208Guhap34115 Revocation of Disposition of Imposition of Gift Tax

1. ○○○

2. 00

3. ○○○

Head of the District Tax Office

March 18, 2009

May 6, 2009

1. The Defendant’s disposition imposing gift tax of KRW 12,384,060 on Plaintiff 1 on August 9, 2007, disposition imposing gift tax of KRW 11,072, and KRW 630 on Plaintiff 2, and disposition imposing gift tax of KRW 12,64,080 on Plaintiff 3, respectively.

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

The order is as set forth in the text.

1. Details of the disposition;

A. On September 2, 2004, the head of Seodaemun-gu Tax Office requested the ○○○○○ to pay the gift tax imposed on ○○○○○○○, and 54,000 non-listed shares (the total number of outstanding shares of the non-party company at the time was 540,000, the face value was 5,000 won; hereinafter referred to as the “instant public sale shares”) to sell them to 00 won on July 12, 2005, the 6th public sale of the instant shares was scheduled to be conducted on 19,00 won on the 0th public sale of the instant shares, but the 3th public sale of the instant shares was scheduled to be conducted on the 15th public sale of the instant shares to 0th public sale of the instant shares to 36th public sale of the instant shares to 3th public sale of the instant shares to 3th public sale of the instant shares to 4th public sale of the instant shares.

B. On December 8, 2006, Plaintiff 1 and 2 received 50,000 non-listed shares of each non-party company from his father ○○○○○, respectively. On the same day, Plaintiff 3 donated 50,000 shares of the non-party company’s non-listed shares from ○○○○ on the same day (hereinafter “the non-party company’s non-listed shares”). After the mother donated 50,000 shares of the non-party company’s non-listed shares (hereinafter “the shares of this case”), Plaintiff 3 calculated the value of the public auction of this case as the market price of the shares of this case (hereinafter “the market price of the shares of this case”), and reported the gift tax to the Defendant.

C. As to this, the Defendant cannot regard the public auction price of this case as the market price of this case’s stocks.

In accordance with Articles 60, 63(1)1 (c), and Article 54(1) and (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007), the value of each share of this case shall be assessed as 10,312 won, and the value of the gift shall be assessed as 12,384, 060 won, and the gift tax shall be assessed as 11,072, and 630 won shall be assessed as 12,64, and 080 won shall be assessed as 12,312,387, and 12,64, and 080 won shall be assessed as hereinafter referred to as 'the disposition in this case').

D. The Plaintiffs were dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on September 5, 2007, but was dismissed on June 30, 2008.

【Ground for Recognition: Facts without dispute, Gap evidence 1-1, 2, 3, Eul evidence 2, Eul evidence 1-1, 2, 3, Eul evidence 2, 3, Eul evidence 4-1, 2, 3, 7, 8, 9, 11, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

According to Article 60(1) and (2) of the Inheritance Tax and Gift Tax Act and Article 49(1)3 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20720, Feb. 29, 2008), the value of the property on which the gift tax is levied shall be the market value as of the date of donation. Here, the market value shall be the value which is generally accepted where the transaction takes place between many and unspecified persons, and the expropriation and public sale price shall be the value which is determined by Article 49(1)3 of the Enforcement Decree of the same Act and is included in the market value. As for the public sale shares of this case, the public sale price of this case is determined in the public sale procedure, i.e., the public sale price of this case, so even though the Defendant does not recognize it as the market value, the disposition of this case is unlawful by evaluating the value per share of the main sale by supplementary evaluation methods.

(b) Relevant statutes;

It is as shown in the attached Table related Acts and subordinate statutes.

