Cho High Court Decision 2010Du2248 (No. 04, 2012)

It shall not be deemed that it has been acquired at a price significantly lower than the market price due to the legitimate reason;

It cannot be deemed that the calculation of the market price on the basis of the date of transfer due to external circumstances, etc., which were unexpected at all at the time of the conclusion of a sales contract, is considerably unreasonable, but the determination of the sales price per share cannot be deemed as a decision-making contrary to the transaction practice, and thus, cannot be deemed as having been taken over at a price significantly lower than the market price due

2012 disposition of revocation of imposition of gift tax, etc.

KimAAAA

Head of Yongsan Tax Office

October 26, 2012

November 16, 2012

1. The Defendant’s disposition of imposing gift tax of KRW 000 (including additional tax) against the Plaintiff on March 8, 2010 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On March 4, 2008, the Plaintiff entered into a share acquisition agreement (hereinafter referred to as "the sales agreement of this case") with the CC (CC Etain Management Co., Ltd., hereinafter referred to as "CC") with a total of USD 520,000 per share (hereinafter referred to as "US$") to acquire 000 U.S. dollars (hereinafter referred to as "US$") in total (00$520,00). On April 4, 2008, the Plaintiff completed the transfer of ownership of the instant shares under the name of the Plaintiff.

B. On April 23, 2008, the Plaintiff transferred the instant shares toCC at USD 000 per share ( =00,000,000 per share), and reported and paid KRW 000 to the Defendant.

C. On March 8, 2010, the Defendant imposed a gift tax of KRW 1,217,600, and KRW 100 (including additional tax) on the Plaintiff on March 8, 2010 pursuant to Articles 35(2) and 35(1)1 of the Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as the “Inheritance Tax and Gift Tax Act”) and Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21292, Feb. 4, 2009; hereinafter referred to as the “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) on the following grounds:

D. The Plaintiff filed a request for judgment on June 11, 2010, and on January 4, 2012 from the Tax Tribunal.

was dismissed. This decision was rejected.

[Ground of Recognition] The non-satis, Gap evidence 1, 2, and 3 (including household numbers), and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The market price calculation date;

After the conclusion of the instant sales contract,CC’s stock price increased to new investment, and this falls under the case where it is unreasonable to make the calculation date for reduction due to a sudden change in exchange rates after the sales contract stipulated in Article 26(8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the calculation date of the market price of the instant stock is the date of the instant sales contract ( March 4, 2008). However, BB, prior to the conclusion of the instant sales contract, was transferred to EE Investment Co., Ltd. (hereinafter “E”), KRW 280,000 per share to KRW 00,000 per share, and it should be deemed as the market price. The amount calculated by subtracting the market price and acquisition value as stipulated in Article 26(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act from the market price, and Article 35(2) of the Inheritance Tax and Gift Tax Act does not apply since Article 26(1) of the Enforcement Decree of the said Act does not change the market price.

(2) Market value

Article 35(2) of the Inheritance Tax and Gift Tax Act does not apply to cases where the calculation date of the market price is considered as the transfer date ( April 4, 2008), and the transaction was made as a part of a new investment since it was made after the transfer date, and it cannot be considered as a normal transaction example. Therefore, it cannot be viewed as a transaction example example amount per share, which is the sales price with EE on February 13, 2008, and 000 won per share is considered as the market price as shown in paragraph (1).

(3) Justifiable reasons

Considering the fact that the Plaintiff and BB entered into the instant sales contract in order to maximize their respective economic interests, the sales price was determined in a free negotiation process by using the information owned by each party as much as possible, and that the sales price so determined is different from the market price, and there is no evidence to deem that BB entered into the instant sales contract for the purpose of providing the Plaintiff with economic benefits, the Plaintiff cannot be deemed to have received the instant shares from BB, without justifiable grounds, at a price significantly lower than the market price, and Article 35(2) of the Inheritance Tax and Gift Tax Act is not applicable.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(1) The transfer of CC shares and new investment developments in the BB.

