Cho High Court Decision 2010Da1213 ( December 17, 2010)

Gift tax is legitimate even if the donor arrives at the date of settlement of the gift profit after the death of the donor.

In calculating profits from the listing, etc. of stocks or equity shares, the date of settlement shall not be limited to the date on which the donation profits are determined at the time of calculating the donation profits, but the donation shall not be made on the date of settlement, and this profit shall be included

2011Revocation of disposition imposing gift tax, 677

Park XX

O Head of tax office

July 21, 201

September 1, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of KRW 180,560,654 of the gift tax on January 2, 2010 against the Plaintiff and the imposition of KRW 126,680,772 of the gift tax on January 12, 2010 shall be revoked.

1. Details of the disposition;

A. On September 30, 2004, the Plaintiff received each gift of 9,600 shares from Ga, Cho Jae-in and 19,200 shares from Ga, Cho Jae-in, Cho Jae-in, a non-listed corporation (hereinafter referred to as 'Pmere'), respectively (hereinafter referred to as 'the gift of this case', and 'the total 28,800 shares of the shares donated as above'). After doing so on August 21, 2006, the Plaintiff acquired 9,83 shares as free shares pursuant to the gift of this case (hereinafter referred to as 'the free shares' of this case, and the Plaintiff acquired 'the non-listed shares' of this case in combination with the gift shares of this case).

B. The GATT 200 on October 4, 2006 divided the face value of KRW 5,000 per share into face value of KRW 500,000, and thereafter, on December 7, 2007, it was listed on the KOSDAQ market, and the said Park Sil-do died on August 12, 2007.

C. On January 2, 2010, the Defendant: (a) calculated the value of donated property pursuant to Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as of March 16, 2008; (b) imposed the Plaintiff a gift tax of KRW 454,362,140 on the 19,200 donated by the Plaintiff on the 19,200, the gift tax on the 19,200, the 19,000, the 19,000 shares and the KOSDAQ market; (c) imposed the gift tax of KRW 325,305,30, the gift tax on the 9,60, the 150, the 600, the 605, the 1965, the 2065, the 1967, the 19675, the 2006, the 19675, the 2006, the 2006.

D. On March 31, 2010, the Plaintiff appealed and filed a tax appeal on March 31, 2010. On December 17, 2010, the Tax Tribunal decided to fix the value of donated property by re-fixing the “profit arising from a substantial increase in corporate value per share” as stipulated in Article 31-6(4)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Accordingly, the Defendant finally calculated the value of donated property as indicated below and imposed the gift tax amount of KRW 307,241,420 (126,680,770 + (180,560,650) on the Plaintiff (hereinafter “instant disposition”).

(The following table omitted):

E. Meanwhile, the total number of outstanding shares at the time of September 30, 2004, which was the donation date of this case, was 480,000 shares. Of this, ParkCC, its father, 61.25%, 14%, 14%, 14%, 4%, and 4%, respectively, owned by each of the related parties.

[Ground of recognition] Facts without dispute, Gap 1, 2, 3 evidence, Eul 1 to 6 evidence, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition is unlawful for the following reasons.

(1) The Defendant deemed the time of donation of the instant disposition to be March 16, 2008 and rendered the said disposition. However, since ParkA, a donor, was already deceased at the said time, it cannot be deemed that there was a gift after the donor died, and thus, even though the requirements for imposing gift tax were not satisfied, the instant disposition that the Defendant imposed gift tax on the Plaintiff on the gift of March 16, 2008 is unlawful.

(2) The instant unlisted shares constitute “property value donated by an ancestor to a person who is not an heir within five years before the commencement date of inheritance” under Article 13(1)2 of the Inheritance Tax and Gift Tax Act and should be included in the taxable amount of inheritance taxes, and should be excluded from the taxable amount of inheritance taxes. Thus, the instant disposition

(3) Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which provides for the method of calculating the value of donated property, provides that "the number of stocks donated or acquired with compensation" shall be multiplied by the amount obtained by deducting the aggregate of the taxable amount of gift taxes per share as of the date of donation from the appraised value per share as of the date of settlement of accounts, and the amount of profits gained with respect to the actual increase in the value of each share. Therefore, the instant gratuitous stocks, which are not donated stocks, shall be excluded when calculating the value of donated property, and the person with no compensation shall not have

Nevertheless, the defendant calculated the appraised value per share as of the date of settlement, including the above free shares, and thus, the disposition of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) As to whether the instant disposition was unlawful at the time of donation after the donor’s death

A) The facts that ParkA, a donor, died on August 12, 2007, and the Defendant considered on March 16, 2008, which was after ParkA’s death pursuant to Article 41-3 of the Inheritance Tax and Gift Tax Act, as the date for settlement of the non-listed stocks of this case, and issued the instant disposition to the Plaintiff as seen earlier.

