Busan District Court-2014-Gu 20781 (Law No. 15, 2015)

If a sales contract is terminated, the effect of the sales contract is lost, and the transfer of assets is not made, so the transfer income tax shall not be imposed.

The transfer income tax is levied on the premise that the transfer of assets and the income accrued therefrom are subject to taxation. If the sales contract is terminated by agreement, the effect of the sales contract is lost, and the transfer of assets is not carried out. Therefore, it cannot be deemed that the transfer of assets, which is a taxation requirement of the transfer income tax

Article 101 of the Income Tax Act by Wrongful Calculation

2015Nu21759 Revocation of Disposition of Imposition of Gift Tax, etc.

Plaintiff, (P) Appellants

○○, (00)

Defendant, (P) Appellants

○○ Head of Tax Office, (○ Head of Tax Office)

Busan District Court Decision 2014Guhap20781 Decided June 25, 2015

August 12, 2016

September 2, 2016

1. All appeals filed by the Plaintiff ○○ and the Defendant ○○○ Director are dismissed.

2. The costs of appeal between the Plaintiff ○○ and the Defendant ○○○ Head of the tax office are assessed against the Plaintiff ○○○○, the costs of appeal between the Plaintiff ○○○○ and the Defendant ○○ Head of the tax office respectively.

1. Purport of claim and appeal by the plaintiff ○○○

The part of the judgment of the court of first instance against the plaintiff ○○ shall be revoked. The disposition of imposition of KRW 2,776,09,770 (including additional tax 973,671,663 won) on March 12, 2014 rendered by the head of the tax office against the plaintiff ○○○○○ on March 12, 2014 shall be revoked.

2. The purport of the claim by the plaintiff 00

The head of ○○ Tax Office’s disposition of imposing KRW 569,196,720 (including additional tax 222,623,157) on Plaintiff 00 on March 12, 2014 shall be revoked.

3. Purport of appeal by the head of ○○ Tax Office

Of the judgment of the first instance court, the part against Defendant ○○ Head of the tax office shall be revoked. Plaintiff 00’s claim is dismissed.

1. Details of the disposition;

A. Stock acquisition agreement between the plaintiffs

1) As of August 20, 2010, Plaintiff 00 owned 177,087 shares out of 191,000 shares (hereinafter “instant shares”) in his/her and his/her name (79,198 shares, name 80,220 shares, name 80, title 80, title 17,669 shares) in the ○○ integrated construction of ○○○○○ Construction Co., Ltd. (hereinafter “○○○ Construction”) and the ○○○○ Construction Co., Ltd., Ltd. (hereinafter “○○ Construction Co., Ltd”). The Plaintiff U20 is the Plaintiff’s ○○ Construction Co., Ltd.’s ○○○○ Construction Co., Ltd.’s ○○○ Construction Co., Ltd.’s ○○○ Construction Co., Ltd. (hereinafter “instant shares”).

2) 원고 백○○은 2010. 8. 20. 원고 유○○와 사이에, 원고 백○○이 원고 유○○에게 이 사건 주식과 ○☆☆종합건설의 토목건축공사업, 조경공사업 면허권 및 경영권을 대금 3억 원에 양도하는 내용의 주식양수도계약(이하 '이 사건 계약'이라 한다)을 체결하였는데 이 사건 계약의 주요 내용은 다음과 같다.

The omission of forests shall be omitted.

3) Under the instant contract, the Plaintiff 00 million won, out of the down payment of KRW 100 million, was paid as a check by the Plaintiff ○○○ on the day of concluding the contract, and the remainder of KRW 50 million was treated as having been paid by offsetting the loan debt of the Plaintiff 1 U.S. on January 28, 2010.

