Daejeon District Court 2003Guhap1761 (Law No. 25, 2004)

National High Court Decision 2002 Jeon 3298 (Law No. 26, 2003)

Any disposition that is imposed without proving that the assessment is not inappropriate by supplementary assessment methods is unlawful;

In assessing the ‘value per share before the capital increase', if the stock is a foreign non-listed corporation, the supplementary evaluation method shall be applied only when it is not appropriate to apply the supplementary evaluation method, and the burden of proving that it is not appropriate shall be imposed on the tax authority.

2010Nu359 Revocation of disposition of imposing corporate tax, etc.

XX Kim

OO Head of the tax office

Daejeon District Court Decision 2002Guhap1761 Delivered on August 25, 2004

Daejeon High Court Decision 2004Nu2422 Decided February 8, 2007

Supreme Court Decision 2007Du5646 Decided January 14, 2010

August 25, 2011

September 26, 2011

1. The part against the plaintiff falling under any of the following subparagraphs among the judgment of the court of first instance shall be revoked:

The Defendant’s disposition of imposition of KRW 515,314,340 against the Plaintiff on September 10, 200 shall be revoked.

2. Two-minutes of the total costs of litigation between the Plaintiff and the Defendant, including the costs of appeal, are assessed against the Plaintiff, and the remainder is assessed against the Defendant, respectively.

The judgment of the first instance shall be revoked. The defendant shall revoke the imposition of the gift tax and the transfer income tax listed in the list as of September 10, 2002 against the plaintiff on September 10, 2002.

1. Scope of trial of this court after remand;

On September 10, 202, the Plaintiff filed the instant lawsuit seeking revocation of the disposition imposing gift tax and gift tax on the Plaintiff as indicated in the list No. 1, which was filed by the Defendant against the Plaintiff on September 10, 2002, and the court of first instance rendered a judgment that all of the Plaintiff’s claims were dismissed. However, the court of first instance rendered a judgment that the Plaintiff’s appeal was dismissed. The Plaintiff appealed, which was partially accepted the Plaintiff’s appeal, and the Supreme Court rendered a judgment that reversed and remanded the part of the disposition imposing gift tax during the above disposition and dismissed the remainder of the Plaintiff’s appeal (On the other hand, △△△△△△△△△△ (hereinafter “△△△△△△△”), along with the Plaintiff, filed a lawsuit seeking revocation of the disposition imposing corporate tax and value-added tax on the △△△△△△△△△△△△△△△△ on September 2, 2002, but each of the judgment filed by the first instance court prior to remand,

Therefore, the disposition imposing capital gains tax on the above disposition is separate from the disposition imposing gift tax, and thus, it is limited to the disposition imposing gift tax on the reversed and remanded court after remand.

2. Details of the disposition;

A. The △△△△△△△ is a corporation established around July 1991, which manufactures and sells information and communications, digital broadcasting, security and education images, and sound-related products. The Plaintiff is a company that sells the products of △△△△△△△△△△△△△△△△△△△, a U.S. corporation, which was a U.S. corporation, by making 100% investments in around May 1996, when the Plaintiff was appointed as the representative director of △△△△△△△△△△△△△△△△△△△△△△△△△△△△△△ on or around February 1994 and acquired 18.75% of the shares of the above company around 195.

B. On September 10, 200, the Defendant: (a) on July 21, 2000, when the △△△△△△ issued new shares on the capital increase of the U.S. △△△△△, acquired the forfeited share of KRW 12,50,000, which occurred from the Plaintiff’s waiver of new shares acquisition in KRW 1,997,02,972,976; (b) on the ground that the △△△△△△ was deemed to have distributed profits to the Plaintiff, who is a person with a special relationship, and thus, was subject to a deemed donation; and (c) on the Plaintiff, the Defendant imposed and notified the gift tax of KRW 515,314,340 for the year 200 as indicated in the

[Reasons for Recognition] Facts without dispute, Eul evidence Nos. 9, Eul evidence No. 10-2, Eul evidence No. 11-2, Eul evidence No. 23 and 24, and the purport of the whole pleadings

3. Whether the disposition imposing the gift tax of this case is minor

A. The plaintiff's assertion

Inasmuch as the U.S. shares value of △△△, which is a company through the event, ought to be calculated by comprehensively assessing technical capabilities, business capabilities, and future yield, the value of the Plaintiff’s acquisition of the new shares that △△△△△△ acquired was an adequate value, and the Plaintiff cannot be deemed to have gained profit from the acquisition of △△△△△△△△△△△△, and instead, △△△△△△△△△△△△△△△△

(b) Related statutes;

3. Attached Table 3. It shall be as listed in relevant Acts and subordinate statutes.

(c) Fact of recognition;

1) The △△△△△△△ was a company that exported $5,000,000 or more for the year 2003 when the Plaintiff was appointed as the representative director, and became the second export company among the venture businesses in the Daejeon Daejeon area in 2001.

