Suwon District Court-2018-Guhap62707 (2018.09.04)

The tax authority must prove that there was no justifiable reason due to the transaction practice between the non-specially related persons.

In transactions between non-specially related persons, the disposition of correction that the tax authority must prove that there was no justifiable reason due to the practice of transactions is not illegal.

Article 35 of the Inheritance Tax and Gift Tax Act

2018Nu65936 Revocation of Disposition of Imposition of Gift Tax

AA, BB,CC,DD, EE

O Head of the tax office and one other

Suwon District Court Decision 2018Guhap62707 Decided September 4, 2018

April 1, 2019

May 29, 2019

1.The judgment of the first instance shall be modified as follows:

A. Each disposition of imposition by the Defendants against the Plaintiffs, other than the second disposition of imposition by sequence 2, as set out in the separate sheet No. 1, shall be revoked.

B. The plaintiff BB's remaining claims against the defendant OO director are dismissed.

2. Of the total litigation costs, 80% of the portion arising between Plaintiff BB and Defendant OB shall be borne by Plaintiff BB; the remainder shall be borne by Defendant O head of the tax office; the portion arising between Plaintiff AA and Defendant O head of the tax office shall be borne by Defendant O head of the tax office; and the portion arising between Plaintiff CCC, DD, EE and Defendant O head of the tax office shall be borne by Defendant O head of the tax office.

The judgment of the first instance shall be revoked. Each disposition taken by the Defendants against the Plaintiffs in the attached Table 1 shall be revoked.

1. Details of the disposition;

The reasons for the court's judgment in this section are the same as follows.

Since the corresponding part of the judgment of the court of first instance is the same as the statement of reasons, it shall be quoted in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

The part of the judgment of the first instance shall be deleted from 2 pages to 3-4 (hereinafter referred to as "(1)").

At the second and second bottom of the judgment of the first instance, “AA is children of Plaintiff BB, and Plaintiff DD is the wife of Plaintiff EE, and Plaintiff CCC is the wife of Plaintiff EE.”

With respect to the 8th transaction in the first instance judgment, the following "for each transaction" (hereinafter referred to as "each transaction in this case") shall be added.

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

Each of the instant transactions does not constitute acquisition of property at a price lower than the market price, inasmuch as there is no transaction example corresponding to the market price and there is no reason to believe that it is unfair. In addition, each of the instant transactions was conducted for the recovery of investment funds in the process of liquidation of a partnership relationship, and there is no motive to divide profits among each of the instant transactions. Since the acquisition price of each of the instant transactions is determined by taking into account the management status of the instant company at the time of transfer, future anticipated performance, etc., there is a justifiable reason in the transaction practice in each of the instant transactions (other than the No. 5 of

Nevertheless, under the premise that the value calculated by the supplementary assessment method under the former Inheritance Tax and Gift Tax Act is the market value of shares of the company of this case, each of the dispositions of this case imposing gift tax on the ground that the plaintiffs acquired property from a related party at a lower price or acquired property from a person who is not a related party at a significantly lower price than the market

B. Relevant statutes

4. The same shall apply to 4

C. Relevant legal principles

1) As to the valuation of the value of unlisted stocks

The main text of Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that "the value of an asset on which inheritance tax or gift tax is levied under this Act shall be based on the market price as of the date of commencing the inheritance or the date of donation (hereinafter referred to as the "date of appraisal"), and Article 60(2) provides that "the market price under Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be the value which is generally deemed to be established when transactions are made freely between many and unspecified persons and which is recognized as the market price, as prescribed by Presidential Decree." The main text of Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the value of an asset on which the market price is recognized as the market price, such as the expropriation price, the public sale price, and the appraisal price, etc., within six months before and after the date of appraisal (three months in the case of donated property)" shall be the transaction price on the relevant asset, but Article 60(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the market price shall be excluded.

According to each of the above provisions, even in the case of unlisted stocks with low market feasibility, the fact of sale and purchase thereof.

