Cho High Court Decision 2014Do699 (O6.23)

The imposition of gift tax on the legal fiction of title trust donation is legitimate because there is no obvious purpose of tax avoidance and non-related.

There is no evidence to prove that there was no tax to be evaded at the time of the title trust or in the future, by objective and timely evidence, that there was no tax to be evaded in the future, to the extent that there was no doubt, but to the extent that there was a clear objective of tax avoidance in the title trust of this case to the extent that there was no objective of tax avoidance.

Article 45-2 of the former Inheritance Tax and Gift Tax Act

2014Guhap6765 Revocation of Disposition of Imposing capital gains tax, etc.

AA and 3 others

O Head of the tax office and two others

February 26, 2015

March 12, 2015

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

All of the measures taken by the Defendants against the Plaintiffs shall be revoked.

1. Details of the disposition;

A. From November 5, 2003 to June 25, 2010, the Plaintiff AB transferred and acquired the shares of OB Co., Ltd., a KOSDAQ-listed corporation (hereinafter “instant shares”) in the market through approximately 1,272 occasions. During the above process, the Plaintiff borrowed the Plaintiff’s rightCC, DoD, and E (hereinafter “the Plaintiff”)’s name.

B. As a result of the investigation of gift tax, capital gains tax and global income tax on the Plaintiffs, the director of the Seoul Regional Tax Office: (a) in substance managed the accounts in the name of the Plaintiffs in the title trustee; (b) in 2005, he received dividends generated by acquiring the instant shares under the names of the Plaintiffs from the title trustee to the accounts of the Plaintiffs in each title trustee; and (c) in December 31, 2004, the Plaintiffs were obligated to report and pay capital gains tax under the Income Tax Act on October 28, 2005 to December 6, 2005, even though they were obligated to report and pay capital gains tax, it was omitted from October 28, 2005 to KRW 600,000 of the instant shares under the names of the Plaintiffs to the title trustee; and (d) in December 31, 2006, the amount of capital gains tax was transferred to the Association of 9.4% from May 25, 2007 to the title of the Plaintiffs under the Income Tax Act.

(C) The Defendants notified by the director of the Seoul Regional Tax Office of the foregoing taxation data were subject to the imposition of capital gains tax and gift tax as indicated in attached Table 1 (hereinafter “instant disposition”). From September 5, 2013 to October 7, 2013, the Defendants were subject to the imposition of capital gains tax and gift tax as stated in attached Table 1 (hereinafter “instant disposition”). The Plaintiffs dissatisfied with the disposition and filed a request for a trial, but were dismissed on June 23, 2014

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 10 (including paper numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) Although the Plaintiff AA made title trust of the instant shares to the Plaintiffs of the title trustee, it was merely intended to exempt the Defendants from reporting obligation of the holders of stocks held in bulk under the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”), not to have the purpose of tax avoidance. On a different premise, the imposition of gift tax by the Defendants applying the provision on donation of title trust property to the Plaintiffs ought to be revoked in an unlawful manner.

2) The Plaintiffs do not have any active tax avoidance act, such as preparation of additional false evidence, except for a simple title trust, and thus, the exclusion period applicable to the Plaintiffs should not be less than 10 years for “Fraud or other unlawful act,” but 7 years for 205 years. In this regard, the imposition disposition of capital gains tax on the Plaintiff A for 2005 should be revoked since it was conducted after the exclusion period has expired. Thus, it should be revoked illegally.

3) Like the above 2, the Plaintiffs’ simple title trust facts alone cannot be deemed as an “unfair method,” which is an element to apply 40% of the unfair non-reported additional tax rate, and thus, the portion of the unfair non-reported additional tax in the instant disposition should be revoked in its entirety.

Even if the plaintiffs' act of title trust can be assessed as an "unfair method", it is illegal to apply the rate of unfair non-reported penalty tax to the gift tax pursuant to the donation agenda in addition to the transfer income tax that is the object of concealment and funeral.

