Whether it is subject to gift tax on unlisted stocks

The disposition imposing gift tax is illegal because it is recognized that the title trust was made due to the restriction under the Commercial Act, not the donation, and it does not fall under the provision on the constructive gift of title trust property because there is no tax reduction avoided due to the title trust.

Article 2 of the Inheritance Tax and Gift Tax Act

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposing gift tax amounting to KRW 141,672,30 against the Plaintiff on August 9, 2004 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

Evidence Nos. 6-1, 2, Eul-1 through 3, and the purport of the whole pleadings

A. ○○ Textiles Co., Ltd. (hereinafter “○○ Textiles”) filed a report on the tax base of corporate tax in 2001, and submitted a detailed statement on the change of stocks, etc. on January 10, 2001, stating that 1,500 shares in the name of Park○, the father of Park○ and Cho○, the former part of Park○, the ○○○, the president of Park○, and ○○○, the former part of Park○○, respectively, were transferred to the Plaintiff and Park○, respectively.

B. As a result of conducting a tax investigation on the change of ○ Textiles from May 31, 2004 to July 10, 200 of the same year, the director of the regional tax office of ○○○○○○○ (hereinafter “○○○”) succeeded 1,500 shares of the wife that died on December 13, 200, and then notified the Defendant of the determination that ○○○ was a donation of 1,500 shares owned by ○○○○ on January 10, 201 to ○○○○ (hereinafter “○○○”).

C. On January 10, 2001, the Defendant: (a) deemed that Park○○ donated 1,500 shares of ○ Textiles (hereinafter “the instant shares”) to the Plaintiff; (b) assessed the market price of the instant shares as KRW 358,210 per share to KRW 537,315,00; and (c) calculated the taxable value of donated shares at KRW 537,315,00; and (d) on August 9, 2004, imposed gift tax of KRW 141,672,30 on the Plaintiff.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

(A) Around March 1989, Park○ opened a private business with the trade name of ○ Textiles, but around December 1994, established ○ Textiles Co., Ltd. by converting the private business into a corporation for business reasons. At least seven persons under the commercial law at that time, 3,000 shares were trusted in title to 7 persons, such as ○○ and Gab○, due to the requirements of promoters, etc., and around June 1999, a certified tax accountant who handled ○○○○’s tax agent’s agent business. Around June 1999, ○○○, a shareholder was organized into 3 shareholders, and 1,50 shares each were placed in title trust to the former ○○○ and Gab○○○, a person in charge, and her 1,500 shares, but the disposal of the shares of this case was unlawful on the premise that the name of the Plaintiff and Gab○○ was changed to her name without any tax avoidance purpose.

(B) The instant shares were not transferred to the Plaintiff on the list of shareholders of ○ Textiles at the time of title trust to the Plaintiff, and even if ○○○ filed a report by stating the status of stock movement in the statement of stock fluctuation, it cannot be deemed that the instant shares were donated to the Plaintiff. Thus, the Defendant’s disposition of this case is unlawful.

(2) The defendant's assertion

(A) The instant disposition is lawful in light of the grounds and relevant Acts and subordinate statutes.

(B) Even if Park Jong-○ did not transfer the instant shares to the Plaintiff, but held in title trust, in light of the following: (a) the global income tax rate calculated by adding up the global income tax pursuant to the dividend income generation applies; and (b) the assertion in the initial return of the tax base, the assertion in the pre-trial procedure, and the assertion in the instant lawsuit are different and inconsistent; and (b) it cannot be said that Park Il-○ did not have any purpose of tax avoidance in the title trust of the said shares to the Plaintiff; and (c) thus,

(b) Related statutes;

○ Taxables of gift tax under Article 2 of the Inheritance Tax and Gift Tax Act

(1) In case where, owing to a donation by a third party (excluding a donation becoming effective upon the death of a donor; hereinafter the same shall apply), there exists donated property on the donation date falling under one of the following subparagraphs, gift tax shall be levied, pursuant to this Act, on such donated property

