Whether Article 167(5) of the former Enforcement Decree of the Income Tax Act, which applies mutatis mutandis the provision on appraisal of listed stocks under the former Inheritance Tax and Gift Tax Act, exceeds the scope of delegation by this Act, or is unconstitutional and unlawful due to infringement of property rights under the Constitution

[Majority Opinion] (A) Article 167(5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 23588, Feb. 2, 2012) (hereinafter “Enforcement Decree”) provides that Article 167(5) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “former Inheritance Tax Act”) shall apply mutatis mutandis to the market value assessment of listed stocks, thereby exceeding the scope of statutory delegation, and it is difficult to deem that the said provision violates the principle of no taxation without law by exceeding the scope of statutory delegation. The reasons are as follows.

(1) "Matters necessary for calculation of wrongful acts" delegated by this Presidential Decree under Article 101 (5) of the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012; hereinafter the same shall apply) includes the standards for calculation of wrongful acts.

The criteria necessary for the denial of such wrongful calculation include evaluation regulations on the “market price” of transferred assets.

The method of assessing "market price" is bound to be diverse, and the former Income Tax Act, etc. did not provide detailed legislative guidelines for such assessment and granted a significant amount of legislative discretion to the legislators under the Enforcement Decree through delegation.

② The enforcement decree provisions realize the purpose of delegation within the scope of delegation by law.

It is clear that the provision of the Enforcement Decree provides the method of assessing the market price of listed stocks in accordance with the delegation of the former Income Tax Act.

The provision of the Enforcement Decree applies mutatis mutandis to the market price assessment of listed stocks under the former Inheritance and Gift Tax Act by the method of market assessment of listed stocks in accordance with the purpose of delegation.

(B) (1) The rationality and legitimacy of the Enforcement Decree’s provision that considers the average of the closing prices of the Korea Exchange (hereinafter “the closing prices”) published every two months before and after the trading date as the market price of listed stocks can be recognized.

The listed stocks traded in the Korea Exchange are difficult to reasonably evaluate the inherent value of the stocks only with the market value at a specific point of time during which the fluctuation in the market value is very high depending on the trends of the securities market.

When calculating the market price of listed stocks held by the largest shareholder, etc. in accordance with the Enforcement Decree, the provision that adds a certain percentage increase rate according to the shareholding ratio of the largest shareholder, etc. can also be affirmed as reasonable and justifiable.

The provision on the denial of wrongful calculation does not apply without any exception solely on the basis that the transaction value determined by the parties with a special relationship is different from the “market price” prescribed by statutes.

In this respect, it is difficult to evaluate the provision of the enforcement decree as infringing on the property rights or freedom of contract of the largest shareholder.

② In relation to the market price assessment of listed stocks, Article 89(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012) does not apply mutatis mutandis, and applying the provisions on the market price assessment of listed stocks under the former Inheritance Tax Act within the scope of reasonable legislative discretion is reasonable.

Taking account of the following circumstances, the provisions of the Enforcement Decree cannot be deemed as having discriminated against individuals and corporations with respect to the evaluation of the market price of listed stocks without reasonable grounds.

In the application of Article 35(1) of the former Inheritance and Gift Tax Act that provides for the donation of profits from the acquisition of low-price and the difference between the price and the market price, and the provision on the denial of wrongful calculation under the former Income Tax Act, the amount of income additionally recognized to the transferor should be the same amount, barring special circumstances. The provisions of the Enforcement Decree may be deemed to be based on the view that “market price” and “market price” under the Inheritance Tax and Gift Tax Act should be the same in the absence of special circumstances, and thus, it can be sufficiently recognized rationality.

In addition to the above circumstances, the provisions of the Enforcement Decree, in cases where the transferor is a legal person, it is difficult to manipulate the amount of transaction and to understand the actual transaction price through the investigation of evidentiary data, such as books, etc., and in cases where the transferor is an individual, it seems to have taken into account the fact that it is relatively easy for the transferor to manipulate the time of transaction or transfer of funds, or to take the appearance of contract rescission and renewal, etc. in collusion with the parties

(C) Ultimately, the provision of the enforcement decree cannot be deemed null and void as it is unconstitutional or unlawful.

[Dissenting Opinion by Justice Kwon Soon-il, Justice Park Sang-ok, Justice Kim Jae-hyung, Justice Ahn Jae-hyung, Justice Lee Dong-won, and Justice Noh Jeong-ok] (A) The enforcement decree deviatess from the limit of delegated legislation under the Constitution, and it is reasonable to deem the enforcement decree null and void as it

① According to the latter part of Article 60(1), Article 63(1)1(a) and (b), and Article 63(3)(c) of the former Inheritance and Gift Tax Act (hereinafter “the provisions applicable mutatis mutandis), the transfer value of listed stocks held by the largest shareholder, etc. in excess of 50/100 of the total number of stocks issued by the relevant corporation is not the actual transaction value under Article 95(1) of the former Income Tax Act, but the amount calculated by adding 30% to the average amount of the closing prices publicly announced for two months before and after the date of transfer pursuant to Article 63(3) of the former Inheritance and Gift Tax Act. This is obviously a basic and essential taxation requirement for the citizen’s duty to pay taxes. This is because the provisions of the Inheritance and Gift Tax Act apply mutatis mutandis under the above Acts and subordinate statutes, such as the Enforcement Decree provisions, are also an exceptional.

② Article 101(5) of the former Income Tax Act provides that “The matters necessary for wrongful calculation shall be prescribed by the Presidential Decree.” This only means that an enforcement order necessary for the enforcement of a law may be issued, and it does not constitute a comprehensive delegation provision to the Presidential Decree even before the enactment of a tax requirement such as transfer price or transfer price difference. If such interpretation is not made, it is in violation of the principle of no taxation without the law since it interpreted the contents of the law by analogy and expansion without permission.

(B) According to the provisions of Article 101(1) of the former Income Tax Act, where the transferred asset is listed stocks, the “market price” shall be based on the average of the closing prices publicly announced for two months before and after the transfer date, not on the closing price as of the transfer date. This goes against Article 96(1) of the former Income Tax Act that the transfer value of the asset should be determined at the time of transfer, and the base point for determining whether the transferred asset is subject to wrongful calculation under Article 101(1) of the former Income Tax Act is against the principle of “the

② Even in cases of holding stocks by the largest shareholder of listed companies, there are cases where separate values are not formed in the management rights of the relevant company due to the financial structure, management conditions, etc., or where the transfer of the relevant listed stocks does not entail the transfer of the so-called “management rights premium.” Nevertheless, deeming the value assessed uniformly during such a case as “market price” to be “market price” goes against the purport of the wrongful calculation and calculation system under the Income Tax Act. This is against the principle of tax equality under the Constitution and Article 18(1) of the Framework Act on National Taxes, as it unfairly infringes on property rights.

