Plaintiff (Law Firm Gyeong, Attorneys Jeong Il-sung et al., Counsel for the plaintiff-appellant)

The director of the tax office.

April 24, 2015

1. The Defendant’s disposition rejecting securities transaction tax claim against the Plaintiff on August 23, 2013 is revoked.

2. The plaintiff's remaining claims are dismissed.

3. One-half of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Disposition No. 1 and the defendant's rejection disposition against the plaintiff on September 10, 2013 shall be revoked.

1. Details of the disposition;

A. On October 18, 201, the Plaintiff sold the listed stocks 116,022 shares (hereinafter “instant shares”) issued by Chosun Co., Ltd. (hereinafter “Mediation Co., Ltd.”) to Nonparty 1, a punishment, the sum of KRW 65,500 per 65,50 per share, a closing price of which is KRW 7,59,41,000 per day (hereinafter “instant sales price”) by means of an overtime trade (hereinafter “transfer”).

B. The Plaintiff filed a revised return of capital gains tax and securities transaction tax on February 29, 2012 with the above amount as the transfer value. However, the head of Gwangju Regional Tax Office instructed the Plaintiff to file a revised return of capital gains tax and securities transaction tax on the transfer of this case by calculating the market price of this case on June 12, 2013 as the average amount of 64,178 won and 30% of the final market price of the Korea Exchange published every two months before and after the date of the transfer of this case pursuant to Article 63(1)1 and (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 2011; hereinafter “former Inheritance Tax Act”). The Plaintiff calculated the revised return of capital gains tax and securities transaction tax by regarding the market price of this case as 183,396 won per share as the average amount of the market price of the stocks, not the Plaintiff’s revised return of capital gains tax and the securities transaction tax.

C. After that, the Plaintiff filed a claim for correction of the securities transaction tax on June 27, 2013, and the transfer income tax on July 26, 2013, on the ground that the instant purchase price constitutes a tax base.

D. As to the claim for correction of securities transaction tax on August 23, 2013 on the grounds that the tax base of the securities transaction tax of this case is the market price under Article 7(1) of the Securities Transaction Tax Act and Article 63 of the former Inheritance and Gift Tax Act, the Defendant issued a rejection disposition on September 10, 2013 on the ground that the tax base of the transfer income tax of this case ought to be based on the market price under the Inheritance and Gift Tax Act (hereinafter “instant rejection disposition on the claim for correction of securities transaction tax”), and issued a rejection disposition on the request for correction of the transfer income tax (hereinafter “instant rejection disposition on the request for correction of securities transaction tax of this case”), and issued a rejection disposition on the request for correction of the transfer income tax of this case (hereinafter “instant rejection disposition”).

E. On November 1, 2013, the Plaintiff filed a request for a trial with the Tax Tribunal, but was dismissed on June 23, 2013.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 through 9 (including branch numbers for those with additional numbers; hereinafter the same shall apply) and the purport of whole pleadings

2. Related statutes;

It is as shown in the attached Table related statutes.

3. Whether each of the refusal dispositions of this case is legitimate

(a) Facts of recognition;

1) As of October 11, 201, the number of shares issued in the shipbuilding market is 4,000,000 shares. The largest shareholder is Nonparty 2 who holds 17.45% of the shares 698,028 shares, and the number of shares owned by the largest shareholder, etc. in a relationship with Nonparty 2, such as relatives and affiliates, constitutes 2,408,973 shares, which constitutes 60.17% of the total shares.

2) At the time of Nonparty 2’s relatives, the Plaintiff owned 161,550 shares, and Nonparty 1 owned 586,527 shares.

3) On October 18, 201, the Plaintiff sold the instant shares to Nonparty 1 among the 161,550 shares via the instant transfer on October 18, 201.

[Ground of recognition] Facts without dispute, Eul evidence Nos. 1-1 and 2, the purport of the whole pleadings

B. As to the rejection disposition of the transfer income tax of this case

1) The plaintiff's assertion

Article 101(1) and (5) of the former Income Tax Act violates the principle of actual transaction value as to the calculation of tax base of capital gains tax declared by the former Income Tax Act, and also imposes tax on the transaction parties who freely determine the transfer value and impose tax on the portion for which no substantial profit is gained for the purpose of tax saving, thereby violating the principle of substantial taxation as stipulated by the Framework Act on National Taxes. Ultimately, the said provision

In addition, Article 63(1)1 (a) and (3) of the former Inheritance and Gift Tax Act, which applies mutatis mutandis pursuant to the above Enforcement Decree, provides that the value of stocks held by the largest shareholder, etc. shall be added by 20/100 to 30/100 in calculating the value. However, the transferor, as the largest shareholder, etc., has to pay taxes in the absence of an opportunity to realize or realize the management rights premium. As such, the transferor is obliged to pay taxes in excess of the principle of substantial taxation. According to each of the above provisions, the transferor of stocks is treated as the same in essence as the interests of the heir and donee, and the person who transfers stocks without compensation is not liable to pay taxes. In accordance with Article 44 of the former Inheritance and Gift Tax Act, the transferee of stocks on the day is in violation of the principle of equity. Accordingly, Article 63(1)1 (a) and (3) of the former Inheritance and Gift Tax Act is unconstitutional.

