[1] Whether gift tax can be levied on the basis of Article 2(3) of the former Inheritance Tax and Gift Tax Act that introduced the concept of donation with the complete universalism (affirmative)

[2] In a case where Eul's assistant Byung holding the stocks of an unlisted corporation Gap, donated real estate to Eul, and the tax authority imposed gift tax on Eul pursuant to Articles 2 (3) and 42 (1) 3 of the former Inheritance Tax and Gift Tax Act by deeming that Eul's increase in the value of Eul's stocks following donation was donated to Byung, the case holding that Byung's disposal was unlawful on the ground that Byung increased the value of Eul's stocks by donation of real estate to Eul, and thus, it constitutes a gift under Article 2 (3) of the above Act, but it was erroneous in calculating the value of Eul's stocks;

[1] In order to impose gift tax on the gratuitous transfer of property or increase in property value that has not been predicted, the concept of donation based on the complete universalism has been introduced under Article 2(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006; hereinafter “Gift”); in light of the structure of other provisions, such as the change of the existing provision into the calculation provision of donated property value, it is difficult to simply interpret Article 2(3) of the Inheritance and Gift Tax Act as a confirmatory and declared provision (where Article 2(3) of the Inheritance and Gift Tax Act is viewed as a simple confirmatory and declaration provision, there is a problem that the grounds for taxation on the issue of existing donated property may disappear in light of the background, legislative purport, other provisions and system, etc. of Article 2(3) of the Inheritance and Gift Tax Act such as the introduction of Article 2(3) of the former Inheritance and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006).

[2] In a case where Eul’s assistance holding stocks of a non-listed corporation Gap corporation (“B”) donated real estate to Eul, and the tax authority considers that Eul’s increase in the value of Eul’s stocks following the donation was donated to Byung, and imposes gift tax on Eul pursuant to Articles 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006; hereinafter “Gift”), the case holding that Byung’s disposal of real estate as a person with a special relationship (“B”) transferred or contributed profits equivalent to the difference in the value of Gap’s stocks before the donation to Eul without compensation, and thus, the taxation of Eul’s stocks constitutes “donation” under Article 2(3) of the Inheritance Tax and Gift Tax Act, and thus, the taxation of Eul’s stocks is not only more than the amount of gift tax calculated by applying Article 42(1)3 of the said Inheritance Tax and Gift Tax Act or the amount of gift tax under Article 41(1)4 of the said Tax Act.

[1] Article 2 (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006) / [2] Articles 2 (3), 41, and 42 (1) 3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006)

[1] Supreme Court Decision 2008Du17882 Decided April 28, 2011 (Gong2011Sang, 1059)

Plaintiff (Law Firm KEL, Attorneys Kim Yong-hoon et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

June 12, 2012

1. The part concerning the claim for revocation of imposition of local income tax among the instant lawsuit is dismissed.

2. The Defendant’s disposition of imposition of KRW 144,964,290 on the gift tax against the Plaintiff on July 1, 2011 is revoked.

3. The plaintiff's remaining claims are dismissed.

4. One-third of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Disposition No. 2 and the Defendant’s disposition of imposition of capital gains tax of KRW 101,141,290 against the Plaintiff on July 1, 2011, the imposition of KRW 5,897,410, and the imposition of KRW 10,114,120 shall be revoked in entirety.

1. Details of the disposition;

A. At the time of January 2006, the Plaintiff owned 5,000 shares issued by 5,00 shares (10% of the total number of shares issued by 100 shares issued by the non-listed corporation (hereinafter “non-listed corporation”).

B. On February 27, 2006, the Plaintiff transferred 4,182 shares of the non-party company to 8 non-party 1, etc. (hereinafter referred to as "non-party 1, etc.") (hereinafter referred to as "the instant shares") at par value of 10,000 won per share (hereinafter referred to as "transfer of this case").

Nonparty 1 or 817,170,000 non-party 2's non-party 5,480,000's non-party 96's non-party 3's non-party 3913,910,000's non-party 5,488,480,000's non-party 4's non-party 3913,910,000's July 82, 000's non-party 5's non-party 3913,910,910,000's non-party 6's non-party 3913,910,00,000's non-party 7,548,480,000's non-party 848,480,968,808,9688, Oct. 16, 200

C. On February 28, 2006, Nonparty 9, the Plaintiff, donated to the Nonparty Company a building of 2,112 square meters and 3 stories on land (hereinafter “instant real estate”) in Dobong-dong, Seoul Special Metropolitan City (number omitted), and completed the registration of ownership transfer on the instant real estate in the name of the Nonparty Company on March 3, 2006.

