There is no reason to determine the special relationship on the basis of one "the low-price transferee or the high-priced transferor".

Since a contract for the purchase and sale of shares that the president of a corporation controlled by a transferor's investment as a transferee has a special relationship with the transferor, it shall be taxed as a transfer at a low price between the parties with a special relationship, and the market price cannot be calculated on the basis of the date of the contract for sale and purchase on the ground that the rise in the stock price due to the announcement of

Inheritance Tax and Gift Tax Act Article 35 of the Inheritance Tax and Gift Tax Act: The donation of profits from transfer at low or high price

2016Guhap50464 Demanding revocation of disposition imposing gift tax, etc.

○ ○

○ Head of tax office

July 1, 2016

September 30, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The primary purport of the claim is to revoke the imposition of KRW 1,601,670,070 (including additional tax) on the gift tax of May 1, 2015 that the Defendant made to the Plaintiff on May 1, 201 and the imposition of KRW 27,36,00 (including additional tax) on the securities transaction tax of May 7, 2015.

Preliminary claim: A disposition imposing gift tax of KRW 652,082,320 (including additional tax) on the Plaintiff on May 1, 2015, a disposition rejecting correction of KRW 949,587,750 on May 7, 2015 (including additional tax) and a disposition rejecting correction of KRW 949,587,750 on June 2, 2015.

1. Details of the disposition;

A. The Plaintiff is the president and registration officer of ○ Industry Co.,, Ltd. (hereinafter “○○ Industry”), a listed corporation in the securities market, and ○○ is the vice president and registration officer of ○○ Industry, and the Plaintiff is the Plaintiff’s wife.

B. On March 19, 2014, the Plaintiff and Ma○○ entered into a contract with the largest shareholder 1,628,249 shares, 50% of the total number of outstanding shares of the ○ Industry (3,256,498 shares) on which the Plaintiff and Ma○○ entered into an agreement with the transferee designated by Ma○○ to acquire all of the shares of Ma○○○ at KRW 25,889,159,100 (15,90 won per share) (hereinafter referred to as “instant sales contract”). Accordingly, on April 22, 2014, the Plaintiff paid the purchase price of KRW 4,350,637,50 (275,000 shares x 15,90 won per share x 190,200 won per share, - 250 hours per share (hereinafter referred to as “○○ industry”).

C. The Plaintiff deemed that the acquisition of the instant shares constitutes “the donation of profits from the acquisition by transfer at the lower price” under Article 35(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “Inheritance Tax and Gift Tax Act”). As the date of the instant sales contract is the date of calculating the market price, the Plaintiff added 30/10 to the average of the closing prices of the Exchange values published during the two months before and after that date, calculated the market price of the instant shares as KRW 28,09 per share, and reported KRW 949,587,750 as of June 30, 2014; and paid KRW 474,793,870, Jun. 30, 2014; and paid KRW 474,784,787, Aug. 28, 2014.

In addition, on May 9, 2014, the Plaintiff reported and paid KRW 21,862,500,000 based on the transfer value of the instant shares (15,900 per share x 275,000 shares).

D. ① On May 1, 2015, the Defendant: (a) as an employee of the ○○ industry under the control of ○○ industry, the Plaintiff is specially related; (b) the standard date for calculating the market price is the one prior to being amended by Presidential Decree No. 26069, Feb. 3, 2015; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) under the former Enforcement Decree of Article 26(8) of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Apr. 22, 2014; (c) the largest shareholder, etc. owns more than 50% of the shares of the ○ industry; (d) calculated the market price of the instant shares as KRW 32,392 per share; and (e) determined the amount of gift tax calculated as KRW 1,601,70,707 (including additional tax; and (e) determined the amount of tax to be paid at KRW 2057,7505,7085.2.7

E. Meanwhile, on April 7, 2015, the Plaintiff filed a claim for correction with the Defendant for reduction of KRW 949,587,750 of the gift tax declared and paid by the Plaintiff on the ground that Article 35(1) of the Inheritance Tax and Gift Tax Act is not applicable to the Plaintiff’s specially related person. However, the Defendant rejected the claim on June 2, 2015 (hereinafter “instant refusal disposition”) (hereinafter “instant refusal disposition”), and both the disposition imposing gift tax and securities transaction tax, “each disposition of this case”).