4) As above, under the condition that only KRW 100 million was paid out of the price under the instant contract, the Plaintiff U20 purchased the instant shares from the Plaintiff 00 million, and completed the transfer of the ownership of the instant shares in the name of the Plaintiff himself/herself and the Do governor as indicated in the table around October 5, 2010, and on October 25, 2010, the Plaintiff U20 changed the name from ○○ Construction Co., Ltd. to ○○○ Construction Co., Ltd., ○○ Construction Co., Ltd. to ○○○ Construction Co., Ltd., ○○○ Construction Co., Ltd. (hereinafter referred to as ○○ Construction Co., Ltd., regardless of whether prior to

B. Imposition of gift tax on Plaintiff U200 and imposition of capital gains tax on Plaintiff U200

1) From November 2013 to February 2014, △△△○○○○○○○○○, the △△△△△△△△△△△ in accordance with the supplementary assessment methods stipulated in Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 10411, Dec. 27, 2010; hereinafter “former Inheritance Tax and Gift Tax Act”), and Article 54 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 22579, Dec. 30, 2010); determined that the market price of the instant shares per share 28,968 [37,545 x 2] + (the net asset value) + (the net profit and loss value 23,250 x 3) x 5) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 10411, Dec. 27, 2010); and notified the head of the tax office of the tax base of the instant shares.

(2) Based on the above investigation, on March 12, 2014, Defendant ○○ Head of the tax office decided and notified the gift tax amount of KRW 2,776,09,770 (including additional tax of KRW 973,671,663) to Plaintiff ○○○ on March 12, 2014 (hereinafter “instant disposition imposing gift tax”). Defendant ○○ Head of the tax office decided and notified the transfer income tax of KRW 569,196,720 (including additional tax of KRW 22,623,157) to Plaintiff ○○ on the same day (hereinafter “instant disposition imposing transfer income tax”), and Defendant ○○ Head of the tax office made a disposition of imposition of transfer income tax of KRW 569,196,720 (including additional tax of KRW 22,623,157; hereinafter “each disposition”). The Plaintiffs’ objection to each disposition of

1) On April 15, 2014, Plaintiff U2○, who was dissatisfied with the instant disposition of gift tax, requested the Commissioner of the National Tax Service to review the disposition of gift tax, and Plaintiff U2○ also rejected the instant disposition of transfer income tax, and filed a request for review with the Commissioner of the National Tax Service on April 30, 2014. However, all of the decision of dismissal was rendered on June 27, 2014.

2) The Plaintiffs filed the instant lawsuit on May 12, 2014, which was before the said decision of dismissal was rendered. [Grounds for recognition] The Plaintiffs did not dispute, each of the entries in Gap’s 1 through 7, Eul’s 1 through 8, and evidence 10 through 12 (including each number; hereinafter the same shall apply), and the purport of the whole pleadings.

2. Plaintiffs and Defendants’ assertion

A. The plaintiffs' assertion

1) For the following reasons, the instant contract was revoked or cancelled due to Plaintiff 00○○’s deception or nonperformance of obligation, or terminated retroactively due to the rescission of agreement, and as long as the instant contract had become retroactively extinguished, the instant shares cannot be deemed to have been transferred. As such, each of the instant dispositions, based on the premise that the instant shares were transferred, was deemed to have been donated, was unlawful.

A) In the instant contract, Plaintiff 00 agreed to assume that the Plaintiff U.S. did not have any obligation to the Plaintiff U.S., except for the loan to the Plaintiff U.S. mutual aid association, and that the Plaintiff U.S.’s U.S. representative director was responsible for all the obligations incurred due to the Plaintiff U.S.’s appointment. After the Plaintiff U.S. ○ was appointed as the representative director of ○○○ Development, seizure and lawsuit was filed on the ground of unpaid wages, arrears, etc. As to ○○○○○. Accordingly, around August 30, 2011, Plaintiff U.S. expressed to Plaintiff U.S. ○○ declared that the instant contract was revoked or cancelled on the basis of Plaintiff U.S.’s right of statutory rescission or the right of contract rescission under Article 7 of the instant contract. Accordingly, the instant

B) Even if the instant contract was revoked or is not rescinded on the basis of the right to statutory rescission or the right to statutory rescission, the Plaintiffs agreed to rescind the instant contract on or around August 30, 201, and thus, the instant contract was retroactively extinguished upon the said rescission.

2) Unclaimed bonds and investment securities included in the balance sheet of △△ Development is assets that are virtually impossible to recover or unlikely to liquidate. In light of the financial structure vulnerable to △△ Development, 30 million won of the acquisition price according to the instant contract is reasonable, and the market price of the instant stocks appraised by the Defendant as a supplementary assessment method is excessively assessed.