D. As to the donation of the instant real estate, the Nonparty Company reported and paid corporate tax of KRW 1,567,90,230 for the business year 2006, by adding KRW 6,379,127,750 to its gross income as to the donation of the instant real estate.

E. On April 201, the director of the Seoul Regional Tax Office imposed capital gains tax on the Plaintiff, the transferor, by applying the provision regarding the wrongful calculation based on the low-price transfer of unlisted stocks between the related parties. The transfer value of the instant case and the value assessed by the supplementary assessment method, deeming the difference between the value of the non-party company’s stocks as the gift income from a low-price transfer and the gift tax is levied on the non-party 1, etc., the transferee. The non-party company notified the Plaintiff of the taxation data by deeming that the Plaintiff was donated by the non-party 9 regarding the increase in the value of the Plaintiff’s stocks due to the gift

F. Accordingly, on July 1, 2011, the Defendant decided and notified the Plaintiff of KRW 101,141,290 of the transfer income tax for the year 2006 (hereinafter “instant disposition of imposition of the transfer income tax”) and KRW 10,114,120 of the local income tax (hereinafter “Disposition of imposition of the local income tax of this case”), and KRW 5,897,410 of the securities transaction tax for February 2006 (hereinafter “Disposition of imposition of the securities transaction tax of this case”), and KRW 144,964,290 of the gift tax in relation to the instant real estate donation (hereinafter “Disposition of imposition of the gift tax of this case”); and all the disposition of imposition of the transfer income tax, the securities transaction tax, and the gift tax of this case were combined.

G. On September 23, 2011, the Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on November 24, 2011.

[Reasons for Recognition] Gap evidence Nos. 1, 2, 3 (including branch numbers; hereinafter the same shall apply), Eul evidence Nos. 1 to 4, the purport of the whole pleadings

2. Whether the part of the instant lawsuit seeking revocation of imposition of local income tax is legitimate

Ex officio, we examine whether the part of the instant lawsuit seeking revocation of imposition of local income tax is legitimate.

According to Article 177-4(1), (2), and (5) of the former Local Tax Act (amended by Act No. 8138 of Dec. 30, 2006), resident tax to be imposed (applicable to local income tax under the current Local Tax Act) is a local tax to be paid to the head of a Si/Gun/Gu having jurisdiction over the place for payment of income tax. If the head of a tax office collects income tax by the method of imposing a notice of imposition according to the correction, determination, etc. under the Framework Act on National Taxes or the Income Tax Act, the head of a Si/Gun/Gu has imposed and notified the resident tax to be imposed at the same time, and thus, the head of a Si/Gun/Gu having jurisdiction over the place for payment of income tax is deemed to have imposed and notified the resident tax to be imposed at the same time on the head of a Si/Gun/Gu (see Supreme Court Decision 2004Du

The plaintiff seeks revocation of the imposition of local income tax of this case against the defendant who is the head of the tax office, and this part is unlawful as it is against the non-qualified person.

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Imposition of gift tax of this case

The instant gift tax disposition is unlawful for the following reasons.

A) Non-party 9’s non-existence of a gift to the Plaintiff

Although Nonparty 9 only donated the instant real estate to the non-party company, which led to the increase in the value of the shares of the non-party company owned by the Plaintiff, it is merely an incidental effect following the real estate donation to the non-party company of the non-party 9, and thus, it cannot be deemed that there was any gift to the non-party 9

B) Illegal in the calculation method of value of donated property

Even if there is a gift of Nonparty 9 against the Plaintiff, the Defendant imposed the gift tax of this case on the basis of Articles 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006; hereinafter “Gift”). Article 2(3) of the Inheritance Tax and Gift Tax Act does not stipulate at all the method of calculating the value of donated property, as well as Article 42(1)3 of the Inheritance Tax and Gift Tax Act on the calculation of the value of donated property is completely different from the gift of this case, so it is unlawful to calculate the value of donated property by applying Article 42(1)3 of the Inheritance Tax and Gift Tax Act, since the subject of Article 42(3) of the Inheritance Tax and Gift Tax Act on the calculation of the value of donated property is completely different from the gift

C) Taxation on unrealized benefits

The imposition of gift tax of this case was conducted on unrealized gain, which is a stock value increase, and in order to impose unrealized gain, it should be premised on a fair and accurate measurement of gain subject to taxation, as well as establishment of supplementary regulations regarding the decline in the value of assets. Nevertheless, the Defendant’s imposition of gift tax by deeming the increase in the value of stocks, which is an unrealized gain, as a taxable gain without resolving such a pre-determination problem, as an gain subject to taxation is contrary to the principle of excessive prohibition under the Constitution.

