Cho High Court Decision 2012 Deputy0644 (2012.04.04)

title trust with the purpose of tax avoidance

In full view of the fact that the Plaintiff’s failure to participate in the company’s operation cannot be seen as a common form of controlling shareholder, it constitutes a title trust, and thus, it constitutes a dividend income of unlisted stocks, which is subject to comprehensive taxation, and thus, the purpose of tax avoidance exists.

2012Guhap2147 Revocation of Disposition of Imposition of Gift Tax

XX Kim

Head of Eastern Tax Office

August 31, 2012

September 28, 2012

1. All of the plaintiff's claims are dismissed.

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

The Defendant’s disposition of imposing gift tax on the Plaintiff on October 4, 201 (including additional tax of KRW 000), KRW 000 (including additional tax of KRW 000), KRW 000 (including additional tax of KRW 000), KRW 000 (including additional tax of KRW 000), and KRW 000 (including additional tax of KRW 00) on the gift tax of KRW 2006 shall be revoked.

1. Details of the disposition;

A. XX (hereinafter referred to as the “instant company”) is a multi-level distributor that sells health assistive food, etc. and was established around April 2005. The Plaintiff received 300,000 shares of the instant company from the representative director of the instant company on August 25, 2005, and received 000 won shares of the instant company on September 8, 2005, and received 2,000,000 shares of the instant company on February 18, 2006 (hereinafter referred to as the “instant shares”).

B. On October 4, 2011, the Defendant: (a) applied Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007) to the Plaintiff on the ground that “B trusted the instant shares to the Plaintiff; (b) accordingly, imposed a gift tax of KRW 00 (including additional tax of KRW 000) on the donated portion of August 25, 2005; (c) KRW 000 (including additional tax of KRW 00) on the donated portion of September 8, 2005; and (d) a gift tax of KRW 00 (including additional tax of KRW 00) on the donated portion of February 18, 2006, respectively (hereinafter collectively referred to as “instant disposition”).

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on December 28, 2011. The Tax Tribunal dismissed the Plaintiff’s appeal on April 4, 2012.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 4, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff actually acquired the instant shares by borrowing funds from 0CC, its form, and thus no title trust is established between the Plaintiff and 0B. Even if the title trust is established, the principal purpose of the instant title trust is not tax avoidance, but rather a minor tax burden incidental thereto, and thus, there is no tax avoidance purpose.

B. Relevant statutes

【former Gift Tax and Inheritance Tax Act (amended by Act No. 8828 of Dec. 31, 2007)】

Article 45-2 (Legal Fiction as Certification of Title Trust Property)

(1) Where the actual owner and the nominal owner are different in property (excluding land and buildings; hereafter the same shall apply in this Article), the value of which is required to be registered, etc. for the transfer or exercise of rights, notwithstanding Article 14 of the Framework Act on National Taxes, the nominal owner shall be deemed to have donated, from the actual owner, the value of such property on the date when it is registered, etc. to the nominal owner (where the property is subject to a change of ownership, referring to the date following the end of the year following the

1. Where any property is registered in the name of another person or transfer is not made in the name of the actual owner who has acquired the ownership without an intention of tax avoidance;

2. Where converting the name of the real owner into the name of the other person during the period not later than December 31, 1998 (hereafter in this Article, referred to as the "suspension period") from among the stocks or equity shares (hereafter in this Article, referred to as the "stocks, etc."): Provided, That the same shall not apply to the case where converting the name of the person having a special relationship with the stockholders or investors of the corporation which issued the relevant stocks, etc. (hereafter in this Article, referred to as the "shareholders, etc.") or of the person who is a minor as of January 1, 1997.

(2) Where any property is registered, etc. under another person's name, and a transfer of ownership is not made under the name of the actual owner, and where the title of stocks, etc. is not converted under the name of the actual owner during the grace period, it shall be presumed that there exists a purpose of tax avoidance: Provided, That this shall not apply where the transferor files a report on the details of change of ownership along with a report under Articles 105 and 110 of the Income Tax

(3) In applying the provisions of paragraph (1), where a register of stockholders or a register of members has not been prepared, the decision of transfer shall be made in accordance with the documents concerning stockholders, etc. submitted to the head of the competent tax office having jurisdiction over the place of tax payment and the detailed statement of changes in stocks, etc.