4) Since the Plaintiff AA sold 10,000,000 shares purchased in the Plaintiff’s name in 2005, prior to the time of entry of a change of holders ( December 31, 2005), the imposition of gift tax on this portion is unlawful.

B. Relevant statutes

Attached Table 2 shall be as listed in the relevant statutes.

C. Determination

1) Whether there was an objective of tax avoidance

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Inheritance Tax and Gift Tax Act”) on the legal fiction of donation of title trust property provides that the legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act recognizes an exception to the principle of substantial taxation to the purport that effectively prevent the act of tax avoidance using the title trust system and realize the tax justice. Thus, only if the purpose of tax avoidance is not included in the purpose of title trust, the above legal provision may be exempted by applying the proviso of the same Article. In this case, the burden of proving that there was no purpose of tax avoidance exists other than the purpose of tax avoidance. As to the fact that there was no purpose of tax avoidance, however, it is obvious that there was no purpose of tax avoidance in the title trust, and that there was no tax avoidance at the time of the title trust or tax avoidance in the future, the title holder who bears the burden of proof should be proved by objective evidence, such as the degree of doubt.

However, the evidence or its assertion submitted by the plaintiffs in this case is insufficient to recognize that the title trust of this case was made for a clear purpose other than tax avoidance, and there is no other evidence to acknowledge it otherwise. However, in light of the following circumstances, which are acknowledged by comprehensively taking into account the overall purport of the arguments, i.e., the overall purport of the arguments, i.e., the plaintiffs' assertion that: (a) it is difficult to easily obtain the claim that the amount of KRW 1 billion or large amount of money was kept in the third party's account in order to avoid the spread of the duty to report; (b) it was known that there was a duty to report under the Financial Investment Services and Capital Markets Act in the event of mass possession of stocks; (c) it is difficult to believe the plaintiffs' assertion that it falls under the requirements for taxation of capital gains tax; (c) it was hard to believe that the plaintiff Ana has made many contributions to the operation of the share transaction account distributed in the name of the plaintiffs in the title trustee; and (d) it could not pay capital gains tax accrued in the future of the plaintiffs.

Therefore, this part of the plaintiffs' assertion is without merit.

2) Whether it constitutes “Fraud or other unlawful act”

Article 26-2 (1) of the former Framework Act on National Taxes (amended by Act No. 8139 of Dec. 30, 2006; hereafter the same applies in this paragraph) provides that in principle, five years of the exclusion period of national taxes shall be extended to 10 years from the date on which the taxpayer can impose national taxes (Article 26-2 (1) 3). The legislative intent of the above provision is, in principle, five years of the exclusion period of the imposition of national taxes in order to ensure prompt determination of tax legal relations, but it is difficult for the tax authorities to find it difficult to impose the national taxes or to release false facts, so it is difficult for them to expect 10 years of the exclusion period of imposition of national taxes (see, e.g., Supreme Court Decision 26-2 (1) 1 of the former Framework Act on National Taxes). If it is difficult for them to expect to exercise the exclusion period of imposition, such as fraudulent acts or other unlawful acts committed in the name of the taxpayer, it is difficult to impose taxes by fraudulent means or other unlawful acts.

In light of the above legal principles, as seen earlier, the instant shares were held in title trust for the purpose of evading capital gains tax. Considering that the Plaintiff’s establishment of a stock transaction account under the name of the Plaintiffs in the title trustee and repeated transfer and acquisition of shares for a long time under the name of the Plaintiffs, and that the Plaintiff’s dividend income on the instant shares was paid to the title trustee under the name of the Plaintiffs, it is reasonable to deem that the Plaintiffs were not merely passively maintaining the title trust relationship, but actively making the imposition and collection of taxes impossible or considerably difficult.

