Cho High Court Decision 2011J 0786 (O6.03)

The assessment value per share before the capital increase shall be calculated on the basis of the payment date of the stock price.

Considering the fact that if the date when the period of protection expires as the evaluation base date, the value of donated property is likely to change depending on the intention of the parties, it is reasonable to calculate the value of donated property for the purpose of calculating the value of donated property even if new stocks for which the period of protection is set in the capital increase with capital increase by the third party allocation method are allocated.

Article 39 of the Inheritance Tax and Gift Tax Act

2011Revocation of disposition imposing gift tax, 10660

XX

Head of Sungnam Tax Office

December 16, 2011

February 3, 2012

1. The plaintiff's claim is dismissed.

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

Each disposition of imposition of gift tax of KRW 51,395,434, and KRW 1,858,183 and KRW 869,451, which the Defendant against the Plaintiff on December 1, 2010 against the Plaintiff shall be revoked.

1. Details of the disposition;

A. On December 22, 2007, the Plaintiff agreed to invest KRW 500 million in the allocation of new shares to a third party offered by XX (hereinafter referred to as “the instant shares”) with the representative director of the company registered with the Association (hereinafter referred to as “former AA”) on December 22, 2007. On December 26, 2007, the Plaintiff acquired the instant shares by participating in the allocation of new shares to a third party (hereinafter referred to as “instant shares”) with the payment date of shares and the issuance price per one share to KRW 590 (65 won, 10% discount) with the third party (hereinafter referred to as “instant shares”).

B. The Defendant: (a) as a result of the investigation of the change of shares at the Seoul Regional Tax Office’s XX, acquired new shares at a lower price (590 won) than the market price (97 won) through the capital increase; (b) pursuant to Article 39 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8347, Apr. 1, 2007; hereinafter “former Inheritance Tax and Gift Tax Act”) and Article 29 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), notified the Plaintiff of KRW 239,830,331 calculated by multiplying the number of shares allocated to the Plaintiff by the number of shares subscribed to 283 won per share (590 won).

C. On February 17, 2011, the Plaintiff dissatisfied with the above disposition and filed a request for adjudication on February 17, 201. On June 3, 2011, the Tax Tribunal: (a) calculated the gift tax by classifying each shareholder who did not receive new shares; and (b) decided that the Plaintiff’s tax base and tax amount should be corrected by making it the Plaintiff’

D. On July 1, 2011, the Defendant deemed that KRW 12,142,610, and KRW 5,681,581, and KRW 1,858,183, and KRW 869,451, respectively, were donated to the Plaintiff from the former shareholder B, respectively. On July 8, 2011, the Defendant corrected and notified the Plaintiff of KRW 56,721,30 by reducing the amount of the gift tax initially imposed by deeming the remainder to have been donated from the minority shareholder, and by reducing the amount of KRW 56,721,30 to KRW 51,395,434 (hereinafter referred to as the “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Gap evidence No. 5-1 through 3, Eul evidence No. 1 and 2, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

For the following reasons, the instant disposition is unlawful.

(1) The Plaintiff agreed partial repayment rights and paid KRW 500 million during the period of guarantee of principal and principal, repayment rate at the time of return, and the period of safekeeping. In addition, the instant shares did not have been notified of the fact that the Plaintiff received share certificates or opened the register of shareholders, and there was no agreement on disposal rights of the Plaintiff after the expiration of the period of safekeeping. Therefore, the actual ownership of the instant shares was owned by XX because there was no agreement on disposal rights of the Plaintiff after the expiration of the period of safekeeping.

Therefore, the amount paid by the Plaintiff to XX constitutes not the acquisition price of the instant shares, but the loan to XX.

