[1] The case affirming the judgment below holding that in case where 10 major shareholders, including Gap, etc., who are major shareholders of the listed corporation, were to purchase stocks at a price lower than the market price by exercising the preferential purchase right on their own by means of abandoning the preferential purchase right of the stock-equity swap corresponding to their own stock holding ratio, etc., since they were transferred without compensation to the extent exceeding Eul's stock holding ratio, they are subject to gift tax on the grounds that the market price of the above

[2] In a case where the method of calculating the market price of the preferential right to purchase stocks into investment as donated property is at issue, the case affirming the judgment below which held that since the preferential right to purchase stocks are similar to the preemptive right to new stocks, the provision of the Inheritance Tax and Gift Tax Act concerning the method of appraisal

[1] The case affirming the judgment below holding that in case where 10 major shareholders, including Gap, etc., who are major shareholders of the listed company Gap, etc., were to purchase the above company's stocks held by the creditor financial institution by means of debt-equity swap, such as waiver of their preferential purchase right to the above company's stocks held by the creditor financial institution through debt-equity swap, the above preferential purchase right can be deemed as a property right with property value, and since this right is granted to all major shareholders, it can be deemed as being granted the preferential purchase right at the corresponding ratio to their shareholding ratio in the internal relations of the major shareholders, but other major shareholders were allowed Eul to exercise the preferential purchase right on their own by waiver, etc., within the scope exceeding Eul's share holding ratio, it is subject to gift tax since they transferred without compensation the profit equivalent to the market price and the exercise price of preferential purchase right

[2] In a case where the method of calculating the market price of the right to preferential purchase for stocks converted into investment as donated property is at issue, the case affirming the judgment below that the right to preferential purchase should be calculated by deducting the expenses required for acquisition from the value of stocks acquired by exercising the right to preferential purchase by applying mutatis mutandis the provisions of the Inheritance Tax and Gift Tax Act as it is similar to the preemptive right in that it is a right to obtain profits equivalent to the difference between the exercising price and the market price of the stocks, and therefore, it shall be calculated by applying mutatis mutandis the provisions of the Inheritance Tax and Gift Tax Act as to the methods of assessing the value of warrant certificates or preemptive rights to new stocks, and the price of stocks acquired shall be calculated by applying mutatis mutandis the provisions of the same Act to the method of deducting the expenses required for acquisition from the value of stocks acquired by exercising the right to preferential purchase; and

[1] Articles 2(1) and (3), and 31(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) / [2] Articles 2(1) and (3), 31(1), 60(1), and 63(1)1(a) and 2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007), Article 58-2(2)2(c), and (d) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008)

Plaintiff (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2008Nu299 decided September 10, 2008

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

Article 2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “Gift”) provides that donated property from another person’s donation shall be subject to gift tax. Article 2(3) of the former Inheritance Tax and Gift Tax Act provides that “The term “donation” means a free transfer (including transfer at a remarkably low price) of tangible or intangible property (including transfer at a remarkably low price) to another person by direct or indirect means, or an increase in the value of another person’s property.” Article 31(1) of the former Inheritance Tax and Gift Tax Act provides that “The donated property pursuant to the provisions of Article 2 includes all things belonging to the donee and having economic value that can be realized in money and all de facto or de facto rights having property value”.

The court below, based on its adopted evidence, decided to authorize the conversion of shares into equity on December 29, 2002 by Samyang Food Co., Ltd. (hereinafter referred to as the "Seoyang Food Co., Ltd.") which is a listed corporation, and the creditor financial council of creditor financial institutions which is a principal bank of the Korea Bank, shall prohibit the sale of shares into equity investment until December 31, 2004 in order to encourage the existing major shareholders to make efforts to normalize their management by converting the bonds of 40 billion won into 7,500 won per share on December 29, 2002; however, the court below acknowledged the preferential right to purchase shares (hereinafter referred to as "the preferential right to purchase shares") within the limit of 35% of the existing major shareholders and third parties designated by them to purchase shares of 5,00 won per share to the creditor financial institutions responding to their exercise of the preferential right to purchase shares of 15,000 won per share; ② the creditor financial institutions council of creditor financial institutions concluded the preferential right to purchase shares with the existing major shareholders, etc.