(A) On March 2006, the founders of FFN Entertainment Co., Ltd. (hereinafter referred to as “FFF”) establishedCC, a limited company, in the OO-Gun in order to raise funds to be required for game development around March 2006. The Plaintiff is the highest financial manager ofCC (CFO) and BB acquired 800,000 shares ofCC on April 26, 2006.

(B) On February 13, 2008, “BB” and “E and “BB” enter into a sales contract with 000 won (i.e., KRW 280,000 per share) in total, and (ii) receive 000,000 won in cash, and (iii) receive 100,000 won in stocks of “GG Co., Ltd.” from EE, and (iv) transfer 280,000,000 won in stocks ofCC to EE. In addition, on March 4, 2008, BB inspection entered into the instant sales contract with the Plaintiff, transfer the remaining stocks of this case to USD 00 per share, and transfer entry into the Plaintiff’s name on April 4, 2008, and received the payment from the Plaintiff on April 23, 2008.

(C) On the other hand, while the IF, etc. was inspected by the Chinese company from February 2, 2008, the IF from March 12, 2008 to March 15, 2008.

(D) ACI agreed to a new investment that “CC and “CC acquire and retire theCC stocks owned by the Plaintiff and the JJJ (hereinafter referred to as “JJ”) which are the Hong Kong Investment Funds, and IIII shall accept new stocks issued byCC.”

(E) On April 16, 2008,CC held a board of directors to the effect that “The Plaintiff and JJ shall take over total 1,825,616 shares from the Plaintiff and JJ to retire, and then issue new shares (priority shares) 3,031,232 shares in IIII.”

(F) On April 18, 2008,O transferred 620,000 shares of OO owned by the Plaintiff (the Plaintiff purchased 100,000 shares from KK on April 4, 2008 and owned 620,000 shares together with the instant shares after purchasing 100,00 shares from KK on April 4, 200) and CC shares (priority shares) owned by JJJ and retired 1,205,616 shares from USD 00 per share.

(G) On April 18, 2008, CC entered into a new investment agreement that "CC shall transfer 3,031,232 shares to 000 dollars per share of new shares (priority shares) issued by CC, and CC shall refund the acquisition price of new shares to 000 dollars per share until June 30, 2010, and on April 23, 2008, III issued 3,031,032 shares (priority shares) to III after investing 38,35,82 dollars from III and 3,031,232 shares.

(h) A summary of the details ofCC’s trade in 2008 is as follows.

(Major details of transactions omitted)

(2) Related civil action

(A) On October 23, 2009, BB filed a lawsuit with the Seoul Central District Court (2009Gahap120851) seeking the return of benefits under each of the instant contracts with the Plaintiff andCC as the cause of claiming the damages under a delegation contract or tort.

(B) On September 16, 2010, the Seoul Central District Court dismissed the Plaintiff’s claim of BB on the ground that there was no evidence to acknowledge that there was a contract under which BB had entrusted the Plaintiff to sell the instant shares to a third party, and that the Plaintiff could not be deemed an act of deception on the ground that the Plaintiff did not notify the Plaintiff of any new investment that could not be deemed to have been finally determined in BB, and that the claim of BB was dismissed.

(C) On October 27, 2010, BB filed an appeal with the Seoul High Court (2010Na113498), and on July 12, 2011, the mediation was concluded that the Plaintiff,CC, andCC paid USD 00 to each of the BB.

[Ground of Recognition] The facts without dispute, Gap evidence 2 to 10 (including household numbers), and evidence 3 to 22 (including household numbers), and the purport of the whole pleadings

D. Determination

(1) As to the market price calculation standard date

(A) Article 35(2) of the Gift Tax Act provides that "If property is acquired or transferred between persons other than those in a special relationship without any justifiable reason, the amount equivalent to the profits prescribed by the Presidential Decree shall be presumed to have been donated to the price of the property that is substantially lower than the market price in light of the transaction practice," and Article 26(8) of the Enforcement Decree of the Income Tax Act provides that "the date of calculating the price and the market price (hereinafter referred to as "base date for calculating the market price") shall be the date of settlement of the price of the property (referring to the date stipulated in subparagraphs 1 through 3 of Article 162(1) of the Enforcement Decree of the Income Tax Act if the above provision provides that "if it is deemed unreasonable to calculate the market price due to changes in the circumstances of the sale and purchase, the transfer price of the property shall be calculated on the basis of changes in the circumstances that have been substantially lower than the market price, and if the sale and purchase price of the property shall be calculated on the basis of changes in the market price before such changes in the market price."