(C) Article 11(1) of the Constitution provides that the provisions governing the appraisal of property under the Inheritance Tax and Gift Tax Act shall apply mutatis mutandis to the calculation of gains on transfer, which is a taxation requirement for transfer income tax due to the transfer of listed stocks, is in violation of the principle of no taxation without law as stipulated under Articles 40 and 75 of the Constitution, the limit of delegated legislation under Articles 38 and 59 of the Constitution, and the principle of no taxation without law as stipulated under Articles 11(1) of the Constitution, Article 18(1) of the Framework Act on National Taxes, and the principle of no taxation equality, taxpayer property rights guarantee, and Article 96(1) of

Articles 11(1), 23(1), 38, 40, 59, and 75 of the Constitution of the Republic of Korea; Articles 96(1), 101(1), and 101(5) of the former Income Tax Act (Amended by Act No. 11146, Jan. 1, 2012); Article 167(3) and (5) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 23588, Feb. 2, 2012); Articles 35(1), 60(1), and 63(1)1(a) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11130, Dec. 31, 201); Article 96(1), Article 101(1) and (5) of the former Income Tax Act (Amended by Act No. 111146, Jan. 1, 2012); Article 167(2(3)1(1)2)3)1);

Supreme Court Decision 2004Du7993 Decided May 11, 2006 (Gong2006Sang, 1059) Supreme Court Decision 2006Du13909 Decided February 22, 2007 (Gong2011Sang, 356), Supreme Court Decision 2008Du4770 Decided January 13, 201 (Gong201Sang, 356), Supreme Court Decision 2008Du9140 Decided January 13, 201, Supreme Court Decision 2009Du13061 Decided January 27, 201, Supreme Court Decision 2010Du421 Decided January 27, 201, Supreme Court Decision 2016Du5081 Decided January 25, 2017, Supreme Court Decision 2016Du508478 Decided January 27, 2018)

Plaintiff (Law Firm Gyeong, Attorneys Kim Tae-tae et al., Counsel for the plaintiff-appellant)

Distribution Tax Office (Law Firm Aionion, Attorneys Gangnam-gu et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Nu45863 decided June 1, 2016

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Case summary and key issue

A. Plaintiff’s request for correction of transfer income tax and Defendant’s rejection disposition

1) On October 18, 201, the Plaintiff sold 116,022 shares issued by a stock-listed corporation (hereinafter “instant listed shares”) to the Nonparty-listed corporation, who was in the form of overtime trade, and determined the purchase price as KRW 7,59,41,000 per share, an aggregate of KRW 65,500 per share, which is the final market price at the Korea Exchange on the day of the purchase price (hereinafter “the final market price at the Korea Exchange”) (hereinafter “the final market price at the Korea Exchange”), as KRW 7,59,41,00 (hereinafter “the purchase price in this case”). The Nonparty purchased the listed shares in this case, thereby becoming the largest shareholder of the shipbuilding corporation holding KRW 702,549 shares out of KRW 4,00,00.

2) On February 29, 2012, the Plaintiff reported and paid the transfer income tax, etc. related to the transfer of the instant listed stocks by using the sales price as the transfer value.

3) On June 10, 2013, the commissioner of the Gwangju Regional Tax Office: (a) held stocks of the largest shareholder, etc. (referring to the largest shareholder and a shareholder specially related with the largest shareholder; hereinafter the same shall apply) in excess of 50% of the total number of issued and outstanding stocks; (b) held stocks of the Plaintiff at the sales price of the instant case at KRW 40%, 30% of the average of the sales price per share x 30% of the sales price per share, which is 60% of the sales price per day, as the Plaintiff reported pursuant to Article 63(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 2011; hereinafter “former Inheritance Tax Act”); and (c) held stocks of the instant case at the sale price of the instant case at the price of KRW 500 per share x 30% of the sales price per share, which is 30% of the sales price per share.

4) On June 12, 2013, the Plaintiff calculated the “market price” of the instant listed stocks as KRW 83,396 per share, and additionally paid KRW 512,644,352 as capital gains tax (including additional tax) upon filing a revised return on capital gains tax, etc. The Plaintiff filed an application for rectification of capital gains tax with the Defendant on the grounds that the transfer price should be deemed not the “market price” but the “sale price” on July 26, 2013. However, the Defendant rejected the disposition of refusal on September 10, 2013.

B. Issues

The issues of this case based on the Plaintiff’s assertion in the grounds of appeal are ① whether the instant provision, which is the core basis of the Defendant’s refusal disposition, exceeds the delegation scope of law, or is unconstitutional and unlawful due to infringement of property rights under the Constitution (ground of appeal No. 2), and ② Even if the enforcement decree of this case is not null and void, the transaction between the Plaintiff and the Nonparty with respect to listed stocks of this case cannot be deemed as a transaction unfairly reducing tax burden, such as economic rationality, and thus, cannot be deemed as a transaction unfairly reducing tax burden (ground of appeal No. 1 and 3).

2. Judgment on ground of appeal No. 2

A. Legislative grounds and contents of the Enforcement Decree of the instant case

1) The system of denial of wrongful calculation of capital gains

The system of denial of wrongful calculation under Article 101(1) of the former Income Tax Act (amended by Act No. 11146, Jan. 1, 2012; hereinafter the same) is a legal fiction of denial of tax burden in a case where a resident’s transaction with a person with a special relationship is deemed to have avoided or reduced tax burden by abusing the forms of transaction listed in each subparagraph of Article 167(3) of the former Enforcement Decree of the Income Tax Act without using a reasonable method by a person with a special relationship (see, e.g., Supreme Court Decision 2016Du50686, Jan. 25, 2017). The legislative purpose is to realize fair taxation by specifying the principle of substantial taxation (see, e.g., Supreme Court Decision 2016Du50686, Jan. 25, 2017).

Meanwhile, Article 167(3)1 of the former Enforcement Decree of the Income Tax Act provides that “When a resident transfers an asset at a price lower than the market price to a related party, that is, a type of act to which the said provision of the Act on the Avoidance of Wrongful Acts and subordinate statutes may apply to a transfer at a low price among persons with a special relationship. According to such provision, the tax authority may deny such transfer and newly calculate capital gains in such a manner as prescribed by law. The issue is how to determine the method of evaluating “market price” of the asset at the time of transfer as a standard for calculating a new transfer income, and how to determine the method of evaluating “market price” of the asset at

2) Article 2 of the Enforcement Decree of the instant case as a statutory order governing “market price” of transferred assets

Article 101(5) of the former Income Tax Act provides that “The matters necessary for the calculation of wrongful acts shall be prescribed by the Presidential Decree,” and the Enforcement Decree of the instant Income Tax Act was enacted by delegation of Article 101(5) of the said Act.