B) The legislative intent of Article 41-3 of the Inheritance Tax and Gift Tax Act, which is the basis of the instant disposition, is to prevent the transfer of stocks in fact by listing the stocks on the securities market after the largest shareholder, etc. of the unlisted corporation once donated the unlisted stocks on the stock market. In such a case, “in the event that the donated unlisted stocks have accrued any profit by listing them at a certain time, such profit shall be deemed to have been donated, and thus, gift tax shall be imposed on the said profit.” In such a case, the date for settlement of accounts under Article 41-3(2) of the Inheritance Tax and Gift Tax Act does not mean that the donation was made on the date of the settlement of accounts at the time of calculating the gift profit. Therefore, the requirements for taxation of gift tax under Article 41-3(3) of the Inheritance Tax and Gift Tax Act shall not be deemed to have been the case where the donee received or acquired stocks from the largest shareholder, etc. under Article 41-3(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act at the time of the original unlisted stocks, whether the donee and the donor obtained or obtained any profit more than the above.

However, there is no dispute between the parties on the record as to whether the disposition of this case satisfies all the taxation requirements under Article 41-3 of the Inheritance Tax and Gift Tax Act. Accordingly, the Plaintiff’s assertion that the disposition of this case was unlawful as of March 16, 2008, which calculated the listing benefits of this case as of March 16, 2008, which was the date of settlement of accounts, and deemed that the Plaintiff was a donation to the Plaintiff, and that the disposition of this case was unlawful at the time of donation after the donor’s death.

2) As to whether the listed earnings of this case are included in the taxable amount of inheritance taxes

A) Article 13(1)2 of the Inheritance Tax and Gift Tax Act provides that “The value of the property donated by an ancestor to a person who is not an heir within five years prior to the commencement date of inheritance” shall be included in the taxable amount of inheritance taxes. The fact that the instant unlisted stocks were the property donated to the Plaintiff who is not an heir of the ParkA within five years prior to the commencement date of inheritance due to the death of ParkA is as

B) However, as seen earlier, the gift tax under Article 41-3 of the Inheritance Tax and Gift Tax Act imposes gift tax on the listed profits arising from the listing after the donation of the shares, not the instant non-listed shares. Article 13(3) of the Inheritance Tax and Gift Tax Act provides that "the value of the donated property excluded from summing-up under Article 47(1) shall not be included in the value of the donated property added to the taxable value of the inherited property pursuant to paragraph (1)." Article 47(1) of the Inheritance Tax and Gift Tax Act provides that the value of the donated property under Article 41-3 of the Inheritance Tax and Gift Tax Act is one of the donated property excluded from summing-up, and it is not the donated property added to the taxable value of the inherited property.

In this regard, the Plaintiff asserts that Article 13(3) of the Inheritance Tax and Gift Tax Act does not apply to cases where a donor dies before the shares of the donor are listed. In such a case, the value of donated property under Article 41-3 of the Inheritance Tax and Gift Tax Act should be included in the value of inherited property. However, contrary to the language and text of Article 13(3) of the Inheritance Tax and Gift Tax Act, there is no ground to include the listed gains under Article 41-3 of the Inheritance Tax and Gift Tax Act in inherited property or donated property according to the period of donor’s death. Furthermore, the inheritance tax is levied on inherited property as of the commencement date of inheritance, i.e., the inheritance tax is levied on inherited property at the time of the deceased’s death. As such, the Plaintiff’s assertion that

Therefore, the plaintiff's assertion on the premise that the listed interest in this case is included in the taxable value of inherited property is not reasonable.

3) As to whether the instant gratuitous shares should be excluded from calculating the value of donated property

Article 41-3(6) of the Inheritance Tax and Gift Tax Act explicitly provides that "the acquisition of stocks shall include new stocks acquired or allocated by a corporation through the issuance of new stocks in order to increase its capital." The new stocks under this provision do not mean only new stocks issued by capital increase, but it shall not be deemed that such stocks are not included without compensation for capital increase. In addition, in the case of new stocks donated after the donation of stocks, it shall be interpreted that all of them include capital increase or without compensation. In addition, Article 31-6(7) and the proviso to Article 56(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, Article 17-3(5) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "in calculating the total number of stocks issued without compensation between the date of donation or acquisition of the stocks and the date of listing from the date of donation or acquisition, the conversion method of stocks is stipulated in Article 41-3(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 41-3(3) of the Enforcement Decree of the Inheritance Tax Act provides that the number of stocks acquired without compensation shall not be included in paragraph 16(3).

Since the method of calculating profits from listing is stipulated for the method of calculating profits from listing, the above argument that the stocks should be excluded from the gratuitous stocks when calculating the value of the donated property pursuant to the listing profits is rejected), in case where the donee received a donation of unlisted stocks and then received a gratuitous allocation of stocks corresponding to the portion of the non-listed stocks donated as a result of the donation of the non-listed stocks, it cannot be deemed that there is no substantial increase in the economic value from the standpoint of the donee. Therefore, the plaintiff's assertion that the instant gratuitous stocks are not donated or acquired at a cost, and

3. Conclusion

Thus, the plaintiff's claim is dismissed as it is without merit.