F. On July 8, 2015, the Plaintiff filed an appeal with the Tax Tribunal on the imposition of the gift tax and securities transaction tax of this case and the refusal of correction of this case. However, the Plaintiff filed the instant lawsuit on January 7, 2016 without being notified of the decision of adjudication within 90 days from the date of the appeal.

[Ground of recognition] Facts without dispute, Gap evidence 7 through 9, 11 through 18, Eul evidence 1 through 3 (including branch numbers; hereinafter the same shall apply) and the purport of whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

For the following reasons, each of the dispositions of this case is unlawful.

1) Article 35 of the Inheritance Tax and Gift Tax Act provides that Article 35 (1) of the same Act shall apply to cases where a person receives the benefit of donation from a person who has a special relationship with the person who receives the benefit of donation (the person who has a provisional transfer or low-price) and Article 35 (2) of the same Act shall apply to other cases where there is no justifiable reason as a transactional practice. In this case, in light of the Plaintiff’s standard, Article 35 (1) of the Inheritance Tax and Gift Tax Act is not applicable since △△ was not a person with a special relationship with the Plaintiff. Furthermore, in light of the fact that the Plaintiff entered into the instant sales

2) The main text of Article 26(9) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the transaction price between an individual and a corporation falls under the value under Article 89 of the Enforcement Decree of the Corporate Tax Act, and Article 26(1) through (8) of the Inheritance Tax and Gift Tax Act shall not apply in cases where the denial of wrongful calculation is not applied to the transaction of the pertinent corporation. The sale price of the instant shares is an agreed amount between the Plaintiff and the Plaintiff through substantial negotiations, and those with no special relationship with the Plaintiff, other than the Plaintiff, acquire ○ industry shares at the same price as the purchase price of the instant shares, thereby falling under the value under Article 89 of the Enforcement Decree of the Corporate Tax Act. In addition, since the Plaintiff and ○○ paid KRW 2,079,763,592 as the price for partial transfer of the management right of the instant ○ industry at around October 2011, the purchase price of the instant shares is difficult to be deemed the market price. Therefore, since the sale price of the instant shares traded price is deemed the market price.

3) The Plaintiff and ○○ industry share price was negotiated since one year prior to the conclusion of the instant sales contract. However, at the time of the conclusion of the instant sales contract, the ○ industry share price of KRW 19,150 per share was increased to KRW 31,050 per share on April 22, 2014 due to speculative demand arising from the transfer of management right, and the Plaintiff could not at all expect the rapid increase of the share price at the time of the conclusion of the instant sales contract. Such circumstances are deemed unreasonable as the date of calculating the market price of the instant sales contract falls under “after the date of settlement of the price due to a sudden change in exchange rates after the latter part of Article 26(8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act” and thus, the market price of the instant ○ industry share should be assessed as of the date of the instant sales contract.

4) According to Article 63(3) of the Inheritance Tax and Gift Tax Act and Articles 53(4), 19(2), and 12-2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, ○○ Industry shares are owned by 50%. The Plaintiff is not a person with special relationship, but a person with a special relationship, and the Plaintiff is not a person with a special relationship, but a person with a special relationship, and thus, the Plaintiff’s shares in the ○ industry that the Plaintiff had previously held cannot be added up to the shares of the largest shareholder. Thus, the premium rate of the instant shares is not 30% applied where the largest shareholder holds shares in excess of 50%

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the existence of a special relationship

A) The relationship under Article 35(1) and (2) of the Inheritance Tax and Gift Tax Act

Article 35(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “the Inheritance Tax and Gift Tax Act”) provides that where a property is acquired at a low price from a person in a special relationship, or where a property is transferred at a high price to a person in a special relationship, gift tax shall be imposed on the excess amount in cases where the difference between the price and the market price exceeds a certain ratio or a certain amount. In addition, the former Inheritance Tax and Gift Tax Act (hereinafter “the Inheritance Tax and Gift Tax Act”) revised by Act No. 7010, Dec. 30, 2003 comprehensively provides that the scope of subject matter of gift tax and gift tax shall be comprehensively provided for the scope of subject matter of gift tax, and Article 35(2) of the same Act (see, e.g., Supreme Court Decision 2014Hun-Ba27, Jul. 30, 2014).