Article 167(3) of the former Enforcement Decree of the Income Tax Act provides that “In applying the provisions of Article 167(3) of the former Enforcement Decree, “market price” shall be based on the value appraised by applying mutatis mutandis the provisions of Articles 60 through 64 of the former Inheritance Tax Act. According to such a standard, “market price of transferred assets” is required to be assessed by applying the above provisions of the former Inheritance Tax and Gift Tax Act.

Examining the representative provisions applicable mutatis mutandis under the Enforcement Decree of the instant case, the former Inheritance and Gift Tax Act provides that an appraisal of property subject to inheritance tax or gift tax shall be based on the “market price” as of the date of commencing the inheritance tax or donation, and “market price” shall be the value generally established when transactions are freely conducted between many and unspecified persons (Article 60(1) and the former part of Article 60(2) of the former Inheritance and Gift Tax Act). In particular, in light of the provisions of the former Inheritance and Gift Tax Act on the evaluation of the market price of listed stocks at issue in the instant case (hereinafter “market price evaluation provisions”), the average amount of listed stocks publicly announced for two months before and after the evaluation base date shall be deemed as “market price” [Article 60(1) latter part of Article 63(1)1(a) of the former Inheritance and Gift Tax Act, and Article 63(3)3(3) of the former Inheritance and Gift Tax Act shall be deemed as “market price” for shares held by the largest shareholder, etc.

3) The meaning of the provision of this case concerning the transfer of listed stocks

In applying the provision on appraisal of listed stocks under the former Inheritance and Gift Tax Act, which applies mutatis mutandis the provisions of the Enforcement Decree of this case, the “market price” of listed stocks subject to transfer shall be deemed to be the “market price” of the daily closing price, which is announced every two months before and after the date of transfer calculated according to the method of appraisal under Article 63(1)1(a) of the former Inheritance and Gift Tax Act, unless there are special circumstances, according to the latter part of Article 60(1) of the former Inheritance and Gift Tax Act, unless the “market price” of the listed stocks subject to transfer is determined to be the amount calculated by adding the premium rate under Article 63(3) of the former Inheritance and Gift Tax Act to the above average amount.

The Supreme Court has previously affirmed the legality of taxation by applying the instant provisions under the Enforcement Decree on the premise that the instant provisions are lawful and effective (see, e.g., Supreme Court Decisions 2008Du4770, Jan. 13, 201; 2008Du9140, Jan. 13, 201; 2009Du13061, Jan. 27, 201; 201Du4421, Jan. 27, 2011).

B. Whether the enforcement decree of this case goes beyond the scope of statutory delegation

1) Whether an order of law was exceeded the scope of delegation of a law should be determined by comparing not only the form and content of the directly delegated legal provision, but also the overall structure, purport, purpose, etc. of the law with those of the law, and then the scope or limitation of delegation of a law should be objectively determined in light of the overall structure, purport, purpose, etc. of the law. Thus, if the contents of the order of law are deemed within the scope of delegation of a law, or where it is deemed that the contents of the order of law are clearly deemed within the scope of delegation of a law as above or that the order of law is planned and specific, it does not become null and void (see Supreme Court Decisions 2002Do6931, Jan. 28, 2005; 2019Do379

2) In light of the aforementioned legal principles, it is difficult to determine that the instant provision was in violation of the principle of no taxation without the law by exceeding the delegation scope under the former Inheritance and Gift Tax Act by stipulating that the provisions of the Enforcement Decree of the instant case shall apply mutatis mutandis to the evaluation of the market price of listed stocks. The reasons are

A) With respect to the provisions of the Enforcement Decree of the instant case, the subject matter of the rule delegated by law, the contents and scope of the delegation, shall be interpreted as follows:

① In light of the legislative purpose and significance of the wrongful calculation denial system, which is stipulated in Article 101(1) of the former Income Tax Act, the “matters necessary for wrongful calculation” delegated by the Presidential Decree under Article 101(5) of the former Income Tax Act includes the criteria for wrongful calculation. This is because, in order for tax authorities to evaluate a taxpayer’s choice or calculation as “unfair for tax evasion,” the basis or criteria should be established. Such criteria necessary for the denial of wrongful calculation include provisions for the assessment of “market price” of transferred assets.

② The former Income Tax Act does not explicitly define the meaning of “market price” of transferred assets or specify the method of evaluation thereof. However, considering the prior meaning of “market price” and the fact that “market price” ought to function as the criteria or basis for the denial of wrongful calculation, it can be derived from the interpretation of the provisions of the former Income Tax Act concerning the denial of wrongful calculation in terms of the meaning of “market price”. In other words, even in the absence of the express provision of the Act regarding the concept of “market price”, the Supreme Court, in principle, ruled that “market price” is an objective exchange price formed through normal transactions, and held that it includes the value appraised in an objective and reasonable manner when it is difficult to calculate such “market price” (see Supreme Court Decision 90Nu7302, Apr. 23, 1991, etc.).

③ In addition to the interpretation of the former Income Tax Act, the definition or conceptual requisition of “market price” may be verified through Article 60(2) of the former Inheritance Tax Act and Article 52(2) of the former Corporate Tax Act (amended by Act No. 11603, Jan. 1, 2013; hereinafter the same) which provides for the same purport. Accordingly, the significance or conceptual requisition of “market price” is a major standard to determine whether the content of the Enforcement Decree of the instant case exceeds the delegated intent of the Act.

④ Even if understanding the significance or conceptual requisition table of “market price” as above, the method of evaluating such “market price” is bound to be diverse. The former Income Tax Act, etc., without presenting specific legislative guidelines, gave a legislative discretion to the legislators under the Enforcement Decree of the instant case through delegation, without giving specific legislative guidelines. This is because the following circumstances were considered:

In other words, “unfair act and calculation” subject to the regulation under Article 105(1) of the former Income Tax Act is practically diverse forms, and its creation and change are extreme, and it is extremely difficult for legislative technology to directly prescribe the same. Considering the characteristics of tax avoidance act as seen above, it is inevitable for a legislative person to take the form of prescribing the essential part of the system of the wrongful calculation denial through an indefinite concept, etc., and to immediately delegate specific contents to subordinate Acts and subordinate statutes. In addition, the “matters necessary for wrongful calculation” delegated to the Presidential Decree under Article 101(5) of the former Income Tax Act needs to be immediately and flexibly dealt with due to changes in social and economic reality (see, e.g., Constitutional Court en banc Decision 2016Hun-Ba269, May 25, 2017).

B) The instant provisions of the Enforcement Decree realize the intent of delegation within the scope of statutory delegation.

① It is apparent that the provision of the Enforcement Decree of the instant case prescribed the method of assessing the “market price” of listed stocks is in accordance with the delegation of the former Income Tax Act.