In the case where there is a transaction value, the shares price shall be evaluated as the market price and the shares price shall not be evaluated by the supplementary assessment method stipulated in the Inheritance Tax and Gift Tax Act. However, since the market price means the objective exchange price formed by the general and ordinary transaction, in order to be recognized as the market price, there should be circumstances that can be deemed that the relevant transaction is made in a general and normal manner and reflect the objective exchange value at the time of transfer appropriately (see, e.g., Supreme Court Decision 2010Du26988, Apr. 26, 201

2) As to justifiable reasons in light of transaction practices

The legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to cope with and promote fairness in taxation by imposing gift tax on the profits earned by the other party to the transaction in a case where profits equivalent to the difference between the price and the market price are, in fact, transferred without compensation through an abnormal method that manipulates the transaction price for the benefit of the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other, it is generally difficult to view that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price, Article 35(2) of the same Act adds the taxation requirement that “for the transaction between the unrelated parties, the transaction between

In full view of these facts, it is reasonable to view that there is a justifiable reason under Article 35(2) of the Act where the parties to the transaction who acquired the property at a low price have reasonable grounds to believe that the transaction price was properly reflected in the objective exchange value, as well as where there is an objective reason to deem that the transferee’s acquisition of the property at the market price was an abnormal reason from the perspective of a reasonable economic person, even if there is no such reason.

Meanwhile, in order for a tax assessment under Article 35(2) of the former Inheritance Tax and Gift Tax Act to be lawful, the tax authority should prove not only that the transferee acquired the property from the unrelated party at a price significantly lower than the market price, but also that there is no justifiable ground for transaction practice (see, e.g., Supreme Court Decision 2013Du5081, Aug. 23, 2013).

However, if the tax authority is a reasonable economic person, it may prove that there is no justifiable reason in light of the transaction practice by submitting the objective circumstance, etc. that the person liable for duty payment would not have traded under such transaction conditions in the situation at the time of the transaction. If such circumstance is proved to a considerable extent, it is necessary to prove that there are special circumstances that make it easy for the person liable for duty payment to submit specific materials concerning the transaction details, reasons for determining the transaction conditions, etc. in light of the difficulty of proof or the concept of fairness to reverse the aforementioned evidence (see, e.g., Supreme Court Decision 2013Du24495, Feb. 12, 2015).

D. Determination

1) Whether a stock appraisal by a supplementary assessment method is unlawful

A) The Plaintiffs asserts that each of the instant trades listed in [Attachment 2 and 5] Nos. 2 and 5 in [Attachment 3] among each of the instant trades exists as sales cases, and that each of the instant trades listed in [Attachment 1, 3, and 4] and each of the instant trades listed in [Attachment 6, 7, and 8 or 11] has to be considered as market price on the following grounds. However, the Plaintiffs’ assertion cannot be accepted for the following reasons.

(1) The Plaintiffs’ assertion was not made among many unspecified persons, but was made between persons directly or indirectly related to the operation of the instant company.

(2) There is no evidence suggesting that the amount of KRW 5,00 per share, which is the value of the shares issued at the time of increase of the company’s 2008O.O.O.O. price, is an objective exchange value of the company’s shares at the time. FF transferred part of the shares to Plaintiff EE on the following day of the above offering of new shares (attached Table 3 Nos. 1), and FF merely explained that “the transfer date was at the time of the first creation of the company” (Evidence 20) and there was no ground for evaluating the value as above. GGG transferred each transaction (Attached Nos. 3 and 4) by Plaintiff BB and EE to Plaintiff BB, and EE on the date of the first creation of the corporation. There is no ground for evaluating the value as above.

(3) Between the transaction Nos. 2 and 3 and 4, and between the transaction Nos. 5 and No. 5, it does not constitute “a case where there exists a transaction between the two transactions within six months before or after the base date of appraisal” under Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

(4) Of each of the instant trades, the Plaintiffs asserted that each of the trades listed in [Attachment 3] Nos. 6 and 7 (the FF’s transfer to Plaintiff EE and DD to Plaintiff EE and DD) in [Attachment 6 and 7] among the instant trades are different trades conducted at the same time by using the same opportunity. However, Plaintiff EE and DD merely appear to have led the said transaction to Plaintiff EE and DD as a couple, but they cannot be seen as having led the said transaction. The grounds for evaluating the transaction value are not known. As to each of the instant trades listed in [Attachment 3] Nos. 8 through 11 of [Attachment 3] among each of the instant trades (HH transferred to Plaintiff EE, DD, CCC, and AA), the Plaintiffs asserted that each transaction was conducted at the same time with the same opportunity, but each of the said transactions is difficult to view that it was a different transaction value from the Plaintiff EE and B, and it is difficult to view that it was a transaction value at the same price prior to the said transaction value.