(2) Even if the Plaintiff acquired the instant shares, the Plaintiff suffered almost all loss of the principal due to the reduction of capital for two occasions during the period of protection deposit, and the net asset value and net profit value of the instant shares before and after the offering of new shares fall short of KRW 0,00. As such, there is no foreseeable economic interest that the Plaintiff actually acquired or should have acquired due to the offering of new shares. Furthermore, it is unreasonable to calculate the tax base amount of gift tax by deeming the market value excessively assessed due to the price manipulation, etc. without reflecting the real value of XX as the market value.

Therefore, under the principle of substantial taxation, the instant disposition that the Plaintiff acquired the instant shares at a lower price than the market price is unlawful.

(3) In addition, where the period of safeguard is set and the purchaser of new shares cannot dispose of the shares allocated during that period, in particular, the provisions of Article 29(3) and (4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which stipulates that the capital increase should be calculated on the basis of the payment date of the purchase price of shares, without exception, even in a case where a loss is incurred due to capital reduction during the period of safeguard, violates the principle of substantial taxation under Article 14 of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec.

Therefore, if the owner of a ship whose period of protection is set is allocated, the calculation of the capital increase should be based on the date following the expiration of the period of protection.

(b) Related statutes;

[Attachment 1] The entry is as specified in the relevant statutes.

(c) Fact of recognition;

(1) On December 22, 2007, the Plaintiff invested KRW 500,000,000 from the third party’s allocation of shares to be issued in December 26, 2007 between the representative director of XX and the GoA. The Plaintiff agreed to partially repay KRW 240,000,000 when the Plaintiff wishes to pay KRW 20,000,000,000,000,000,000,000,000,000 won for one year from the date of issuance (i.e., January 17, 2008 or January 16, 2009).

(2) XX held a board of directors on December 26, 2007 and decided on December 26, 2007 to issue 590 won per share of 10% discounted by 10% (50 won per share value per 50% (500 won per face value) per stock to the following investors who are able to raise funds for the purpose of improving the financial structure, as indicated in attached Form 2, the average closing price for one month retroactive from the day immediately preceding the date of resolution of the board of directors as stated in the third party allocation method, as in the list, the average closing price for one week, the average closing price for one week, and the recent closing price (675 won) as the base price (this seems to be in accordance with the former Regulations on Operation of the Association Brokerage Market).

(3) On December 26, 2007, the Plaintiff paid 500 million won (461,839,584 won + 38,160,416 won) to the deposit account of our bank, which is the payment obligor of the share capital, in addition, the Plaintiff deposited 50 million won (461,839,584 won) to the Korea Securities Depository after issuing the shares of this case.

(4) In accordance with Articles 60(1) and 63(1)1(a) and (b) of the former Inheritance Tax and Gift Tax Act, the Defendant calculated the appraised value per share prior to the increase in XX shares as KRW 977, the average of the closing price per share from two months prior to the payment of the subscription price to the date of the subscription price. Considering that the Plaintiff acquired new shares through the subscription price for new shares at a price lower than the market price (977 won) (590 won), the Defendant levied gift tax on the Plaintiff by calculating the donation profit per share due to the increase in the capital as set forth below 283 won and then multiplying the number of shares acquired by the Plaintiff by KRW 845,457.

(5) Meanwhile, Article XX provides two-time capital reduction for capital increase, and the details of losses suffered by the Plaintiff are as follows.

(6) According to the audit report of the outside auditor (accountingO) of February 7, 2008 about the fiscal year of XX 2007, the amount of cumulative losses as of December 31, 2007, due to the continuous business depression of the existing business division and the establishment of allowance for bad debts for the estimated amount of corporate funds embezzled by former management that occurred over the recent years, was 64.16 billion won, the debt ratio was 592.3%, and the capital erosion ratio was 88.5%, and the major financial status of the fiscal year of XX 2006 and 2007 are as follows.

