Suwon District Court-2018-Guhap61957 ( October 14, 2018)

Where stocks are disposed of in accordance with the rehabilitation plan approval plan, it shall not constitute a disposition of change of organization, such as merger, division, etc.

It is difficult to view that the disposal of shares according to the rehabilitation plan approval plan constitutes a disposition of change of organization such as merger, division, etc. under the Restriction of Special Taxation Act, and it does not constitute a "equity swap due to the expansion of facility investment and business size of a corporation" under the Enforcement Decree of the Restriction

Article 27-6 (6) of the Enforcement Decree of the Restriction of Special Taxation Act

Seoul High Court 2018Nu5462 Revocation of Disposition imposing gift tax

OO

O Head of tax office

Suwon District Court Decision 2018Guhap61957 Decided June 14, 2018

June 14, 2019

September 27, 2019

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The decision that the defendant revoked the disposition of imposition of gift tax of KRW 000 against the plaintiff on August 1, 2016.

1. Details of the disposition;

The reasoning for the court's explanation on this part is as follows: Article 8 (2) of the Administrative Litigation Act, Article 420 of the Civil Procedure Act, and Article 8 (2) of the Civil Procedure Act, and Article 420 of the Civil Procedure Act shall be cited. The reasoning for the court's explanation on this part is as follows: "Article 1. (c) of the judgment of the court of first instance (Article 13-17 of the judgment of the court of first instance)" (Article 1.3-2 of the judgment of the court of first instance).

[Attachment]

『 다. 그 후 소외 법인은 경영 상태가 악화되어 2014. 6. 30. XXXX지방법원으로부터 회생계획인가결정(XXXX지방법원 2013회합277)을 받았고, 위 인가결정에 따라 ① 주식 병합(소외 법인의 발행주식 총 454,522주에 대하여 원고 및 특수관계인이 보유한 주식은 액면가액 10,000원의 보통주 3주를 액면가액 10,000원의 보통주 1주로, 그 외의 자는 액면가액 10,000원의 보통주 2주를 액면가액 10,000원의 보통주 1주로 병합), ② 채무의 출자전환에 따른 신주 발행(대여채무 등의 출자전환에 의한 신주 발행으로, 액면가액 10,000원의 보통주 1주를 주당 10,000원으로 하여 321,678주 발행),

③ Re-merger of shares (the face value of KRW 10,00 per common share of KRW 10,00,000 per face value) was made (hereinafter “instant rehabilitation procedure”). Accordingly, the number of shares held by the Plaintiff as of the end of 2014 was reduced to 40,377 shares ( approximately 16.99%) 1).

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) In light of the purport of Article 30-6(2)2 of the former Restriction of Special Taxation Act (amended by Act No. 30-6(2)2 of the same Act), the term “cases where the share of donated stocks, etc. is reduced” means cases where the share of donated stocks is reduced due to the reasons attributable to the donee, thereby resulting in the danger of small and medium enterprises’ honor and succession to the management of family business and succession to ownership. However, there is no cause attributable to the Plaintiff, but rather, the non-party corporation maintains the continuity of family business through rehabilitation procedures, and thus, the application of the provision on the special taxation of gift tax shall not be excluded due to the decrease in the Plaintiff’s share of non-party corporation

2) Even if the gift of this case’s shares constitutes a non-compliance with Article 30-6(2)2 of the former Restriction of Special Taxation Act, it constitutes the grounds for exclusion from the imposition of gift tax (additional collection) as follows.

A) In light of the fact that Article 29(7) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 27(6) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 27(6) of the Restriction of Special Taxation) stipulates that the capital reduction and capital reduction are included in the "disposition" in relation to the follow-up management of carried-over taxation on the conversion of a corporation, while Article 27-6(6) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No

Even if the consolidation of shares constitutes a case where the donee disposes of the shares donated to him, the decrease of the Plaintiff’s shares due to the consolidation of shares, etc. according to the court’s rehabilitation plan approval order constitutes a case where Article 27-6(6)1 of the former Enforcement Decree of the Restriction of Special Taxation Act provides for the grounds for exclusion from the application of the special taxation of gift tax ("cases where the donee falls under the largest shareholder, etc. under the provision of Article 15(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax

B) In light of the fact that capital increase following debt-equity swap also constitutes an investment incidental to the continuity of a small and medium enterprise, there is no difference in essence from the capital increase due to the expansion of facility investment and business scale; and that as a result of the debt-equity swap of the relevant corporation, Article 27-6 (6) 2 (b) of the Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 27-6 (2) of the Restriction of Special Taxation Act (amended by Feb. 13, 2018), it clearly shows that the donee’s equity ratio falls under the grounds for exclusion from additional collection. In light of the above, it constitutes a case where the court’s decision for approval of rehabilitation plan of the court under Article 27-6 (6) 2 of the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter referred to as “the largest shareholder, etc.”), a decrease in Plaintiff’s share due to capital increase following debt-equity swap constitutes grounds for exclusion from the application of the special taxation of gift tax (hereinafter

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Relevant legal principles and regulations

A) Under the principle of no taxation without the law, the interpretation of tax laws and regulations shall be interpreted as the text of the law, barring any special circumstance, barring special circumstances, and it shall not be permitted to expand or analogically interpret it without reasonable cause. In particular, it accords with the principle of fair taxation to strictly interpret that the provision is clearly preferential in terms of the provision on reduction and exemption (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009).