B. The defendants' grounds for appeal

In light of the fact that there was no notification of cancellation in writing, such as the return of shares, etc., each of the dispositions of this case is legitimate not only because the contract of this case does not legally rescind but only have the external form of contract cancellation in order to evade the tax already imposed by the plaintiffs.

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination on the legitimacy of each of the dispositions of this case

(a) Facts of recognition;

1) On October 25, 2010, Plaintiff Us. ○○ assumed office as the representative director of △△○ Development, and thereafter managed △△△△ Development. After Plaintiff Us. ○○ assumed office as the representative director, Plaintiff Us. ○○ filed several lawsuits against the development of △△△△, such as claim for several construction cost, wages, bills, etc., and provisional attachment of bonds, and payment order.

2) Meanwhile, on the other hand, the Plaintiff U.S.O. did not provide money, and the Plaintiff U.S. paid KRW 50 million to Plaintiff U.S. ○○ by December 31, 201, which was the term of the instant contract, as part of intermediate payments and remainder payments, around May 201, and around June 201, KRW 30 million, and KRW 80 million. However, the remainder of the outstanding intermediate payments and remainder payments and KRW 120 million, which were not paid to Plaintiff U.S. ○ by August 201.

3) On August 30, 201, Plaintiff U.S. retired from the representative director of △△ Development, and EE was appointed as the representative director of △△ Development. On November 11, 2011, E retired from the office of representative director and Plaintiff 00’s wife was appointed as the representative director of △△ Development. Plaintiff U.S. ○○ again managed △△ Development as the actual inspection supervisor of △△△ Development after Plaintiff U.S. ○○ was released from the office of representative director.

4) around March 2012, 201, △△ Development reported the corporate tax for the business year of 2011. Of the instant shares, ○○○○○ and 49,198 shares totaled 89,198 shares transferred to KimG, the seat of the shares, etc. (No. 13-1) and the detailed statement of the transfer of shares and equity shares (No. 13-2) were submitted.

5) From December 201 to August 2014, the amount of KRW 500,000 to KRW 500,000,000 to KRW 10,000,00,000 to KRW 50,00,00,000 to KRW 50,000,000 to KRW 50,000,000 to KRW 10,000,000 to the account of Plaintiff U20, as the remitter of Plaintiff U20 or his wife’s wife’s wife or development.

6) On October 20, 2014, when the lawsuit of the first instance court was pending, the Plaintiffs entered into a settlement agreement following the rescission of the contract of this case (hereinafter referred to as “settlement agreement of this case”) and entered into an settlement agreement (Evidence A No. 8-1) stating the contents of the agreement. The main contents are as follows.

The omission of forests shall be omitted.

7) On October 20, 2014, the instant settlement agreement was reached, and on October 20, 2014, 156,95,000 won was remitted from the bank account of △△ Development to the bank account of ○○○○○○○.

8) On December 13, 2013, Plaintiff U20 submitted each letter (No. 9-1) dated August 30, 201, stating that “The Plaintiff U200 violated Article 4 of the instant contract after being subject to the second investigation by the Ma○○○ on December 13, 2013.” The Plaintiff U20 submitted each letter (No. 9-1) stating that “The Plaintiff U200 shall cancel the instant contract in accordance with Article 7 of the instant contract.” Since the first investigation on the Plaintiff U20 on November 28, 2013, the Plaintiffs prepared the date retroactively from August 30, 201.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 5 through 19, Eul evidence Nos. 2, 5, 9, and 13, part of the testimony of KimG witness of the first instance trial, the purport of the whole pleadings

B. Determination

1) Whether the instant contract was rescinded by the exercise of the statutory right of rescission or the right of rescission on the ground of Plaintiff 00’s fraud or nonperformance of obligation

In light of the above facts and the following circumstances acknowledged by the evidence mentioned above, it is insufficient to recognize that the contract of this case was revoked on the ground of the plaintiff 00 ○○, or that the contract of this case was rescinded on the ground of the plaintiff 00 ○○, or based on the right to rescind the contract of this case or the right to rescind the contract under Article 7 of the contract of this case on the ground of the non-performance of obligation of the plaintiff 00 ○○

