Seoul High Court Decision 2001Na10888 decided May 1, 2001

The Director of Gangnam District Office

August 20, 2003

1. Each disposition of imposition of corporate tax of KRW 372,019,670 on May 16, 2002 against the Plaintiff Two Industrial Construction Co., Ltd. for the business year of 1999, and the disposition of imposition of KRW 63,026,400 on May 17, 2009 against the Plaintiff East Engineering Co., Ltd. for the business year of 1999 is revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On December 31, 1998, Plaintiff 200 shares (hereinafter “FMK shares”) issued by Nonparty 139,000 shares (hereinafter “FMK shares”) of the non-party 139,00 shares (hereinafter “Plaintiff 20,00 shares”) of the non-party 19,00 shares (hereinafter “the shares of this case”) issued by Plaintiff 20 shares (hereinafter “the shares of this case”) were acquired at the price of KRW 18,00 per share, and sold them to all third parties during the business year 1999.

B. On the premise that the market value of the shares of this case is unclear, the defendant purchased the shares of this case at KRW 18,00 per share, which is the price higher than the arm's length price, under Article 63 (1) (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998; hereinafter "former Inheritance Tax and Gift Tax Act"), and Article 54 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998; hereinafter "former Enforcement Decree of the Inheritance Tax and Gift Tax Act"), and calculated the arm's length price of the shares of this case at KRW 10,372 per share as deductible expenses under Article 54 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998; hereinafter the same shall apply).

[Ground of recognition] Facts without dispute, Gap evidence 1-1, Gap evidence 1-2, Gap evidence 3-1, 2-2, Eul evidence 1-1 to Eul evidence 2-9, the purport of the whole pleadings

2. Relevant statutes;

[former Corporate Tax Act]

Article 18 (Non-Inclusion of Donations in Calculation of Losses)

(1) Among donations prescribed by Presidential Decree in consideration of public interests, such as social welfare, culture, arts, education, religion, charity, etc. (hereinafter referred to as "designated donations") among donations made by a domestic corporation in each business year, the amount in excess of 5/100 of the amount obtained by subtracting the amount under subparagraph 2 from the amount under subparagraph 1 (hereafter referred to as "limit on inclusion in deductible expenses" in this Article) and donations, other than designated donations, shall not be included in deductible expenses in the calculation of the income amount for the relevant business year

【former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998)】

Article 40 (Scope of Donations)

(1) Donations provided for in Article 18 (1) of the Act shall be designated donations under the provisions of Article 42 and those falling under any one of the following subparagraphs:

2. Where a corporation transfers assets to an unrelated party provided for in Article 46 (1) at a price below the arm's length price or buys assets from such an unrelated party at a price above the arm's length price without justifiable grounds, the margin in which it is deemed in substantial donation. In such cases, the normal price shall be between 30/100 and 30/100 of the market price or between 30/100 and 10.

[Enforcement Rule of the former Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 86 of May 24, 1999; hereinafter the same)]

Article 16-2 (Market Price)

In applying the provisions of Article 12(1)10, Article 23-4(2), Article 37-3(9), Article 40(1), Article 41(1), and Article 46 of the Decree, and Article 116(2) and (4) of the Decree, where the market price is unclear, it shall be based on the appraised value by a certified public appraisal corporation under the Public Notice of Values and Appraisal of Lands, etc. Act, and where there is no appraised value, it shall be based on the appraised value by applying mutatis mutandis the provisions of Articles 61 through 64 of the Inheritance Tax and Gift Tax Act: Provided, That stocks not listed on the Stock Exchange shall be based on the appraised value by applying mutatis mutandis the provisions of Article 63 of the Inheritance Tax and Gift Tax Act.

【former Inheritance and Gift Act】

Article 63 (Evaluation of Securities, etc.)

