In a case where the value of the shares held in title is assessed before the enforcement of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act amended by Presidential Decree No. 26960, Feb. 5, 2016, by adding the case of deemed donation of the nominal trust property as a ground for exception to evaluation of the largest shareholder, whether the value to be increased by the largest shareholder pursuant to the former

Article 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “former Inheritance Tax Act”) provides that when applying the provisions of paragraphs (1) 1 and (2) concerning the supplementary evaluation method of the value of stocks, 20/100 (10/100 in the case of a small or medium enterprise prescribed by the Presidential Decree) shall be added to the value of stocks appraised by the largest shareholder and a stockholder specially related to the largest shareholder (hereinafter “large shareholder, etc.”) as prescribed by the Presidential Decree, and where the largest shareholder, etc. holds more than 50/100 of the total number of stocks issued by the relevant corporation, 30/100 (15/100 in the case of a small or medium enterprise prescribed by the Presidential Decree) shall be added to the value of stocks appraised by the said provisions.

Such a certificate evaluation of the largest shareholder is not a provision to reflect the fact that the controlling shareholder's shares are related to the management rights and are different from the shares held by the minority shareholder so that they can be evaluated as being of high general value in the transaction reality, but it does not provide that the appraisal of shares differs depending on whether the results of the transfer of management rights occur.

In addition, Article 63(3) of the former Inheritance and Gift Tax Act does not stipulate the grounds for exception to the evaluation of the largest shareholder in the first place. After being amended by Act No. 6048 on December 28, 1999, the reason for exception was newly established and the Enforcement Decree of the former Inheritance and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; Presidential Decree No. 17828, Dec. 30, 2002; Presidential Decree No. 53(5) of the former Inheritance and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; hereinafter referred to as the “former Enforcement Decree of the Inheritance and Gift Tax Act”) expanded the grounds for exception. However, Article 63(5) of the Addenda of the former Enforcement Decree provides that the gift tax should be applied for the first time after the enforcement of Article 53(5) of the former Enforcement Decree.

Meanwhile, when the former Enforcement Decree of the Inheritance and Gift Tax Act was amended by Presidential Decree No. 26960 on February 5, 2016, “where the actual owner of stocks, etc. is different from the nominal owner, and the nominal owner is deemed to have been donated the relevant stocks, etc. under Article 45-2 of the Act,” that is, where the title holder is deemed to have been donated the relevant stocks, etc. from the actual owner pursuant to Article 45-2 of the Act, it was added as an exception to the evaluation of the largest shareholder (Article 53(6)8). However, Article 7 of the Addenda

Considering the legislative intent, structure, and history of the relevant provision regarding evaluation of the largest shareholder, if the value of the relevant shares was assessed prior to the enforcement of the former Enforcement Decree of the Inheritance and Gift Tax Act amended on February 5, 2016, considering the nature as a sanction in the case of constructive gift of nominal trust property, the value of the relevant shares should be added in accordance with the former Enforcement Decree.

Article 63(3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 6124, Jan. 12, 2000); Article 63(3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); Article 53(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 18108, Sep. 29, 2003); Article 53(6)8 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 27205, May 31, 2016); Article 6 of the Addenda to the Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 27205, Dec. 30, 202); Article 7 of the Addenda to the Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 26828,

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Lee Jong-soo et al., Counsel for plaintiff-appellant)

Plaintiff 1 and one other (Bae, Kim & Lee LLC, Attorneys Kim Tae-chul et al., Counsel for the plaintiff-appellant)

Head of Yongsan District Tax Office and one other

Seoul High Court Decision 2016Nu70866 decided May 24, 2017

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

The main text of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax Act”) provides that “where the actual owner and the nominal owner are different in cases of property which requires a registration, etc. for the transfer or exercise of rights, the value of such property shall be deemed to have been donated to the actual owner on the date when it is registered, etc. as the nominal owner notwithstanding Article 14 of the Framework Act on National Taxes.” Meanwhile, Article 41-2(1) of the former Inheritance Tax and Gift Tax Act provides that “where property is registered, etc. under another person’s name without the purpose of tax evasion, it shall be presumed that there exists the purpose of tax evasion.” The former Inheritance Tax Act provides that Article 45-2 of the same Act shall be replaced even after the amendment by Act No. 7010, Dec. 30, 2003.

The lower court, citing the reasoning of the first instance judgment, acknowledged the facts as indicated in its reasoning, and rejected this part of the Plaintiffs’ assertion on the ground that the evidence submitted by the Plaintiffs alone cannot be deemed as having no purpose of tax evasion in the title trust of the instant shares

Examining the record in light of the aforementioned provisions and relevant legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on the purpose of evading tax on the constructive gift of nominal trust property, as otherwise alleged in the grounds of appeal.