Based on these factual relations, the court below held that since the right to claim the preferential purchase of this case is expected to be exercised only by the major shareholders of the non-party company and a third party designated by them, and the market price of the stocks at the time of the exercise exceeds KRW 5,000,00, the difference between the 5,000 won and the 5,00 won is expected, the right to claim the preferential purchase of this case can be deemed as property rights with property value, and if the major shareholders of the non-party company make efforts to normalize the management of the non-party company, the right to claim the preferential purchase of this case is granted to all major shareholders in order to give the motive that the non-party company can recover the right to claim the preferential purchase in proportion to their share ratio, although it can be deemed that the non-party et al. who is the major shareholders of the non-party company has been granted the right to claim the preferential purchase of this case by giving up their own preferential purchase right corresponding to their share ratio, it can be deemed that the market

In light of the above provisions and legislative purport and the purport of Article 2(3) of the Inheritance and Gift Tax Act, the scope of taxation of gift tax is expanded by introducing the concept of gift by complete universalism, etc., such judgment of the court below is just and there is no error of law such as misunderstanding of legal principles as to the subject of gift tax, as otherwise alleged in

2. Regarding ground of appeal No. 4

Article 60 (3) of the Inheritance and Gift Tax Act provides that when it is difficult to calculate a market price of donated property, it shall be based on the value appraised by the methods provided for in Articles 61 through 65 in consideration of the type, size, transaction status, etc. of the relevant property, and Article 65 (2) of the Inheritance and Gift Tax Act provides that the appraisal method provided for in Articles 60 (1) and 60 through 64 of the Inheritance and Gift Tax Act shall apply mutatis mutandis to the appraisal of property, the appraisal method provided for in Articles

However, in principle, with respect to the appraisal of listed stocks under Article 60(1) of the Inheritance and Gift Tax Act, the legislative purport of Article 63(1)1(a) that stipulates that the value assessed according to the method of appraisal as stipulated in Article 63(1)1(a) shall be considered as the market price in order to exclude arbitrariness and ensure objectivity in the evaluation, and in full view of the provisions of Articles 60 and 63 of the Inheritance and Gift Tax Act concerning the method of appraisal of listed stocks and the provisions of each of the above provisions, it is reasonable to view that the market price of listed stocks shall be deemed as the market price only on a day before and after the base date of appraisal calculated according to the method of appraisal under Article 63(1)1(a) pursuant to the latter part of Article 60(1) of the Inheritance and Gift Tax Act (see Supreme Court Decision 2008Du470, Jan. 13, 201).

The court below held that the value of the right to preferential purchase of this case should be assessed by applying mutatis mutandis the adequate evaluation method as well as the difficulty in calculating the market price of the right to preferential purchase under the Inheritance and Gift Tax Act. The court below held that the right to preferential purchase of this case is similar to the preemptive right in that it is a right to obtain profits equivalent to the difference between the exercise price and the market price of the stock in this case. As such, Article 63(1)2 of the Inheritance and Gift Tax Act on the method of assessing the value of warrant certificates or preemptive rights to new stocks, and Article 58-2(2)2(c) and (d) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008) should be calculated by deducting the expenses required for the acquisition from the value of the stocks acquired by the exercise of the right to preferential purchase of this case from the average price of the stocks acquired by the Plaintiff’s stock exchange for six months after the issuance of the above right to preferential purchase of this case.

In light of the above provisions, legal principles, and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the market price calculation as otherwise alleged in the ground of appeal.

3. Regarding ground of appeal No. 3

The allegation in the grounds of appeal purporting that the Plaintiff cannot be deemed to have received a gift of the right to preferential purchase of this case from the existing major shareholders because the Plaintiff exercised the right to preferential purchase of this case on behalf of the existing major shareholders is not a legitimate ground of appeal.

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee In-bok (Presiding Justice)