2) By December 29, 199, △△△△△△△ issued the Plaintiff a stock option of approximately KRW 720,000 shares of △△△△△△△△△△, a key human resource, and entered into a new stock option contract with △△△△△△△△△△△△△△△△△△△△△, which led to the occurrence of interference with the registration of the KOSDAQ due to the financial burden due to the granting of excessive stock purchase options. In order to overcome these problems, △△△△△△△△△△△△△△△, some of them were relocated to the United States and had them work as U.S. employees of △△△△△△△△△△△△△△△△△△△△, while cancelling the initial stock option contract with △△△△△△△△△△△△△△△△△△△△ on December 29, 200.

3) Around 1999, 1999, 20% (12,500,000 shares) of the shares that were 1,000,000 shares (in the above process, 50 shares at par value divided; hereinafter the number of shares and 50,000 shares shall be expressed in the number after par value divided) were paid-in capital increase. At the time of △△△△△△△’s offering of new shares, the Plaintiff, who owned 100% of the shares of the U.S. △△△△△△ at the time of 10% of the shares, renounced the preemptive right to new shares, thereby resulting in forfeited 12,50,00 shares. The △△△△△△△△△△△△△△ on July 21, 200, 1432 of the above forfeited shares, namely, USD 1432 per share (159,342, the immediately preceding business year, 200 won).

4) However, the Defendant: (a) deemed that △△△△△△ received new shares at a higher price than the market price in the process of acquiring the new shares, and distributed profits to the Plaintiff; and (b) deemed that the amount equivalent to the above amount was calculated as KRW 1,323,63, and Article 39, 42, and 63 of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 2000; hereinafter referred to as the “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) and Articles 29, 31-4, and 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 200; hereinafter referred to as the “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) was deemed to have been donated to △△△△△△△△△△△△.

(1) The appraised value per share before the capital increase: 26.9782 [the amount calculated by converting Max ($0.01861 on the average of net profits and losses for the latest three years, $0.0056082) x 130/100 on the basis of US currency 0.02425801, and the amount calculated by converting the base exchange value under the Foreign Exchange Transactions Act as of the end of the last business year into 1,112.1)]

② The value of new shares issued by △△△△△△: 159.342 won (i.e., the total acquisition price of KRW 1,997,02,976, excluding exchange and remittance fees, either KRW 1,991,75,000 or KRW 12,500,000)

(3) The appraised value per share after the increase of the capital: 53.451 won [The appraised value per share before the increase of the capital x 26.9782 won x the total number of outstanding stocks before the increase of the capital x 50,000,000 shares] or (50,000 shares + 12,500 shares + 12,500 shares + 12,500 shares per share of the newly issued stocks x 00 shares)];

(4) 12,500,000 shares per forfeited shareholder who has renounced the acceptance of new shares 】 12,500,000 shares per forfeited shareholder acquired by a person in a special relationship with the forfeited shareholder ± the total number of forfeited shares ± 12,500,00 shares = 12,500 shares per forfeited shareholder

(5) 1,323,634,82 won [2] x (2) x: Provided, That when calculating [159.342 won - 53.451 won] x2,500 won (1,323,637,500 won) according to the above formula, the amount of profit has been calculated less than the amount of profit.

5) The net asset value of the U.S. △△△△△△△△△△△△’s acquisition value of the new shares at the time of the acquisition of the new shares was approximately KRW 400 million and approximately KRW 1.99 billion of the value of the △△△△△△△△△△△△△△’s acquisition value was about five times the value of the above net asset value. At that time, the value of the 1,90 million per share of the △△△△△△△△△△△△ value was about USD 0.06 at the time of the acquisition of the new shares of this case, KRW 0.1432 at the above face value was about KRW 24 times the above value, while offering new shares around June 200, the △△△△△△△△△△△△△△ was offered KRW 180,00 per share with face

6) Meanwhile, around May 200, △△△△△△ intended to secure approximately KRW 560,000 shares through capital increase with a view to using them as a contribution for Korean employees. However, due to legal and financial problems, the Plaintiff acquired KRW 1,790,000,000 shares of new shares to be used as contribution shares in the process of △△△△△△△△△△△△’s capital increase with a view to using them as contribution shares in KRW 560,121.

7) Thereafter, around 2000, the Plaintiff entered into a contract with △△△△△△ to purchase the shares acquired by △△△△△△△△ in the process of acquiring the new shares in question with the funds, after selling 560,121 shares of △△△△△ for the purpose of using them as the public capital.