① In light of the fact that, by December 31, 2010, Plaintiff U.S. concluded the instant contract, paid the intermediate payment and the remainder after settling all taxes, public charges, and liabilities, etc., and that, prior to the date of entering into the instant contract, Plaintiff U.S. concluded an agreement with Plaintiff U.S. on the responsibility of Plaintiff U.S. ○○○, the Plaintiffs anticipated that they had the obligation to pay the unpaid construction cost, etc. at the time of entering into the instant contract, and that Plaintiff U.S. agreed

② Even if the sum of the claim amount exceeds KRW 300,00,000,000,000,000, in a lawsuit, etc. filed against △△ Development, the mere fact that the lawsuit was brought against △△△

③ As seen earlier, the terms and conditions of the instant contract, which the Plaintiff 00○○ was liable for the obligations of △△○○○○, were the content of the instant contract, and from March 201, the payment order, etc. was filed against the Plaintiff 00, and even though the △△ General Construction, which was operated by the Plaintiff 00, applied for the commencement of rehabilitation proceedings around April 201, it was thereafter paid KRW 80 million to the Plaintiff 00,000,000, out of the intermediate payment and the remainder, around May 201 through June 6, 2011, the Plaintiff 00 did not seem to have cancelled or attempted to cancel the instant contract on the grounds of the Plaintiff 00,000, by taking account of the circumstances, etc. in which the lawsuit filed against △△○, which

④ According to the instant contract, Plaintiff 00 is liable for the repayment of the contractual obligation of △△○○ with respect to the △△△○’s obligation of △△△△○, which occurred prior to the conclusion of the instant contract. However, solely on the ground that the lawsuit was brought against △△△ Development, it is difficult to deem that Plaintiff 00 had fulfilled the conditions under which the said contractual obligation should be performed. Furthermore, even if the conditions under which the contractual obligation should be performed were fulfilled, there is no evidence to prove that Plaintiff 00 expressed the intention not to perform the obligation of △△△△△○’s obligation, or that Plaintiff ○○○ notified Plaintiff ○○○○ to discharge the obligation of △△△△△○ for a reasonable period of time against the Plaintiff

2) Whether the instant contract was rescinded by agreement

A) In full view of the circumstances acknowledged in light of the aforementioned facts recognized as well as the overall purport of the arguments and evidence, it is reasonable to deem the instant contract was rescinded by the agreement of the Plaintiffs around August 30, 201.

① The instant contract was transferred not only the shares of ○○ Development but also the management rights, and around August 30, 201, Plaintiff U.S. resigned from the representative director of △△ Development, and Plaintiff 00 re-operating the development project, in light of the fact that Plaintiff 00 re-operating the development project, Plaintiff 00 is expected to receive management rights and shares from Plaintiff 1 U.S. ○, and Plaintiff 000 started to operate △△△ Development from August 30, 201.

② From December 2011, before the instant settlement agreement is reached, Plaintiff 00 on several occasions transferred money from Plaintiff 00 to Plaintiff 00’s U.S. side. On October 20, 2014, the instant settlement agreement was finally concluded between the Plaintiffs to complete the settlement of accounts following the rescission of the instant contract.

③ Since August 30, 2011, among the instant shares, 40,000 shares that were transferred to the name of Plaintiff UF and 49,198 shares totaled 89,198 shares that were transferred to the name of Plaintiff UF was changed to the name of KimG, which is the seat of Plaintiff UF○○.

B) As to this, the Defendant asserted that the Plaintiffs’ rescission of the agreement on the instant contract was in collusion to evade high-amount tax, and that it cannot be deemed a normal rescission of agreement. However, the evidence submitted by the Defendant alone is insufficient to recognize that the Plaintiffs’ rescission of the agreement on the instant contract was merely a fictitious act for the purpose of making a false conspiracy or unfairly reducing their taxes imposed on them, and there is no other evidence to acknowledge it.

