Early High Court Decision 2015Do3452, 4108 ( November 06, 2015)

Whether the evaluation of the premium on the instant shares violates the principle of tax equality, etc.

In assessing the value of the nominal trust shares, no error may be deemed to have been found by applying the premium rate of the largest shareholder.

Donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2016Guhap53173 Revocation of Disposition of Imposition of Gift Tax

AA, BB

○ One other than the director of the tax office

September 2, 2016

September 30, 2016

1. The plaintiffs' claims against the defendants are all dismissed.

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

Cheong-gu Office

On March 8, 2015, the Defendants’ imposition of each gift tax listed in the separate sheet No. 1, which was made against the Plaintiffs, shall be revoked.

1. Details of the disposition;

A. On November 16, 200, CCC is the representative director of ○○○○○○○ (hereinafter “instant company”) established for the purpose of manufacturing and selling leisure products. At the time of its establishment, CCC issued 10,000 shares of KRW 5,000 at par value (Capital 50,000,000). At the time of its establishment, the register of shareholders states that the Plaintiffs who participated as promoters at the time of its establishment are each acquired 3,00 shares (30%) 50 shares (5%) and 3,500 shares (35%) respectively.

B. CCC returned 500 shares of the instant company, which were in the name of DD on January 10, 2001, to its own name.

C. When the company of this case received new shares 50,000 shares as of October 18, 2001 (the first one), the company established each of the 15,000 shares that were newly issued by the Plaintiffs as promoters, and CCC acquired 20,000 shares each of the 15,00 shares, and CCC acquired 60,000 shares as of November 25, 2003 (the second two shares) by the Plaintiffs respectively, and CCC acquired 24,00 shares each of the 18,00 shares, and CCC acquired 80,000 shares as of December 18, 2004 (the third shares) by the Plaintiffs each of the 24,00 shares, and CCC acquired 32,00 shares as of December 18, 2004 (hereinafter the incorporation of the company of this case and each of the 32,000 shares shares as stated below.

D. The Defendants, under Article 45-2(1) of the Inheritance Tax and Gift Tax Act (hereinafter “the Inheritance Tax and Gift Tax Act”), deemed that the Plaintiffs received each of the instant shares from CCC at the time of the establishment of the instant company and the time of the first-third capital increase with each of the instant shares, pursuant to the deemed donation of title trust property under Article 45-2(1) of the Inheritance Tax and Gift Tax Act, and applied a premium assessment under Article 63(3) of the Inheritance Tax and Gift Tax Act on the ground that the said shares are owned by the largest shareholder, etc. at the same time, on March 8, 2015 (hereinafter “the instant disposition”).

E. On June 4, 2015, the Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on November 6, 2015.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 6, Eul evidence 1 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) At the time of the incorporation of the instant company, the Plaintiffs received the instant shares for the purpose of meeting the number of promoters with respect to the establishment of the company required under the Commercial Act, and at the time of the first-third capital increase, the Plaintiffs, a title trustee, subscribed to the shares to avoid the wise procedure. In addition, there is no secondary tax liability, deemed acquisition tax, and capital gains tax are avoided due to the title trust of the instant shares, and the global income tax is merely a minor tax reduction. As such, the instant disposition made against the Plaintiffs by applying the provisions on the constructive gift of title trust on the ground that the CCC did not have the objective of tax avoidance in the title trust of the instant shares, was unlawful.

2) Even if Article 63(3) of the Inheritance Tax and Gift Tax Act applies to the Plaintiffs, the provision that a certain percentage of the shares held by the largest shareholder, etc., including the right to manage, should be assessed as to the shares held by the largest shareholder, etc., was due to the consideration of the premium on the transfer of management rights. As such, in the instant case, if only the name of shares is transferred through a title trust, the de facto control was not transferred, and thus, the issuance of the shares in this case cannot be assessed. Accordingly, the instant disposition on a different premise is against the principle of tax equality

B. Relevant statutes

Attached Table 2 shall be as stated in the relevant statutes.

C. Determination

1) Relevant legal principles

The legislative purport of Article 45-2(1) of the Inheritance Tax and Gift Tax Act is to recognize an exception to the principle of substantial taxation to the purport that the act of tax avoidance using the title trust system is effectively prevented, thereby realizing the tax justice. As such, the proviso of the same Article is applicable only where the purpose of the title trust is not included in the purpose of tax avoidance. In such a case, the burden of proving that there was no purpose of tax avoidance. Therefore, the fact that there was no purpose of tax avoidance may be proven by means of proving that there was another purpose other than the purpose of tax avoidance. However, the nominal owner who bears the burden of proof has a clear purpose irrelevant to the tax avoidance to the extent that there was no purpose of tax avoidance in the title trust, and the fact that there was no tax avoidance at the time of the title trust or that there was no tax avoidance at the time of the title trust should be proved to the extent that it does not have any doubt (see Supreme Court Decision 2004Du1220, Sept. 22, 2006).

In addition, whether there was an objective of tax avoidance or not should be determined at the time of title trust, and then whether the property was actually evaded (see Supreme Court Decision 2003Du4300, Jan. 27, 2005).

2) Determination as to the assertion that the requirements of three or more promoters required under the Commercial Act are met or that the capital increase with consideration will be avoided.