8) As seen above, the U.S. △△△ has been making efforts to develop technology after receiving investments from △△△△△△, and the sales amount has been increased by more than twice in 2002, and 50% of the sales of △△△△△△△ was in charge of KRW 4,00,000 as the sales amount of the goods to △△△△△△△△△△△△ for the said period.

[Ground of Recognition] A without dispute, evidence Nos. 1 through 7, evidence No. 11-1 through 10, evidence No. 12-1 through 4, evidence No. 13-1 through 16, evidence No. 14-21, evidence No. 26 through 29, evidence No. 33-1 through 4, evidence No. 36-1 through 5, evidence No. 9, evidence No. 10, evidence No. 11-2, evidence No. 14-1 through 4, evidence No. 15, evidence No. 16-1 through 6, evidence No. 20-1, evidence No. 23-25, evidence No. 29-1, evidence No. 29-2, and the purport of the whole oral pleadings

D. Determination

Article 31-4(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that where a shareholder of a corporation renounces his/her right to receive new stocks and obtains profits from the shareholder who has a special relationship with him/her by accepting the forfeited stocks, such profits shall be calculated at the market price of one share after the capital increase [the appraised value per share before the capital increase x (the appraised value per share before the capital increase x the number of new stocks) + (the number of shares issued before the capital increase x the number of shares increased by the capital increase)] ± (the number of forfeited stocks issued before the capital increase x the number of shares increased by the capital increase)] ± Article 31-4(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be calculated in order by the number of forfeited stocks acquired by the person who has a special relationship with the real right holder (hereinafter referred to as “instant formula”) under Article 42(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the market price per share before the capital increase is difficult through Article 60(2).

However, Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 17(1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 288, Dec. 31, 2002; hereinafter “former Enforcement Rule of the Inheritance Tax and Gift Tax Act”) shall evaluate the value per share of non-listed stocks as the net value per share, and the net value per share shall be calculated by dividing the weighted average amount of net profit and loss per share for the last three years by the interest rate publicly notified by the Commissioner of the National Tax Service in consideration of the distribution rate of corporate bonds with maturity of three years guaranteed by the financial institution. However, if the net profit and loss per share falls short of the net asset value per share (the net asset value of the corporation concerned ± total issued value), it shall be appraised as the net asset value per share. Meanwhile, Article 58-3 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act shall be the value appraised by the country where the property is located, and if there is no amount, by requesting the value of two or more domestic appraisal institution.

In light of the above legal principles and the legislative intent of the above provisions, and the net value of profit and loss under Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 17 (1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act, which reflects the expected profit of the future at an interest rate reflecting the distribution rate of corporate bonds with the maturity of three years in Korea, in principle, it can be deemed that the stocks of the unlisted corporation located in Korea are subject to the application. In assessing the "value of evaluation per share before the person who issued the certificate" in the instant formula, the above supplementary evaluation method can be applied only when it is not appropriate to apply the supplementary evaluation method under Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 17 (1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act, and the burden of proving that the above supplementary evaluation method is inappropriate to apply to the tax authority.

However, in calculating the constructive value of the gift by the instant formula, considering that the △△△△△△, a major shareholder, transferred the forfeited stocks generated by the Plaintiff’s waiver of the acquisition of new stocks at a high price, the Plaintiff, a related party, obtained profits from the Plaintiff, the Defendant calculated the constructive value of the gift by deeming the net value per share of the △△△△△△, an unlisted corporation located in the United States, as the supplementary assessment method stipulated in Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, as the value per share (the amount converted into the basic exchange method under the Foreign Exchange Transactions Act) calculated by applying the above supplementary assessment method, without any evidence to support that it is not inappropriate to evaluate the value by the supplementary assessment method stipulated in Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. Thus, the Defendant

In this case, the evaluation value per share before the capital increase of △△△△ in the U.S. must be calculated in accordance with the evaluation method under Article 58-3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. According to each statement of subparagraph 1 through 4 of subparagraph 36, there is no evaluation data that evaluated the "evaluation value per share before the capital increase of △△△△△ for the purpose of imposing taxes in the U.S.., so the defendant must calculate the "evaluation value per share before the capital increase of △△△△△△△△△△△ in consideration of the appraised value by requesting two or more domestic or foreign appraisal institutions. However, in the first instance, it is clear that it is difficult to calculate the market price, and there is no circumstance to view that it is inappropriate to apply the supplementary evaluation method, and there is no value assessed for the purpose of imposing the gift tax in the U.S., and even if there is no evaluation value assessed by the appraisal institution, it cannot be known that there is no amount subject to the imposition of the gift tax in the U.S.

Therefore, the defendant's imposition of gift tax of this case is illegal.

4. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the gift tax imposition of this case is justified, and the part of the disposition imposing the gift tax of this case in the judgment of the court of first instance is unfair, and it is so decided as per Disposition by the plaintiff's claim.