D) Double taxation of corporate tax and gift tax

Although the non-party company already paid corporate tax on the donation of the instant real estate, it violates Article 2(2) of the Inheritance Tax and Gift Tax Act prohibiting double taxation on the same taxable object.

E) Violation of imposition of penalty tax

Even if the gift tax imposition disposition (main tax portion) of this case was lawful, the Defendant rendered authoritative interpretation to the effect that the gift tax is not imposed on matters similar to the gift of this case several times until March 2006. Since the Plaintiff trusted the gift of this case at the time of March 2006 and did not return and pay the gift tax, it constitutes a case where there is a justifiable reason for violating the Plaintiff’s duty to report the gift tax. Accordingly, the penalty tax imposition disposition of this case is unlawful.

2) Disposition imposing capital gains tax of this case

The Defendant imposed capital gains tax on the difference between the transfer value of the instant shares and the appraised value calculated by the Defendant based on the supplementary assessment methods on the Plaintiff, a stock transferor, and imposed gift tax on Nonparty 1, etc. as gift. This constitutes double taxation on the amount equivalent to the difference between the market value and the actual transaction value, and thus, is in violation of the substance over form principle.

3) Disposition of imposing the securities transaction tax of this case

Although the Plaintiff transferred shares at par value, the Defendant again assessed the market price and imposed the securities transaction tax of this case on the basis of the above appraised value. This is unlawful as it erred in the calculation method of the securities transaction tax base.

B. Relevant statutes

[Attachment] The entry in the relevant statutes is as follows.

C. Determination on the legality of the disposition imposing gift tax of this case

1) Whether there is “donation” subject to gift tax against the Plaintiff by Nonparty 9

A) Whether taxation can be made by applying Article 2(3) of the Inheritance and Gift Tax Act

(1) Introduction and purport of the complete comprehensive gift taxation

The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax Act”) borrowed the concept of donation under the Civil Act with no definition provision on the concept of donation. The concept of donation borrowing alone does not have a way to prevent the avoidance of gift tax through an irregular donation without following the form of donation under the Civil Act. As such, the tax authorities have several regulations on deemed donation (Articles 32 through 42 of the former Inheritance Tax Act). However, such individual provision on deemed donation has pointed out the problem that it is difficult to cope with new types of gift arising from new financial instruments, financial techniques, various capital transactions, etc., and the introduction of the so-called comprehensive provision on donation donation under the former Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax Act”) and the so-called comprehensive provision on donation under the former Tax Act (amended by Act No. 32010, Dec. 30, 2003).

(2) Contents of the complete comprehensive gift taxation

Article 2(1) of the Inheritance and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003) provides that donated property from another person’s donation is subject to gift tax. Article 2(3) of the same Act provides that “The term “donation” means a free transfer (including a transfer at a remarkably low price) of tangible and intangible property (including a transfer at a remarkably low price) to another person by direct or indirect means, or an increase in property value of another person by which economic value can be calculated, regardless of the name, form, purpose, etc. of such act or transaction,” thereby providing a separate concept of donation that is distinct from a donation under the Civil Act. Articles 33 through 42 of the same Act supplement the contents of the previous provision on donated property, thereby converting the provision on the calculation of donated property into the regulation on calculation of donated property

(3) Whether taxation can be made by applying Article 2(3) of the Inheritance and Gift Tax Act

As seen earlier, in order to impose gift tax on the gratuitous transfer of property or increase in property value in various forms unexpectedly predicted, the concept of donation based on the complete comprehensive taxation is introduced under Article 2(3) of the Inheritance Tax and Gift Tax Act. In light of the structure of other provisions, such as the change of the existing provision on deemed donation into the calculation provision on the value of donated property, it is difficult to simply interpret Article 2(3) of the Inheritance Tax and Gift Tax Act as the confirmatory and declaration provision (where Article 2(3) of the Inheritance Tax and Gift Tax Act is simply a confirmatory and declaration provision, there is a problem in which the taxable basis for the issue corresponding to the existing deemed donation exists), etc. in light of the background, legislative purport, and structure with other provisions, etc. of the introduction of Article 2(3) of the Inheritance Tax and Gift Tax Act, it is reasonable to deem that the gift tax can be imposed on the basis of Article 2(3) of the Inheritance Tax and Gift Tax Act (see Supreme Court Decision 208Du17882, Apr. 28, 2011).

