Busan District Court-2014-Guhap-3403 ( April 30, 2015)

Gift tax shall be levied on a corporation for business normalization without any purpose of tax avoidance if the corporation has been exempted from its liability;

The shareholder's profit at the time of the transaction, such as exemption from liability, cannot be deemed to have been obtained solely on the ground that the value of the shareholder's stocks after the act of exemption from liability to a corporation is highly likely to increase in the future stock value, and the corporation's profit cannot be deemed to be the shareholder's interest immediately

Article 69 of the Restriction of Special Taxation Act

2015Nu21384. Imposition of gift tax

AA

Head of Seogsan Tax Office

September 2, 2016

October 07, 2016

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposition of gift tax of KRW 417,432,310 ( KRW 53,194,230, and KRW 217,117,030, and KRW 147,121,050, respectively, of gift tax of KRW 53,194,230, and KRW 217,117,030, and KRW 147,121,050, which was imposed on the Plaintiff on November 4, 2013 is revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

가. KK수산 주식회사(이하 'KK수산'이라 한다)는 1970. 11. 6. 수산업 등을 목적으로 설립된 비상장법인이고, 원고는 KK수산의 최대주주 �비상장주식 3,000주 중 2,305주 소유, 지분율 76.83%(= 2,305/3,000 × 100, 소수점 넷째 자리 미만 버림, 이하 같다) �이며, BBB과 CCC는 원고와 형제 사이로 KK수산의 주주 i각 100주 소유, 각 지분율 3.33%(= 100/3,000 × 100)이다.

B. KNF was exempted from BB on December 31, 2010 from the debt amounting to KRW 300 million, from CCC on December 31, 201, from the debt amounting to KRW 900 million on December 31, 201, and from the debt amounting to KRW 450 million on December 31, 201 (hereinafter “instant debt exemption”).

C. On June 26, 2013, the Plaintiff reported a gift tax of KRW 1,267,750,000 on the aggregate of donated property pursuant to Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 2011; hereinafter “former Inheritance Tax Act”) with respect to the gains from debt exemption in this case by Busan regional tax office, and filed a request for correction of the reported value of donated property of KRW 1,267,750,00 on August 14, 2013.

D. However, on October 8, 2013, the Defendant: (a) deemed that the initial report on gift tax was justifiable; and (b) notified the Plaintiff of refusal of correction on November 4, 2013; and (c) added additional tax to the amount of gift tax that the Plaintiff originally reported on November 4, 2013; (b) KRW 53,194,230 (including additional tax 17,34,230 won); (c) KRW 217,117,030 (including additional tax 70,792,035 won); and (d) KRW 147,194,230 (including additional tax) of gift tax on KRW 450,00 of gift tax that the Plaintiff initially reported on November 31, 2011 to the Plaintiff; and (d) imposed additional tax on KRW 300,00,000 (including additional tax) KRW 147,50,000; and (c) KRW 30147,5040 (4).

E. The plaintiff is dissatisfied with the disposition of this case and filed a request for trial with the Tax Tribunal.

However, the above claim was dismissed on July 24, 2014.

[Reasons for Recognition] Unsatisfy, Gap evidence 2-3, 4, 5, Gap evidence 3 through 8, Eul evidence 1 to 2

5 Each entry of evidence (including branch numbers, if any) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The legal provision of this case can only be applied to cases where a shareholder, etc. has gained substantial profits from debt exemption to a corporation. Since KN has been previously and later exempted from debt by BB and CCC, it has been used as a 's total amount of capital' and 'bB' and CCC have been used as a 'nomenclature' term, the total amount of capital has been incidental to the total amount of capital, and 'nomenclature'. BB and CCC have waived their claim for normalization of the management of KN in accordance with the direction of △△△ Bank, which is the major creditor of KNF, and did not intend to donate its property to the Plaintiff, a major shareholder. The Plaintiff also donated approximately KRW 6.7 billion by means of sale of real estate, etc., and the value per share of KF owned by the Plaintiff before and after the debt exemption, the Plaintiff was unlawful in the disposition of this case based on the legal provision of this case.

