Seoul Administrative Court 2007Gudan9573 ( October 14, 2009)

National High Court Decision 2006No1872 (Law No. 86.05)

shares were transferred at a low price to the person with a special relationship by means of mass trading outside time.

It is legitimate that the Defendant’s calculation is based on the amount calculated by adding the premium rate of 30% to the average amount of the final market price of the Korea Stock Exchange for two months before and after the date of the market price per share, and the overtime trading method used for the transfer of stocks constitutes an abnormal trading in which stocks are transferred at low price by taking account of the fact that there is little room for other trading parties to intervene in the transaction, as the trading parties agreed on the items, quantity, and price.

209Nu22807 Revocation of Disposition of Imposing capital gains tax.

KimA

○ Head of tax office

Seoul Administrative Court Decision 2007Gudan9573 Decided July 14, 2009

April 7, 2011

June 23, 201

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

Defendant’s transfer income tax of KRW 1,492,433,750 for the Plaintiff on December 1, 2005

The cancellation of the disposition of imposition (it is apparent that the statement in the column of the claim of the complaint on December 20, 2005 is a clerical error of December 1, 2005).

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. The deceased KimA (Death on February 20, 201) is the founder of ○○ Group, including △△ Gas Co., Ltd. (hereinafter referred to as △△△, hereinafter referred to as △△ Gas), and △△△ Gas Co., Ltd. (hereinafter referred to as △△△△△), and the Plaintiff, KimB, KimCC, etc. (hereinafter referred to as hereinafter referred to as 'Plaintiffs et al.’) are children of the deceased.

B. After the deceased's death, the plaintiff et al. decided to transfer or take over the shares of the corporation belonging to ○○○ Group in order to divide ○○ Group including △△ Gas and △△ Gas. Accordingly, on June 12, 2001, the plaintiff sold to KimCC 67,070 shares of △△△△ Gas, 87,650 shares of △△△△ Gas, to KimB through mass sale outside time, and selling 16,80 won per share, which is the final market price of △△△△ Stock Exchange, at the transfer price, or 18,300 won per share, and on August 8, 2001, the plaintiff et al. sold △△△△ Gas shares of 243,726 shares of △△△ Group to the Korea Stock Exchange (hereinafter referred to as "the above shares sold by the plaintiff") at the transfer price of 17,400 shares per share.

(The following table omitted):

C. The Plaintiff filed a preliminary return on the tax base of transfer income with the transfer value per share of the instant shares as the transfer value per share, and paid the tax amount calculated accordingly.

D. On December 1, 2005, the Defendant: (a) calculated the transfer price per share of the instant shares by means of mass trading with a person having a special relationship for the instant shares; (b) calculated the transfer price per share of 30% more than the market price per share of the instant shares; (c) calculated the transfer price per share of 30% more than the market price per share of the previous Inheritance Tax and Gift Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter referred to as the “former Income Tax Act”); and (d) calculated the transfer price per share of 40% more than the market price per share of the instant shares; and (d) calculated the transfer price per share of 30% more than the market price per share of the instant shares by applying Article 101(1) and (4) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter referred to as the “former Enforcement Decree of Income Tax and Gift Tax Act”).

E. The plaintiff appealed and filed an appeal with the National Tax Tribunal on March 2, 2006, but the National Tax Tribunal dismissed the appeal on June 5, 2007.

[Reasons for Recognition] Unsatisfy, Gap evidence 1-1, Gap evidence 2-1, Eul evidence 1-2, Eul evidence 1-1, Eul

Note 2, 3, 4, Nos. 7 and 8-1 and 2, respectively, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) Article 63(1)1 of the former Inheritance Tax and Gift Tax Act is merely a supplementary assessment method applicable to cases where it is difficult to calculate the market price as of the date of evaluation under Article 60(1) of the former Inheritance Tax and Gift Tax Act. The Plaintiff agreed with the transferee in a special relationship as the final market price on the date of transfer formed in the stock market by means of an over-time large transaction between the transferee and the transferee on the date of transfer. This is a value acknowledged as normal where transactions are freely conducted between many and unspecified persons, and thus, in this case where the market price under Article 60(1) of the former Inheritance Tax and Gift Tax Act can be calculated as of the base date of appraisal under Article 60(1) of the former Inheritance Tax and Gift Tax Act, the supplementary assessment method under Article 63(1)1 of the former Inheritance Tax and Gift Tax Act as well as the provision under Article 63(3) of the former Inheritance Tax and Gift Tax Act which applies only to cases where the value of shares is assessed by the supplementary assessment method under the above provision.

