under the name of Nonparty 1; and (d) the Plaintiff could not be deemed to have acquired shares under the name of the subject company to the title trust (hereinafter “the subject company”).

2. However, it is difficult to accept the above judgment of the court below for the following reasons.

A. In light of the legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) that seeks to realize tax justice by effectively preventing tax avoidance by using the title trust system, if the title trust was recognized to have been conducted for any reason other than the tax avoidance purpose, and only a minor reduction in the tax incidental to the said title trust occurs, it cannot be deemed that there was a “tax avoidance purpose” as stipulated in subparagraph 1 of the proviso of the same paragraph (see, e.g., Supreme Court Decisions 2004Du13936, May 25, 2006; 2007Du19331, Apr. 9, 2009).

B. According to evidence duly adopted by the court below, (1) as part of the procedure for listing friendly development through a merger with a KOSDAQ-listed company, the Plaintiff became the largest shareholder of the target company on July 9, 2008, and simultaneously acquired new shares issued by the target company. (2) At the time, the Plaintiff was obligated to pay a total of 21 billion won for friendly development, and the transfer income tax of 7 billion won was anticipated to increase the target company's share price due to a merger with friendly development, etc., and the Plaintiff intended to dispose of the subject company's shares to raise the target company's share price of 00 billion won and raise the repayment fund by disposing of them in the name of 200 billion won from 200 billion won to 300 billion won. However, the Plaintiff acquired the shares in the name of 200 billion won to 19 billion won from 200,000 won to 208,000 won from the date of acquisition of the shares in the name of Nonparty 1's 208 billion won.

In addition to these facts, the Plaintiff, who became the largest shareholder of the target company on July 9, 2008 for the bypassing of friendly development, was able to know the fact that it was difficult for the target company to pay dividends to its shareholders in the business year 2008 in light of its financial status and management status at the time of acquiring the shares in this case under Nonparty 1’s name. Furthermore, since the shares in this case were scheduled to be disposed of before two years have elapsed from the date of acquisition, it is difficult to deem that there was an intention to avoid applying the progressive tax rate pursuant to the cumulative taxation on global income in the title trust of the shares in this case. Since the shares in this case amount to 11.07% of the shares issued by the target company, the shares in this case were acquired and transferred in its name, and there was no possibility of tax evasion between the Plaintiff and the Plaintiff under Article 94(1)3(a) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009).

C. Nevertheless, the lower court determined that the instant disposition was lawful on the grounds that the Plaintiff could not be deemed to have held the title trust of the instant shares to Nonparty 1 without any tax avoidance purpose. This exceeded the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or erred by misapprehending the legal doctrine on the purpose of tax

3. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)