early 2010 to 2323 ( October 28, 2010)

It is recognized that there is a reasonable reason that transactions may be conducted more than the market price under transaction practices.

It is recognized as a normal transaction based on free will between the parties on an equal basis, and is made at a price higher than the market price due to justifiable reasons in practice. Thus, the disposition imposing the gift tax is unlawful.

2010Guhap49666 Revocation of Disposition of Imposition of Gift Tax

LAA

Daejeon Head of the District Tax Office

August 31, 2011

October 12, 2011

1. The Defendant’s imposition of KRW 103,238,850 in total on the gift tax for the year 2005 (i.e., KRW 4,292,560 in + KRW 98,946, and KRW 290 in total) on the Plaintiff, and the imposition of KRW 357,83,80 in total on the gift tax for the year 2006 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. The Plaintiff and LB, LCC, LD, MaximumD, E, F, EF, EG, net Kim H (hereinafter collectively referred to as “Plaintiff, etc.”) hold 1,66,050 shares of a stock company III (hereinafter referred to as “III”) that is a KOSDAQ-listed corporation that is engaged in the content and clothing manufacturing business (65.98% of the total shares of 2.520,000 shares).

B. On December 5, 2005, the plaintiff et al. entered into a contract to transfer 1,161,050 shares (the share ratio of 45.98%; hereinafter referred to as "the shares in this case") out of three shares held by JJ consulting Co., Ltd. (hereinafter referred to as "JJ consulting"), KK, and KimL (hereinafter referred to as "JJ consulting, etc.") to 14 billion won. The plaintiff et al. entered into a contract to transfer the shares and management rights of 1,161,050 shares (the share ratio of 45.98%; hereinafter referred to as "the shares in this case") from J consulting and set up the agreement to separate the existing shares in III from J consulting Co., Ltd. on the same day to 11.5 billion won.

C. Accordingly, from December 6, 2005 to January 20, 2006, the Plaintiff transferred KRW 221,262 per share to JJ consulting, etc. three times, and KRW 12,058 per share.

D. According to Article 35(2) of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”), the director of the Seoul Regional Tax Office notified the Defendant that the amount corresponding to the difference between the transfer value (14 billion won, 12,058 won per share) and the market value (4 billion won, 4840, 3,501 won per share) should be deemed to have been donated by the Plaintiff, etc., and thus, on April 14, 2010, the Defendant imposed each disposition (hereinafter “instant disposition”) on the Plaintiff on the amount equivalent to the difference between the transfer value and the transfer value (4 billion won, 4.6,4840, 3,500 won per share), and accordingly, on April 14, 2010, the Defendant imposed on the Plaintiff the gift tax of 4,292,560 and 98,946, 290 won in total, 103, 238,850 won in 206, and 353,80 won in each case (hereinafter “instant”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on June 22, 2010, but the Tax Tribunal dismissed the appeal on October 28, 2010.

[Ground of recognition] Facts without dispute, Gap Ll or 4 evidence, Eul evidence 1 to 5 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff is a major shareholder with the control over a third company listed on KOSDAQ, and thereafter transfers profits from the management and listing of the instant shares by acquiring the existing company’s assets at lower prices after exercising the control over the listed company. As such, this constitutes a case where there is a justifiable reason to make transactions at a price higher than the market price in the open market in light of transaction practices. Accordingly, the Defendant’s disposition imposing the gift tax is unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Article 35(2) of the Inheritance Tax and Gift Tax Act provides that where a person who is not a specially related person acquires or transfers assets between the parties, without any justifiable reason, the amount equivalent to the difference between the price and the market price shall be presumed to have been donated. Article 26(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the value of the transferred assets less the market price is 30/100 or more of the market price." Meanwhile, under Article 63(1)1 and (3) of the Inheritance Tax and Gift Tax Act and Article 53(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the stocks of a corporation listed on the KOSDAQ shall be assessed as the average daily market price at the Korea Exchange published for two months before and after the evaluation base date, and where the largest shareholder, etc. holds more than 50/100 of the total number of stocks issued by the corporation, 30/100 (15/100 in cases of a small and medium enterprise prescribed by Presidential Decree) of the evaluated value shall be added.

2) Comprehensively taking into account the following facts: (i) whether the transfer of shares constitutes the case of transfer of shares at a price considerably higher than the market price under the listing practice; (ii) Party B established MM industry Co., Ltd. (hereinafter “MM industry”) on January 1, 2006 and manufactured content at the existing place of business; (iii) MM industry was not the case of transfer of shares at a price higher than the market price; (iv) Party III’s acquisition of shares at the time of transfer of shares at the 5.7 billion won, and (v) Party III’s acquisition of shares at the 5.7 billion won, and shares at the time of transfer of shares at the 5.7 billion won, and (v) Party III’s acquisition of shares at the 5.0 billion won, based on its own view that the sale of shares at the 4.0 billion won, including those listed at the 4.0 billion won market price, and that the 5.0 billion won market price of shares at the time of transfer of shares at the 3-listed market.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by the assent of all participating Justices.