Cho High Court Decision 2014 Sub-88 (Law No. 126, 2014)

The gift presumption provision is applied to the actual owner of shares with the purpose of tax avoidance.

It is insufficient to recognize that there was no tax to avoid at the time of stock title trust or in the future, and to avoid the application of the presumption of gift solely on the ground that the nominal owner has no purpose of tax avoidance.

Donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2014Guhap22183 Revocation of Disposition of Imposition of Gift Tax

1. HeaA 2. GaB 3. ParkCC

1. The director of the tax office in North Korea; and

March 20, 2015

April 17, 2015

1. The plaintiffs' claims against the defendants are all dismissed.

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

Cheong-gu Office

The imposition of OOOO on the gift tax made on December 31, 2007 by the director of the tax office on October 10, 2013 against the Plaintiff ParkB and HuA on October 10, 2013, and the imposition of OOOO on the gift made on October 8, 2013 by the director of the tax office of Suwon District Tax Office against the Defendant Park PCC and HuA on October 8, 2013, respectively, revoked the imposition of the gift tax on the gift made on December 31, 207.

1. Details of the disposition;

A. Around 2007, Plaintiff LA opened an account under the name of Plaintiff ParkB and ParkCC, and thereafter, Plaintiff LA acquired 6,000 shares issued in the name of Plaintiff ParkB, 13,000 shares issued by DD (hereinafter referred to as “stock company from the second entry”) under the name of Plaintiff ParkB, 10,000 shares issued by EE Industries, and 6,000 shares issued by FF issued by ECC respectively.

B. As a result, the director of the Busan Regional Tax Office inquireds the Plaintiff’s financial transaction information to verify the increase in the Plaintiff’s capital (including real estate, etc.) from May 8, 2013 to September 3, 2013, the director of the Busan Regional Tax Office confirmed the acquisition and transaction of stocks after opening an account under the name of the Plaintiff ParkB, ParkCC, etc. as above, and confirmed the fact that the Plaintiff acquired and traded the stocks. The purpose of tax evasion was that the Plaintiff HuA omitted and underreporting the transfer income tax and comprehensive acquisition tax through stock transaction using the borrowed account.

C. Accordingly, the Defendants determined and notified gift tax to the Plaintiff ParkB and ParkCC on the title trustee as follows, and designated Plaintiff HuA as a joint and several taxpayer and paid and notified Plaintiff HuA as the title truster (hereinafter “instant disposition”).

Agency

Date of Notification

Amount of gift tax

Reversion

Amount (unit: won)

Head of North Busan District Tax Office

Title truster

DoAA

October 15, 2013

December 31, 2007

OOO

title trustee

ParkB

October 15, 2013

December 31, 2007

OOO

Head of Suwon Tax Office

Title truster

DoAA

October 14, 2013

December 31, 2007

OOO

title trustee

ParkCC

October 14, 2013

December 31, 2007

OOO

D. The Plaintiffs were dissatisfied with the request for a trial to the Tax Tribunal. However, the Plaintiffs were dismissed on June 26, 2014.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 (including branch numbers, hereinafter the same shall apply), Eul evidence Nos. 1, 2 and 7, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The existence of the purpose of tax avoidance should be determined on the basis of the trustee. The plaintiff ParkB and ParkCC only lent only the name at the request of the plaintiff Eul, but did not have any objective or awareness of tax avoidance. The plaintiff Eul also traded shares in the name of the plaintiff ParkB and ParkCC for the purpose of protecting management rights and stabilizing the share price, not for the purpose of tax avoidance.

In addition, even if the truster’s tax burden is reduced due to title trust, if the amount of the same amount of the tax burden is newly incurred to the trustee, there is no change in the overall tax burden. In the case of the D-issued shares, Plaintiff LB is the wife of Plaintiff LB, the largest shareholder of Plaintiff LB, and Plaintiff LB as a related party, and Plaintiff LB does not have any capital gains tax evaded even if the Plaintiff LB enters into a stock transaction under the name of Plaintiff LBB. In the case of the EE industry and FF issued shares, the Plaintiffs do not fall under the major shareholder of these companies, and thus the capital gains tax does not accrue, and thus is irrelevant to the avoidance of capital gains tax. The global income of Plaintiff LBB and LFCC does not occur due to the avoidance of global income tax, which was in the section to which the highest tax rate is applied at the time of the title trust. Accordingly, the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) The legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the principle of substantial taxation to the purport that effectively prevent the act of tax avoidance using the title trust system and realize the tax justice. As such, the proviso of the same Article can be applied only when the purpose of the title trust is not included in the purpose of the tax avoidance. In this case, the burden of proving that there was no purpose of the tax avoidance. In this context, the fact that there was no purpose of the tax avoidance can be proven by means of proving that there was a purpose other than the purpose of the tax avoidance. However, the nominal owner, who bears the burden of proof, has an obvious purpose irrelevant to the tax avoidance in the title trust to the extent that it is recognized that there was no purpose of the tax avoidance in the title trust, and must prove that there was no tax avoidance at the time of the title trust or there was no tax avoidance at the time of the title trust. In addition, the application of the provision of gift presumption cannot be avoided merely by the fact that the nominal owner does not have such purpose (see, Mar. 28, 201618, 2016.

2) In light of the above legal principles, in light of the following circumstances, the evidence as seen earlier and the overall purport of the statement and the evidence Nos. 6 evidence Nos. 4 and 5 as a whole, each of the following circumstances, which can be acknowledged, had a clear purpose of tax avoidance to the extent that it is recognized that the Plaintiffs did not have any purpose of tax avoidance, and it is insufficient to recognize that there was no tax avoidance at the time of title trust or in the future, and there is no other evidence to acknowledge it, the Plaintiffs’ assertion is without merit.

① It is difficult to deem that there was a circumstance that the maintenance of management rights would endanger the Plaintiff’s offering of 60% (including shares in a related party) of the shares issued DD during the period from 2002 to 2010, and thus, it is difficult to deem that Plaintiff HeA had a reasonable ground for the Plaintiff’s offering of shares under another person’s name for the purpose of share price management.

② During the same period, Plaintiff HuA traded shares in the name of this GG, Park H and D, as well as in the name of the Plaintiff ParkB, ParkCC, as well as in the name of the business partner, and Kim II, an executive officer of this GG, Park H and D.

③ Although the transfer margin of the DD issued stocks traded under the Plaintiff ParkB’s name exceeded the OOO capital gains tax, it is difficult to readily conclude that the Plaintiff had no purpose of tax avoidance.

④ The Plaintiffs did not clearly state the reason for title trust with respect to the EE Industries and FF issuance shares.

⑤ Article 45-2(1) of the former Inheritance Tax and Gift Tax Act has the character of ‘tax' that is not ‘tax' in that it imposes gift tax on what is not the substance of the gift in order to effectively prevent the act of tax avoidance using the title trust system and realize the tax justice.

3. Conclusion

Therefore, the plaintiffs' claims against the defendants are dismissed as all are without merit.