With respect to the calculation method of profits arising from the increase of capital by the third party allocation method, the evaluation date of "the evaluation value per share before the increase of capital" in the formula provided for in Article 29 (3) 1 (a) of the Enforcement Decree of the former Inheritance Tax and Gift Tax Act (=the day preceding the payment date of capital)

Article 39(1)1(c) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 7010, Dec. 30, 2003); Article 29(3)1(a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 17828, Dec. 30, 2002);

Plaintiff 1 and 26 others (Law Firm Seo-young, Attorneys Southern-gu et al., Counsel for the plaintiff-appellant)

Head of Gangnam District Tax Office and 12 others

Seoul High Court Decision 2006Nu18678 decided March 28, 2007

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

We examine the grounds of appeal.

Article 39(1)1 (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax and Gift Tax Act”) provides that when a corporation issues new stocks to increase its capital, a person who is not a shareholder of the relevant corporation obtains profits from the corporation by directly obtaining allocation of new stocks from the relevant corporation, the amount equivalent to such profits shall be deemed to have been donated. As to the calculation of the profits deemed to have been donated, Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that the calculation of the profits deemed to have been donated shall be made by subtracting the acquisition value per share from the "number of new stocks issued by a person with increase in the number of new stocks issued 】 (number of stocks issued by a person with increase in the number of new stocks)" ± (c.

In full view of the language and purport of the above provisions, and the purport of the legislative purport of the above provisions, and the effect of the acquisition of shares due to the increase in the capital, the value of shares subscribed by the new shares underwriter should be calculated at the time of payment, barring any special circumstances, as to the method of calculating profits arising from the increase in the capital by a third party allocation method, the assessment of the "value per share before the increase in capital" in the formula as stipulated in Article 29 (3) 1 (a) of the former Enforcement Decree of the Inheritance and Gift Act is, in principle, rather than the resolution of the board of directors on the increase in capital, for the previous period based on

In the same purport, the lower court is justifiable to have rejected the Plaintiffs’ assertion that the assessment of “the assessment value per share before the capital increase” in the formula provided for in Article 29(3)1(a) of the former Enforcement Decree of the Inheritance and Gift Act shall be based on the date of the resolution of the board of directors concerning the capital increase.

As alleged in the grounds of appeal, the court below did not err in the misapprehension of legal principles as to the "value per share of the person concerned" under Article 29 (3) 1 of the former Enforcement Decree of the Inheritance and Gift Tax Act and the principle of prohibition of retroactive taxation.

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)