2. Regarding ground of appeal No. 2

Article 63(3) of the former Inheritance and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) provides that when applying the provisions of paragraphs (1) 1 and (2) with respect to the supplementary evaluation method of the stock value, 20/100 (10/100 in the case of a small or medium enterprise prescribed by Presidential Decree) of the value of the stocks appraised by the largest shareholder and a stockholder who has a special relationship with the largest shareholder (hereinafter referred to as the “large shareholder, etc.”) shall be added to the value of the stocks appraised by the above provisions, and where the largest shareholder, etc. holds more than 50/100 of the total number of stocks issued by the relevant corporation, 30/100 (15/100 in the case of a small or medium enterprise prescribed by Presidential Decree)

The appraisal of the largest shareholder's shares is based on the fact that the controlling shareholder's shares are related to the management rights and are different from the shares held by the minority shareholder, and thus, their value is generally high in the transactional reality, not on the purport that the appraisal of shares differs depending on whether the results of the transfer of management rights occur (see Supreme Court Decision 2001Du8292, Feb. 11, 2003).

In addition, Article 63(3) of the former Inheritance and Gift Tax Act does not stipulate the grounds for exception to the evaluation of the largest shareholder in the first place. Only after amendment by Act No. 6048 on December 28, 1999, the grounds for exception were newly established and excluded from the subject of evaluation of the “stocks of a corporation with losses under the provisions of Article 14(2) of the Corporate Tax Act continuously from the business year before the business year to which the evaluation base date belongs”. After amendment by Act No. 6780 on December 18, 2002, the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; hereinafter “former Enforcement Decree of the Inheritance and Gift Tax Act”) Article 53(5) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002; hereinafter “former Enforcement Decree of the Inheritance and Gift Tax Act”).

Meanwhile, as the former Enforcement Decree of the Inheritance and Gift Tax Act was amended by Presidential Decree No. 26960, Feb. 5, 2016, “where the actual owner of stocks, etc. and the nominal owner are different, and the nominal owner is deemed to have been donated the relevant stocks, etc. under Article 45-2 of the Act,” that is, in the case of constructive donation of nominal trust property, the case was added as an exception to the evaluation of the largest shareholder (Article 53(6)8). However, Article 7 of the Addenda of the former Enforcement Decree provides for the foregoing amendment to be applied from the portion evaluated after the enforcement

Considering the legislative intent, structure, and history of the relevant provision regarding evaluation of the largest shareholder, if the value of the relevant shares was assessed prior to the enforcement of the former Enforcement Decree of the Inheritance and Gift Tax Act amended on February 5, 2016, considering the nature as a sanction in the case of constructive gift of nominal trust property, the value of the relevant shares should be added in accordance with the former Enforcement Decree.

In the same purport, the lower court’s determination that the Defendants did not err in applying the premium rate to the largest shareholder in assessing the value of the shares of this case is justifiable as it is based on the legal doctrine as seen earlier. In so doing, it did not err by misapprehending the legal doctrine on the scope of application of the premium rate

3. Regarding ground of appeal No. 3

Article 63(3) of the former Inheritance and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007) provides for the evaluation of the largest shareholder as seen earlier, and the second main part of the main part excludes “stocks prescribed by the Presidential Decree, such as stocks of a corporation with losses under the provisions of Article 14(2) of the Corporate Tax Act continuously from the business year before the business year in which the evaluation base date falls within three years before the business year in which the date of appraisal falls.” Article 53(5)6 of the former Enforcement Decree of the former Inheritance and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter the same) provides for “stocks prescribed by the Presidential Decree as one of the stocks prescribed by the Presidential Decree where a person, other than the largest shareholder, etc., receives a donation within the period prescribed by Article 47(2) of the Act and does not fall under the largest shareholder, etc. due to donation.”

The lower court rejected the Plaintiffs’ assertion to the effect that, insofar as the Plaintiffs were registered as a director on the corporate register of the instant company, the title trust of the instant company constitutes an employee under Articles 53(3) and 19(2)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and thus, constitutes a special relationship with the Nonparty, which is the largest shareholder of the instant company, and cannot be viewed otherwise because they did not actually perform their duties or did not receive any remuneration by concluding an employment contract with the instant company, and that even in such a case, there is a need to regulate as a specially related person, on the ground that the title trust of the instant company constitutes an exception to the assessment of the largest shareholder under Article 53(

Examining the record in light of the aforementioned provisions and relevant legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on employees under Article 19(2)2 of the former Enforcement Decree of the Inheritance and Gift Tax Act, contrary to what is alleged in the grounds of appeal.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)