B) Furthermore, in the case of [Attachment 3] 5 transactions among each of the instant transactions, in particular, in the case of the [Attachment 3] No. 5 transactions, the Plaintiffs asserted that, in light of the fact that they concluded a stock transfer contract and settlement agreement with the Plaintiff BB during the process of settling the business, and accordingly, they transferred their shares to the Plaintiff BB, and that they filed a civil lawsuit against the Plaintiff BB who did not perform the said contract, the stock price agreed upon in the said contract shall be deemed the market price in itself, and the remaining transaction price in the instant case shall also be the transaction price decided by the parties and the Plaintiffs through negotiations.

However, even if all descriptions of Gap 7, Gap 8, Gap 14 (Adjustment Protocol), Gap 15 (O.O.O.O. agreement), and Gap 16 (O.O.O. agreement) submitted by the plaintiffs with respect to Nos. 3 5 are examined, the grounds for calculating the stock transfer value of the plaintiff BB and III are not known, and the contents of the consultation are not revealed (the plaintiff BB and III referred to as 5,000 won for each of Nos. 1 through 4 prior transactions) and the remaining transaction value of each of the instant shares are not determined as a result of evaluating the value of the instant shares of the company (the value of each of the instant shares is determined as a result of each of the instant agreements) and the value of each of the instant shares is not determined as a result of each of the instant agreements (the value of each of the instant shares appraised by the plaintiff BB and III).

C) Thus, each transaction value of this case cannot be deemed to be "the value generally recognized as being constituted when transactions are made freely between many and specified persons" under Article 60 (2) of the former Inheritance Tax and Gift Tax Act. It cannot be deemed to be a case where there is a value that adequately reflects the objective exchange value formed through the general and ordinary transactions, that is, the transaction example case’s value. Thus, the market value of the shares of the company of this case at the time of each transaction of this case shall be deemed to be the value of shares appraised in accordance with the supplementary assessment method under Articles 60 (3) and 63 (1) 1 (c) of the former Inheritance Tax and Gift Tax Act. The plaintiffs’ assertion disputing this is without merit.

2) Whether each transaction value of the instant case is substantially lower than the market value

A) Attached 3’s Nos. 5 (Transactions between Related Parties)

Article 35 (1) of the former Inheritance Tax and Gift Tax Act provides that "for a person who acquires an asset from another person at a price lower than the market price, an amount equivalent to the difference between the price and the market price and equivalent to the profits prescribed by Presidential Decree shall be deemed the value of donated property." Article 26 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "if the value calculated by subtracting the price from the market price of the acquired asset (referring to the value assessed under Articles 60 through 66 of the Act) is 30/100 or more of the market price or if the difference is 300 million won or more, it refers to such consideration."

Plaintiff BB owned O% of the shares of the instant company as of 201O.O.O., and Ⅲ purchased shares of the instant company from 2008O.O.O. to 201O.O., respectively, under Article 16(2) of the former Inheritance Tax and Gift Tax Act and Article 12-2(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act at the time of transaction Nos. 5 attached Table 3, and Article 16(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 12-2(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and at the time of transaction Nos. 5 attached Table 3, the market price of the instant shares shall be OB per share assessed by the Defendant in accordance with the supplementary assessment method under the former Inheritance Tax and Gift Tax Act. As such, since Plaintiff B purchased shares of the instant company in 5,000 won, the transaction price constitutes a lower price than 30 percent of the market price.

B) Article 35(2) of the former Inheritance Tax and Gift Tax Act provides that "If property is acquired or transferred by transfer between persons who are not specially related persons as prescribed by Presidential Decree, without any justifiable reasons, the amount equivalent to the difference between the price and the market price shall be presumed to have been donated and the amount equivalent to the profits prescribed by Presidential Decree shall be deemed to have been determined as the value of donated property of the person who acquired the profits." Article 26(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "in applying Article 35(2) of the former Inheritance Tax and Gift Tax Act, the extent of a significantly low or high value is determined by Presidential Decree," and Article 26(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "if the price of the acquired property is remarkably lower than 30/100 of the market price from the market price of each of the above property, the price of each of the parties to the transaction (excluding attached Table 35) shall be deemed to have been 0/100 or more of the market price of each of the parties to the transaction."

C) Sub-determination

Since Plaintiff BB acquired the shares of the instant company at a price lower than the market price from a specially related III, the imposition of gift tax Nos. 2 and 3 of [Attachment 1] by the Defendant against Plaintiff B on the same premise is lawful.