② The purpose of the instant Enforcement Decree is to realize the principle of substantial taxation through the denial of wrongful calculation, with due regard to the possibility of tax avoidance arising from the “the fact that the assets subject to transfer are listed stocks owned by the largest shareholder, etc.” and “the parties to the transfer transaction have a special relationship.” Meanwhile, it is not easy to find an objective method of computing “market price” of listed stocks transacted under such conditions, namely, “the objective exchange price formed through normal transaction.” In order to cope with such situation flexibly, it is difficult to find out a way of objectively and reasonably calculating “the objective exchange price formed through normal transaction.” The instant Enforcement Decree grants a reasonable legislative discretion to the legislative parties under the provisions of the Enforcement Decree of the instant case, in that the provision of the former Inheritance Tax and Gift Tax Act

③ Taking into account the following circumstances, the content of the instant provision of the Enforcement Decree itself cannot be deemed as infringing on the constitutional property rights or as contrary to the principle of equality, the application of the instant provision to assess the market price of listed stocks under the former Inheritance and Gift Tax Act can only be deemed to have clearly made the purport of delegation within the scope of delegation by law, and it is difficult to evaluate that it goes beyond the scope of delegation by law.

C. Whether the content of the enforcement decree of this case is unconstitutional

1) Whether the constitutional property right is infringed, etc.

A) The reasonableness and legitimacy of the provision of the Enforcement Decree of the instant case can be recognized as “the provision which considers the average daily closing price published during two months before and after the date of trading as the market price of listed stocks.”

Listed stocks traded in the Korea Exchange are difficult to reasonably evaluate the inherent value of stocks solely on the basis of the market value at a specific point of time during which the fluctuation in the market value has been concluded depending on the trends in the securities market. In particular, if listed stocks traded in the Korea Exchange are assessed only on the basis of the base date for appraisal, confusion in tax administration may arise in the cancellation of the transfer contract following the short-term change of the stock price after the transfer, and repeated transfer of stocks based on the low stock price, or as a means for allocating significant profits when people who can easily access the internal information of the corporation are transferred stocks at the time when the stock price increase is imminent, such as transfer of stocks at the time of the stock price increase.

In the instant case, at the time when the Plaintiff sold 116,022 shares of the listed shares of this case amounting to approximately 2.9% of the total issued shares 4,000,000 shares in shipbuilding by means of overtime trading based on the closing price, the largest shareholder, etc. was holding approximately 60.17% of the total shares. However, the Plaintiff’s major shareholder, such as the Plaintiff, etc., has relatively small amount of orders around the end of the day of the sale on which it was easy for the Plaintiff to move in the direction of the closing price of the listed shares in shipbuilding solely on the basis of a relatively small amount of orders around the end of the sale day. As such, if the “market price” of the listed shares is assessed on the basis of the closing price on the day of the transaction day, it is likely that the inherent value of the

For this reason, there is a need for more accurate calculation of the inherent value of listed stocks as of the evaluation base date by expanding the time limit of evaluation. A period of two months before and after the trading date, each of the two months before and after the trading date, cannot be said to have a level to significantly undermine taxpayers’ predictability as an appropriate period when assessing the inherent value of listed stocks (see, e.g., Constitutional Court en banc Order 2014Hun-Ba363, 364, Feb. 25, 2016).

B) In determining the market price at the time of transfer of listed stocks owned by the largest shareholder, etc., “the provision that adds a certain percentage of increase in stock ownership according to the percentage of stock ownership by the largest shareholder, etc.” under the Enforcement Decree of the instant case can be affirmed as reasonable and justifiable.

Generally, shares are merely representing the value of assets and profit-making values of each unit of shares. However, shares held by the largest shareholder, etc. have special values that can exercise management rights or control rights of the relevant company in addition to their values, and so-called “management rights premium.” The legislative purpose of the Enforcement Decree of the instant case is to set up a fair evaluation method for appropriate taxation in order to prevent the transfer of the management rights of the relevant company without legitimate taxation (see, e.g., Constitutional Court en banc Decision 2002Hun-Ba65, Jan. 30, 2003).

However, since listed stocks held by the largest shareholder, etc. are closely related to maintaining the management rights of the largest shareholder, etc., it is necessary to reflect the difference in the transferability of listed stocks held by the general shareholders compared with those held by the general shareholders, and thus, it is necessary to reflect the fact that the value of listed stocks held by the largest shareholder, etc., such as the largest shareholder, is assessed uniformly at a rate of 20 to 30% according to their shares, regardless of whether the result of transfer of management rights arises, and the calculation of “market price” is deemed as within the scope of reasonable legislative discretion (see, e.g., Supreme Court Decisions 2001Du8292, Feb. 11, 2003; 2017Du48451, Feb. 8, 2018).

C) The provision on the denial of unfair act does not apply without any exception solely on the grounds that the transaction value determined by the parties with a special relationship differs from the “market price” stipulated by the law. In such a case where there are special circumstances where the transaction is deemed economic rationality in light of sound social norms or commercial practice, taking into account the various circumstances of the transaction, the application of the provision is likely to be excluded (see, e.g., Supreme Court Decisions 2004Du7993, May 11, 2006; 2006Du13909, Feb. 22, 2007; 2016Du50686, Jan. 25, 2017; 2017Du47519, Dec. 28, 2018).

2) Whether the constitutional principles of equality are violated

A) As in the former Income Tax Act, Article 52 of the former Corporate Tax Act also provides for the system of denial of wrongful calculation: Provided, That with respect to the market price assessment of listed stocks, unlike the provision on appraisal of listed stocks under the former Inheritance and Gift Tax Act, where listed stocks are traded at the Korea Exchange under Article 89(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012; hereinafter the same shall apply), “market price of the relevant stocks” shall be based on the closing price on the date of the transaction. In other words, with respect to the market price assessment of listed stocks for the denial of wrongful calculation, the statutes governing the transfer of listed stocks by an individual and the transfer by a corporation are different.

B) In relation to the market price assessment of listed stocks, it is reasonable to deem that the provision of the Enforcement Decree of the instant case does not apply mutatis mutandis under Article 89(1) of the former Enforcement Decree of the Corporate Tax Act with respect to the market price assessment of listed stocks within the reasonable legislative discretion for the following reasons.

The concept of “market price” under the Income Tax Act and the concept of “market price” under the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax Act”) are the same in that both are “an objective exchange value formed through normal commercial transactions.” Therefore, the application of the provisions of the Inheritance Tax Act to the provisions of the Inheritance Tax Act cannot be evaluated as unconstitutional and unlawful. Rather, the legislators of the Enforcement Decree of the instant case should have relatively broad legislative discretion as to whether the provisions of the Corporate Tax Act concerning the method of assessing the market price of listed stocks apply mutatis mutandis or whether the provisions of the Inheritance and Gift Tax Act apply mutatis mutandis to the method of assessing

However, considering the following circumstances as seen earlier, the content of the provision on the evaluation of the market price of listed stocks under the former Inheritance and Gift Tax Act, which applies mutatis mutandis the provisions of the Enforcement Decree of this case, within the scope of reasonable legislative discretion, the instant provision cannot be deemed as having discriminated against individuals and corporations with respect to the evaluation of market price of listed stocks without reasonable grounds.

