Cho High Court Decision 2008Do3061 ( December 30, 2008)

Whether a title trust without any tax avoidance purpose is a title trust

In the case of a major shareholder, even though he has the obligation to report to the Financial Supervisory Commission the matters related to the stock transfer, he avoided by the title trust, and the fact that the lower tax rate was avoided by disposing of corporate tax other than capital gains tax by the title trust to a corporation.

The contents of the decision shall be the same as attached.

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant revoked the imposition disposition of gift tax of KRW 1,953,146,970 on May 16, 2008 by the Plaintiff.

1. Circumstances of the disposition;

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The facts were confirmed.

B. Accordingly, on May 16, 2008, the director of the Seoul Regional Tax Office: (a) deemed that 90,000 shares issued in the name of ○○○ Construction Co., Ltd. (hereinafter “○○ Construction”) among the said 2.8 million shares were owned by the Plaintiff; and (b) notified the Defendant that gift tax should be corrected and notified to the Plaintiff by applying the provision on the constructive gift of title trust under Article 45-2 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”); and (c) on May 16, 2008, the Defendant imposed gift tax amounting to KRW 1,935,146

【Facts without dispute, evidence Nos. 1 through 4, evidence Nos. 1 and 2, as a whole

purport of this chapter

2. Referral and Determination

A. The plaintiff's assertion

(1) The proposal that no title trust is held

In addition to the 14 billion won withdrawn from the △△○ World at the time of issuing the new shares by the company of this case, the Plaintiff borrowed 5.5 billion won from the Cho Il-sung, prepared to prepare 19.5 billion won, and acquired 3.9 billion won of new shares issued by the company of this case, and provided the entire new shares acquired by the company as a collateral for transfer to Cho Il-sung as well. Accordingly, the shares of this case, which were registered in the name of ○○ Construction, are also provided as collateral for transfer to Cho Il-chul, and the Plaintiff did

(2) A statement that there was no purpose of tax avoidance.

Even if the instant shares were nominal trust, the Plaintiff, as a major shareholder of the instant company, obtained the instant shares at a lower price than the market price by raising funds in order to prevent the instant company from withdrawing from the market. The Plaintiff merely distributed the shares acquired in order to not be subject to the reporting by the Securities Supervisory Board, but did not have any purpose of evading taxes. Therefore, the Plaintiff may not be deemed as a gift pursuant to Article 45-2(1)1 of the Inheritance Tax and Gift Tax Act.

(b) Fact of recognition;

(1) On December 1, 2005, the instant company issued 3,90,000 shares (Issuance Price 5,000) via an increase in the value of new shares by public offering. The status of changes in the shares of related shareholders following the issuance is as follows:

(2) On August 7, 2006, at the Seoul Central District Prosecutors' Office, the Plaintiff stated that he invested KRW 4.5 billion in the amount of KRW 9 billion, and that he acquired 1.4 million shares of the instant company in the name of ○○○○○○○○○○○, which was introduced by the Sungdong-gu instead of acquiring the new shares of the instant company, and provided the said company as a security for collecting funds, and that the instant shares in the name of ○○○○○○○○○○○○ was necessary to participate in capital increase with capital increase, and thus, the Plaintiff borrowed the said corporation’s name to participate in capital increase with capital increase.

(3) Before undergoing an investigation at the public prosecutor’s office on July 25, 2006, Blue Madle, 1.4 million Won, which was introduced by himself at the public prosecutor’s office, was provided as security, and in addition, was registered as the representative director of △△△○ World, and was stated that 50% of the shares of △△△○○ World was provided as security, and did not mention all of the shares of this case in the name of ○○ building.

(4) On December 1, 2005, according to the contract for the loan for consumption, etc. between the plaintiff and the defendant on December 1, 2005 (Evidence No. 3-4), Between Between B/L and B/L, the plaintiff lent 5.5 billion won to the plaintiff, and the plaintiff shall repay the loan to the plaintiff on the date when 3 months elapsed, and the interest shall be paid every one month. The B/L will participate in the capital increase of the company of this case before and after the conclusion of the contract, and the plaintiff will take over 1.1 billion won at the face value of 5.5 billion won, and the above contract will take over the above shares at the price of 7.975 billion won in total within 3 months from B/L. The above contract includes new shares acquired at the third party's name on the account of B/L within the above limit of shares, and the plaintiff shall secure 9.65 million won shares of the plaintiff or the plaintiff in the name of the third party, and the plaintiff has made the share transfer to B/L.

[Reasons for Recognition] Evidence Nos. 11, Evidence Nos. 3-4, Evidence Nos. 4-1 to 4, Evidence Nos. 5-1, 5-2, and purport of the entire pleadings

C. Determination

(1) Determination as to the proposal that no title trust is held

According to the above facts of recognition, it is sufficient to view that the instant shares were held in title trust with the Plaintiff’s acquisition of the shares of the instant company on its own account, not by providing B/L to B/L B/L, and thus, this part of the Plaintiff’s assertion is without merit.

(2) Determination as to whether there was no purpose of tax avoidance

The provision on the constructive gift of Article 45-2 of the Inheritance Tax and Gift Tax Act recognizes an exception to the substance over form principle in order to realize tax justice by effectively preventing the act of tax avoidance using the title trust system. As such, the proviso of the same Article is applicable in cases where the purpose of tax avoidance is not entirely included in the purpose of title trust. In such a case, the person claiming it has the burden of proving that there was no purpose of tax avoidance. Therefore, the nominal owner who bears the burden of proof has an obvious purpose of tax avoidance, which is irrelevant to the tax avoidance, to the extent that it is recognized that there was no purpose of tax avoidance in the title trust, and that there was no tax avoidance at the time of the title trust or at the time of the future. (See Supreme Court Decision 2004Du11220, Sept. 22, 2006).

However, according to the above facts, evidence and evidence Nos. 5-1, 2, 6, 6, and 6 and 7 of the above evidence, and the purport of the whole pleadings, the plaintiff actually as a major shareholder of the company of this case, but did not own shares in the name of the Financial Supervisory Commission, but did not hold shares in the name of the borrower. In addition, since the plaintiff owned the shares in the name of ○○○ Construction, which is not an individual of the plaintiff, and thereafter disposed of the shares in this case, with a much more tax rate than capital gains tax, the transfer income tax may be avoided. In light of this, it is difficult to find that the fact that the plaintiff did not have any particular profit in the process of the stock transaction of this case has a clear purpose unrelated to the tax avoidance in the title trust of this case, or that there was no tax avoidance purpose at the time of the title trust or at the time of the future. Ultimately, this part of the plaintiff's assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.