3) Whether there is no "justifiable reason in light of the practice of trading" in each of the instant transactions (excluding attached Table 3 Nos. 5)

A) Facts of recognition

(1) Circumstances and methods of incorporation of the instant company

(1) 이 사건 회사는 2003년 초경 플랜트 종합설계 업무 등을 목적으로, 배관업무를 주로 하는 JJJ 주식회사(대표이사 III), 계장 업무를 주로 하는 KKK 주식회사(대표이사 FFF, 이하 'KKK'라 한다), 토목업무를 주로 하는 주식회사 LLL(대표이사 원고 BBB) 등 3개 회사 대표이사들과, 전기업무를 주로 하는 MMM 주식회사(대표이사 GGG, 이하 'MMM'이라 한다)의 이사 원고 EEE가 각각 OO%씩 출자하여 설립한 회사이다. 그 후 이 사건 회사는 2008.OO.OO. 유상증자를 실시하였는데, 이때 배관업을 주로 하는 주식회사 NNN(대표이사 PPP, 이하 'NNN'라 한다), 건축업을 주로 하는 주식회사 QQQ(대표이사 HHH, 이하 'QQQ'이라 한다), 위 MMM(대표이사 GGG)의 대표이사 3명이 추가로 출자하여 이 사건 회사에 합류하였다(이 사건 회사의 2003년 설립 당시 및 2008년 유상증자 시 주식보유현황은 별지2와 같다).

(2) The instant company held an internal operation meeting of 2008O.O.O., and agreed on the method of operation as follows and drafted by minutes (Evidence A6).

3. Operating methods;

Operation of an independent accounting system by type of work;

- jointly performing administrative work

-the settlement of accounts by work type after exclusion from management and operation costs;

-the person responsible for each type of work (including the person responsible for each non-standing type of work) shall be responsible for the settlement of accounts for the cost of receiving orders and the performance of services, and for the cost of leasing and managing the relevant type

- In principle, the services jointly (comprehensive) shall be given priority.

- Accordingly, other services and services are planned, taking into account the workload and schedule of the joint top priority services.

The minutes signed by Plaintiffs BB, III, Vice President III, Plaintiff EE, former PP, FF, non-standing shareholders FF, and HH due to each type of work. As for each type of work, Plaintiff BB is included in civil engineering, III, Plaintiff EE, electricity, PE, FF, and HH are included in pipes, F, and HH.

(3) According to such an agreement, the above six companies’ representatives took the responsibility system for each type of work and each type of work as the operating principle of the instant company, and carried out their respective tasks by sharing the entrusted plant work according to each type of work, and jointly carried out only the management and administrative work necessary to manage or coordinate common tasks in the process.

(2) Circumstances of each of the instant transactions

(A) PP and Plaintiff BB’s 2009O.O.O. transactions (attached Form 3 No. 2)

PPP was appointed as an auditor on 2008O.O.O.O., after the incorporation of the instant company in early 2008. However, there was a conflict with other shareholders, including Plaintiff BB, and other shareholders held a temporary general meeting of shareholders on 2009.O.O., and dismissed PP from the audit. Accordingly, PP was organized the partnership business and transferred all the shares of the instant company held by the Plaintiff BB.

(B) FF, Plaintiff EE, and DD’s 2013O.O.O. transaction (attached Table 3 Nos. 6,7)

FF performed the mooring-related work since the establishment of the instant company. Since KK launched as a general company in the plant field around 2010, it changed into the instant company’s competition relationship with the instant company, it organized the partnership with the instant company around 2013 and transferred all the instant company’s shares to the Plaintiff EE and DD.

To this end, the descriptions of the supporting document (A.20) submitted by the FF are as follows:

The primary transfer of one’s own shares to Plaintiff EE has transferred part of the shares to EE in a situation in which the principal is unable to participate in the operation of the OO, and the transfer time has been at a par value at which the first corporation is made.

The second stock transfer is 2013 years, and the OO operation is unilaterally operated than its original purpose, and it was intended to arrange all sites and to be faithful to its own business, and at that time, he did not disclose the financial statements or performance of the OO and did not exceed the amount presented by the Plaintiff EE. The I think and transferred the appropriate amount of disposal at the request of the principal even if it is not sufficient to do so.

(C) HH and Plaintiff EE, DD, CCC, and AAA transaction 2014O.O.O.O. transaction (attached Table 3 Nos. 8-11)

HH, which had been in charge of the construction work of the instant company, started conflicts with Plaintiff BB and EE on the ground that the instant company set the contract price under the category of construction work agreed upon when concluding a contract on entrustment of business with Oconstruction Co., Ltd. around 2011. After that, HH, around 2014, expressed the intent to arrange the business relationship with the said Plaintiffs, and transferred all the shares of the instant company to O.O.O.O., 2014.