In other words, in a case where a transfer at a low price is deemed to be a gratuitous transfer of property, such as partial donation, the transfer at a low price is bound to include a “free transfer of property.” This is because the market price of the property subject to transfer is ultimately the market price of the property subject to transfer (the market price - free transfer price). Therefore, the face value to which the “market price” in the provision on the denial of wrongful calculation applies more meaningfully is also related to the “free transfer of property.”

In light of this point, in applying Article 35(1) of the former Inheritance and Gift Tax Act that provides for the donation of profits from a low-price transfer and the provision that denies wrongful calculation under the former Income Tax Act, the amount of income additionally recognized to the transferor should be the same amount unless there are special circumstances. The enforcement decree of this case can be deemed to be based on the foregoing perspective that the “market price” under the Inheritance and Gift Tax Act and the “market price” under the Income Tax Act should be the same unless there are special circumstances, and thus, it can be sufficiently affirmed its rationality.

In addition to the above circumstances, the provisions of the Enforcement Decree of this case also take into account the following facts: (a) it is difficult for the transferor to manipulate the transaction amount and the evidentiary data if the transferor is a legal person; and (b) contrary to the easy understanding of the actual transaction price through the investigation of evidentiary data, such as books, etc.; and (c) it is relatively easy for the transferor to manipulate the time of transaction or transfer of funds in collusion with the parties to the transaction in case of an individual; and

D. Sub-committee

The provision of the Enforcement Decree of this case cannot be deemed as null and void as it is unconstitutional or unlawful. Therefore, pursuant to the provision of the former Inheritance and Gift Tax Act which applies mutatis mutandis under the provisions of the Enforcement Decree of this case, the “market price” of the listed stocks of this case shall be deemed as the amount calculated by adding the premium rate, such as the largest shareholder, to the average daily closing price, which is published during two months before and after the transfer date of the listed stocks

In the same purport, the lower court’s determination that the “market price” of the listed stocks of this case applied by the Plaintiff at the time of filing a revised return on the premise that the provisions of the Enforcement Decree of this case are valid is justifiable in accordance with the legal doctrine as seen earlier. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors

3. Determination on the grounds of appeal Nos. 1 and 3

The lower court determined that the Defendant’s rejection disposition is lawful on the ground that the Plaintiff’s transfer of listed stocks in relation to the control over shipbuilding and the transfer of listed stocks in this case to KRW 65,500 per share, which is considerably lower than the market value of KRW 83,396 per share, the average of the closing prices for each two months before and after the transfer date, constitutes an abnormal transaction disregarding economic rationality.

Examining the record in light of the relevant provisions and legal principles, the lower court’s determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal principles on economic rationality under the provisions on the denial of wrongful calculation under the Income Tax Act

4. Conclusion

Therefore, the appeal is 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, except for a dissenting opinion by Justice Kwon Soon-il, Justice Park Sang-ok, Justice Kim Jae-hyung, Justice Ahn Jae-chul, Justice Lee Dong-won, and Justice Noh Tae-

5. Dissenting Opinion by Justice Kwon Soon-il, Justice Park Sang-ok, Justice Kim Jae-hyung, Justice Ahn Jae-hyung, Justice Lee Dong-won, and Justice Noh Tae-ok

The conclusion of the instant case does not directly stipulate “market price” which is the basis for the gains from the denial of unfair calculation among the taxation requirements of transfer income tax on listed stocks, but depends on whether the part of applying the provisions on the market price assessment of listed stocks under the former Inheritance and Gift Tax Act under the Enforcement Decree of the instant case goes beyond the scope of delegation by the mother law and thus contravenes the Constitution and laws. We cannot agree with the Majority Opinion deeming the provisions on the instant enforcement decree as legitimate in light of the limit of delegation legislation, the principle of no taxation without law and tax equality

A. Evaluation of wrongful acts as to capital gains and the issues of this case

1) Evaluation of wrongful acts as to capital gains

A) The amount of capital gains shall be calculated by deducting necessary expenses, etc. from the transfer value (Article 95(1) of the former Income Tax Act); and the transfer value of assets shall be determined by the actual transaction value between the transferor and the transferee at the time of transfer (hereinafter “actual transaction value”). As such, the actual transaction value, which is the basis for calculating capital gains tax, is not the general market value that reflects objective exchange values, but the actual transaction price, itself, or at the time of transaction, is the amount actually agreed upon as the price of actual transaction (see, e.g., Supreme Court Decisions 97Nu629, Feb. 9, 199; 2009Du19465, Feb. 10, 201).

B) The method of wrongful calculation under Article 101(1) of the former Income Tax Act on capital gains is deemed as a system under which the taxation authority denies or reduces the tax burden by abusing the forms of transaction listed in each subparagraph of Article 167(3) of the former Enforcement Decree of the Income Tax Act without a reasonable method by a resident in a transaction with a person with a special relationship (see Supreme Court Decision 2016Du50686, Jan. 25, 2017, etc.). The legislative purpose of this case is to realize fair taxation by embodying the principle of substantial taxation (see Supreme Court Decision 95Nu13296, Feb. 14, 1997, etc.). In this case, Article 167(3)1 of the former Enforcement Decree of the Income Tax Act provides that “when assets are transferred to a person with a special relationship at a lower market price than the market price” and Article 167(1)1 of the former Enforcement Decree of the Income Tax Act provides for “where assets are transferred at a lower market price than the market price.”

C) Accordingly, the enforcement decree of this case provides that “In applying the provisions of paragraph (3), the market price shall be based on the value assessed by applying mutatis mutandis the provisions of Articles 60 through 64 of the Inheritance and Gift Tax Act.”

2) Provisions of the former Inheritance and Gift Tax Act concerning the appraisal of property

A) The Inheritance and Gift Tax Act provides that an assessment of property on which inheritance tax or gift tax is levied shall be based on the market price as of the date of commencing an inheritance or donation (hereinafter “date of appraisal”); and “market price” refers to the value generally recognized when transactions are made freely between many and unspecified persons (Article 60(1) and the former part of Article 60(2) of the former Inheritance and Gift Tax Act).

B) However, the Inheritance and Gift Tax Act has two special provisions regarding the evaluation of “listed stocks” as follows: First, listed stocks shall be deemed as “market price” the average of the closing prices publicly announced for two months before and after the evaluation base date (Article 60(1) latter part of the former Inheritance and Gift Tax Act and Article 63(1)1(a) of the former Inheritance and Gift Tax Act), second, for stocks owned by the largest shareholder, etc., an amount assessed by increasing the rate of 20% or 30% according to their holding ratio shall be deemed as “market price” (Article 63(3) of the former Inheritance and Gift Tax Act).