(1) The appraisal of securities, etc. shall be conducted by the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be appraised according to the methods prescribed by Presidential Decree in consideration of corporation assets and profits;

[Enforcement Decree of the former Inheritance and Gift Act]

Article 54 (Appraisal of Unlisted Stocks)

(1) Stocks and investment shares not listed on the Korea Stock Exchange (hereinafter referred to as "non-listed stocks" in this Article) under Article 63 (1) 1 (c) of the Act shall, except in the case of paragraph (2), be the value assessed by the following formula:

Value per share = [The rate as determined by the Ordinance of the Prime Minister in consideration of the average amount of net profit and loss per share in the last three years ＋ average interest rate formed in the financial market] ±2

3. The plaintiffs' assertion

A. The assertion that the market price of the instant shares is not clear

On or before December 31, 1998, the time when the plaintiffs purchase the shares of this case, the FMK shares were traded between unrelated parties at the price of 15,00 won or 24,000 won per share over 15 times from April 7, 1998 to July 6, 200. In particular, the plaintiffs' purchase and sale made at the price of about 6 months or about 7 months after the purchase of the shares of this case (the sale made at the price of this case at the price of 18,000 won per share, 30,000 won per share from June 5, 1998, 199, 200 won per share under the premise that the purchase price of the shares of this case was made at the price of each of the shares of this case at the price of 19,000 won per share, and 30,0000 won per share under the premise that the purchase price of the shares of this case was made at the market price of this case.

B. Justifiable grounds

Even if the plaintiffs purchased the shares at a price higher than the arm's length price, it cannot be deemed that they donated the difference between the purchase price and the arm's length price as non-designated donation. In other words, the plaintiff 200 supply and demand construction of the net uniform building from the Foundation, a foundation, the father of 194 of 194, and completed the construction work around 198 after the 1998. However, since the 197 "IMF crisis", the plaintiff 200 billion won of the outstanding amount of the construction work and the 13.5 billion won of the outstanding amount of the construction work, the plaintiff 3 billion won of the 13.5 billion won of the 13.5 billion won of the outstanding amount of the construction work, and the above 10.0 billion won of the 10. The plaintiff 200 billion won of the 10.

4. Determination

(a) Facts of recognition;

(1) The non-party company is a company established in around 1993 and engaged in a general building management business, etc., and the number of stocks issued at the time of August 1998 is 60,000,000 capital was 3 billion, and the largest shareholder was shee.

(2) On January 28, 1994, Plaintiff 2: (a) concluded a contract for the construction of the 2nd KM center with the 15th KMK on the 195th KMK’s father; (b) concluded on May 9, 1998, and completed the construction on the 13.5th KMK’s shares owned by 139,000 shares, which were owned by 139,00 shares, the actual manager of the said construction; and (c) Plaintiff 200 KMK’s shares, which were 119,000 shares among the shares of this case, were purchased from 60 KMK’s shares, instead of paying part of the construction cost; and (d) Plaintiff 200 KM shares, which were 10,000 shares of this case, had been purchased from 10,000 shares of this case to 10,000 shares of this case, which were primarily affiliated companies of two groups.

(4) As a result of internal review prior to the purchase of the instant shares, the Plaintiffs decided to purchase the instant shares by deeming that there exists investment value, such as profit margins, if shares are listed in the future, and that it is worth being traded in consideration of the fact that: (a) the Nonparty Company had been in a black paper for five consecutive years since 1993; (b) the brand called “SER” has a separate market in the building management industry; and (c) the third party Company’s tax revenue in the year 1997 is more than five times compared to the year 1996 and more than 579 billion won; and (d) the Nonparty Company has a considerable amount of investment in the future.

(5) After acquiring the instant shares, the Plaintiff traded 18,000 won per share of the instant shares between KONEX Co., Ltd. (hereinafter “KONEX”) and KON. Meanwhile, on August 5, 1999, Plaintiff 200 won per share of 18,000 won per share of the instant shares to Non-Party GON and GON, a major shareholder of the instant shares, were sold at the price of 18,000 won per share.

(6) Subsequent to that, the FMK shares were traded at the price of 15,000 won per share between 17 December 1999 and KON and Hyundai Industry Development Co., Ltd. on or after December 17, 199, but all other transactions that were conducted after the 27th of the same month were traded at the price of at least 24,000 won per share.

(7) On December 31, 1998, according to the FMK shares valuation by applying the provisions on the securities acquisition business as of December 31, 1998 at the request of the non-party company, the essential value per share of FMK shares was assessed to 18,794 won.

[Ground of recognition] The aforementioned evidence, evidence Nos. 1 to 12, evidence No. 3-1, 2, 8, 9, evidence No. 12-1, 2-2, witness Kim Byung-kick's testimony, and the purport of the whole pleadings

B. Determination

(1) The “market price” under Article 40(1)2 of the former Enforcement Decree of the Corporate Tax Act refers to an objective exchange value formed through a general and normal transaction. Even if any unlisted stock not listed on the Korea Stock Exchange is a non-listed stock, it is reasonable to view the market price as the market price in the event there is a normal transaction example reflecting the aforementioned objective exchange value appropriately (see Supreme Court Decisions 93Nu2233, Dec. 22, 1994; 97Nu8502, Sept. 26, 1997, etc.).