After amendment, the legislative purport of Article 35(2) of the Inheritance Tax and Gift Tax Act is to: (a) in a case where profits equivalent to the difference between the price and the market price are de facto gratuitously transferred by abnormal means that manipulates the transaction price for the benefit of the other party to the transaction, thereby coping with and promoting fair taxation by imposing gift tax on the profits earned by the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other; (b) it is generally difficult to deem 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; and (c) Article 35(2) of the Act adds the taxation requirement that “for the transaction between the unrelated parties, as for the transaction between the unrelated parties, there is no justifiable reason for the transaction practices” (see Supreme Court Decision 2013Du5

In light of the above provisions of the Inheritance Tax and Gift Tax Act, the amendment history, legislative purport, etc., Article 35(1) of the Inheritance Tax and Gift Tax Act does not explicitly state, but Article 35(2) of the Inheritance Tax and Gift Tax Act is subject to "transaction between related parties". Article 35(2) of the Inheritance Tax and Gift Tax Act is "transaction between unrelated parties," which is "any transaction between unrelated parties, whose price is remarkably lower than or higher than the market price without justifiable reasons in light of the transaction practices." It is reasonable to interpret that "a transaction between unrelated parties has justifiable reasons in light of the transaction practices" is not subject to gift tax (hereinafter Article 35 of the Inheritance Tax and Gift Tax Act applicable to this case does not differ from Article 35 of the Inheritance Tax and Gift Tax Act after the amendment. Thus,

B) Whether there is a “special relationship for the application of Article 35(1) of the Inheritance Tax and Gift Tax Act”

Unlike Article 35(1) of the Inheritance Tax and Gift Tax Act, Article 35(1) does not stipulate the scope of "special relationship" by stipulating "a person in a special relationship" or "a person in a special relationship" as "a person from another person" or "a person in a special relationship" instead of "a person in a special relationship". Therefore, the provisions of Article 35(1) of the Inheritance Tax and Gift Tax Act alone cannot determine the scope of special relationship, and Article 35(1) of the Inheritance Tax and Gift Tax Act is not a transaction between a person who is not a related party under Article 35(2) of the Inheritance Tax and Gift Tax

However, the language of Article 35(2) of the Inheritance Tax and Gift Tax Act does not clarify whether the special relationship should be determined on the basis of the “low-price transferee or high-priced transferor,” and rather, between the parties who are not the parties to the transaction should have no special relation.

As seen earlier, Article 35(2) of the Inheritance Tax and Gift Tax Act is based on the viewpoint that the transaction between unrelated parties does not coincide with each other. Thus, there is no reason to determine the special relationship based on one of the “low-price transferee or high-priced transferor” (the Supreme Court ruling cited as the basis for the plaintiff is limited to the case subject to the Inheritance Tax and Gift Tax Act before the amendment).

Article 26 (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the person with a special interest who is delegated under Article 35 (2) of the Inheritance Tax and Gift Tax Act refers to the transferor or transferee who is in a relationship falling under any of the subparagraphs of Article 12-2 (1) of the Inheritance Tax and Gift Tax Act." In interpreting Article 35 (2) of the Inheritance Tax and Gift Tax Act as above, the "transferor or transferee" is merely the "transferor or transferee" as it is, and there is no reason to limit it to "the transferor or transferee" as it is.

Furthermore, in the case of the latter part of Article 12-2(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the principal shall be deemed the specially related person pursuant to the latter part of Article 2 subparag. 20 of the Framework Act on National Taxes, and in the case of the latter part of Article 2 subparag. 20 of the Framework Act on National Taxes, the principal shall be deemed the specially related person in the application of this Act and tax-related Acts. In light of the above provisions, it is difficult to view that the scope of the specially related relationship above should be determined only by the criteria of “high-price transferor or low

Therefore, in the case of this case, since the president of the ○ industry who is under the control of the principal's investment has a special relationship with the Plaintiff, who is an officer of the principal, the sales contract of this case cannot be deemed as a transaction between persons who are not related parties under Article 35 (2) of the Inheritance Tax and Gift Tax Act, and must be taxed under Article 35 (1) of the Inheritance Tax and Gift Tax Act.