Such provisions of the Corporate Tax Act are compared with the relevant provisions of the Corporate Tax Act and the following point of view. In other words, Article 52(1) of the former Corporate Tax Act provides that where it is deemed that an act of a domestic corporation or the calculation of income amount has reduced unreasonably the tax burden on the corporation’s income due to transactions with a specially related person, the taxation authority should deny such act and calculate the income amount for each business year of the relevant corporation, and Article 52(2) provides that “in applying this, the market price” shall be based on the “price applied or deemed as applicable to sound social norms and commercial practices and ordinary transactions between persons who are not a specially related person (hereinafter “market price” in this Article). In addition, Article 89(1) of the former Enforcement Decree of the Corporate Tax Act provides that where listed stocks are traded at the Korea Exchange, “market price” of the relevant stocks shall be based on the closing price on the date of such transactions

3) The issues of the instant case and the previous Supreme Court precedents

A) The key issue of the instant case is whether the Plaintiff, the largest shareholder, etc. of the Joseon City, and his Nonparty, who was his largest shareholder, constitutes “an act of trading the listed stocks of this case at a price determined by the Korea Exchange on the day of sales based on the closing price, which is the final market price of the Korea Exchange, constitutes “an act of unfairly reducing the tax burden on capital gains” under Article 101(1) of the former Income Tax Act, and in detail, whether such an act constitutes “when transferring assets at a price lower than the market price” under Article 167(3)1 of the former Enforcement Decree of the Income Tax

B) However, in applying the latter part of Article 60(1), Article 63(1)1(a) and (b), and Article 63(3) of the former Inheritance and Gift Tax Act which is applicable mutatis mutandis pursuant to Article 60(1) of the Enforcement Decree of the instant case (hereinafter “instant provision”), the market price of listed stocks transferred when determining whether to be subject to wrongful calculation of capital gains should be the average market price for each day before and after the transfer date calculated according to Article 63(1)1(a) under the latter part of Article 60(1) of the former Inheritance and Gift Tax Act, unless there are special circumstances, the market price of listed stocks transferred shall be deemed the average market price, and where the transfer price of listed stocks is between the largest shareholder, etc., it shall be calculated by adding the rate under Article 63(3) of the former Inheritance and Gift Tax Act to the above average amount (see, e.g., Supreme Court Decisions 201Du130181, Apr. 1, 2017; 2010Du314.2014.

C) In accordance with the legal principles of the previous Supreme Court precedents, the lower court dismissed the Plaintiff’s claim seeking revocation of the disposition of refusal, on the grounds that the market price applied at the time of filing a revised return by the Plaintiff pursuant to the provisions of the previous Supreme Court precedents is reasonable, and that the transfer of listed stocks of this case cannot be deemed as normal transaction at the market price.

B. Determination as to whether the provision of the Enforcement Decree of the instant case is unconstitutional or unlawful

1) As to the violation of the principle of no taxation without representation and the deviation from the limitation of delegated legislation

A) The legislative power belongs to the National Assembly (Article 40 of the Constitution), and the President may issue the Presidential Decree with regard to the matters delegated by the Act and necessary matters for the enforcement of the Act (Article 75 of the Constitution). Thus, the Enforcement Decree of the Act can only stipulate the matters delegated by the Act of the parent corporation or the detailed matters necessary for the real enforcement of the Act within the scope prescribed by the Act, and the modification or supplement of the contents of the rights and obligations of an individual provided by the Act or new matters not provided by the Act, unless otherwise delegated by the Act (see, e.g., Supreme Court en banc Decision 93Da37342, Jan. 24, 1995; Supreme Court en banc Decision 2005Du1237, May 21, 2009).

In a case where a subordinate law delegates a certain matter to a subordinate law, when determining whether the scope of delegation of the parent law or the subordinate law complies with the limits of delegation, the following should be comprehensively taken into account: (a) whether the subordinate law is an essential matter to be governed by the principle of parliamentary reservation in a formal law; (b) whether the legislative purpose and content of the pertinent provision; (c) the structure of the provision; and (d) the relationship with other provisions; (d) whether the delegation provision itself has exceeded the limits of literal meaning; (e) whether the contents of the subordinate law fall within the scope of prediction of the delegated contents from the mother law itself; and (e) whether the contents of the subordinate law fall within the scope of prediction of the delegated contents from the mother law itself; and (e) whether the subordinate law can be evaluated as a new legislation beyond the stage of concreteizing the delegated contents by expanding or reducing the scope of the terms used in the delegation (see, e.g., Supreme Court en banc Decision 2011Du30878, Dec. 20, 2012).

However, Article 38 of the Constitution provides that “All citizens shall have the duty to pay taxes under the conditions as prescribed by Act.” Article 59 of the Constitution adopts the principle of no taxation without the law by stipulating that “types and rates of taxes shall be determined by Act.” In order to impose a duty to pay taxes on citizens, the basic and essential matters concerning the duty to pay taxes, such as tax items and rates, shall be prescribed by the Act enacted by the National Assembly, the representative organ of the citizens, and the basic and essential matters concerning the duty to pay taxes, such as tax requirements, shall not be permitted without delegation of the Act. Therefore, without delegation of the Act, it violates the principle of no taxation without the law by stipulating the matters concerning the tax requirements, etc. through an administrative legislation such as an order or rule, or by formulating the interpretation provisions that interpret and expand the contents prescribed by the Act without permission (see Supreme Court en banc Decision 82Nu21, Nov. 23, 1982; Supreme Court en banc Decision 86Nu694, Sept. 22, 1987; Supreme Court en banc Decision 2000Du3163196.

B) In calculating capital gains subject to the transfer income tax, the Income Tax Act requires that the transfer price of assets be based on the actual transaction price as at the time of the transfer of assets (Article 96(1) of the former Income Tax Act) while, through the wrongful calculation system, the tax authorities allow the tax authorities to calculate the amount of income regardless of the transaction’s act or calculation where the actual transaction price is deemed to have reduced unreasonably the tax burden on the income through a transaction with a person in a special relationship. In light of the purport of the wrongful calculation system, the determination of whether the actual transaction price at the time of the transfer of assets constitutes a low-price transfer subject to the wrongful calculation should be made based on whether the actual transaction price at the time of the transfer of assets can be deemed a normal transaction, not a transaction with a person in a special relationship, or a “market price” under Article 167(3) of the former Enforcement Decree of the Income Tax Act refers to an objective exchange price formed through a normal transaction (see, e.g., Supreme Court Decision 201Du81084, Sept. 28, 2010).