2) Determination

A) Article 167 of the former Enforcement Decree of the Income Tax Act provides that “where stocks, etc. are deemed to have been reduced unreasonably,” under Article 101(5)1 of the former Enforcement Decree of the Income Tax Act, “where assets are purchased from a specially related person at a price higher than the market price or assets are transferred at a price lower than the market price.” Paragraph (5) of the same Article provides that “in applying the provisions of paragraph (3), the market price shall be determined by applying mutatis mutandis the provisions of Articles 60 through 64 of the Inheritance Tax and Gift Tax Act, Articles 49 through 59 of the Enforcement Decree of the same Act, and Article 101 of the Restriction of Special Taxation Act, the value of assets on which inheritance tax or gift tax is levied under this Act shall be determined as the market price on the date of commencement of inheritance or donation (hereinafter “the date of appraisal”) and Article 60(1) of the former Inheritance Tax Act shall not apply to the largest shareholder of a stock-listed corporation for 60-year period prior to the date of appraisal.

B) In light of the facts acknowledged earlier, the Plaintiff also acknowledges that the transfer income tax base of the transfer of this case is determined by the calculation method asserted by the Defendant. However, the Plaintiff asserts that the above provision of the former Enforcement Decree of the Income Tax Act (hereinafter “Enforcement Decree provision”) deviates from the limit of the delegated legislation and is unconstitutional and unlawful by allowing the application of the former Inheritance Tax Act provisions, and thus, the above enforcement decree provision should not be applied. Thus, the Plaintiff’s assertion is that the above enforcement decree provision should not be applied.

In full view of the following circumstances revealed by the purport of the entire pleadings and evidence, the legislative intent of the relevant statutes, the legislative structure of Articles 60 and 63 of the former Inheritance and Gift Tax Act regarding the method of evaluating listed stocks, the purport of the wrongful calculation system, and the relevant statutes, etc., the provisions of the Enforcement Decree of the instant case and Article 63(1)1(a) and (3) of the former Inheritance and Gift Tax Act, which are applicable mutatis mutandis thereto, cannot be deemed as a provision of unconstitutional and unlawful invalidation due to a violation of the principle of actual transaction, the substance over form principle, and the principle of tax equality.

① The provision on the denial of wrongful calculation under Article 101 of the former Income Tax Act is a system in which a resident’s act or calculation is consistent with objective facts and is legally effective and lawful, and it is correct in the account, even if such act or calculation is an agreement between a related party, and where it is deemed that the relevant person unfairly avoided or reduces the tax burden using all the forms of transaction listed in each subparagraph of Article 167(3) and (4) of the former Enforcement Decree of Income Tax Act, the taxation authority denies it and makes it deemed that the income which appears to be objective and reasonable by the method prescribed by law is generated. This is not contrary to the substance over form principle, but rather, to realize fair taxation by embodying the substance over

② In the case of capital gains tax, calculating the transfer value on the basis of the actual transaction price under the former Income Tax Act is in principle, but when it is deemed that the tax burden has been reduced unfairly, it is necessary to calculate the reasonable value on the grounds of the same paragraph (1). In particular, as to the transfer of this case, there is a high possibility that the transaction of stocks between related parties may form an unfair transaction price by mutual agreement between the parties in light of their personal characteristics and the interests between the parties to the transaction, and thus, it is deemed as one of the grounds for wrongful calculation in order to regulate it, and the necessity of regulation is also large. Even in the case of each transaction type under Article 167 of the former Enforcement Decree of the Income Tax Act, it is difficult to deem that there is an excessive restriction beyond the purport of the former

③ Article 60(1) of the former Inheritance and Gift Tax Act provides that the value assessed according to the evaluation methods stipulated in Article 63(1)1(a) shall be deemed as the market price for the purpose of excluding arbitraryness in assessing listed stocks and securing objectivity, and is newly established at the time of wholly amending the former Inheritance and Gift Tax Act by Act No. 5193, Dec. 30, 1996. As such, the former Inheritance and Gift Tax Act, which is based on the market price principle, basically differs from each other. However, inasmuch as the former Income Tax Act, where the actual transaction price appears to be unfair, the value to be considered as the tax base is similar in that it is calculated and applied, not the actual transaction price, rather than the actual transaction price, it is unreasonable to introduce the concept of market price under the former Inheritance and Gift Tax Act with the above evaluation value in terms of ensuring uniformity and fairness in taxation.