2) As to the assertion that it constitutes the market price under the Enforcement Decree of the Corporate Tax Act

Article 26 (9) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that in applying the provisions of Article 35 of the Act, where the property is acquired or transferred between an individual and a corporation, the provisions of paragraphs (1) through (8) shall not apply if the consideration falls under the value under Article 89 of the Enforcement Decree of the Corporate Tax Act, and Article 89 (1) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter "Enforcement Decree of the Corporate Tax Act") provides that in applying the provisions of Article 89 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter referred to as the "Enforcement Decree of the Corporate Tax Act"), the market price shall be determined by applying the method of wrongful calculation to a third party who is not a specially related person or a person with special interest. Article 89 (2) of the Enforcement Decree of the Corporate Tax Act provides that the market price shall be determined by applying the market price to the above.

The plaintiff's assertion purport that the sale price of the shares in this case constitutes Article 89 (1) of the Enforcement Decree of the Corporate Tax Act. The sale price of the shares in this case is determined by the consultation with the plaintiff Ma○○, etc. after transferring the shares in this case to the plaintiff and the third party, and it is difficult to view △ as the price continuously traded with many unspecified persons other than the related parties, and it is also difficult to view that the sale price of the shares in this case is the price generally traded with the third party who is not the related party (the closing price of the Korea Exchange, which can be seen as the price generally traded with the third party

The contract entered into with the Plaintiff on or around October 201, 201 is that △○ shall grant the Plaintiff the right to appoint four directors among eight directors, the right to appoint a representative director, and even if △○ Industrial shares are sold to a third party in the future, △○ Industrial shares are guaranteed. If ○○ Industrial shares are refused by the third party, the right to purchase the entire shares on the same condition is granted to the Plaintiff. Based on this, the Plaintiff asserts that the above contract constitutes part of the process of transferring the management right of ○ Industry (the Plaintiff paid approximately KRW 2 billion as part of the management right premium around October 201). The purport of the above contract is that it should be treated as part of the price of the instant shares, and it is difficult to view that △○ Industrial shares are transferred to the Plaintiff’s side without selling them to anyone who owns the shares of ○ Industries. In light of the fact that it is difficult to view that the Plaintiff’s share was paid in accordance with the contract.

Therefore, the plaintiff's assertion based on this premise is without merit.

3) As to the market price calculation standard date

Article 26 (8) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "The date of calculating the price and the market price shall be based on the date of liquidation of the price of the relevant property, but it shall be based on the date of the sales contract where it is deemed unreasonable to make the date of calculation due to sudden changes in exchange rates after

In this case, whether the increase in the market price due to the change in the situation after the conclusion of a sale and purchase contract can be seen as a " sudden increase in exchange rate, etc." (1) even if the transferee of the right acquires profits from the rapid increase in the market price after the change in the situation after the conclusion of a sale and purchase contract, and even if gift tax is imposed on the transferor of the property whose market price falls due to the change in the situation after the conclusion of a sale and purchase contract, it is not considerably unreasonable to impose gift tax. On the other hand, if the transfer of the property whose market price falls due to the change in the situation after the conclusion of a sale and purchase contract, it is necessary to strictly interpret the above exception. (2) The above exceptional reason requires to be strictly interpreted, i.e., the number of external factors such as the increase in exchange rate, etc. in the market price of the Plaintiff’s stocks and liabilities, and thus, it is difficult to determine the market price as of the date of the sale and purchase contract based on the changes in the market price of the Plaintiff’s securities market price.

4) As to the assertion on the premium rate

Article 63(3) of the Inheritance Tax and Gift Tax Act provides that the market price shall be increased by 30% if the shares held by the largest shareholder and the shareholders specially related to the largest shareholder exceed 50%, and in other cases, the market price shall be increased by 20%. However, the largest shareholder of the ○ Industry is ○○○, who holds 50% of the shares in the ○○ Industry, and the Plaintiff was the president and the officers of the ○ Industry, who was the specially related person of ○○ Industries, and held 4.5% of the shares in the ○ Industry at the time of conclusion of the instant sales contract (Evidence 5). Accordingly, since ○○ held more than 50% of the shares in the ○ Industry, the market price of the instant shares shall be assessed by applying the 30% increase rate. Accordingly, the Plaintiff’s assertion on

5) Sub-decisions

As seen earlier, the Plaintiff’s assertion is without merit, and thus, the imposition of gift tax and securities transaction tax of this case is justifiable. For the same reason, the disposition rejecting the correction of this case is also justifiable.

3. Conclusion

The plaintiff's primary and preliminary claims are all dismissed as it is without merit, and the costs of lawsuit are assessed against the plaintiff who has lost. It is so decided as per Disposition.