Review Transfer 2007-0127 ( November 30, 2007)

The transfer value of exchange transactions in which the difference of the appraisal value is settled after the market price appraisal shall be the aggregate of the values acquired through exchange and the settlement amount.

In the case of transfer of stocks by means of an all-inclusive share swap, new stocks are acquired by evaluating the value of the stocks exchanged, and in the case of cash settlement, such exchange may be deemed an exchange of agreed value, and in this case, the transfer value is the total sum of the value of the stocks acquired by the exchange and

The contents of the decision shall be the same as attached.

Article 96 (Transfer Price)

1. The Defendant’s imposition of capital gains tax of KRW 688,429,070 against the Plaintiff on May 1, 2007 and securities transaction tax of KRW 40,098,540 on May 8, 2007 shall be revoked.

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

As indicated in the disposition (688,429,00 won in capital gains tax stated in the purport of the claim, and as stated in May 1, 2007, May 8, 2007, the securities transaction tax amount of 40,098,00 won appears to be a clerical error in the amount of 40,098,540 won, respectively).

1. Details of the disposition;

In full view of the evidence Nos. 1-1, 2, 2-1, 2-6, 1-1 through 3, 3-2, and 4-1 of the evidence Nos. 1-2, the following facts may be acknowledged in full view of the purport of the whole pleadings:

A. The Plaintiff owned 138,500 shares of ○○ Entertainment Co., Ltd. (hereinafter “○○○ Entertainment”) (hereinafter “instant shares”).

B. On June 3, 2005, 2005, ○○○○○○○DVD (hereinafter “○○○○○○DDD”) (hereinafter “○○○○○○DDD”) concluded an all-inclusive share swap contract with a complete parent company, ○○○DDD as a complete subsidiary by comprehensively exchanging shares with ○○○○ Entertainment, and the said exchange contract included a single share of less than one share that “the amount calculated on the basis of the first day on which the share exchange was listed on the KOSDAQ market shall be paid in cash to the shareholders of ○○○ Entertainment.”

C. Upon entering into the above exchange contract, ○○○○○○DD and ○○○ Entertainment made a first priority request to ○○ Accounting Firm to assess KRW 44,075 per share of the issued shares of ○○○○○○○○DD and ○○○○ Entertainment based on the transaction price on the KOSDAQ market [the average closing price for the latest one week + the average closing price for the latest one week + the average closing price for the latest one week + the latest one day + the average closing price for the latest one week] ± 3] calculated the value per share of ○○○○○DD and ○○○○DDDD’s shares to be exchanged at the rate of KRW 11,57082 per share of the shares of ○○○○○DDD’s shares of 11,57082.

D. Under the above share swap contract on August 23, 2005, ○○○○○DVD became a wholly owning parent company of ○○○○ Entertainment, and ○○○○ Entertainment became a wholly owned subsidiary of ○○○○DD. In the process, the instant shares owned by the Plaintiff were transferred to ○○○DD, and the Plaintiff became a shareholder of ○○○○○DDD, a corporation listed on KOSDAQ.

E. After May 31, 2006, the Plaintiff considered the acquisition value of the instant shares as KRW 500 per share and the transfer value as KRW 44,075 per share, and reported and paid capital gains tax of KRW 603,263,000 and securities transaction tax of KRW 30,520,000.

F. However, the Defendant issued the instant disposition that corrected and imposed KRW 40,098,540 on May 1, 2007 against the Plaintiff on the ground that the transfer value related to the transfer of the instant shares cannot be deemed as KRW 44,075 per share, which is the above appraised value, and that the transfer value should be deemed as KRW 86,708 per share, which is the standard market value under the Income Tax Act.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) Plaintiff

The above appraised value is 44,075 won per share based on 44,075 won per share in calculating the transfer income tax and securities transaction tax of the instant shares as the actual transaction value related to the transfer of the instant shares. The Plaintiff at the time of the said share swap was not in the position of a related party with ○○○○DD, and the said share swap was not an unfair transaction, and thus, the Plaintiff’s transfer of the instant shares cannot be subject to the avoidance of wrongful calculation under Article 101 of the Income Tax Act, notwithstanding the fact that the said share transfer cannot be subject to the avoidance of wrongful calculation as prescribed by Article 101

(2) Defendant

In an all-inclusive share swap, the appraisal value of ○○○ Accounting Corporation is merely the appraisal value for calculating the share swap ratio, and it cannot be deemed the actual transaction value. The above exchange contract was conducted by the Plaintiff, which is the substantial largest shareholder of ○○○○D and ○○○○ Entertainment, based on the presumed financial data voluntarily presented by the corporation subject to appraisal. The purpose of the exchange contract was on the bypass of ○○○ Entertainment. The stock value assessment is not on the premise of continuing enterprise. The above share value assessment is not on the calculation of the value as a continuing enterprise. The above share value assessment is not on the calculation of the sales and total profits, but on the basis of excessive appropriation of the sales and total expenses, 2,072 won, but in fact 51,565 won per share, 8,148 won per share, and 206,200 won per share, but it is found that the appraisal value per share was calculated at a 2,070 won per share of 206,1465 won per share without any loss or loss per share.