B) Whether the donation constitutes “donation” under Article 2(3) of the Inheritance and Gift Tax Act

The non-party 9, as a person having a special relationship with the plaintiff, transferred without compensation or contributed the profit equivalent to the difference between the value of the shares of the non-party company after the donation of the real estate of this case and the value of the shares of the non-party company before the donation of the real estate of this case, within the scope of the share ratio of the plaintiff by donation of the real estate of this case to the non-party company. Thus, the non-party 9 constitutes "donation" under Article 2

C) Sub-decision

Therefore, the non-party 9 donated the profit equivalent to the increase in the value of the shares of the non-party company owned by the plaintiff to the plaintiff through the donation of the real estate in this case to the non-party company (hereinafter "the donation in this case"). Thus, this part of the plaintiff'

2) Whether the calculation of the value of the donated property is unlawful

A) Provisions pertaining to the calculation method of value of donated property

Article 2(3) of the Inheritance and Gift Tax Act only provides for a taxable object subject to the application of the "comprehensive gift tax complete taxation" and does not directly provide for the calculation method of the value of donated property acquired through the gift. This seems to be due to the fact that Article 2(3) of the Inheritance and Gift Tax Act directly provides for the calculation method of the value of donated property with respect to various and new types of intangible donations not in the form of donation under the Civil Act is impossible in the legislative form of "comprehensive comprehensive gift taxation system". As seen earlier, the legislators adopted the comprehensive gift taxation system to expand the scope of gift tax, while expanding the scope of taxation of donated property (based on this), with respect to the calculation of the value of donated property (based on which tax base is calculated) under the title of "Calculation of the value of donated property" in Section 2 of Chapter 3 of the Inheritance and Gift Tax Act, the existing provision on individual donation (Article 32 through 42 of the former Inheritance and Gift Tax Act) was converted to the calculation method of the value of donated property.

In light of the background, legislative purport, etc. of the introduction of the complete comprehensive taxation of gift tax, it cannot be said that such legislative form is contrary to the legal principle of taxation requirements. However, considering the predictability aspect of taxpayers related to the legal principle of taxation requirements, it is reasonable to view that in calculating the value of donated property under Articles 2(3) of the Inheritance Tax and Gift Tax Act, the calculation of the value of donated property should be made by applying mutatis mutandis the same or similar tax requirements, type of transaction, economic substance, etc. among the example provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act.

B) Whether the calculation of the value of the instant donated property is lawful

In calculating the value of donated property for the instant donation, the Defendant calculated the amount equivalent to the difference of the value of the donated property before and after the instant donation by applying mutatis mutandis Article 42(1)3 of the Inheritance Tax and Gift Tax Act. In full view of the following circumstances, the Defendant’s calculation of the value of donated property for the instant donation by applying mutatis mutandis Article 42(1)3 of the Inheritance Tax and Gift Tax Act cannot be deemed an objective and reasonable method, and is against taxpayers’ predictability or tax equity. Therefore, this part of the Plaintiff’s assertion is with merit, and thus, the imposition of gift tax for the instant case is unlawful without need to further examine the remainder of the Plaintiff’s assertion.

(1) The instant gift cannot be deemed as a type of transaction similar to a taxable requirement or type of transaction under Article 42(1)3 of the Inheritance and Gift Tax Act.

The Defendant calculated the value of donated property by applying the aforementioned provisions mutatis mutandis, considering that the instant donation is similar to the type of transaction under Article 42(1)3 of the Inheritance Tax and Gift Tax Act, particularly to the case where the ownership shares or the value of the pertinent gift is changed due to business acquisition, business exchange, corporate restructuring, etc. In full view of the following circumstances, the instant donation is not deemed the type of transaction similar to the type of transaction under Article 42(1)3 of the Inheritance Tax and Gift Tax Act.