3) Whether each of the instant dispositions following the rescission of the agreement on the instant contract is legitimate

A) Whether the disposition of imposition of the transfer income tax of this case against the plaintiff 000

The transfer income tax is levied on the premise that the transfer of assets and the income accrued therefrom accrue. If the sales contract was rescinded by agreement, the effect of the sales contract would be lost and the transfer of assets would not take place (see, e.g., Supreme Court Decision 92Nu944, Dec. 22, 1992).

However, as seen earlier, since the instant contract was cancelled by agreement around August 30, 201, it cannot be deemed that there was a transfer of the instant shares, which is a taxation requirement of the disposition imposing the transfer income tax of this case, and there was no room to incur capital gains from Plaintiff 00,000. Thus, the disposition imposing the transfer income tax of this case is unlawful as it imposes capital gains tax on a person who did not have capital gains

B) Whether the imposition of the gift tax of this case against the Plaintiff ○○ is legitimate

(1) Article 31(4) of the former Inheritance Tax and Gift Tax Act provides that “In cases where the donated property (excluding money) is returned by an agreement between the parties concerned within the return deadline under Article 68, the donation shall be deemed not to have existed from the beginning, except in cases where the tax base and tax amount are determined pursuant to Article 76 before the return is made.” For the following reasons, Article 31(4) of the former Inheritance Tax and Gift Tax Act applies to cases where a contract for transfer with respect to the property transferred at a low price is rescinded by agreement and returned.

(1) Even if a gift contract was rescinded before there was a taxation on such contract, if the return was not made within the deadline for filing the gift tax under Article 68 of the former Inheritance Tax and Gift Tax Act (within three months from the end of the month to which the date of donation belongs), or if the donation contract was rescinded after the said deadline for filing the gift tax expires, the effect of imposing the gift tax already imposed shall not be asserted (see, e.g., Supreme Court Decision 97Nu1884, Jul. 11, 1997).

② Article 2(3) of the former Inheritance Tax and Gift Tax Act provides that “The term “the transfer of tangible or intangible property (including the transfer of property at a remarkably low price) by which economic value can be calculated, regardless of the name, form, and purpose of the act or transaction, or an increase in the value of another person’s property by means of a direct or indirect method.” As can be seen, the former Inheritance Tax and Gift Tax Act provides that “the transfer of property at a low price” is also a gift tax which is recognized as a gift regardless of the act or transaction’s name, form, and purpose. In addition, Article 35 of the former Inheritance Tax and Gift Tax Act provides that “the calculation of the value of donated property under the premise that the transfer at a low price and the market price are recognized as a donation under Article 2(3) of the latter Inheritance Tax and Gift Tax Act, and it is reasonable to apply Article 31 of the former Inheritance Tax and Gift Tax Act as a donation at a low price transfer method and Article 35(4) of the former Inheritance Tax and Gift Tax Act does not exclude Article 35(4) of the former Inheritance Tax Act.

(3) Where property at a low price is returned in accordance with the cancellation of an agreement on a transfer contract, the same shall not apply to cases where the donee returns the donated property upon a low price transfer, in terms of the fact that the donee will no longer hold the donated property any longer.

④ Supreme Court Decision 2011Du8765 Decided September 29, 2011 ruled that Article 31(4) of the Inheritance Tax and Gift Tax Act may apply to cases where a title trust is terminated and returned with respect to a title trust property deemed a donation under Article 45-2 of the same Act.

(2) As seen earlier, the Plaintiff U2Bio concluded the instant contract on August 20, 201 and accepted the instant shares on October 5, 2010, and completed the transfer of the ownership of the instant shares under the name of himself and herself on October 5, 2010. The instant contract was revoked by agreement around August 30, 201, which was about 10 months after the said transfer date, and this constitutes a case where donated property is returned by agreement after the expiration of the deadline for filing gift tax under Article 68 of the former Inheritance Tax and Gift Tax Act, and thus, Defendant U2○○○ Tax Office may levy gift tax on the Plaintiff U20 notwithstanding the cancellation of the agreement under Article 31(4) of the former Inheritance Tax and Gift Tax Act.