1. Where a person to whom property has been donated (hereinafter referred to as " donee") is a resident (including a non-profit corporation, the head office or main office of which is located in Korea; hereafter the same shall apply in this paragraph and Articles 54 and 49), all of the donated property, as a donation, by the

Article 47 of the Inheritance Tax and Gift Tax Act

(2) Where the aggregate of the value of donated property received from the same person (where the donor is a lineal ascendant, including the spouse of such lineal ascendant) within 10 years prior to the relevant donation date is not less than 10 million won, such value shall be added to the taxable amount of gift taxes: Provided, That

○ former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002)

Article 41-2 Presumption of Donation of Title Trust Property

(1) With respect to the property (excluding land and buildings; hereafter the same shall apply in this Article), which requires a registration, etc. for the transfer or exercise of rights, it shall be deemed that the actual owner or the nominal owner has received a donation from the actual owner: Provided, That this shall not apply to the following cases

1. Where assets are registered, etc. in the name of another person without any purpose of tax avoidance;

○ Article 288 of the Commercial Act, Promoters

In establishing a stock company, promoters shall prepare the articles of incorporation.

Article 288 of the former Commercial Act (amended by Act No. 6488 of July 24, 2001)

There shall be three or more promoters for incorporation of a stock company.

Article 288 of the former Commercial Act (amended by Act No. 5053 of Dec. 29, 1995)

At least seven promoters are required to incorporate a stock company.

(c) Fact of recognition;

Evidence Nos. 1 through 33 (including paper numbers), Category B-3 of Evidence Nos. 6-3, the testimony of ○○, and the purport of the whole pleadings by the presiding judge

(1) Establishment of ○○ Textiles and details about title trust of stocks

(A) Around March 1989, Park○-○ operated a personal business with the trade name of ○ Textiles, and on December 19, 1994, established ○ Textiles Co., Ltd. by converting the said personal business entity into a corporation for business reasons. At the time, ○-○ was fully responsible for the acquisition price of shares and the cost of establishing a company.

(B) At the time of the establishment of ○ Textiles, due to the limitations under the Commercial Act demanding more than seven promoters, etc., Park ○○○ made up the articles of incorporation with seven persons, such as ○○○○, a type of her wife, Gain Park○○, Gain Park○, Kim Il-in, a type of her wife, Kim ○○, Ma○○, Dong-in, Dong-in, Lee ○○, and Cho Jong-man Kim○, a group of 1,500 shares out of 5,00 shares issued in total, and 1,50 shares out of 5,00 shares issued in total, and each 250 shares out of 5,00 shares issued in total, and 1,50 shares out of 250 shares were transferred to the remaining six promoters. ○○ did not have any authority to actually acquire shares or to exercise

(C) Thereafter, around June 199, a certified tax accountant, who was in charge of the tax agent agent services of ○ Textiles, proposed that a shareholder be arranged as three persons on the grounds of convenience in business process and revision of Article 288 of the Commercial Act, etc. Around 1999, Park○-○, Kim○, O○, Lee○, Lee ○, and Kim○-○, with the consent of Park○-○, a total of 1,250 shares of 1,250 shares was acquired by Park○-○, and accordingly, the title trustee of 1,50 shares of ○○ Textiles was changed to Park○-○.

(2) Circumstances leading to reporting transfer and takeover of shares in the name of the Plaintiff and Park Jong-○.

(A) On December 13, 200, when ○○○, which was registered as a director or auditor of ○ Textiles, died on December 13, 200, according to the direction of ○○○○, each of the registration of death of ○○○○, gambed on January 11, 2001, each of the registration of gamb○, gamb○, and gamb○, the registration of gambed director’s appointment, and the registration of gamb○’s representative director’s appointment, completed the registration of gamb○,

(B) While a certified tax accountant, who was in charge of the tax agent agent agent services of ○ Textiles, was prepared for the office head of ○○○○ Office in preparation for a report on the tax base for the corporate income accrued in 2001, he did not have a registration of retirement on the corporate register even after he died on January 16, 2002, and found the fact that each of the shares of ○○ and ○○○○○○ was not arranged on the register of shareholders, and notified ○○○○ may be subject to a fine for negligence when he neglected to register the same fact and neglect to register the corporation.

