Seocho 2016west 114 ( September 30, 2016)

As long as the forfeited stocks which were abandoned by the shareholder following the notice of allocation of forfeited stocks are selected by the non-party corporation, it is reasonable to view the forfeited stocks as allocation of forfeited stocks.

As long as a shareholder has selected the method of directly allocating forfeited stocks from the non-party corporation, it is inevitable to regard the allocation of forfeited stocks as stipulated in Article 39(1)1(a) of the Act. The difference between the market price of new stocks, which is profits acquired by those who received forfeited stocks by allocating forfeited stocks at a price lower than the market price and the price actually allocated shall be deemed as the value of donated property.

Article 39 of the former Inheritance Tax and Gift Tax Act

2016Guhap9787 Revocation of Disposition of Imposition of Gift Tax

Park AA

Head of Seodaemun Tax Office

April 14, 2017

May 12, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of gift tax (including additional tax) of KRW 15,244,844 against the Plaintiff on January 14, 2016 shall be revoked.

1. Details of the disposition;

A. The plaintiff is a shareholder of the BBBBcom Venture Business Co., Ltd. (hereinafter referred to as the "B") and a member of the investment association operated by BB, and the plaintiff participated in the allocation of forfeited stocks (hereinafter referred to as "CC's 5,000 won per share) and received an allocation of 5,025 shares in the face value (hereinafter referred to as "the allocation of forfeited stocks") by participating in the allocation of forfeited stocks (hereinafter referred to as "CC's 5,00 won per share") on July 15, 2005. However, in relation to the allocation of forfeited stocks in this case, the defendant calculated the plaintiff's disposal of the forfeited stocks in accordance with Article 39 (1) 1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006; hereinafter referred to as the "Act") and notified the plaintiff of the gift tax of 65,917,940.14

C. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on February 29, 2016, but the Tax Tribunal dismissed the Plaintiff’s claim on September 30, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1, 3, 9, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The allocation of forfeited stocks in this case is also a transaction of acquisition of preemptive rights by transfer of forfeited stocks to BB between BB and CD (hereinafter “DD”), and the stock exchange ratio for acquisition and merger of the comprehensive stock exchange method in which the stockholders transferred BB’s stocks to DD and theCC owned by DD were already established. In order to avoid the spread of the exchange rate in the event BB’s direct participation in the capital increase with the capital increase of CC, BB shareholders were given up the forfeited stocks in accordance with the existing shares. In fact, the Plaintiff was notified of forfeited stocks from BB on June 2005, prior to the date of the resolution on the allocation of forfeited stocks by the CCC’s board of directors, and the payment of forfeited stocks was transferred to B, and thus, it is unlawful to impose the forfeited stocks by deeming the forfeited stocks as the allocation of forfeited stocks as stipulated in Article 39(1)1(a) of the Act and impose the gift tax as unlawful.

2) The allocation of forfeited stocks of this case was incidental to the acquisition and merger in accordance with the share swap method between B and D, and it cannot be deemed that the Plaintiff suffered loss due to the said share swap transaction because it is larger than the profit deemed to have been donated due to the instant deemed allocation of forfeited stocks. In addition, if BB directly participated in the offering of forfeited stocks ofCC due to the said share swap transaction, the Plaintiff indirectly secured shares equivalent to 90%, which is the share exchange ratio of the shareholder of BB, as the Plaintiff was the shareholder of the Plaintiff. Thus, the profit actually acquired due to the instant forfeited stocks is not 65,917,950 won, but 65,326,155 won (=65,917,950 x 90%), which is the difference between the Plaintiff and B when the Plaintiff was directly allocated the forfeited stocks, and thus, the disposition of gift tax of this case was unlawful by imposing KRW 6,591,795 won (=65,917,90,509,536,55).

B. Relevant statutes

It is as shown in the attached Form.

C. Facts of recognition

1) On May 13, 2005, theCC Council issued new shares with an ordinary share of 3,000,000,000 shares (one share price of 5,000,000 won per share, and 15,000 won per share). As of June 17, 2005, new shares were allocated to the shareholders listed on the register of shareholders at the rate of 0.143937426 shares per share, and the remaining shares below the subscription result shall be disposed of by the separate board of directors. The subscription period of new shares was from July 7, 2005 to July 8, 2005, and the share price payment date was determined as July 15, 2005.