(2) Even if the market price of the instant shares ought to be deemed the value calculated under Article 63(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act, the transfer of the instant shares cannot be deemed an abnormal transaction that lacks economic rationality in light of sound social norms and commercial practice, and thus, does not constitute an unfair reduction of tax burden on the relevant income. Therefore, the provision on the denial of wrongful calculation under Article 101(1) of the former Income Tax Act cannot be applied.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Whether the transfer price of this case can be deemed as the market price

(A) Article 167 of the former Enforcement Decree of the Income Tax Act on the basis of delegation of Article 101 (4) of the former Enforcement Decree of the Income Tax Act provides that the acquisition value or transfer value shall be calculated based on the market price if it is deemed that the tax burden has been unjustly reduced due to the acquisition of land, etc. in excess of the market price or the transfer of land at the market price in transactions with specially related persons under paragraph (4) of the same Article. In applying paragraph (5) of the same Article, the market price shall be calculated based on the appraised value by applying the provisions of Articles 60 through 64 of the Inheritance Tax and Gift Tax Act and the provisions of Articles 49 through 59 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. 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 under this Act shall be calculated based on the market price as of the date of commencing the inheritance or donation (hereafter referred to as "the date of appraisal" in Article 63 (1) of the same Act).

(B) In full view of the legislative intent of Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193, Dec. 30, 1996) which provides that the value assessed according to the supplementary evaluation method as stipulated in Article 63(1)1 (a) shall be considered as the market price in order to exclude arbitraryness and to ensure objectivity, the market price of the transferred listed stocks shall be considered as the market price. In full view of the legislative intent of Article 60 and Article 63(1)1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193, Dec. 30, 1996; Article 60(1)1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193, Dec. 30, 1996); Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13081, Apr. 1, 20197).

(E) In this case, the fact that the Plaintiff sold the instant shares to KimCC, KimB, and △△ Gas having a special relationship, and the fact that the share ratio exceeds 50% for △△ Gas and △△△ Gas by related parties, including the largest shareholder and the Plaintiff, is as seen earlier. Therefore, the Defendant’s assertion on the premise that the transfer of the instant shares to the transfer price at a lower price than the market price constitutes an unfair act due to a low price transfer as provided in Article 101 of the former Income Tax Act and Article 98 of the former Enforcement Decree of the Income Tax Act is legitimate, since the market price per share of the instant shares, which are listed stocks, exceeds 50%, is added to the market price per share of the instant shares to the average market price for 2 months before and after the date of transfer pursuant to Article 63(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act.

(2) Whether the provision regarding the wrongful calculation is applied

(A) The provision of wrongful calculation under the former Income Tax Act is a system that makes it difficult for a resident to unjustly avoid or reduce tax burden by abusing the various forms of transactions listed in each subparagraph of Article 98(2) of the former Enforcement Decree of the Income Tax Act without using a reasonable method with a special relationship. It is limited to a case where, from the viewpoint of an economic person, the right to taxation is deemed to have denied it and have income objectively and reasonably shown in the manner prescribed in the statutes. Determination of whether the economic rationality exists is limited to a case where it is deemed that the economic rationality was neglected due to the wrongful and unreasonable calculation. Determination of whether the transaction is not ordinarily conducted in the transaction behavior with a person who is not a person with a special relationship is not just an ordinary relationship, but rather, whether the transaction is unreasonable in light of sound social norms or commercial practice (see, e.g., Supreme Court Decision 200Nu19719, Jul. 26, 196; 200Du19719, Jul. 19, 199).

(B) In light of the following circumstances, the evidence mentioned above and evidence No. 10-1, No. 11, 12, and No. 15, and No. 16 are acknowledged as follows. ① Following the death of the deceased, ○○○ Group’s shares are transferred or acquired with the intent to divide ○○○ Group’s shares, including △△ Gas and △△ Gas. The transfer of shares was made as one of the methods for the division of ○○ Group’s shares between the persons with special relationship, such as the plaintiff, etc. (2) thereby, there was a sudden change in the share ratio of the plaintiff, etc. on the Korea Stock Exchange. ③ The reason why the transfer of shares was used for the transfer of shares is unreasonable, and the reason why the transfer of shares was made on the day of the transfer of shares to ○○ Group’s shares on which the transfer of shares was made by the parties to the Korea Stock Exchange without any possibility for other traders to intervene on the transfer of shares on the day of the transfer of shares to 20-day market price of this case.

(3) Therefore, in transferring the instant shares to a person with a special relationship, the Plaintiff transferred the instant shares at the transfer price lower than the market price with the largest shareholder’s certificate under Article 63(1)1(a) of the former Inheritance Tax and Gift Tax Act, which is deemed the market price of the instant shares, as seen earlier, and it is difficult to see that the instant shares were transferred to a person with a special relationship, and thus, the Plaintiff’s transfer of the assets at a price lower than the market price, thereby unjustly reducing the tax burden. Thus, the Defendant did not err in the imposition of the instant shares by applying the provision of wrongful calculation under Article 101 of the former Income Tax Act, on the ground that the market price calculated by applying Article 63(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act with respect to the transfer of the instant shares at a price lower than the market price.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed. It is so decided as per Disposition.