2) For the following reasons, Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012; hereinafter referred to as the “former Enforcement Decree”) (hereinafter referred to as the “Enforcement Decree of the instant case”) which provides for the method of calculating profits by delegation of the instant legal provision is null and void since the said provision violates the constitutional value, such as the principle of limited liability of shareholders, the principle of tax equality, the principle of substantial taxation, and the principle of excessive prohibition. As such, the instant disposition based on the instant legal provision and the instant Enforcement Decree provision is null and void.

(1) Losses for which the period of deduction has not expired have property value to guarantee the reduction or refund of the corporate tax amount. For a corporation which has no deficit, corporate tax is imposed by applying the increased amount of assets as earnings, while for a corporation which has no deficit, the amount of assets received to be offset as losses, and the gift tax is imposed on shareholders as well as to exempt the corresponding tax refund liability corresponding to that portion. This is against the principle of tax equality as provided in Article 11(1) of the Constitution, since it is arbitrary discrimination against a corporation which has no deficit, without reasonable reasons

② In the event of liquidation of KK fisheries, the mere fact that there was a high possibility that the value of shares in the future would increase above zero as the absolute value of shares was increased, inasmuch as the Plaintiff did not have any monetary obligation to acquire residual assets or to bear debts from KK fisheries.

The imposition of gift tax on shareholders violates the principle of limited liability and the principle of substantial taxation.

(3) As in the instant case, an act of offering business free of charge without objective tax avoidance purpose.

by applying the Do, the suitability of the means, the minimum of damage, and the balance of the legal interests shall not be exceeded.

It infringes on the property rights of individuals in violation of the principles.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) On January 2010, KF had continued operational difficulties, such as filing an application for the workout program, and entered into a prior joint management agreement for the implementation of the management normalization plan (hereinafter “the instant special agreement”) with △△ Bank, etc., which is the principal bank for the principal bank. The plan for the management normalization of KFF of the instant special agreement includes the contents that shareholders, such as the Plaintiff, CCC, and BB, contribute to KF’s personal property to or waives their loans to KF.

2) Prior to the conclusion of the instant special agreement, the Plaintiff sold real estate owned by the Plaintiff prior to the conclusion of the agreement, and sold the real estate from September 2009 to November 1, 2009, and donated 2.8 billion won to the Plaintiff, 70 million won in total, and 3.5 billion won in total, and the shareholder CCC and BB exempted the Plaintiff from the obligation to provide loans to KK fisheries as seen in paragraph (b) of the instant special agreement.

3) After shareholders, including the Plaintiff, fulfilled the obligation of the special agreement of this case as above, the company’s capital from 4,412,290,461 as of December 31, 2009 to 3,026,527,333 won as of December 31, 201, --2,9,108,653 won as of December 31, 201 as of 3,026,527,333 won, and -2,9,108,653 won as of December 31, 201, △△△ Bank notified KR to start legal procedures for the loss of credit profits and the recovery of claims, and the Plaintiff, on or around October 2012, sold personal real estate to KR and donated the amount equivalent to 3,200,000 won of the sales fund to KR.

4) If shares are assessed under Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, if the Plaintiff excluded KRW 3.5 billion from the Plaintiff’s donation to KNF in 2009 and 2010, the appraised value per share of KNF stocks of BB and CCC before and after the exemption from the obligation of this case for KNF, shall be KRW 0,008, KRW 1,540,446, KRW 2009, KRW 1,823,712, KRW 1,266,108.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 4, 10 to 12, and Eul evidence 6;

The purport of all pleadings

D. Determination

1) The grounds for the instant disposition

The legal provision of this case, which is the basis for the disposition of this case, provides that "if a shareholder or an investor of the specified corporation has acquired a "profit prescribed by Presidential Decree" through a transaction such as exempting the liabilities of the specified corporation, the amount equivalent to such profit shall be deemed the value of property donated to the shareholder or investor of the specified corporation," and the enforcement decree of this case by delegation provides that "the profit acquired by the shareholder, etc. shall be the amount equivalent to the profit gained by the exemption of the liabilities (limited to the loss concerned)" multiplied by the ratio of stocks, etc. to the amount equivalent to the profit gained by the exemption of the liabilities.