4) Whether the Defendant has excessively assessed the market price of the instant shares

A) Relevant legal principles

In the case of unlisted stocks with less market value, where there is a fact that they are traded, the value of the stocks shall be evaluated by considering the market value as the market value and shall not be evaluated by the supplementary evaluation method stipulated in the former Inheritance Tax and Gift Tax Act. However, since the market value means the objective exchange price formed by the general and normal transaction, in order to be recognized as the market value, the circumstances should be recognized that the relevant transaction was made in a general and normal manner and the objective exchange value as at the date of donation should be appropriately reflected (see Supreme Court Decision 2010Du26988, Apr. 26, 2012).

B) Determination on the instant case

For the following reasons, the Defendant’s calculation of the market price of the instant shares is lawful. Meanwhile, the evidence submitted by the Plaintiffs and the appraisal result by the competent appraiser khH alone are insufficient to recognize that the value of the instant shares was excessively assessed, and there is no other evidence to acknowledge otherwise. Accordingly, this part of the Plaintiffs’ assertion is without merit.

① Article 60(1) and (2) of the former Inheritance Tax and Gift Tax Act stipulate that the value of the property on which the gift tax is levied is based on the market price as of the date of donation. The market price is ordinarily established when a transaction is made freely between many and unspecified persons and includes the value recognized as the market price as prescribed by Presidential Decree, such as the expropriation price, public sale price, and appraised price. Article 49(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act explicitly excludes the value of non-listed stocks from the value recognized as the market price under the latter part of Article 60(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. The purport of excluding the value of non-listed stocks from the market price recognized as the market price by different appraisal methods for non-listed stocks is to be integrated as a supplementary assessment method prescribed by the Enforcement Decree of the Inheritance Tax and Gift Tax Act in order to prevent the occurrence of a conflict of appraisal methods for non-listed stocks, and thus, it is difficult to derive the market price under the former part of Article 60(2) of the Inheritance Tax Act.

② In addition to the instant contract between the Plaintiffs, who are specially related parties, there was no case of trading the instant shares by a general and normal method. Meanwhile, appraiser Hahhhhhhh assessed the actual financial status of △△△△ development by taking into account the actual financial status of 8,474 won per share, and assessed as KRW 16,815 per share the appraised value according to the supplementary assessment method under the Inheritance Tax and Gift Tax Act, taking into account the actual financial status of △△△. However, the aforementioned appraisal result reveals that: (a) after the date of donation, which is the base date for appraisal, with respect to the assets related to the claim against the outstanding amount of the construction claim against the △▽▽▽▽▽▽△△△△△△△△△△△○ Co., Ltd. from January 2, 2011 to December 31, 2013, it is difficult to recognize that it constitutes an objective and specific exchange price of the instant shares as of the base date for appraisal; and (b) there is no other evidence to acknowledge this.

③ 피고는 증여일인 2010. 10. 5. 현재 기준 ◇◇개발의 재무상태표와 계정별 원장을 분석하여 ◇◇개발의 순자산가액을 확정하였다. 한편 갑 제12호증의 1, 2(갑 제20호증의 1, 2와 같다)의 각 기재에 의하면, 주식회사 ●●●●은 2010. 12. 17. 예금부족을 이유로 부도가 발생하였고, ◆◆개발 주식회사는 2012. 3. 31. 폐업한 사실을 인정할 수 있으나, 영업이 계속되고 있는 법인의 재무상태는 그 경영성과 및 시장의 변화 등 외부적인 요인에 따라 수시로 변화되는 것이고, 앞서 본 바와 같이 당심 감정인 손HH의 감정결과는 평가기준일 당시의 이 사건 주식의 객관적이고 구체적인 교환가격이라고 인정하기 어려우므로, 평가기준일로부터 2개월 이후에 발생한 주식회사 ●●●●의 부도 등 사정만으로는 피고가 보충적 평가방법에 의하여 이 사건 주식을 평가하면서 ◇◇개발의 자산가액을 잘못 산정하여 과대평가하였다고 보기 어렵고, 달리이를 인정할 만한 증거가 없다.

5. Conclusion

Therefore, the plaintiff ○○'s claim is dismissed as it is without merit, and the plaintiff 00's claim is justified. The judgment of the court of first instance is just in conclusion, and all appeals filed by the plaintiff ○○ and the defendant ○○○○ Tax Office are dismissed. It is so decided as per Disposition.