① Article 42(1)3 of the Inheritance and Gift Tax Act provides that profits acquired by a transaction which increases or reduces the capital of a corporation, such as investment in capital reduction, merger, division, and conversion, acquisition, and exchange of stocks through convertible bonds, etc., or gains acquired by transfer of business, business exchanges, business changes, etc. shall be the value of donated property due to changes in the organization of a corporation.

First of all, the former part of the above provision provides for the benefit of "an increase or decrease in corporate capital (referring to a transaction of capital transaction)". This provision provides for the benefit of direct or indirect profit resulting from a change in the appraised value of property or ownership without paying any consideration to be paid ordinarily by failing to participate in or participate in the merger, division, reduction of capital, etc. of a corporation. However, the act of donation to the non-party company by the non-party 9 is not a capital transaction that increases or reduces the capital of the non-party company, but a transaction that causes the increase or decrease in corporate capital, and thus does not constitute a type of

② Furthermore, the latter part of the above provision provides for the benefit derived from a change in ownership shares or the price of a corporation by "business acquisition/business exchange, business exchange, organizational change, etc.," and the type of transaction referred to in this provision does not mean any transaction that changes in ownership shares or the price of a corporation (the term "any transaction that changes in the shareholder's share means all the transaction of a corporation and the meaning of the above separate provision is nonexistent). At least, the term "business acquisition/business exchange, business exchange, and corporate restructuring" means at least the type of transaction similar to the change of organization. In the case of the donation of this case, the donation of this case merely merely donated the real estate from the non-party 9 individual, and it is apparent that the non-party company does not fall under the category of transaction "business acquisition/business exchange, corporate restructuring, etc.," and there is no other special circumstance to regard it as a similar type of transaction.

(2) Rather, the instant gift is similar to the type of transaction stipulated in Article 41 of the Inheritance and Gift Tax Act.

Article 41(1) of the Inheritance Tax and Gift Tax Act provides that where a person in a special relationship with a stockholder, etc. of a corporation having losses or under suspension or closure of business (hereinafter referred to as a “specified corporation”) obtains profits from such transaction as donation of property to the relevant specified corporation, the amount equivalent to such profits shall be the value of the property donated to the relevant specified corporation as a shareholder, etc. of the relevant specified corporation. Article 31(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19899, Feb. 28, 2007; hereinafter referred to as the “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that the “specified corporation” shall be deemed as a deficit under Article 18(1)1 of the Enforcement Decree of the Corporate Tax Act (excluding an Association-registered corporation under the Securities and Exchange Act) for the business year which includes the date of donation of property under Article 41(1)1 of the Act (see Article 41(1)2 of the Act).

With respect to this case, although the non-party company did not carry forward any loss, it constitutes a corporation with loss (see subparagraph 3-2 corporate tax base and adjusted tax amount of the non-party company and the standard income statement of the non-party company No. 3-3), and the non-party company’s shareholder, who is a shareholder of the non-party company, obtains profit from the non-party company through the transaction that donated the real estate of this case to the non-party company. In light of this point, the donation of this case is almost similar to the transaction type under Article 41(1) of the Inheritance Tax and Gift Tax Act (the transaction type of the non-party company’s income is almost similar to the transaction type under Article 41(1) of the non-party company tax law (the non-party company’s income amount of the non-party company’s income) in which the non-party company’s shareholder of this case was in a special relationship with the non-party company.

(3) The calculation of the value of the instant donated property goes against the equity of taxation, in comparison with the application of Article 41 of the Inheritance and Gift Tax Act.

Article 41 of the Inheritance Tax and Gift Tax Act purports to impose gift tax on modified donations that give profits to shareholders, etc. of a specific corporation without bearing corporate tax on the amount of donation by offsetting the amount of donation by deficit (see Supreme Court Decision 2008Du6813, Apr. 14, 201). In calculating the value of donated property, Article 31(6)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the value of donated property shall be the amount calculated by multiplying the value of donated property by the ratio of stocks owned by the shareholders, etc. of the specific corporation, but shall be limited to the relevant deficit, by offsetting the amount of donation as deficit, the gift tax is imposed only on the portion that is not subject to corporate tax on the amount of donation by offsetting the amount of donation.