B) Article 30-6(1) and (2) of the former Restriction of Special Taxation Act aims to succeed to a family business.

Article 27-6 (3) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that the gift tax shall be imposed on the value of the stocks if the shares of the donated shares are reduced without justifiable grounds prescribed by Presidential Decree within 10 years from the date of donation of the shares after the person succeeded to the family business by December 31, 2013 (Article 27-6 (2) 2). Article 27-6 (3) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that where the donee is deceased and his heir succeeds to the status of the donee (Article 30-6 (1) 1), where the donee succeeds to the status of the donee (Article 2 (3)), and where the donee donatess the shares donated to the State or local government (Article 3) and other inevitable reasons prescribed by Ordinance of the Ministry of Strategy and Finance (Article 14-4 (3) of the former Enforcement Decree of the Restriction of Special Taxation Act, hereinafter referred to as the "former Enforcement Rule of the Restriction of Special Taxation Act").

Meanwhile, the main text of Article 27-6 (6) 1 of the former Enforcement Decree of the Restriction of Special Taxation Act provides that the case where a donee disposes of the stocks donated to him/her and reduces his/her share shall be included in "the case where the share of the donated stocks is reduced" under Article 30-6 (2) 2 of the former Restriction of Special Taxation Act, and the proviso provides that "the case where a donee falls under the largest shareholder, etc. under Article 15 (3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as a disposition following a merger, division, etc."

In addition, the main text of Article 27-6 (6) 2 of the former Enforcement Decree of the Restriction of Special Taxation Act provides that "where the ownership ratio of the donee is lowered due to the forfeiture of rights, etc. during the process of issuing donated stocks, etc., "where the ownership ratio of the donee is reduced due to the forfeiture of rights, etc." is included in "where the shares of the donated stocks are reduced due to the exclusion of the application of the special provision on taxation on gift tax", and the proviso provides that "in the event of capital increase due to the expansion, etc. of facility investment and business size of the relevant corporation, the case where the donee forfeited the stocks to

2) Whether there exists a cause attributable to the Plaintiff and a justifiable cause

In full view of the following circumstances that are recognized based on the aforementioned legal principles and the provisions of the relevant statutes (including the facts recognized in the first instance court) and comprehensively based on the overall purport of the statements and arguments stated in subparagraphs 3 and 4 of Article 30-6 (2) of the former Restriction of Special Taxation Act, it cannot be deemed that the share of donated stocks, etc. under Article 30-6 (2) 2 of the former Restriction of Special Taxation Act is limited to cases where the equity of the shares is reduced due to the reasons attributable to the donee, thereby causing danger of small and medium enterprises’ honor, family business succession and ownership succession. In addition, there is no "justifiable reason" as stipulated in Article 30-6 (2) of the former Restriction of Special Taxation Act for the reduction of the shares donated to the Plaintiff in this case.

In full view of the language and structure of the relevant legal provisions, and the principle of no taxation without law, the phrase “where shares of donated stocks, etc. are reduced,” which goes beyond the scope of interpretation possible, is limited to cases where the shares of the donated stocks are reduced due to reasons attributable to the donee, thereby causing danger to the honor, family business succession, and ownership succession of small and medium enterprises.” Moreover, the grounds for exclusion of special taxation cannot be acknowledged by expanding the special provisions or limiting the grounds for exclusion of special provisions on the sole basis of the lack of management circumstances of the company succeeding to family business.

In addition, each subparagraph of Article 27-6 (6) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that the case where the ownership of donated stocks, etc. is reduced shall be excluded from cases and exceptions.

Rather, the Plaintiff and the Plaintiff’s father borrowed approximately KRW 1.3 billion from the non-party corporation (Evidence A4), and the court appears to have authorized the rehabilitation plan including capital reduction, based on the fact that the non-party corporation provided excessive security and guaranteed debt against the Central Government Corporation (Evidence A3). Thus, it is difficult to conclude that the non-party corporation is not liable for having entered the rehabilitation procedure. In the same context, it is difficult to deem that the Plaintiff is not liable for having reduced the Plaintiff’s share in the rehabilitation procedure.