2) Around June 2005, BB notified the shareholders of BB including the Plaintiff and its partners of the investment association (hereinafter referred to as “B”) as follows: (a) under the title of “B’s notification on allocation of real rights,” BB given up the subscription for shares allocated to BB and investment associations from July 7, 2005 to July 8, 2005; and (b) as of the forfeited payment date (from July 13, 2005 to July 14, 2005), the following notice was given:

1. Guidance on the payment of forfeited stocks;

(a) Details;

- Type of forfeited stocks: Registered common stocks;

- Par value per issue value: 5,000 won per share;

- The method of allocating forfeited stocks: To be allocated at the rate of 0.143937426 per stock owned.

- The subscription payment date for forfeited shares: from July 7, 2005 to July 8, 2005

- forfeited subscription points: Seoul ○○○-dong ○○○-2304 BB

(b) Guidance on the subscription procedures;

- Submission to the Company of two copies of forfeited subscription forms;

-Account Transfer: Account Holder BB

3) After that, theCC Council passed a resolution on July 12, 2005 to deal with BB and its investment association or its designated person by the method of shareholder allocation in the procedure for the emulsion of this case, which occurred after the subscription, as a result of the resolution of May 13, 2005.

4) Accordingly, on July 15, 2005,CC allocated forfeited 308,017 shares to shareholders, etc. of BB on July 15, 2005. The Plaintiff was allocated 5,025 shares allocated to BB and its investment association according to the Plaintiff’s share ratio.

Facts that there is no dispute over the basis of recognition, entries in Gap evidence 1 through 7, and the purport of the whole pleadings

D. Determination

1) Determination on the first argument (whether it constitutes an allocation of real rights)

In light of the following circumstances, the Plaintiff’s allocation of forfeited stocks of this case can be deemed to have been directly allocated byCC and its abandoned forfeited stocks, and thus, this part of the Plaintiff’s assertion is rejected.

A) On July 12, 2005, the resolution of the council ofCC on July 12, 2005 stipulated that BB and its investment association renounced acceptance of new shares and allocate forfeited shares resulting therefrom to BB shareholders, including the Plaintiff.

B) BB notified the forfeited share allocation to BB shareholders, etc., including the Plaintiff, and the forfeited share of theCC that the said investment association abandoned, were accepted by the shareholders, etc. of BB. However, even if the Plaintiff was notified of the acquisition of new shares as above by BB, other thanCC, and submitted documents necessary for the acquisition of new shares to BB and paid the stock price, it is merely that BB conducted the procedure for allocating forfeited share on behalf ofCC for the convenience of the acquisition process of new shares.

C) The time of notification on the allocation of forfeited shares to the shareholders, etc. of BB, including the Plaintiff, prior to the arrival of July 15, 2005, which was the date of the payment of the instant forfeited shares, and the forfeited shares were allocated to the shareholders, etc. of BB on the date of the payment of the said subscription shares. However, in the instant case, it can be deemed that B had already caused forfeited shares by clearly expressing the intent not to accept the portion of theCC’s subscription shares to be allocated to BB and its investment association before the due date of the payment of the subscription shares. Thus, it cannot be deemed that the time of notification on the allocation of forfeited shares did not change solely on the fact that the due date of

D) If BB did not waive the acquisition of new shares, the new shares allocated to the shareholders ofCC in the instant capital increase procedure cannot be allocated directly by the shareholders, including the Plaintiff. As long as BB selected the method of directly allocating forfeited shares fromCC in accordance with the Plaintiff’s notice of forfeited shares allocation, it shall be deemed as the allocation of forfeited shares as stipulated in Article 39(1)1 (a) of the Act.

2) Determination on the second argument (whether the calculation of the value of donated property is lawful or not)

Article 39(1)1 (a) of the Act and Article 29(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1933, Feb. 9, 2006) stipulate the difference between the market price of new stocks, which is the profits acquired by the person who received the allocation of forfeited stocks, by allocating forfeited stocks at a price lower than the market price, and the value actually received as the value of donated property. As such, the difference between the market price of new stocks, which is the profits acquired by the person who received the allocation of forfeited stocks, shall not be calculated as the value of donated property on the assumption that the losses incurred by the Plaintiff due to the exchange of stocks between BB

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.