C. Determination

1) Article 60(1) and (2) of the Inheritance Tax and Gift Tax Act provides that the value of the property on which the gift tax is levied shall be the market price as of the date of donation (referring to the amount recognized as the market price under the conditions as prescribed by the Presidential Decree, such as the public sale price, etc.). Article 49(1)3 of the Enforcement Decree of the same Act provides that in the case of donation, where there is a fact of public sale on behalf of the relevant property within three months before the base date of appraisal, the amount of the public sale shall be deemed the market price: Provided, That each item of the same subparagraph of the same subparagraph (1) where the heir, donor, or donee of the property paid in kind under the provisions of Article 73 of the Inheritance Tax and Gift Tax Act, or a person in a special relationship with the donee acquires it through an auction or public sale, 2) the value (referring to the total amount of face value) of the non-listed stocks acquired through an auction or public sale is below the smaller of the following amounts:

According to the above provisions, in case where there is a sale of shares by the company within three months before the donation of shares, the public sale price is considered to be the market price in calculating the donation price of shares, unless it does not fall under the exception requirement under each item of Article 49(1)3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

2) As seen earlier, as to the instant case, on September 21, 2006, the public sale shares of this case were awarded to Plaintiff 1 at KRW 351,351,00, which is the value of the instant public sale ( KRW 6,506 per share), and the donation of the instant shares was made on December 8, 2006, which is within 3 months from that date. However, on the other hand, the public sale shares of this case were disposed of only under attachment disposition, but not paid in kind, not the face value of the instant public sale shares ( KRW 54,00 x5,00 x 270 x 270,000 x 270,000 x 1/100 of the market value of the issued shares) and the value of the instant shares should not be calculated under Article 31 (1) 4 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as well as the value of the instant shares sold under each of the instant public sale.

3) In light of the purport of the amendment under each item of Article 49(1)3 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the Defendant asserts that the above provision is an example to the extent that the public auction price or auction price of the non-listed stocks is excluded from the market price recognition. Accordingly, the above provision stipulates that it is reasonable to calculate the gift value of the stocks of this case by supplementary evaluation method except for the market price recognition on the ground that the public auction price of this case was awarded merely 25% of the price initially sold, the third party was able to freely participate in the process of selling the stocks of this case due to accounting transparency due to embezzlement by employees accounting of the non-party company.

① Under the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted as a legal tender unless there are special circumstances. It is not permitted to expand or analogical interpretation without any justifiable reasons. ② Article 60(2) of the Inheritance Tax and Gift Tax Act provides that the market price, which serves as the basis for calculating the donation price, shall be the value recognized as normal when transactions are conducted freely between many and unspecified persons, and the public auction price of the pertinent property shall be included in the market price. In this case, it is not the case where free transaction is made between many and unspecified persons, but the case where there is a possibility that a trade will be made freely between them. Even if a third party takes part in the public auction due to the embezzlement case of an employee of accounting of the non-party company, as alleged by the defendant, it is difficult to view that there is no possibility that the above sale price of the pertinent public auction shares may not be freely traded or that there is no possibility that the sale price of the pertinent property may not be easily determined by the market price of the pertinent public auction, because there is no possibility that the sale price of the instant shares will not be an unreasonable market price.

Therefore, the defendant's above assertion is rejected.

4) Ultimately, in calculating the gift value of the instant shares, the instant disposition is unlawful on the premise that the instant public sale value falls under the market price under Article 60(2) of the Inheritance Tax and Gift Tax Act and Article 49(1)3 of the Enforcement Decree of the same Act, and the Plaintiff’s above assertion is reasonable.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by admitting it.

Judges Doing the presiding judge;

Judges Song Jae-chan

Judges Kim Jong-soo

1) 540,000 x 5,000 won: 100 = 27,000,000, and the sum of face value of the total issued and outstanding stocks of the juristic person concerned, which is calculated by 1/100.

The judgment of the exception requirement under Article 49(1)3 (b) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act is based on the amount less than the electronic amount between the amount and KRW 300 million.

shall be equivalent to this section.

Related Acts and subordinate statutes

Inheritance Tax and Gift Tax Act

Article 60 (Principles of Evaluation, etc.)

(1) The value of property on which an inheritance tax or a gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the “date of appraisal”). In this case, the value assessed by the methods of assessment stipulated in Article 63 (1) 1 (a) and (b) (excluding the case falling under the provisions of Article 63 (2)) shall be deemed the market price.