○ According to the attitude of the previous Supreme Court precedents, the Plaintiff asserts that even if there is no explicit provision, a reduced or exempted tax cannot be collected, if there is no cause attributable to the Plaintiff. However, the Supreme Court precedents cited by the Plaintiff are different from the instant case, and thus, it is inappropriate to invoke the instant case.

According to Article 30-6(2) of the former Restriction of Special Taxation Act, each subparagraph of Article 27-6(3) of the former Enforcement Decree of the Restriction of Special Taxation Act, and Article 14-4 of the former Enforcement Rule of the Restriction of Special Taxation Act, where a donee dies and satisfies certain requirements, in cases where a donee donates stocks, etc. donated to the State or a local government, the donee constitutes "justifiable cause," which is an exception to the imposition of gift tax (additional collection) in cases where a donee is unable to engage in a family business due to fulfillment of his/her duty pursuant to the law, medical treatment for diseases, conditions of attending school, etc.

3) Whether it falls under Article 30-6 (2) 2 of the former Restriction of Special Taxation Act

A) The Plaintiff donated the instant shares from his father and held 52% of the total number of issued shares of the non-party corporation. After that, the Plaintiff’s shares in the non-party corporation decreased to approximately 16.99% of the total number of issued shares according to the instant rehabilitation procedure is as seen earlier, barring any special circumstance, it is recognized that the Plaintiff caused the Plaintiff to have caused the grounds for imposing gift tax (additional collection) stipulated in Article 30-6(2)2 of the former Restriction of Special Taxation Act (the case where the shares in the donated shares are reduced).

B) Comprehensively taking account of the following circumstances, the Plaintiff’s assertion on this cannot be accepted, on the ground that the decrease in the Plaintiff’s share due to the consolidation and re-merger of shares in the rehabilitation procedure of the non-party corporation constitutes a disposition following the organizational change, such as a merger and division, which is a ground for exclusion from the imposition of gift tax (additional collection) under the proviso of Article 27-6(6)1 of the Enforcement Decree of the Restriction of Special Taxation Act, and the donee falls under the largest shareholder, etc. under Article 15(3)

○ The Plaintiff asserts that the consolidation and re-merger of shares does not constitute a ground for gift tax imposition (additional collection) under Article 27-6(6)1 of the former Enforcement Decree of the Restriction of Special Taxation Act, since the consolidation and re-merger of shares does not constitute a "disposition" under Article 27-6(6)1 of the former Enforcement Decree of the Restriction of Special Taxation Act. However, in a comprehensive examination of the language and contents of Article 30-6(2)2 of the former Enforcement Decree of the Restriction of Special Taxation Act and Article 27-6(6)1 of the former Enforcement Decree of the Restriction of Special Taxation Act, in principle, the Plaintiff’s share of shares donated without justifiable grounds is deemed as a ground for gift tax imposition (additional collection) and it does not constitute a "disposition of shares donated by a donee" under Article 30-6(6)2 of the former Enforcement Decree of the Restriction of Special Taxation Act, and thus, it does not constitute a "disposition of shares" under Article 27-6(2)2 of the former Enforcement Decree of the Restriction of Special Taxation Act.

○ Restructuring refers to the conversion of a company’s same personality into another type of company while maintaining its legal structure. The purport of the provision is to exclude the case where the share of the donated shares is reduced due to a merger, division, etc., from the case where the shares of a corporation extinguished due to an organizational change, such as a merger, division, etc. are disposed of, but it is difficult to view that the shares of a newly incorporated corporation are reduced as a case where the shares of a newly incorporated corporation are newly distributed. However, in this case, the number of shares held by combining shares in the rehabilitation procedure according to the rehabilitation plan approval plan in accordance with the rehabilitation plan approval plan does not change the organization of a corporation or the shares are not newly allocated.

○ The former Enforcement Decree of the Restriction of Special Taxation Act has separate provisions regarding cases where assets are disposed of according to rehabilitation procedures and cases of merger, division, etc. (see Articles 9, 11-3, 11-4, 14-3, etc.).

In full view of the language and purport of the proviso of Article 27-6 (6) 1 of the former Enforcement Decree of the Restriction of Special Taxation Act, Articles 15 (3) and 19 (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the meaning of "where a donee falls under the largest shareholder, etc. under Article 15 (3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act" under the proviso of Article 27-6 (6) 1 of the former Enforcement Decree of the Restriction of Special Taxation Act means where a donee continues to hold 50/10 (30/100 in case of a listed corporation) or more of the total number of shares issued by the relevant corporation after aggregating the shares of the predecessor and his/her related parties together with the related parties under Article 19 (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act."

Therefore, in the rehabilitation procedure of the non-party corporation, the number of shares owned by the plaintiff or shares of the non-party corporation decreased to approximately 16.99% due to the consolidation or re-merger of shares due to capital reduction without compensation cannot be seen as a "disposition following the change of organization, such as merger or division." Since the plaintiff cannot be seen as a "major shareholder, etc. under Article 15(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act", it cannot be seen as a ground for exclusion from the gift tax (additional collection) under the proviso of Article 27-6(6)1 of the Enforcement Decree of the Restriction of Special Taxation Act.