Article 167(3) of the former Enforcement Decree of the Income Tax Act provides that “The market price shall be appraised by applying mutatis mutandis the provisions of Articles 60 through 64 of the former Enforcement Decree of the Income Tax Act.” This means that “market price,” which serves as the basis for a wrongful calculation under the Income Tax Act, is determined by the method of valuation of the property value on which inheritance tax or gift tax is levied under the Inheritance Tax and Gift Tax Act. However, the Inheritance Tax Act also provides that “market price” as of the base date of appraisal of the property value, i.e., where a free transaction is made between an unspecified number of persons (Article 60(1) and (2) former Enforcement Decree of the Income Tax Act), and the meaning of “market price” is not different from that of “market price” under Article 167(3)1 of the former Enforcement Decree of the Income Tax Act.

However, according to the provisions of the Enforcement Decree of this case, unlike the concept of “market price”, the value assessed according to the evaluation methods separately stipulated under the Inheritance and Gift Tax Act should be based on the determination of “market price” as “market price” deemed by the relevant laws and regulations, and should be based on the determination of wrongful calculation under the Income Tax Act. In other words, listed stocks shall be deemed as “market price” in which the average of the closing prices publicly announced for two months before and after the evaluation base date, and in cases of stocks owned by the largest shareholder, etc., the amount assessed by increasing 20% or 30% according to the holding rate is “market price

The purpose of the Inheritance Tax and Gift Tax Act, which is fair taxation of inheritance tax or gift tax, is to realize the purpose of the Inheritance Tax and Gift Tax Act (Article 1 of the Inheritance Tax and Gift Tax Act). Accordingly, there is criticism that the purpose of the Inheritance Tax and Gift Tax Act, which is fair taxation of inheritance tax or gift tax, is to infringe on property rights guaranteed by the Constitution or goes against the principle of equal taxation. However, it is necessary to consider that inheritance tax or gift tax is aimed at facilitating the economic equality of the people by relaxing tax behavior and concentration other than the primary purpose of securing financial revenue of the State (see Constitutional Court en banc Decision 96Hun-Ga19, Dec. 24, 1997). Thus, even if it is the principle of assessing the value of inherited or donated property as of the date of commencing the inheritance or donation, it is very large in the number of listed stocks, so it is difficult to view that it is unreasonable to consider the legislative value of the company’s shares before or after the base date of appraisal as an exceptional method of taxation of the company’s shares, even if it does not violate the Constitutional Court’s position of management right.

However, the purpose of the Income Tax Act is to ensure the equality in tax burden by imposing income on an individual in accordance with the nature of income and a taxpayer’s ability to bear expenses (Article 1 of the Income Tax Act). In other words, the Income Tax Act divides resident’s income into global income, retirement income, transfer income, etc. and prescribes that transfer income from one’s commercial transaction of assets is the tax base. From among them, the Inheritance Tax Act takes the transfer of property such as inheritance or donation as a tax source and sets the appraised value of the property as the tax base. Accordingly, the Income Tax Act has detailed provisions on the calculation of transfer income that is a requirement for taxation such as determining that the transfer value of property shall be based on the actual transaction value between the transferor and the transferee at the time of transfer (see Article 96 of the Income Tax Act). On the other hand, the Inheritance Tax Act provides for separate items on the assessment of inherited property and donated property (see Article 96 of the Income Tax Act) and provides for separate provisions on the assessment method of property under the Income Tax Act (see Article 6(1)6) of the Income Tax Act).

C) In conclusion, the instant provision goes beyond the bounds of delegated legislation under the Constitution, and it is reasonable to regard it as null and void as it violates the principle of no taxation without law. The reasons are as follows.

First, according to the provisions of the Enforcement Decree of this case, the transfer value of listed stocks of this case is not the actual transaction value under Article 95(1) of the former Income Tax Act, but the amount calculated by adding 30% to the average of the closing prices publicly announced for two months before and after the transfer date pursuant to Article 63(3) of the former Inheritance Tax Act. This is obviously a requirement for taxation with respect to the citizens’ tax liability, which is the fundamental and essential elements of the taxation, and thus, the National Assembly must be determined by the law in accordance with the principle of no taxation without law. This is because the provisions of the former Enforcement Decree of this case are also a matter that is to be applied mutatis mutandis under the superior law. This is because the provisions of the former Enforcement Decree of this case, which are the same as the provisions of the former Enforcement Decree of this case, are an exceptional case. The failure of the Government to submit a bill is likely to bring about controversy about the unconstitutionality in the legislative process, and the National Assembly cannot avoid examination of the constitutionality of the Constitutional Court even if it becomes final and conclusive by law.

Second, the provisions of the mother law of this case provide that “matters necessary for the wrongful calculation shall be prescribed by the Presidential Decree.” This means that the enforcement order necessary for the enforcement of the law can be issued, and it does not mean that the enactment of the taxation requirements such as transfer price or transfer price difference should not be comprehensively delegated provisions to the Presidential Decree (see, e.g., Supreme Court en banc Decision 94Da260, Apr. 25, 1995; Supreme Court Decision 98Du11731, Mar. 16, 2000). If such interpretation is not interpreted, it is in violation of the principle of no taxation without law because it makes an interpretation of the contents that can be inferred and expanded without permission. In this case, the transfer price of the listed stocks of this case should not be the actual transaction price, but it should be determined on the basis of the amount calculated by adding 30% premium rate to the average amount of the closing price published during two months before and after the transfer date difficult to predict at the time of transfer.”

2) As to the violation of superior statutes

A) Article 11(1) of the Constitution of the Republic of Korea declares the principle of equality that all citizens shall be equal before the law and shall not be discriminated against in all areas of life without any justifiable reason. The realization of such principle of equality in the field of tax law is the principle of tax equality. The imposition and collection of taxes must be made fairly and equally commensurate with the taxpayer’s ability to pay taxes, and it is not allowed to discriminate or treat unfavorably against a specific taxpayer without reasonable grounds (see Supreme Court Decision 2003Du1165, Oct. 27, 2004). In addition, Article 18(1) of the Framework Act on National Taxes provides that “When interpreting and applying tax-related Acts, it shall be ensured that the taxpayer’s property rights should not be unfairly infringed in light of the equity in taxation and the purpose of the pertinent provision” (see Supreme Court Decision 2010Du3138, Dec. 29, 2016).

B) In light of these principles, we examine whether the instant provision applied mutatis mutandis contravenes the upper law.

First, according to the provision of this case, where the transferred asset is listed stocks, the “market price” should be determined by the average of the closing prices publicly announced for two months before and after the transfer date, not at the closing price as of the transfer date. This goes against Article 96(1) of the former Income Tax Act that the transfer price of the asset should be determined at the time of transfer, and the base point for determining whether the asset is subject to unfair calculation under Article 101(1) of the former Income Tax Act goes against the principle that it is at the time of transaction (see, e.g., Supreme Court Decisions 88Nu5273, Jun. 13, 1989; 99Du15821, Jan. 29, 200; 9Du1731, Jun. 15, 201; 2007Du14978, May 13, 201; 207Du1989, etc.). However, the above provision of the former Enforcement Decree of the Income Tax Act does not apply to the gift tax.