(2) The market price as referred to in paragraph (1) shall be the price which is considered to be normal in the case of free trade between many and unspecified persons, and shall include the price which is deemed to be the market price under the conditions as prescribed by the Presidential Decree such as the public auction price

(3) In applying the provisions of paragraph (1), where it is difficult to compute the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, size, transaction status, etc. of the relevant property.

(4) In applying paragraph (1), the value of a donated property to be added to the value of the inherited property under Article 13 shall be based on the market price as of the date of donation.

Article 63 (Appraisal of Securities, etc.) (amended by Act No. 8828 of December 31, 2007)

(1) The appraisal of securities, etc. shall be made according to the following methods:

1. Appraisal of stocks and investment shares:

(a) Stocks and equity shares traded with the Korea Stock Exchange shall be the average amount of the closing price at the Korea Stock Exchange ( regardless of whether they have a transaction record) every two months after the evaluation base date: Provided, That in the calculation of the average amount, in cases where it is inappropriate to apply the average amount due to a cause, such as an increase or merger, etc. of capital during a period of two months after the evaluation base date, the average amount of the periods calculated under the conditions as prescribed by the Presidential Decree during two months after the evaluation base date;

(b) The provisions of item (a) shall apply mutatis mutandis to the stocks and investment shares of the Association-registered corporations as prescribed by the Presidential Decree. In this case, the final market price for the Korea Stock Exchange shall be deemed to be the standard price for the securities exchange; and

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be assessed according to the method as prescribed by the Presidential Decree in consideration of the assets and revenue of the corporation concerned

Enforcement Decree of the Inheritance Tax and Gift Tax

Article 49 (Principles, etc. of Evaluation) (amended by Presidential Decree No. 20720, Feb. 29, 2008)

(1) For the purpose of Article 60 (2) of the Act, the term “those recognized as the market price, as prescribed by the Presidential Decree, such as the expropriation or public sale price, the appraisal price, etc.” means the value confirmed pursuant to any of the following subparagraphs in case of sale, appraisal, or expropriation (referring to an auction under the Civil Execution Act; hereafter the same shall apply in this paragraph) or public sale (hereafter referred to as “sale, etc.” in this paragraph) within six months before or after the evaluation base date (three months in the case of donated property; hereafter referred to as the “evaluation period” in this paragraph) or within the period of six months before or after the evaluation base date: Provided, That even if there is sale, etc. during a period not falling under any of the evaluation periods, if it is deemed that there is no special circumstance of price fluctuation in the stocks issued company during the period falling under any of the subparagraphs of paragraph (2), the value per trading, etc. may be included in the appraisal value for the year falling under any of the following subparagraphs, subject to consultation by the Evaluation Deliberative Committee under Article 56-2 (1):

1. If there is a fact that the relevant property has been traded, the transaction price: Provided, That if the transaction price is deemed objectively unfair, such as transactions with a person with a special relationship provided for in Article 26 (4), the transaction price shall be excluded;

2. In case where there exist the appraisal values appraised by two or more appraisal institutions in good faith as prescribed by the Ordinance of the Ministry of Finance and Economy (hereinafter referred to as the “appraisal institutions”) with respect to the relevant property (excluding the properties prescribed in Article 63 (1) 1 of the Act), the average value of such appraisal values: Provided, That this shall not apply to those falling under any of the following items, and in case where the relevant appraisal values fall short of 80/100 of the values appraised under Articles 61, 62, 64 and 65 of the Act (including the case where it is deemed to be improper in view of the purpose of appraisal after going through the consultation deliberation committee under Article 56-2 (1), even if the value is 80/100 or more), the said appraisal values shall be the value requested by the head of tax office (including the Commissioner of the competent Regional Tax Office, etc.; hereinafter referred to as the “appraisal institutions”), but this shall not apply to the case where the value is lower than the values presented by the person liable for tax payment:

(a) Values which are not suitable for the payment purpose of inheritance tax and gift tax, such as the assessment of relevant property on the premise that certain conditions are met;

(b) Values assessed in cases where a person fails to appraise the relevant property in its original form as of the evaluation base date;

3. Where there is a fact of expropriation or auction or public auction of the relevant property, the compensation therefor, the amount of auction or public auction: Provided, That in any of the following cases, the relevant auction or public auction price shall be excluded:

(a) Where a successor, donor, or a person in a special relationship with the donee (referring to a person in a relationship referred to in any subparagraph of Article 19 (2). In such cases, "one shareholder, etc." in Article 19 (2) shall be deemed "he/she has acquired property by auction or public auction;"

(b) Where the value (referring to the total amount of face value) of unlisted stocks acquired through an auction or public sale is less than the smaller of the following amounts:

(1) An amount equivalent to 1/100 of the total amount of issued and outstanding stocks or of the total amount of investment of the corporation concerned calculated as the sum of face value

(2) 300 million won

(c) Where acquired through a free contract, as prescribed by relevant Acts and subordinate statutes, after commencing an auction or public auction procedure;

(2) In applying the provisions of paragraph (1), whether a value referred to in any subparagraph of paragraph (1) falls within six months before or after the evaluation base date (three months in the case of donated property), shall be determined on the basis of the dates stipulated in the following subparagraphs, and where a value deemed the market price under the provisions of paragraph (1) is two or more, the value falling under the nearest day after the evaluation base date shall be determined:

2. In cases falling under paragraph (1) 2, the date on which a statement of appraisal is prepared;

3. In cases falling under paragraph (1) 3, the date when the compensation amount, auction price or public auction price is determined.

(3) In cases of paragraph (1) 2, where the appraised value of an appraisal institution offered by a person liable for duty payment falls short of the standards prescribed by the Ordinance of the Ministry of Finance and Economy, the appraised value of the relevant appraisal institution shall not be deemed the appraised value.

(4) Where the value falling under each subparagraph of paragraph (1) is included in two or more property values, and each of the property is not classified, it shall be calculated in proportion to the value appraised in accordance with the provisions of Articles 61 through 65 of the Act, but where there exist the appraisal values (referring to each appraisal value appraised by the same appraisal institution at the same time) for each of the property, it shall be calculated in proportion to the appraisal values: Provided, That where the value of the land and the buildings and other structures fixed on the land is not classified, they shall be calculated in proportion to the appraisal values:

(5) In applying the provisions of paragraph (1), where there is a value falling under any of the subparagraphs of the same paragraph on other properties whose size, location, use and items are identical or similar to the relevant property, the relevant value shall be deemed the market value under the provisions of Article 60 (2) of the Act.

(6) In evaluating inherited or donated property, the Commissioner of the National Tax Service may determine the detailed matters concerning the standard, method, procedure, etc. for each property in order to ensure fairness in evaluation.

Article 54 (Assessment of Unlisted Stocks)

(1) The weighted average value of the stocks and equity shares that are not listed on the Korea Securities and Futures Exchange under Article 63 (1) 1 (c) of the Act (hereafter in this Article and Article 56-2, referred to as the “non-listed stocks”) shall be based on the value appraised by the following formula (hereinafter referred to as the “net profit and loss value”) and the net asset value per share, respectively: Provided, That in the case of a corporation with multi-owned real estate (referring to a corporation under Article 158 (1) 1 (a) of the Enforcement Decree of the Income Tax Act) the ratio of the net value per share to the net asset value shall be 2 and 3:

Value per share = The weighted average amount of net profits and losses per share for the latest three years: Financial Institutions;

The interest rate determined and publicly announced by the Commissioner of the National Tax Service in consideration of the distribution rate of three-year corporate bonds (hereinafter referred to as “net profit and loss exchange rate”).

(2) The net asset value per share under paragraph (1) shall be the value appraised by the following formula:

Value per share = Net asset value of the relevant corporation: Total number of outstanding stocks (hereinafter “net asset value”).