The gist of the Plaintiff’s assertion is that the Plaintiff’s disposition of this case was unlawful since the Plaintiff did not gain any substantial profit, such as the increase in the value of KK fishery’s stocks due to the debt exemption of this case, since the total amount of the capital of KK fishery before and after the debt exemption of this case is 0 won, and the value per share of KK fishery owned by the Plaintiff is all 0 won, and it is in violation of the disposition of this case. Thus, in a case where the meaning of the “interest as prescribed by the Presidential Decree” in the legal provision of this case is interpreted to be limited to the case where the shareholder, etc. gains any substantial profit, as argued by the Plaintiff, regardless of whether the shareholder, etc. gains any actual profit, the provision of the Enforcement Decree of this case, which provides for the profits from the corporation as the profits from the largest shareholder, is invalid.

2) The meaning of "profit as prescribed by the Presidential Decree" of the legal provision of this case

For the following reasons, the term "profit as prescribed by the Presidential Decree" of the legal provision of this case means "actual profit gained by shareholders, etc. through transactions with a specific corporation in accordance with the principle of substantial taxation".

A) Article 2(3) of the former Inheritance Tax and Gift Tax Act provides that "donation" means a gratuitous transfer (including transfer at a remarkably low price) of tangible and intangible property (including transfer at a remarkably low price) to another person in a direct or indirect manner, regardless of the name, form, purpose, etc. of the act or transaction, or an increase in the value of another person's property by contribution, and Article 31 of the same Act provides that donated property under Article 2 includes all things belonging to the donee and all de facto or de facto rights having economic value which can be converted into money and all de facto rights having property value.

In light of the fact that the donation of the Inheritance Tax and Gift Tax Act is based on the concept of ‘the gratuitous transfer of the parts and the increase of the value of the property', and that the property subject to taxation is also a ‘economic value or property value', it is required that the ‘profit acquired by the shareholders, etc. of the legal provisions of this case is a substantial profit.

B) In principle, where a certain transaction constitutes the concept of gift under Article 2(3) of the former Inheritance Tax and Gift Tax Act after adopting a comprehensive taxation system to impose gift tax on the transfer or increase in value of various forms of gratuitous property that have not been predicted by the legislators, taxation of gift tax may be possible pursuant to Article 2(1) of the same Act. However, where individual valuation regulations regulating specific types of transaction in order to ensure taxpayers’ predictability, which limits only certain types of transaction to taxable subject to gift tax, and the scope of taxation can be limited to the scope and limit of gift tax by restricting the scope of taxation of gift tax, among the transactions regulated by individual valuation regulations, those excluded from the scope of gift tax or the scope of taxation can not be imposed even if the transaction that is excluded from the scope of gift tax under Article 2(3) of the Act is compatible with the concept of gift (see Supreme Court Decision 2013Du13266, Oct. 15, 2015). If the concept of donation does not fall under the concept of gift tax under Article 2(3) of the former Framework Act on National Taxes.

C) By adding the phrase “as determined by the Presidential Decree” to the legal provision of this case, shareholders, etc. gain profits in any case, regardless of whether the shareholders, etc. have gained substantial profits.

If it is deemed that the Presidential Decree delegates to the company whether it is deemed as such, the existence and tax base of the taxation requirement, such as the benefit acquired by the shareholder, etc., shall be prescribed by the Act.

In addition, although the Inheritance Tax and Gift Tax Act is a conceptual element of the concept of the ‘free transfer of the father' and ‘an increase in the value of the property' with respect to the donation, the amount of the inherited property should be calculated by considering the actual profit, i.e., the increase in the value of the property, and considering the value of the inherited property as the tax base, is to expand the scope of the benefits that are disadvantageous to the taxpayer, and to expand the scope of the benefits that are disadvantageous to the taxpayer.

D) With respect to “interest” as stipulated in the legal provision of this case, Article 41 of the former Inheritance Tax and Gift Tax Act was amended to “where a certain corporation’s shareholder or investor obtains a profit through a transaction with a specific corporation (amended by Act No. 7010, Dec. 30, 2003)” (amended by Act No. 9916, Jan. 1, 2010); and “where a shareholder, etc. of a certain corporation obtains a profit as prescribed by Presidential Decree by a transaction with a specific corporation” (amended by Act No. 13557, Dec. 15, 2015).