Second, among the applicable provisions of this case, the premium rate for the appraisal of stocks held by the largest shareholder, etc. is examined. Even if the stocks held by the largest shareholder, etc. of the listed company are owned by the listed company, it has already been examined that there is no separate value in the management rights of the company, depending on the financial structure, management conditions, etc. of the relevant company, or that the transfer of the relevant listed stocks is not accompanied by the transfer of the so-called “management rights premium.” Nevertheless, even in such a case, it goes against the purport of the wrongful act and calculation system under the Income Tax Act to consider the value assessed uniformly as “market price.” This is against the principle of tax equality under the Constitution and Article 18(1) of the Framework Act on National Taxes, and it unfairly infringes on the property rights of the listed company, and thus, is in violation of the principle of tax equality under the Constitution and Article 18(1) of the Framework Act on National Taxes (see, e.g., Supreme Court Decisions 97Nu20366, Jun. 23, 1998>

3) We examine whether there is no difficulty in applying the provision of wrongful calculation if the instant provision is excluded from the provision of the Enforcement Decree of the instant case.

Wrongful calculation may be conducted when it is deemed that a reasonable transaction between related parties cannot be deemed a normal transaction to be conducted by a reasonable economic person in light of social norms and customs (see Supreme Court Decisions 91Nu7637, Jan. 21, 1992; 91Nu7637, Jan. 24, 2009). The Supreme Court has held that “market price” stipulated as the basis of a low-price transfer subject to unfair calculation refers to an objective exchange price formed through a normal transaction in principle, but it includes a concept that includes the value assessed by objective and reasonable methods, which constitutes an ordinary transaction price formed in a normal transaction with unrelated parties or a third party transaction price is generally traded price formed in a normal transaction with unrelated parties, and there is no such a transaction practice (see, e.g., Supreme Court Decisions 9Du1731, Jun. 15, 2001; 2007Du7505, Sept. 24, 2009).

According to such legal principles, in cases where listed stocks held by the largest shareholder, etc. are transferred, if there are special circumstances, such as that the listed stocks are related to the management rights or control rights of the corporation or that the management rights or control rights are transferred together, the closing price on the trading date shall reflect the objective exchange value in cases where only the stocks of the company are transferred, and shall not be deemed the market price of the transferred listed stocks. In such cases, the tax authority may impose taxes on the listed stocks by deeming the price formed in normal transactions between unrelated parties or the price generally traded between third parties as the market price. In the absence of such example, the tax authority may impose taxes on the listed stocks at the market price by recognizing the amount appraised in an objective and reasonable manner, taking into account the appraisal price or all the circumstances of the reliable appraisal agency, as the market price is calculated accordingly. Such special circumstances and the burden of proof on the market price

4) Sub-determination

A) As seen above, the part where the enforcement decree of this case provides that the provisions on the appraisal of property under the Inheritance Tax and Gift Tax Act shall apply mutatis mutandis to the calculation of gains on transfer, which is a requirement for taxation of transfer income tax due to the transfer of listed stocks, violates the limitation of delegated legislation under Articles 40, 75 of the Constitution, Articles 38 and 59 of the Constitution, and violates the principle of no taxation without law under Articles 11(1) of the Constitution, Article 18(1) of the Framework Act on National Taxes, and Article 18(1) of the Framework Act on National Taxes, and Article 96(1) of the former Income Tax Act, which is the mother corporation, shall be deemed null and void.

The following are arranged. Of the latter part of Article 60(1) of the former Inheritance and Gift Tax Act (amended by the Presidential Decree No. 60(1)(a) and (b) of the Enforcement Decree of the instant case, that is, “in this case, the value assessed as the method of assessment provided for in Article 63(1)1(a) and (b) shall be deemed as the market price” and the part of Article 63(3) of the former Inheritance and Gift Tax Act applicable mutatis mutandis to Article 60(2) of the former Inheritance and Gift Tax Act in applying Article 63(3) of the former Inheritance and Gift Tax Act.

B) On the premise that the latter part of Article 60(1) of the former Inheritance and Gift Tax Act (amended by Presidential Decree No. 2008Du4770, Jan. 13, 2011; Presidential Decree No. 20088, Jan. 13, 2011; Presidential Decree No. 20014, Jan. 13, 2011; Presidential Decree No. 20010, Nov. 21, 2011; Presidential Decree No. 20135, Nov. 13, 2011; Presidential Decree No. 2010, Nov. 26, 2011; Presidential Decree No. 22010, Nov. 14, 201; Presidential Decree No. 22000, Nov. 16, 201; Presidential Decree No. 22010, Feb. 14, 2017).

C. Appropriateness of the lower judgment

We examine the judgment of the court below in light of the above legal principles.

The lower court determined that: (a) the sales price of listed stocks of this case is not a transaction between many unspecified persons, but a transaction agreed upon by both parties; (b) even if the transaction price was determined as a closing price on the trading date, it cannot be deemed as a normal transaction based on “market price”; (c) since the parties to the sales are the largest shareholders, etc. of shipbuilding, it cannot be deemed as a “market price” that applies to the Plaintiff the amount equivalent to 30% largest shareholders; and (d) only if the tax authority proves that there exists a difference between the transfer price and the “market price”

However, in this case, there is no assertion or proof as to the special circumstances such as that the listed stocks of this case transferred by the Plaintiff to the Nonparty as a person with a special relationship with the said Nonparty are related to the management rights or control rights in shipbuilding or transferred at the same time with the management rights premium, and thus, the “market price” of the listed stocks of this case is in principle deemed as the closing price of the transfer date. Furthermore, the burden of proof as to such special circumstances ought to be

Nevertheless, the lower court determined that the provisions of the Enforcement Decree of the instant case are valid, and rejected the Plaintiff’s assertion on this issue, on the erroneous premise that the “market price” of the instant listed stocks is the amount calculated by adding the premium rate, such as the largest shareholder, to the average daily closing price of the listed stocks published for two months before and after the transfer date of the instant listed stocks by applying the provisions on appraisal of the market price of listed stocks under the former Inheritance and Gift Tax

In so determining, the lower court erred by misapprehending the legal doctrine on “market price” under the provisions of wrongful calculation of capital gains under the Income Tax Act and the validity of the provisions of the Enforcement Decree of this case, thereby adversely affecting the conclusion of the judgment. The Plaintiff’s ground of appeal assigning this error is with merit. Therefore, the lower judgment shall be reversed and remanded

D. Conclusion

As above, the Dissenting Opinion is indicated.

Justices Kwon Soon-il (Presiding Justice)