C) In addition, considering the following circumstances, the Plaintiff’s share increase due to debt-equity swap in the rehabilitation procedure of the non-party corporation constitutes “the case where the donee constitutes the largest shareholder, etc., where the donee forfeited to allocate new shares due to capital increase due to the expansion of facility investment and business size of the pertinent corporation, which is a ground for exclusion from gift tax (additional collection) under the proviso to Article 27-6(6)2 of the Enforcement Decree of the Restriction of Special Taxation Act,” and thus, it cannot be deemed that the Plaintiff’s assertion on this issue is unacceptable.

On the other hand, the expansion of the facility investment and business scale of the ○○ corporation is premised on the expansion of the corporation’s size according to the business judgment, and rehabilitation procedures are conducted for the purpose of continuing or maintaining the corporation due to the corporation’s capital structure or financial difficulties. In addition, in the case of capital increase following the expansion of the facility investment and business scale of the corporation, the introduction of new funds is ordinarily made, but the debt-equity swap is merely a conversion into the capital of the corporation, not an inflow of additional funds. Accordingly, the debt-equity swap in the rehabilitation procedure in the instant case cannot be treated as the same as capital increase following the expansion of the facility investment and business scale of the corporation.

○ In the Enforcement Decree of the Restriction of Special Taxation Act (hereinafter referred to as the "Enforcement Decree of the Restriction of Special Taxation Act") amended on February 13, 2018, where a donee's equity ratio is lower due to the debt-equity swap of the relevant corporation, it is recognized that the donee added "cases falling under the largest shareholder, etc." to the exceptional ground for exclusion from the provision of special taxation of gift tax (Article 27-6(6)2(b) of the Enforcement Decree of the Restriction

However, the former Enforcement Decree of the Restriction of Special Taxation Act, which was in force at the time of the instant disposition, does not stipulate the same contents as the above item (b), Article 27-6 (6) 2 of the Enforcement Decree of the amended Enforcement Decree of the Restriction of Special Taxation Act, clearly provides that the amended provisions of Article 27-6 (6) 2 shall apply from the case of conversion of investment after the enforcement of this Decree through Article 4 of the Addenda, and the amendment of the above Enforcement Decree is deemed to have been made in the purport to supplement post management by adding the exceptions to the special cases of the donation of family business succession (refer to the revised tax law theory (No. 3) published by the National Tax Service). In full view of the following factors: (a) even after the amendment of the above provision, the exceptional requirements for the capital increase due to the expansion, etc. of facility investment and business size of the pertinent corporation are maintained as well; and (b) the principle of no taxation without law, etc., the circumstances that added the obligation to be excluded from the application of the gift tax provision cannot be deemed to affect

In full view of the language and purport of the proviso of Article 27-6 (6) 1 of the former Enforcement Decree of the Restriction of Special Taxation Act, the proviso of Article 27-6 (2) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Articles 15 (3) and 19 (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, "where a donee falls under the largest shareholder, etc." means "where a donee continues to hold 50/100 (30/100 in the case of a listed corporation) or more of the total number of shares issued by the relevant corporation after aggregating the shares of the relevant corporation with the largest shareholder or largest investor under Article 19 (2) of the Enforcement Decree of the Restriction of Special Taxation Act, the meaning of "where a donee falls under the largest shareholder, etc." is construed as "where a donee holds 50/100 or more of the total number of shares issued by the relevant corporation" (the plaintiff's share held by the non-party 19/100 in the case of a listed corporation).

Therefore, as seen earlier, the case where the Plaintiff’s equity interest in the rehabilitation procedure of the non-party corporation has decreased to less than 50% due to debt-equity swap cannot be seen as the case where the Plaintiff’s equity interest has decreased to less than 50% due to facility investment and business size expansion, etc. of the pertinent corporation, and the Plaintiff cannot be seen as falling under the largest shareholder, etc., and thus, it cannot be seen as a ground for excluding the gift tax (additional collection) under the proviso of Article 27-6(6)2 of the

D) Ultimately, the Plaintiff’s decrease in the Plaintiff’s shares of Nonparty Corporation constitutes “where the shares of donated shares are reduced” under Article 30-6(2)2 of the former Restriction of Special Taxation Act.

4) Sub-committee

Therefore, the instant disposition is lawful.

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 just in conclusion, and the plaintiff's appeal is dismissed as it is without merit, and it is so decided as per Disposition.

1) 40,377 Shares = 236,352 shares (based) ¡¿ 1/3 (Stock Consolidation) + 1,971 shares (conversions) ¡¿ 1/2 (Merger of Shares).