(7) In order to achieve certain policy objectives, such as protection of small-sum investors due to price fluctuation, a specific person is obligated to hold shares he/she owns for a certain period of time under the relevant provisions, and to deposit securities with the Korea Securities Depository for a certain period of time (Article 173-2(1)5 of the former Securities and Exchange Act and Article 173-2(1)5 of the former Securities and Exchange Act). In this case, the issuing company (person responsible for protection) has taken over shares held by subscribers, who are obligated to keep holding, and entered into a contract with the Korea Securities Depository for protection of securities under its name, and delivered the deposited securities to the subscribers, who are deemed to have been the actual owners upon the expiration of the period of protection. However, the Korea Securities Depository is not a party to the contract for protection, but the Korea Securities Depository is obligated to manage the securities issued by the Korea Securities Depository after being notified of its details to the Korea Securities Depository for less than 15 years from the date of issuance (Article 28(1)5 of the former Securities and Exchange Act).

(8) On March 23, 2009 and May 25, 2009, the Plaintiff sought reimbursement of KRW 500 million for investments in capital increase for consideration under the said undertaking.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 6 through 8, Eul evidence 1, 2, and the purport of the whole pleadings

D. Determination

(1) Whether the Plaintiff’s money paid to XX is a loan

In light of the above facts, the Plaintiff and the Plaintiff promised to pay 50 million won to a third party’s share offering issued on December 26, 2007, by applying the guarantee of principal and a certain rate of return. The Plaintiff paid the above amount on December 26, 2007 pursuant to the above agreement and took over the shares issued in registered form from ○○ Mac’s investment connection to the acquisition of the shares. According to the social minutes of December 26, 2007, the Plaintiff stated that the Plaintiff selected an investor as possible to raise operating funds for the improvement of financial structure as a third party’s share offering, and that the Plaintiff was not obligated to acquire the Plaintiff’s shares in the name of 200 million won after requesting the Korea Securities Depository to repay the investment commitment pursuant to the above agreement, and that the Plaintiff was obligated to acquire the Plaintiff’s shares in the name of 3rd party and the Plaintiff’s shares in the name of 500 million won. The Plaintiff’s own shares were not required to acquire the Plaintiff’s shares in the name of 1.

(2) Whether the instant disposition, etc. violated the principle of substantial taxation

(A) Article 39(1)1 (c) of the former Inheritance Tax and Gift Tax Act provides that where new stocks are issued by a corporation at a price lower than its market price in order to increase its capital, a person who is not a shareholder of the corporation concerned shall be deemed to have received the donation of an amount equivalent to the profit derived from obtaining the allocation of new stocks directly from the corporation concerned. Paragraph (3) of the same Article provides that the method of calculating the profit under paragraph (1) and other necessary matters shall be determined by the Presidential Decree. As a result of delegation, Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the method of calculating the profit gained by the underwriter of new stocks under paragraph (3) 1 shall be determined by the Presidential Decree. Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the method of calculating the profit gained by the underwriter of new stocks shall be determined: ① (The appraised value per share before increase x the total number of new stocks issued before increase x the number of new stocks increased by the increase) ¡ value per stock.

In addition, Article 60 (1) of the former Inheritance Tax and Gift Tax Act provides that the value of property on which inheritance tax or gift tax is levied shall be the market price as of the date of commencing the inheritance or the date of donation (the "date of appraisal"), and the value assessed by the method of appraisal under Article 63 (1) 1 (a) and (b) shall be deemed the market price. In other words, the method of appraisal of stocks of an Association-registered corporation under the Presidential Decree shall be the average value of the standard value of the Association of Securities Business every two months before and after the base date of appraisal: Provided, That in calculating the average value, where it is inappropriate to determine the average value on the basis of the relevant average value due to the occurrence of reasons such as capital increase or merger during two months before and after the base date of appraisal, the average value of the period calculated as prescribed by the Presidential Decree among two months before and after the base date of appraisal, and Article 52-2 (1) 1 (a) and (b) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be the date before the base date of appraisal.