Therefore, this falls under "Fraud and other unlawful acts" under Article 26-2 (1) 1 of the former Framework Act on National Taxes, and the exclusion period of imposition is 10 years. On a different premise, this part of the claim is without merit.

(iii) satisfies the requirements for the application of an unfair non-declaration penalty rate (40%)

Article 47-2 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereafter the same shall apply in this paragraph) provides for a system for the provision of Article 47-2 of the former Framework Act on National Taxes, the language and content of Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 22038, Feb. 18, 2010; hereafter the same shall apply in this paragraph), and the legal nature of additional tax on non-declaration. In the event of non-declaration of Article 47-2(2) of the former Framework Act on National Taxes, the imposition and collection of additional tax is impossible or considerably difficult, and thus, it is understood that the purpose of Article 27-2(2) of the former Enforcement Decree of the Framework Act on National Taxes is to impose an unjust taxation without any requirement for non-declaration of tax base (see, e.g., Article 27(1)2 of the former Enforcement Decree of the Framework Act on National Taxes).

However, in the case of this case, the fact that the plaintiff AA opened a distributed account under the name of the title trustee for the purpose of evading capital gains tax and repeated transfer and acquisition in the name of the above plaintiffs and all of the dividends received under the above plaintiffs' names is as seen above. Thus, it constitutes "a concealment of property" under Article 27 (2) of the former Enforcement Decree of the Framework Act on National Taxes, or "a fabrication or concealment of income, profit, act, transaction" (Article 27 (5) and "a fraud or other unlawful act to evade national taxes or receive refund or deduction (Article 6).

On the other hand, the plaintiffs asserted that the imposition of unfair non-declarational penalty tax on gift tax (the constructive gift of title trust property) is illegal even though it is separate from the imposition of unfair non-declarational penalty tax on capital gains tax. However, in light of the above legal principles and the following circumstances that can be recognized by adding the whole purport of the pleadings, the disposition of this case by the defendants, which imposed both gift tax and the additional tax on non-declarational penalty, is legitimate.

① Article 47-2 of the former Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006) that requires the application of an additional tax rate of 40% to the return of unfair non-tax base, was newly established by the Act No. 8139, Dec. 30, 2006. The legislative intent of the above provision is to restrain tax evasion and to induce

② Article 26-2(1) of the former Framework Act on National Taxes, unlike other national taxes to which the exclusion period of imposition extended by 10 years is applied only to cases where a national tax is evaded, refunded, or deducted through fraud or other unlawful acts (Article 26-2(1) of the former Framework Act on National Taxes, prescribes that the exclusion period of imposition for 10 years or 15 years (in cases of violation of duty to report, etc.), shall be applied to both cases of gift tax, strictly limits

(3) In the case of constructive donation of nominal trust property, the burden of proof is set as a passive requirement and the burden of proof is also imposed on the nominal owner, while in order to apply the unfair non-reported additional tax rate, the tax authority must actively prove the purpose of tax evasion, and otherwise the burden of proof is different.

④ In the instant case, the Plaintiffs repeated the act of transferring and acquiring shares through a borrowed account without filing a report on the tax base of gift tax by title trust (or trust) and receiving the dividend income from the trustee’s account. Such unfair act led to the Defendants’ obstruction of exercising the right to collect gift tax.

Therefore, this part of the plaintiffs' assertion is without merit.

(4) Whether there was a transfer of shares before the transfer of ownership

Comprehensively taking account of the overall purport of the pleadings in the statement No. 4 and No. 9, it is recognized that the Plaintiff AA lent the name of Plaintiff AD from May 30, 2005 to June 15, 2005, and sold 100,000 shares among them from November 24, 2005 to December 2, 2005. However, in full view of the purport of the entire pleadings in the statement No. 3-2, it is recognized that the transfer of ownership to the above shares was already made on November 2, 2005, prior to the sale of the issue shares. Accordingly, the Plaintiffs’ assertion on the premise that the transfer of ownership was transferred without any justifiable reason is without merit.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.