(2) As shown in the above facts of recognition, in the sale and purchase between YK’s shares and Malman’s shares ( April 7, 1998) and Manman’s shares in the sale and purchase between Manman and Manman’s own shares ( June 5 of the same year), as shown in the above facts of recognition, all of the FMK’s shares were traded at the price of KRW 18,00 per share; the sale and purchase between KN media and Manex’s shares (as of July 9, 199), which took place six months after the plaintiffs acquired the shares of this case; the acquisition price of the shares at KRW 18,00 per share at the price of KRW 18,00 per share; the acquisition price at KRW 15,00 per share from April 7, 1998 to July 6, 200; the acquisition price at KRW 190 per share at an objective price of KRW 15,190 per share, which reflects the total shares at the market price at KRW 10.38.

(3) As to this, the Defendant’s sale and purchase cases of FMK stocks at Cho Man-man and Cho Jong-si were conducted in the first half of 1998, which had been the largest economic situation due to “IMF incident,” and in Japan, it cannot be deemed that the above sale and purchase cases were free and normal transactions among unspecified persons, and even if the FMK’s sale and purchase cases were not related to KMK’s sale and purchase and sale, it cannot be deemed that the 18,000 won per share, which was formed in each of the above sale and purchase cases, were the same as KMK’s sale and purchase cases, based on the fact that the FMK’s sale and purchase transaction was conducted in the first half of 198, which was the most difficult market price in light of the fact that the FM market price was not the same as KM’s normal transaction, and that it cannot be deemed that the 18,000 won per share, which was formed in each of the above sale and purchase cases.

In addition, Article 49(1) of the former Enforcement Decree of the Inheritance and Gift Tax Act provides that the sales room price should be recognized as “market price,” under the premise that the sales room price should be within three months before or after the base date of appraisal, and that the sales room should be within the period of three months before or after the base date of appraisal, or the sales between KON-si and KON Media and KON-si shall not be recognized as the market price. Thus, Article 49(2) of the former Enforcement Decree of the Inheritance and Gift Tax Act provides that the above transaction price shall not be recognized as the market price, and Article 60(2) of the former Enforcement Decree of the former Enforcement Decree of the Corporate Tax Act provides that the provision of Article 9(2) of the former Enforcement Decree of the former Inheritance and Gift Tax Act provides that the above sales room price shall not be recognized as the market price under Article 60(1) of the former Enforcement Decree of the same Act, which is within the period of six months before the base date of appraisal (three months in the case of donated property), and that provision of Article 16(6) of the former Enforcement Decree of the Act shall not apply mutatis mutandis.

Meanwhile, even if the plaintiffs' acquisition of the shares of this case does not meet the requirements for non-designated donation, the defendant's acquisition of the shares of this case at a higher price than the market price of the other corporation for the smooth receipt of the construction price in accordance with the coercion of the net uniform church, and for the future, the defendant's acquisition of the shares of this case at a higher price than the market price of the other corporation for which the order is to be placed by the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the collective association of the company of this case shall be included in deductible expenses. Thus, it is reasonable to view each of the dispositions of

(4) The theory of lawsuit

Therefore, even though it is reasonable to 18,00 won per share, which is the acquisition value of the plaintiffs' shares, should be deemed as the market price, the defendant concluded that the price assessed by applying mutatis mutandis the provisions of Article 63(1)(c) of the former Inheritance and Gift Act and Article 54(1) of the former Enforcement Decree of the former Enforcement Decree of the Inheritance and Gift Act, was the normal price of the shares, and the plaintiffs purchased the shares at a higher price than the normal price of the shares, and thereby the difference between the acquisition price and the arm's length price is deemed to be the "non-designated donation" under Article 40(1)2 of the former Enforcement Decree of the Corporate Tax Act, and each of the dispositions of this case, which was excluded from deductible expenses, shall

5. Conclusion

Therefore, the plaintiffs' claims seeking the revocation of each of the dispositions of this case without further review are with merit, and all of them are accepted, and they are decided as per Disposition.

[Attached Form FMK Stock Sales Sck Stock Omission]

Judge Han-sung (Presiding Judge)