(4) Paragraph (1) 2 shall apply only where a person who has converted stocks, etc. in the name of a real owner during a grace period submits the details of conversion to the corporation which issued the relevant stocks or to the head office or head office of the invested corporation, as prescribed by Presidential Decree.

(5) The term "taxes" in paragraphs (1) 1 and (2) means the national tax and local tax as provided in subparagraphs 1 and 7 of Article 1 of the Framework Act on National Taxes and the customs as provided in the Customs Act.

C. Determination

1) Determination on whether a title trust was established

First of all, in light of the following facts: (a) the actual consignor of the instant shares was examined; (b) the evidence as mentioned above; (c) the evidence as well as evidence Nos. 3; and (d) the testimony of witnesses Es. 2 and 3; and (c) the purport of the entire pleadings, the Plaintiff was in office as the representative director of Ds.O until May 2005; (d) the Plaintiff was in office as a director until December 31, 2006; (b) the Plaintiff was in office as a real estate leasing business; (c) the Plaintiff was in office as a director from 200 to 200,000 won of the instant company’s net income from 0,000 to 208; and (v) the Plaintiff was in office from 200,000 to 30,000,000,000 won of the instant company’s capital stock transfer from the 20,000,000 won of the instant company’s capital transfer.

Based on the above evidence, the following circumstances are as follows: (a) YA could not find any motive for the Plaintiff to transfer 300,000 shares of the company of this case without compensation; (b) the Plaintiff asserted that the Plaintiff paid 1% interest per annum to 00,000, but there is no evidence to acknowledge it; (c) even if such fact is acknowledged, 1% interest per annum cannot be viewed as the interest of a cash loan; (d) there is no reason to lend a large amount of money without any specific security to the Plaintiff, which appears that YE is not adequate than 0B; and (e) the Plaintiff’s failure to participate in the operation of the company of this case cannot be deemed as the form of a controlling shareholder; (e) the Plaintiff obtained the shares of this case without acquiring the shares of this case in its name due to the relationship with OB; and therefore, (e) the actual owner of the shares of this case is 0B, and therefore, the Plaintiff’s assertion based on the premise that the Plaintiff is the owner of the shares of this case is without merit.

2) Judgment on the non-existence of the purpose of tax avoidance

However, the legislative purport of Article 41-2(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 the act of tax avoidance by using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, if the title trust was recognized as having been conducted for any reason other than the purpose of tax avoidance, and only a minor tax reduction incidental to the said title trust occurs, it cannot be readily concluded that there was such a purpose of tax avoidance in the title trust. However, in light of the legislative purport as seen above, only if the purpose of the title trust is not included in the purpose of tax avoidance, it cannot be determined that there was a purpose of tax avoidance by applying the proviso of the above provision, so it cannot be deemed that there was a purpose of tax avoidance, and if it is deemed that there was an intention of tax avoidance, it cannot be said that there was no other purpose of tax avoidance, and at this time, the burden of proving that there was no purpose of tax avoidance exists a nominal person who asserts it

WhiteB’s trust purpose of this case’s shares to the Plaintiff is to carry on the same kind of business when avoiding the duty to protect trade secrets against the Plaintiff. However, according to the above evidence, the Plaintiff maintained 52.51% of the shares of the instant company until the end of 2006 and did not participate in the capital increase issued on July 2007, and did not fall under 39.61% of its shares. The Defendant held 0B’s shares in the above capital increase with 12.27% of its shares in the above capital increase. The head of the competent tax office designated the Plaintiff as the secondary tax obligor of the instant company and imposed the Plaintiff’s total amount of 00 won, including value-added tax, upon the Plaintiff’s objection. The holding of shares was merely a corporation’s actual dividend payment or a large amount of shares that could have been distributed, and the Plaintiff could not have been subject to the Plaintiff’s global income tax avoidance purpose at the time of the Plaintiff’s global income tax avoidance.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.