In light of the following circumstances, which can be seen by adding the respective descriptions in subparagraphs 3 through 5 and the overall purport of arguments as seen earlier, the evidence submitted by the plaintiffs alone cannot be deemed as a title trust of the shares of this case to the plaintiffs pursuant to the purpose of evading procedures or objectives for meeting the requirements of the number of promoters required by the Commercial Act only without the purpose of tax avoidance, and there is no evidence to prove otherwise that there was a clear purpose other than the purpose of tax avoidance, and thus, the allegation by the plaintiffs disputing this is without merit.

A) Article 288 of the former Commercial Act (amended by Act No. 6488 of Jul. 24, 2001) provides that "at least three promoters must establish a stock company", so it is true that at the time of the establishment of the stock company of this case, at least three promoters need to be at least three promoters around November 16, 200. However, at the time of the establishment of the stock company of this case, CCC only three promoters at the time of the establishment of the company of this case, and 6,500 shares out of 10,00 shares issued by the company of this case since its establishment of the company of this case did not have any restrictions on the share ownership ratio, even though it is only three promoters at the time of the establishment of the company of this case, and 6,500 shares out of 10,00 shares issued by the company of this case and DD do not exceed 50% of its shares ownership ratio. The possibility of avoidance of the secondary oligopolistic shareholder's liability to pay taxes before the company of this case.

B) Inasmuch as there is no evidence to readily conclude that CCC borrowed the name of the first Plaintiffs with respect to the shares issued at the time of the incorporation of the instant company, it is reasonable to deem that the title trust for each of the first and third shares issued at the time of the establishment of the instant company was a title trust separate from the title trust held at the time of the instant company’s establishment. Whether there was a tax avoidance purpose in the title trust for the shares issued at the time of the instant company’s establishment should be determined individually at the time of each of the shares issued at the time of the instant company’s establishment, not at the time of the instant company’s establishment. However, the Commercial Act (amended by Act No. 6488, Jul. 24, 2001) did not impose any limitation on the number of promoters necessary for the establishment of the instant company (Article 288).

C) Where a corporation issues new shares for the purpose of raising funds after its establishment, the existing shareholders have the right to receive the allocation of new shares based on the number of shares held by them (Article 418 of the Commercial Act), unless otherwise stipulated in the articles of incorporation, and where shareholders voluntarily waive the preemptive rights without exercising such preemptive rights, the so-called forfeited shares may occur, and as regards such forfeited shares, the corporation may either re-enter the forfeited shares to any third party other than the relevant forfeited shareholders through prescribed procedures, or dispose of the forfeited shares as they are, in order to achieve the original purpose of capital increase. Therefore, in order to resolve the title trust at the time of the incorporation of the company of this case, the CCC should have acquired and adjusted the shares of the Plaintiffs prior to the issuance of new shares, or allowed the Plaintiffs to waive the preemptive rights after the issuance of new shares, and it is difficult to readily conclude that there was a purpose different from the purpose of tax avoidance by simply taking account of the circumstances that the company of this case allocated new shares in the future according to the ratio of existing shares.

D) In addition, CCC owned 100% of the shares of the instant company and operated the said company on its own, and the Plaintiffs leased the Plaintiff’s personal seal impression to each time it considers it necessary and used the Plaintiff’s name, and thus, it is not deemed that CCC had to have made considerable time and effort to acquire the instant shares or to accept forfeited shares. In fact, CCC had returned to its own name the shares in the name of DD on January 10, 201.

3) Determination as to the assertion that there is no tax actually avoided or is merely a minor reduction

The facts of recognition as above reveal the following circumstances: ① The earned surplus of the company in this case was about KRW 00 million in 2001, KRW 0000 in 2003, KRW 0004 in 2004, and KRW 00 billion in 2015 continuously accumulated the distributable resources, and there was sufficient possibility that dividends would be distributed. At the time of the disposition in this case, insofar as the name of the company in this case was not returned to CCC even until the date of disposition in this case, global income tax could be avoided. ② Since CCC had control over the board of directors and the shareholders’ general meeting as the representative director and the substantial controlling shareholder of the company in this case, it could not be determined at any time by virtue of the fact that the company in this case did not actually distribute dividends, and thus, CCC did not have any purpose of tax avoidance or tax avoidance by dividing the total amount of shares issued by the oligopolistic shareholder in this case to the extent that it did not have any purpose of tax avoidance or tax avoidance.

4) Determination as to the assertion that the assessment of the premium on the instant shares violates the principle of tax equality, etc.

However, it is reasonable to view that Article 63(3) of the Inheritance Tax and Gift Tax Act treats the value of stocks owned by the largest shareholder, etc. differently from the stocks owned by other shareholders regardless of the actual transfer of control over the company, by comprehensively taking into account the value of stocks, and the characteristics of the control over the company, the requirement for the realization of tax justice through fair taxation burden, the tax policy and technical demands called the efficiency of tax imposition, and the technical demands. It does not violate the principle of tax equality or the principle of substantial taxation as arbitrary or arbitrary, and it does not exceed the limit of the legislative formation power. Thus, the provision of Article 45-2 of the Inheritance Tax and Gift Tax Act does not violate the principle of tax equality or the principle of substantial taxation, and it is reasonable to view that the largest shareholder’s stocks are to be determined by treating the stocks held in title trust as the donation in the context of tax policy by treating the stocks held in title trust at the same time as the legal effect of simple donation under the tax law, even in cases where it is deemed that the stocks held in title trust is held in title trust. Accordingly, there is no error in this part of the plaintiffs.

3. Conclusion

Therefore, the plaintiffs' claims against the defendants are dismissed as it is without merit. It is so decided as per Disposition.