(B) Considering that the instant case is the highest financial manager ofCC, and the Plaintiff is the highest financial manager ofCC, the Plaintiff was well aware of the financial situation ofCC at the time of the instant sales contract, and that there was a consultation on whether to make new investments with IIII prior to the conclusion of the instant sales contract, so it can be sufficiently anticipated that the share price is likely to rise according to the results, and that the stock price change for new investments can be seen as internal factors, and that the market price is calculated based on the date of transfer of rights, due to external circumstances, etc. which could not have been entirely predicted at the time of the conclusion of the instant sales contract, it cannot be deemed that the calculation of the market price as of the date of transfer of rights is significantly unreasonable. The Plaintiff’s above assertion is without merit.

(2) As to the market value applicable

① The market price calculation date of the shares in this case is April 4, 2008, the transfer date, and unless there are special circumstances, the most adjacent transaction example transaction example as of the above date shall be deemed to be the market price, and the Plaintiff took over at USD 100,000 from this KK to USD 00 per week, and ②

This KK, the FF staff member, transferred it to the Plaintiff by its stock option, and it is difficult to conclude that the transaction example is abnormal, and CC’s stocks were uniformly transferred to 00 dollars per week after the instant contract was concluded, and CC’s new investment decision can be seen as the market price formed by reflecting new investment information in the market. (4) It seems that CC purchased 30,031 and 232 dollars per week with 00 dollars, and it was assumed that the sales price per share increase at the time of the Plaintiff’s transfer. (2) On the other hand, BB was 00,000, and 200,000 won per share, and 30,00,000 won per share were transferred to 40,00,000 won per share, and 4,000,000 won were not reflected in the market price at the time of the instant transfer, and 4,000,000 shares were not reflected in the market price at the time of the instant transfer.

(3) As to justifiable grounds

(A) Generally, in light of the language and text, form, etc. of Article 35(2) of the Inheritance Tax and Gift Tax Act, the burden of proving the facts of taxation requirement in a lawsuit seeking revocation of tax disposition, and the language and text, Article 35(2) of the Inheritance Tax and Gift Tax Act, and Article 35(2) of the Inheritance Tax and Gift Tax Act, in order to lawful imposition of gift tax, the transferor has to prove not only that the transferor has transferred assets at a significantly higher price than the market price, but also that there is no justifiable reason for the transaction’s practice (see, e.g., Supreme Court Decision 2011Du22075, Dec. 22, 2011). In addition, the existence of “justifiable reason for the transaction’s practice” under Article 35(2) of the Inheritance Tax and Gift Tax Act should be determined by comprehensively considering the circumstances of the transaction in question, the relationship between the parties to the transaction, and the process of determining the transaction price. If the parties to the transaction have had reasonable knowledge about the facts and information, and whether the transaction would have agreed with an objective market price.

(B) The plaintiff's decision-making of 2B; (1) because it is difficult to reverse the plaintiff's new investment information of 280 won per share in E immediately before the conclusion of the sales contract; and (2) it is not possible to determine the sales price per share as USD 00 against the trading practice; (3) the plaintiff's decision-making process; and (4) it is unreasonable to consider that the new investment is in progress between CC and III, but there is little need to avoid the risk that new investment does not disappear, and that the sales price per share is determined as USD 00 against the plaintiff, and that it cannot be viewed as a decision-making which is contrary to the legal practice of 00 if it is based on the presumption that the person did not have any special relationship with 00 won before the conclusion of the sales contract; and (3) there is no presumption that the person who has no special relationship with 30% before the conclusion of the sales contract, and that there is no presumption that the person would have been 10% of gift tax for 196.3.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.