First, Article 31(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1817 of Dec. 30, 2003) provides that the increase in the value of shares shall be calculated by multiplying the number of shares or equity shares so increased by the number of shares held by the relevant controlling shareholders, etc. for the reason that the increase in the value of shares is no longer than the value of the shares before and after the increase in the value of the shares for 10th anniversary of the increase in the value of the shares issued by the current Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1810 of Sep. 2, 2006). The tax authority interpreted that the increase in the value of shares or the value of shares issued by the current Article 16 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be calculated by dividing the value of shares issued by the current Article 31 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act by the number of shares issued by the controlling shareholders.

In particular, Article 41 (6) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916 of Jan. 1, 2010) delegates only "the calculation of the profit" on the premise that the largest shareholder, etc. has obtained the profit through transaction such as gratuitous provision with a specific corporation. However, Article 31 (6) of the Enforcement Decree provides that "the profit acquired by a specific corporation shall be calculated as the value of donated property," and Article 41 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the profit acquired by a specific corporation shall be calculated as the profit acquired by a shareholder, etc." and it shall be excluded from the subject of gift tax unless the shareholder, etc. has actually obtained the profit, but Article 31 (6) of the former Enforcement Decree of the same Act provides that "the benefit of this case shall be deemed as having obtained the profit of the specific corporation by its own, and it shall not be deemed that the above provision has been null and void as it goes against the purport of Article 41 (6) of the former Enforcement Decree.

E) Article 2(4) of the former Inheritance Tax and Gift Tax Act provides that Article 2(3) of the same Act shall apply to cases where it is deemed that the gift tax has been unjustly reduced by indirect method via a third party, or by means of two or more acts or transactions, by deeming that such acts or transactions have been conducted directly by the party concerned, or by deeming such acts or transactions as a series of continuous single acts or transactions. The legislative intent of this case lies in imposing gift tax on a modified donation that gives profits to the shareholders, etc. of a specific corporation by means of bypassing the property to a specific corporation having deficits. As such, Article 2(4) of the former Inheritance Tax and Gift Tax Act may also apply to a donation of bypass method by a corporation, etc., and Article 2(4) of the former Inheritance Tax and Gift Tax Act shall also apply to a donation of bypass method by a third party

Since it is understood as a provision that imposes tax, it is reasonable to understand the legal provision of this case to the same purport.

F) Article 2(4) of the former Inheritance Tax and Gift Tax Act, which is a provision that imposes tax on a bypassive donation via a third party, requires that “an illegal reduction of gift tax” is not applied to cases where there is no purpose of tax avoidance due to indirect methods via a third party. In the case of a non-discriminatory donation of profits acquired by a specific corporation, where the shareholder, etc. who is the taxpayer, proves that the profits acquired by the specific corporation have not been actually gained, it may be subject to the law of this case and the Enforcement Decree of the Enforcement Decree of the same Act, and thus, may be in violation of the spirit of the guarantee of property rights and the principle of equal taxation. The legal provision of this case provides that the purpose of legislation is to impose gift tax on an bypassive donation that provides profits to the shareholders, etc. of the specific corporation without paying corporate tax by offsetting the amount of the gift with the amount of the loss. Unlike this, if any transaction or act such as exemption of debt to the corporation is for business normalization of the specific corporation, not for the purpose of corporate tax evasion, it shall not be deemed that there is no substantial act of a taxpayer or creditor.

3) Whether the enforcement decree of the instant case is invalid

For the following reasons, the provisions of the Enforcement Decree of this case, which provide for the calculation of the value of donated property by deeming the profits acquired by the specific corporation as the profits acquired by the shareholders, etc., is contrary to the purport of the provisions of this case as the mother corporation, and are invalid

A) As seen earlier, the term “interest” in the legal provision of this case means the “actual profit gained by a shareholder, etc. through a transaction with a specific juristic person.” It is reasonable to view that delegation to the Presidential Decree of this case is delegated to the shareholder as to the specific type and scope of such profit in the event that the shareholder gains a substantial profit. However, the provision of this case stipulates that the profit gained by a specific juristic person should be calculated as the value of donated property in the light of the profit gained by the shareholder, etc., and in the event that there is no substantial profit gained by the shareholder, gift tax may be imposed even if there is no profit gained by the shareholder, etc., and even if the shareholder, etc.