(C) Accordingly, Park○-○ requested the Plaintiff, who was in a de facto marital relationship and the auditor, to adjust the corporate register and the shareholder registry in the name of Park○-○, which was registered as an auditor at the time, and on February 28, 2002, Kim○-○ completed the registration of Park○-○’s director’s retirement and the Plaintiff’s director’s retirement registration. On March 2002, 2002, upon submitting a report on the tax base of tax base for 2001 at the district tax office having jurisdiction over the end of the last day, attached to the Plaintiff on January 10, 201, a statement on changes in stocks, etc. with the purport that 1,500 shares in the name of Park○-○ was transferred to Park○-○,

(D) At the time, Park○-○ and Kim○-○ et al. did not think of the importance of the transfer of shares to anyone at any time, and considered that the shares in the name of Park○-○ and Cho○-○ should be arranged as soon as possible. Accordingly, Kim○ stated on January 11, 2001, which was the date of completion of the audit registration for Park○-○, as the date of transfer of shares, on the 10th day of the same month, which was the previous day, as the date of transfer of shares. However, the fact that Cho○-○ had already died before the date of transfer of shares was determined

(E) After the end of October 2003, the person who was requested by the competent tax office to submit explanatory materials related to securities transaction tax without filing a report, and Kim ○○, as of January 10, 2001, prepared the stock transfer contract (Evidence A 7-1 and 2) retroactively as of January 10, 201, and submitted each contract to the competent tax office on the 30th of the same month.

(3) Grounds for a tax investigation and a request for a national tax against ○ Textiles

(A) As a result of conducting a tax investigation on the change of ○ Textiles from May 31, 2004 to July 10 of the same year, the director of the regional tax office of ○○○○○○○○○○○○, unlike the above contents of ○○ Textiles’s report, judged that Park○○ actually inherited the instant shares of ○○○○○○○○○○, and that ○○○○○ was a donation of 1,500 shares to ○○○○○○, each of which was about January 10, 201, and notified the Defendant thereof. Accordingly, the Defendant rendered the instant disposition against the Plaintiff on August 9, 2004.

(B) Although ○○○○ intended to file an objection against the instant disposition and file a request for a national tax trial on behalf of another person, ○○○ who has an objection to the disposition, such as preparing and submitting a written contract with the purport that the Plaintiff acquired the shares of ○○ on January 10, 201 at the competent tax office, etc., was delegated to ○○○○○ who was dissatisfied with the disposition of this case and a request for a national tax trial on the disposition of gift tax against ○○○.

(C) Before submitting a written request for a national tax trial, a certified tax accountant Kim ○ presented the argument that the instant shares were owned by Park○-○ and that the Plaintiff and Park ○-○ was merely a title trustee. However, the National Tax Service did not recognize it. As a result, in the case of the Plaintiff, the Plaintiff was given a donation from Park○ and Park ○-○, who was the children of Park ○-○ and Park ○, and the amount of the gift tax that was granted a spouse deduction would be calculated again, there is little substantial tax burden, and in the case of Park ○-○, it was determined that the inheritance was inherited from Park○-○, and that there was little substantial tax burden when calculating the inheritance tax amount, and that Park ○-○ would have received a inheritance from Park○-○.

(4) Whether the ○○ Textiles was distributed

(A) The ○○ Textiles did not fail to pay taxes from the time of its establishment on December 19, 194 to the time of its closure on May 20, 2004, and did not have paid dividends for the same period, and there was no earned surplus at all at all at the time of its closure due to the loss disposal of the account receivables, etc.

(B) On the other hand, Park○-○ was introduced by the Plaintiff for seven months after he died on December 13, 200, and was in a de facto marital relationship since the second half of 2001. On January 16, 2002, Park○-○ who was registered as a director died on January 28, 2002, completed the registration of the appointment of the director against the Plaintiff on February 28, 2002, and reported the marriage with the Plaintiff on January 24, 2003.