B. Relevant statutes

Article 360-2 (Incorporation of Complete Parent Company by All-inclusive Share Swap)

Article 94 (Scope of Transfer Income Tax)

Article 96 (Transfer Price)

Article 101 (Calculation of Capital Gains by Wrongful Acts)

Article 114 (Determination, Revision and Notification of Tax Base for Transfer Income and Amount of Tax)

C. Determination

(1) Whether ○ Accounting Firm’s stock value assessment is appropriate

○○○○ Accounting Corporation’s ○○○○ Accounting Corporation’s appraisal of ○○○○ Accounting Corporation’s ○○○○ Accounting Corporation’s ○○○○○○ Accounting Corporation’s ○○○○○○○○○○○○○○ Accounting Corporation’s appraisal of shares in accordance with general accounting standards in accordance with the Securities and Exchange Act, the Enforcement Decree, and the Enforcement Rule. There is no evidence to doubt the credibility of the statement. It is practically difficult to accurately assess the estimated sales and profits and losses due to the characteristics of the ○○○○ Entertainment, which is an enterprise with heavy uncertainty in the future. The Defendant’s appraisal of the actual management performance and ○○ Accounting Corporation’s ○○○○○○ Accounting Corporation’s ○○○○○○DD’s corporate assessment of shares was rapidly changing, and it is difficult to recognize that the Defendant’s appraisal of shares was unreasonable solely with the content of the above actual management performance or the appraisal of the ○○ Accounting Corporation’s ○○○ Accounting Corporation’s shares. However, the Defendant’s assertion to the effect that the Plaintiff’s ○○ Accounting Corporation’s appraisal of shares is unreasonable.

(2) Whether the appraised value of ○ Accounting Corporation can be viewed as the actual transaction value

According to Articles 94(1)3 (c) and 96(2) of the Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same shall apply), when calculating the transfer income tax accruing from the transfer of stocks not listed in the Exchange, the transfer value shall be based on the actual transaction value at the time of transfer. Article 114(5) of the Income Tax Act and Article 176-2(1)1 and (3) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254, Dec. 31, 2000; hereinafter the same shall apply), even if the transfer value is determined based on the actual transaction value at the time of transfer, even if there is no books, sales contract, receipt and other documentary evidence necessary to confirm the actual transaction value at the time of transfer, or if it is impossible to recognize or confirm the actual transaction value at the time of transfer or acquisition due to lack of important parts, the transfer value may be determined or corrected by estimation investigation.

In general, the term "real value of transfer income tax" means the value received by the transferor as a price for the transfer of the relevant asset at the time of transaction, which is objectively recognized by the sale contract or other documentary evidence, and it does not refer to the value based on the objective exchange value at the time of transfer identified by the market price appraisal retrospectively at the time of transfer (see, e.g., Supreme Court Decision 91Nu10848, May 12, 1992): Provided, That where a transaction subject to the transfer income tax is simple exchange, the actual transfer value cannot be confirmed if the transaction subject to the transfer income tax is an exchange accompanied by settlement procedures for the difference between the appraisal value by the market price appraisal of the object subject to exchange, and in this case, where the owner of the object subject to the exchange receives a difference between the appraisal value of the object acquired by the exchange and that of the object subject to the exchange, the actual transfer value shall be deemed the actual transfer value of the object subject to the exchange (see, e.g., Supreme Court Decision 96Nu660, Feb. 116, 1997).

In this case, the above facts are as follows. ○○○○○DDD’s value per share, which is a KOSDAQ-listed corporation, enters into a contract for an all-inclusive exchange of shares with ○○○○DDD as a complete parent company, ○○○○○○DD’s complete subsidiary by comprehensively exchanging shares with ○○○○○DD’s total value, and the instant shares were exchanged with ○○○○DD’s shares in the process of executing the exchange. At the time of the exchange, the value per share of ○○○○DD’s shares, which is an unlisted company, was calculated based on the reasonable appraisal value of ○○○○DD’s shares in accordance with the relevant provisions, such as the Securities and Exchange Act. The Plaintiff’s assertion that the appraisal value per share of ○○○○○DDD’s shares, which is a listed company, is evaluated based on the actual exchange value, and that the appraisal value per share is difficult to be determined based on the actual exchange value of shares in the process of exchange and exchange of shares.

(3) Whether the calculation is subject to the avoidance of wrongful calculation

As seen in paragraph (1) above, since ○ Accounting Firm’s stock value assessment was properly conducted, it cannot be said that the tax burden on the income under Article 101(1) of the Income Tax Act was reduced unreasonably on the ground of the pertinent stock exchange transaction transferred according to the reasonable assessed value, and the remaining requirements for the denial of wrongful calculation are not required to further examine the requirements for the denial of wrongful calculation. Thus, the Defendant’s assertion on this part is without merit.

(4) The theory of lawsuit

Therefore, 44,075 won per share assessed by ○ Accounting Corporation in relation to the transfer of the instant shares is the actual transaction value related to the transfer of the instant shares, and the Plaintiff should pay capital gains tax and securities transaction tax on the basis of this amount. Thus, the instant disposition that the Defendant reported otherwise and reported KRW 86,708 per share, which is the standard market value of the instant shares under the Income Tax Act, is unlawful.

3. Conclusion

If so, the plaintiff's claim seeking the cancellation of the illegal disposition of this case is justified and accepted.