(B) The evaluation base date of shares before capital increase is the date of donation under Article 60(1) of the former Inheritance Tax and Gift Tax Act. The "date of donation" generally refers to the date when the ownership of the right is determined, i.e., the date of acquisition of the donated property. In light of the language and legislative intent of the above provisions and the effect of the acquisition of shares due to the capital increase, the price of shares acquired by the underwriter of new shares is to be calculated at the time of payment of the shares, unless there are special circumstances (Article 423(1) of the Commercial Act). In principle, in assessing the "evaluation value per share of shares before capital increase by a third party," among the formula under Article 29(3)1(a) of the former Inheritance Tax and Gift Tax Act, it is reasonable to make the period prior to that date (see, e.g., Supreme Court Decision 200Du7974, Aug. 29, 2009).

In addition, it is reasonable to view that only the average amount of the standard price of the securities business association every day announced every two months before and after the date of transfer calculated according to the method of evaluation under Article 63(1)1(a) and (b) of the former Inheritance Tax and Gift Tax Act (the latter part of Article 60(1) of the same Act, barring any special circumstance, shall be deemed to be the market price for shares registered with the Association (see Supreme Court Decision 2008Du4770 decided January 13, 201).

(C) In a case where new shares are issued at a lower price than the market price for new shares issued at a lower price with respect to capital increase with respect to the issuance of new shares to a third party, the existing shareholder renounces the economic interest as a result of the waiver of the participation in capital increase with respect to the new shares issued at a lower price, and thus, the purchaser of new shares is deemed to have considered economic interest. As such, Article 39 of the former Inheritance Tax and Gift Tax Act imposes gift tax on deeming the shares as a gift. As such, it is reasonable for the Plaintiff to have determined profits by acquiring the shares at a lower price than the market price, and its profits are not generated only from the sale of the shares acquired at a lower price, and the date of donation is deemed to be the date of payment of the stock price. Furthermore, even if the Plaintiff was unable to sell the shares during the period of protection, this shall be

Therefore, the Plaintiff’s assertion that the Plaintiff did not gain economic benefits from the offering of new shares is without merit.

(D) According to the above, it is reasonable to calculate the market price of the Association-registered corporation pursuant to Article 63(1)(a) and (b) of the former Inheritance Tax and Gift Tax Act. In calculating the value of donated property to the Plaintiff, the Defendant’s KRW 977, which was calculated as the market price of the instant shares, i.e., the appraised value per share before the capital increase, can be found to have been lawfully calculated pursuant to the above provisions (the Plaintiff does not dispute the fact that the above value is the result of calculation under the above provisions). Unless there are special circumstances, such as that the base price was calculated excessively by false materials, the market price of the Association-registered corporation cannot be deemed to have been unlawful on the basis of the financial status before and after the issuance of new shares, based on which an unspecified number of investors participated and traded based on the base price, which is the result of the transaction (see, e.g., Supreme Court Decision 2009Du19465, Feb.

Therefore, the Plaintiff’s assertion that the instant disposition violates the substance over form principle is without merit (In addition, the substance over form principle under Article 14 of the former Framework Act on National Taxes is a matter of how to regard the person to whom the person to whom the pertinent disposition belongs is deemed, and where the method of calculating the tax base itself is in question as in the instant case, it cannot be accepted even in that it is not a matter of law

(E) The legislative intent and text of Article 39 of the former Inheritance Tax and Gift Tax Act and Article 29 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the above provision are the reference date for calculating the value of one share before the capital increase as the payment date for share capital in order to prevent an unlawful donation. The compulsory protection amount is intended to protect minority shareholders due to a decline in stock value, and the Plaintiff itself is also quoted at the time of acquisition of the instant shares. If the expiration date of the protection period is the reference date for appraisal, the value of donated property may vary depending on the intent of the parties. In light of all, it is reasonable to calculate the “value of evaluation per share before the date of payment for share capital in order to calculate the value of donated property received by the Plaintiff even if new shares are allocated for capital increase with the third party allocation method.

Therefore, the plaintiff's assertion on different premise is without merit.

3. Conclusion

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