D. Determination

(1) Whether the instant shares were donated

(A) Following the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s 6th day on which the Plaintiff was ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○’s 6th day on which the Plaintiff was ○○○○○○○○○○○○○○○○○○○○○○○○○○○’s 6th day on which the Plaintiff was ○○○○○○○○○○○○○○○○○’s 6th day on which the instant shares had been ever been grounded, and thus, it is insufficient to acknowledge that the instant shares were donated to the Plaintiff on January 10, 2001.

(B) Therefore, the instant disposition, which was imposed on January 10, 2001 on the premise that Park○-○ donated the instant shares to the Plaintiff on January 10, 201, is unlawful.

(2) Claim for deemed donation of nominal trust property

(A) Even if the fact of title trust is recognized, the Defendant asserts to the effect that the instant disposition is legitimate in accordance with the provision on the constructive gift of title trust property under Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “former Inheritance Tax and Gift Tax Act”).

(B) First, in a case where the Defendant alleged the original donation as the ground for disposition in this case, and again claims to add the constructive gift of title trust property under Article 41-2(1) of the former Inheritance Tax and Gift Tax Act as the ground for disposition, it is examined whether the said disposition is consistent

Even if there are errors or errors in part of the facts recognized at the time of the initial disposition by the tax authorities, if the facts found thereafter are not different from the original facts of taxation, the identity of the disposition is maintained unless the basic facts of taxation vary as within the scope of the same facts of taxation (see Supreme Court Decision 96Nu3272, Feb. 11, 1997). However, where the applicable Acts and subordinate statutes vary depending on the date of donation, and where the total amount of donated property received from the same person within ten years before the date of donation exceeds KRW 10,00,00,000, the amount of gift tax shall be determined by applying the progressive tax rate to the total amount of the taxable value of donated property. In light of the fact that the value of donated property is assessed based on the date of donation, if there is a difference in the date of donation, the basic

Therefore, as in the instant case, the Defendant rendered the instant disposition on January 10, 2001 on the ground that Park○-○ donated the instant shares to the Plaintiff, and where it is found that Park○-○ had held the title trust of the instant shares to the Plaintiff around March 2002, the Defendant’s new ground for the assertion on the constructive gift of title trust property on or around January 10, 2002, was different from the instant disposition on January 10, 2001, and thus, the identity of the taxation disposition cannot be maintained. Accordingly, this cannot be asserted as a legitimate ground for the instant disposition.

(C) Next, even if the identity of the taxation disposition is maintained, it is examined as to whether Park○○ had the purpose of tax avoidance in the title trust of the instant shares to the Plaintiff.

The legislative purport of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle in the purport that the act of tax avoidance using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, if the title trust was recognized to have been conducted for any reason other than the purpose of tax avoidance, and it is merely a minor reduction of tax incidental to the said title trust, it cannot be deemed that there was a "tax avoidance purpose" under the proviso of the same Article in such title trust, and the burden of proving that there was no purpose of tax avoidance in the title trust has the burden of proving that there was no purpose of tax avoidance (see, e.g., Supreme Court Decisions 2005Du14714, Jun. 9, 2006; 2004Du7733, May 12, 2006).

As seen earlier, 1,50 shares out of the total issued shares were each nominally trusted to ○○○○○○○○○○○○○, 1,500 shares out of the total issued shares, 250 shares, respectively, due to the restriction under the Commercial Act at the time of the establishment of the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○, ○○○○○○○○, and ○○○○○○○○○○○○○○○○○○, respectively, for the reason that Article 288 of the Commercial Act was revised to demand three or more promoters at the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○, which was not deemed to have been subject to the said 2-year change of 3-year shares under the title of the Plaintiff’s tax office.

Therefore, the defendant's above assertion on the premise that Park○-○ has a purpose of tax avoidance in the title trust of the shares of this case to the plaintiff is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and since the judgment of the court of first instance is unfair on the grounds of its conclusion, the plaintiff's appeal is accepted, and the judgment of the court of first instance is revoked and the defendant's disposition of this case is revoked.