On the other hand, HH submitted a supporting document (No. 13) stating the following:

The details of determination of the transaction price: It is determined as the transaction price (FFF shareholders' transaction price) that was conducted before simply because it is difficult to know the accurate business value due to the characteristics of the unlisted small and medium enterprises.

The circumstances of stock transfer: Along with the inherent influence at the time, there was a lot of business design work of the petroleum chemical plant, so it is difficult for the stock price due to the decline of international oil prices, and the competitors have increased in the order of depression, so it is difficult for them to make a request for purchase of stocks to the OO because there is a high possibility of insolvency and it is difficult to receive new contracts due to the rapid increase of competition.

In addition, because the minority does not have a position to participate in the management, the meaning of the stock holding has not been significance.

(3) Business performance of the instant company

The details of sales, net income, and earned surplus of the instant company from the business year 208 to the business year 2016 are as follows:

[Reasons for Recognition] Each entry of Gap's 13, 18 through 25, Eul's 9, 10, 11 (including each number), and the purport of the whole pleadings

B) Determination

In full view of the following circumstances acknowledged in addition to the above facts and the whole purport of the arguments and evidence, it is reasonable to deem that the plaintiffs' acquisition of the shares of the company of this case through each transaction of this case except the No. 5 of annexed Table 3 was an abnormal reason from a reasonable economic point of view. Thus, it is difficult to deem that there was no justifiable reason in light of the transaction practice in each transaction of this case, and it is difficult to prove that there was no justifiable reason by the defendant. Each of the dispositions of this case (excluding the disposition of tax imposition No. 2 of annexed Table 1) different from the above premise,

(1) Article 35(2) of the former Inheritance Tax and Gift Tax Act is a provision to cope with an unlawful act of donation, and where there is an issue as to whether a transaction is applied to a transaction between interested parties who are in conflict with an interest without any reason to allocate profits, it shall not be readily concluded that there is a substantial difference between the price agreed upon by the parties to the transaction (in particular, where the market price is difficult to calculate based on the supplementary evaluation method, it is a constructive concept based on the past performance or property relationship expressed in the financial statement) and the market price.

(2) 이 사건 각 거래의 당사자들은 이 사건 회사 설립 또는 유상증자에 참여하여 이 사건 회사를 공종별 책임제 원칙에 따라 동업관계로서 운영하던 사람들이다. 그중 PPP은 배관, FFF는 계장, HHH는 건축 부문의 책임자였다. 이 사건 각 거래는 이러한 동업관계를 청산하는 과정에서 투자금 회수 등을 위하여 이루어진 것으로서, 양도인들이 자신들의 이익을 포기하면서까지 원고들에게 이익을 분여할 만한 아무런 동기를 찾아볼 수 없다(FFF와 HHH의 각 소명서 내용을 살펴보더라도 거래당사자들의 이해관계가 대립되고 있었음을 충분히 확인할 수 있다). 그뿐 아니라 이 사건 각 거래 이후 PPP이 대표이사로서 운영한 NNN, FFF가 대표이사로 운영한 KKK, HHH가 대표이사로서 운영한 QQQ 모두가 이 사건 회사와 경쟁관계에 있게 된 것으로 보인다.

(3) In light of the foregoing transferor’s status, the transferor at the time of each of the instant transactions

Although it appears that each transaction value of the instant company did not fully reflect the objective exchange value of the instant company’s stocks at that time, it appears that the value was determined based on the management status and future anticipated of the instant company. Accordingly, the FF explained that the FF intended to adjust all sites and to execute the business of the instant company and to dispose of the instant company in good faith, and that it was not adequate to dispose of the said company’s business, and that HH considered and transferred the relevant amount of money as necessary. He explained that the H H’s “H was difficult to make it difficult due to a decline in the international oil price, and that it was difficult for the competitor to make it difficult for the competitor to make it difficult for the competitor to make it difficult for the competitor to purchase the shares, and that it was also difficult for the competitor to make it difficult for the competitor to do so. In fact, it appears that the sales of each of the instant company after the decline in around 2014 (Evidence No. 11-4), FF, and H appears to be the sales of each of the instant companies.

3. Conclusion

Thus, the plaintiff BB's claim shall be accepted within the scope of the above recognition, and the remaining claims shall be dismissed as without merit, and the remaining claims of the plaintiffs shall be accepted as reasonable. Since the judgment of the first instance is unfair with some different conclusions, the part of the appeal by the plaintiff BB and the remaining appeals by the plaintiffs shall be accepted, and the judgment of the first instance shall be modified as per Disposition.