④ The transferor asserts to the effect that the transferor’s tax payment is unreasonable on the profits, management rights, etc. that the transferee purchased at a price lower than the market price under the former Inheritance and Gift Tax Act even if only gains profits corresponding to the actual transaction price. However, as long as there exists a provision denying the transaction price at a low price by wrongful calculation in order to reduce the tax burden, it is possible for the transferor to determine the transfer price including all profits, management rights, etc. that the transferee gains in advance, as long as there is a provision denying the transaction price at a lower price by wrongful calculation.

⑤ In comparison with the case of a donor or a decedent, the legislative purpose is to prevent the donee and his/her heir from unfairly reducing the amount of taxes by imposing capital gains tax on the transferor, while imposing capital gains tax on the transferor, which is similar to the legislative purpose of the legislation. However, the person liable to pay capital gains tax and the taxpayer of capital gains tax are different from the person who acquired assets and the transferor of assets, respectively. As such, the person liable to pay capital gains tax is the legislator’s decision to collect legitimate taxes on the person liable to pay tax. Not only the two tax rates are different but also the person liable to pay tax are different. As such, since the two tax rates are entirely different, whether the person liable to pay capital gains tax should be exempted from the obligation to pay taxes by gratuitously transferring the owned assets through donation or inheritance method, or whether the person liable to pay capital gains tax by transferring them with compensation depends on

(6) Article 44(1) of the former Inheritance and Gift Tax Act provides that “where property transferred to a spouse or a lineal ascendant or descendant (hereinafter “spouse, etc.”) is presumed to have been donated at the time of transfer, the said provision shall not apply to cases where securities are disposed of through the securities market pursuant to Article 9(13) of the Financial Investment Services and Capital Markets Act, but Article 33(2) of the former Enforcement Decree of the said Act provides that “cases prescribed by Presidential Decree which are not deemed to have been disposed of by a transaction between many and unspecified persons” shall apply to “cases prescribed by Presidential Decree.” Article 44(3)4 of the former Enforcement Decree of the said Act provides that “The term “cases prescribed by Presidential Decree” means cases where a spouse, etc. is deemed to have been purchased or sold at an outside time market prescribed by Ordinance of the Ministry of Strategy and Finance among the securities trading conducted in the securities market pursuant to Article 9(13) of the Financial Investment Services and Capital Markets Act, the concept of transfer income tax imposed on the spouse, etc. on the date of transfer under the former Enforcement Rule of the Capital Markets Act (amended by Ordinance No.3).

C) Therefore, the instant refusal disposition is lawful, and the prior Plaintiff’s assertion cannot be accepted on a different premise.

C. As to the rejection disposition of the securities transaction tax of this case

1) Article 7(1) of the Securities Transaction Tax Act provides for “where a share certificate is transferred pursuant to the provisions of each item of Article 3 subparag. 1, the transfer value of such share certificate” as to the tax base under subparagraph 1, and Article 3 subparag. 1(a) of the Securities Transaction Tax Act provides for “share certificates transferred from the securities market” and “share certificates transferred outside the securities market in the manner prescribed by Presidential Decree” respectively.

2) Since the instant shares constitute “shares transferred from the securities market” under Article 3 subparag. 1 (a) of the Securities Transaction Tax Act, it is reasonable to calculate the securities transaction tax with the tax base of KRW 65,500 per transfer value based on the closing price on the day of “transfer value of the relevant share” under Article 7(1)1 of the Securities Transaction Tax Act.

3) The Defendant asserts to the effect that “share certificates under the provisions of each item of Article 3 subparag. 1” under Article 7(1)1 of the Securities Transaction Tax Act refer to share certificates under each item of Article 3 subparag. 1 in the case of sale and settlement between accounts pursuant to the provisions of Article 3 subparag. 1. However, since Article 3 of the Securities Transaction Tax Act and Article 7 of the Securities Transaction Tax Act are subject to the provisions of each item of “tax payer” and “tax base”, it is difficult to see that the tax base should be determined according to the method of transfer. In addition, in light of the literal interpretation and relationship between the provisions of Article 7(1)1 of the Securities Transaction Tax Act and the provision, it is difficult to see that the type of “share certificates” is specified in addition to the method of transfer. In light of the literal interpretation of each provision, it cannot be interpreted that only the share certificates should be limited to the case of sale and settlement between accounts.

4) The rejection disposition of the securities transaction tax of this case is erroneous in the application of the relevant laws and regulations as to the tax base.

4. Conclusion

Therefore, the plaintiff's claim is accepted within the scope of the above recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Kim Jong-hwan (Presiding Judge) Kim Young-young