B) The legislative intent of the instant legal provision is to levy gift tax on an irregular donation that gives profits to shareholders, etc. of a certain corporation without bearing corporate tax on the donation amount by offsetting the donation amount with deficits. In the case of a closed unlisted corporation, unlike the listed corporation, it is difficult to calculate the fair price of shares, and even if the value of shares calculated by the supplementary method is incidental to the value of shares, it is difficult to deny that the shareholders of the unlisted corporation have gained substantial profits, such as enjoying a large number of intangible benefits, such as cost processing, through the unlisted company, even though the shareholders of the unlisted corporation have gained substantial profits.

However, in principle, the burden of proving the existence of the taxation requirement and the tax base is imposed on the tax authority in the same manner as the provision of the Enforcement Decree of this case, even if the shareholder et al. proves that he/she did not gain substantial profits, it cannot be deemed that he/she is exempted from the application of the law of this case and the provisions of the Enforcement Decree, and thus only takes into account the convenience of tax administration. In all cases under tax laws, such as the Inheritance Tax and Gift Tax Act, taxation cannot be deemed as including intangible benefits, and even if there are some difficulties in calculating the fair price of stocks of an unlisted corporation, Article 60 of the Inheritance Tax and Gift Tax Act provides that the value of the assets on which the gift tax is levied shall be calculated based on the market price as of the date of donation. Article 63 (1) 1 (c) of the Inheritance Tax and Gift Tax Act and Article 54 of the Enforcement Decree of the Inheritance Tax Act provide for the method of calculating the stocks of the unlisted corporation as of the date of donation.

C) In order to impose gift tax on a specific corporation on the profits earned by the specific corporation by deeming the profits earned by the specific corporation as the profits earned by the stockholders, etc., it should normally be highly probable that the act of exempting obligations to the specific corporation is used as a means of concealing donations to stockholders, etc., or that the direct donation and substance to stockholders, etc. are the same. However, as in the instant case, it is highly probable that the act of exempting obligations to the specific corporation without the purpose of tax avoidance was abused as a means of concealing donations at all times or that it is the same as a direct donation and substance to stockholders, etc.

D) In the case of a corporation due to transactions such as debt exemption, etc., the company’s total assets increase (including a large absolute decrease) and exemption from the payment of corporate tax equivalent to the amount appropriated for compensating for losses. However, profits earned by the corporation and profits derived from the increase in the value of the company’s stocks cannot be deemed to be the same. In particular, the shareholder’s profits at the time of transactions such as debt exemption cannot be deemed to have accrued solely on the ground that the value of the company’s stocks after the act of debt exemption against the corporation is highly likely to have increased in the future stock value even in the case of the causes of zero, and

4) Whether the instant disposition is lawful

A) Ultimately, the instant disposition based on the invalid provision of the Enforcement Decree of the instant case is unlawful.

As seen above, Article 31(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 7010, Dec. 30, 2003; Presidential Decree No. 18177, Dec. 30, 2003; Presidential Decree No. 2006Du19693, Mar. 19, 2009; however, upon the amendment of the Inheritance Tax and Gift Tax Act, the Supreme Court has maintained the contents of the provision before the amendment by Presidential Decree No. 25195, Feb. 21, 2014. As long as the provision of the Enforcement Decree of the instant case is still null and void, the provisions of the Enforcement Decree of the instant case cannot be applied, and the provisions of the Enforcement Decree of the instant case as well as the provisions of the Enforcement Decree before the amendment by Presidential Decree No. 18177, Dec. 30, 2003, it cannot be seen as identical to the repeal or replacement of the Enforcement Decree before the amendment.

B) The exemption of BB and CCC from its debt to KN is for the implementation of the management normalization plan under the instant special agreement concluded with △△△, the principal bank for the settlement of the capital potential for KK fisheries. In light of the fact that the Plaintiff donated 6.7 billion won to KN fisheries before and after the instant debt exemption, it cannot be deemed that the Plaintiff had the objective of tax avoidance, and there is no evidence to acknowledge that the Plaintiff had gained substantial profits from the instant debt exemption against BB and CCC. Ultimately, even in this respect, the instant special agreement was concluded with △△, the principal bank for the settlement of the capital potential for KF fisheries.

A disposition of imposition is illegal.

3. Conclusion

If so, the plaintiff's claim of this case is justified, and the judgment of the court of first instance shall be accepted.

Inasmuch as it is unreasonable to conclude otherwise, it is so decided as per Disposition by accepting the Plaintiff’s appeal.

section 3.