However, by applying Article 42(1)3 of the Inheritance and Gift Tax Act to the donation of this case, the Defendant imposed gift tax on the Plaintiff, a shareholder of the non-party company, without considering all such circumstances despite the non-party company imposed corporate tax on the non-party company’s act of trading the real estate of this case on the non-party company, which received the gift of this case. This is contrary to equity as it brings a significant difference in the tax burden without reasonable grounds by the tax authority on similar trading type (the non-party company included 6,379,127,750 won as to the donation of this case’s real estate in its gross income and reported and paid corporate tax of KRW 1,567,90,230 for the business year 206. In applying Article 41 of the Inheritance and Gift Tax Act, the non-party company did not impose corporate tax on the non-party company on the non-party company, taking into account that it reported and paid corporate tax as above, i.e., offset the amount of loss, i., the Plaintiff’s gift tax, etc. 3014.

(4) The instant gift tax imposition disposition infringes on the legal stability and predictability of taxpayers in light of the history of Article 41 of the Inheritance and Gift Tax Act and the authoritative interpretation of the tax authority.

Article 41 of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996) newly established Article 41 of the former Inheritance Tax and Gift Tax Act, which stipulates that profits distributed to shareholders, etc. of a certain corporation by a person having a special relationship with shareholders, etc. of the specific corporation should be deemed as donation for the purpose of taxation. This is to prevent a shareholder, etc. of a corporation having a special relationship with the donor through donation of a specific corporation, which is not subject to corporate tax, from gaining profits without any tax burden, even if property donation is received, through donation of a specific corporation, which is not subject to corporate tax. After all, Article 2(3) of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193, Dec. 30, 2003) which was imposed as deemed donation of profits through a transaction with the specific corporation was converted into a regulation for calculating profit donated property through a transaction with the specific corporation.

Since the introduction of the provision of the complete comprehensive gift tax, the tax authorities have authoritative interpretation that, in case where a taxpayer donated the property to a black corporation (a corporation with no loss) that is not a specific corporation (a corporation with no loss), the gift tax may be imposed pursuant to the comprehensive gift tax provisions of the complete gift tax, on the issue of whether the said shareholder may be subject to the gift tax (see, e.g., Supreme Court Decisions 4-85, Jun. 17, 2004; 4-4 team-409, Mar. 22, 2005; 4 team-539, Apr. 11, 2005). Such authoritative interpretation was maintained without being modified until March 3, 2006, when the gift of this case was made by the gift of this case.

In addition, the tax authority changed the previous authoritative interpretation by considering the fact that the issue of whether to impose the gift tax on shareholders in the above case at around 2007 constitutes Articles 2 and 42 of the Inheritance and Gift Tax Act (see, e.g., National Tax Service’s written questioning 4 team-1767 May 29, 2007). The Defendant appears to have imposed the gift tax of this case on the basis thereof, which goes against the predictability of taxpayers in light of the following circumstances.

① The complete comprehensive taxation of gift tax was introduced in order to solve the problem that the individual legal fiction stipulated in Articles 32 through 42 of the former Inheritance Tax and Gift Tax Act could not cope with the new type of irregular gift. As seen earlier, the instant gift is a type of transaction similar to the type of transaction stipulated in Article 41 of the Inheritance Tax and Gift Tax Act, and Article 41 of the Inheritance Tax and Gift Tax Act was already enacted on December 30, 1996 to cope with such an irregular gift, and it is also difficult to view the instant gift as a new type of modified gift that could not have been predicted in advance.

(2) Where a specific corporation (including a corporation which has losses) receives property from its shareholders according to the authoritative interpretation prior to the above change for a considerable period even after the full comprehensive taxation of gift tax was introduced, the tax authority imposed gift tax on its shareholders by applying Article 41 of the Inheritance Tax and Gift Tax Act; but where a black corporation (corporation which has no losses) receives property donated, gift tax shall not be imposed on its shareholders.

③ In 2007, the tax authority changed the previous authoritative interpretation to determine whether the gift tax can be imposed on shareholders in the same case as the gift of this case, based on the fact that it falls under Articles 2 and 42 of the Inheritance Tax and Gift Tax Act. This seems to have changed the previous authoritative interpretation to prevent the previous authoritative interpretation maintained for a considerable period after the introduction of the complete comprehensive taxation of gift tax.

④ In particular, a fair and accurate calculation method of the tax base (it shall be calculated on the basis of the value of donated property) is required in terms of indirect and unrealized gain. In light of the aforementioned circumstances, it is difficult to view that the Defendant’s value of donated property calculated by applying Article 42(1)3 of the Inheritance and Gift Tax Act to the instant donated property is based on a fair and accurate calculation method (it is not a new type of gift which cannot be dealt with in advance, but a type of transaction similar to the type of transaction stipulated in Article 41 of the Inheritance and Gift Tax Act, notwithstanding the fact that the scope of application is unclear in relation to Article 41 of the Inheritance and Gift Tax Act, and in comparison with the case where Article 41 of the Inheritance and Gift Tax Act applies, it is inappropriate in terms of taxation in terms of the value of donated property as well as the case where the scope of application is clearly different in terms of the value of donated property. Meanwhile, even if examining other provisions on the calculation of the value of donated property, it appears that the method of calculation is relatively fair and accurate in cases where it gains are subject to practice.

D. Determination on the lawfulness of the disposition imposing capital gains tax of this case

1) As gift tax and capital gains tax vary between the requirements and timing for establishing a tax liability and taxpayers, in a case where the tax authority imposes each disposition, it is not possible to impose only one taxation, unless there are special provisions excluding duplicate application. Even if Article 2(2) of the Inheritance Tax and Gift Tax Act provides that gift tax shall not be imposed on a donee when income tax is imposed on a donee pursuant to the Income Tax Act, it does not fall under any special provisions excluding overlapping application of capital gains tax and gift tax (see, e.g., Supreme Court Decisions 98Du11830, Sept. 21, 1999; 2002Du12458, May 13, 2003).

2) As seen earlier, with respect to the transfer of shares of the non-party company to the non-party 1 at a low price, the Defendant imposed gift tax on the difference between the actual transfer value of the shares and the value assessed by the supplementary assessment method under the Inheritance and Gift Tax Act on the non-party 1, etc., while imposing transfer income tax on the plaintiff by using the assessed value as transfer value

3) Examining such factual basis in light of the aforementioned legal principles, the instant disposition imposing transfer income tax and the disposition imposing gift tax on Nonparty 1, etc. cannot be deemed to constitute double taxation, and thus, the instant disposition imposing transfer income tax cannot be deemed to have violated Article 2(2) of the Inheritance and Gift Tax Act. The Plaintiff’s assertion on this part is without merit.

E. Determination on the lawfulness of the disposition imposing the securities transaction tax of this case

Article 7 (1) 2 (a) of the Securities Transaction Tax Act provides that where stock certificates, etc. are transferred except subparagraph 1 and the transfer value of such stock certificates, etc. can be known, the transfer value of such stock certificates, etc. (if it is recognized that stock certificates, etc. are transferred at a price lower than the market value under Article 101 of the Income Tax Act, Article 52 of the Corporate Tax Act or Article 35 of the Inheritance and Gift Tax Act, the market value shall be the tax base

As seen earlier, the Defendant imposed the transfer income tax of this case on the Plaintiff by applying the provision regarding the wrongful calculation based on the transfer of unlisted stocks between the specially related parties. Thus, the transfer of this case constitutes a case where shares are deemed to have been transferred at a price lower than the market price pursuant to Article 101 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006). Thus, the imposition disposition of the securities transaction tax of this case imposed on the Plaintiff based on the market price as the tax base is lawful. The Plaintiff’s assertion on this part is without merit.

4. Conclusion

Of the instant lawsuit, the part concerning the claim for revocation of imposition of local income tax is dismissed as unlawful, and the claim for revocation of imposition of gift tax of this case is accepted as reasonable, and the remaining claims are dismissed as they are groundless.

[Attachment] Relevant Statutes: omitted

Judges Cho Il-young (Presiding Judge) Kim Yong-dong

Note 1) The term “a business organized for a given business purpose” refers to the transfer of a human and material organization as a whole while maintaining its identity (see, e.g., Article 41 of the Commercial Act and Supreme Court Decision 2007Da17123, Jan. 15, 2009).

Note 2) As to the conversion of a stock company to a limited company, it means that a company is converted into a different kind of company by changing legal organization while maintaining the identity of the company (see, e.g., Articles 604 of the Commercial Act and Supreme Court Decision 85Nu69, Nov. 12, 1985).