Early High Court Decision 2016J3531 (Law No. 18, 2018)

No transaction price with persons directly or indirectly related to the operation of a corporation shall be deemed the market price.

It is difficult to deem that the price applied to the transaction of unlisted stocks between persons directly or indirectly related to the operation of the corporation is an objective exchange value formed through general and normal transaction.

Article 24 (Non-Inclusion of Donations in Deductible Expenses)

2018Guhap63298 Revocation of Disposition of Corporate Tax Imposition

O&C Co., Ltd.

O Head of tax office

August 22, 2018

September 19, 2018

1. The Defendant’s imposition disposition of KRW 1,104,266,90, which the Plaintiff rendered on May 2, 2016, in excess of KRW 824,342,30, out of the imposition disposition of KRW 1,104,266,90, shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On December 29, 2014, the Plaintiff transferred 280,000 shares (hereinafter “instant shares”) of Company BB, an unlisted company, to AA, a stock company, to KRW 1.4 billion (hereinafter “instant shares”).

B. On December 31, 2014, AA transferred 64,000 shares of the instant shares to MaCC (12,500 won per share) and 12,000 shares out of the instant shares to MaD on the same day (12,500 won per share), respectively, at KRW 150 million per share (12,500 won per share).

C. On December 31, 2014, the Defendant deemed that the market price of the instant shares was KRW 12,500 per share, which is the price traded on December 31, 2014, and determined that the Plaintiff transferred the instant shares to AAra at a price lower than the normal price, the Defendant deemed that the transfer price of KRW 1.4 billion and KRW 1.5 billion, which is the difference between the normal price of KRW 1.45 billion and KRW 2.45 billion, as a donation, was included in the calculation of earnings, and calculated corporate tax of KRW 279,924,60, and then imposed corporate tax of KRW 1,104,26,90 on the Plaintiff on May 2, 2016 (hereinafter “instant disposition”).

D. The Plaintiff appealed to the instant disposition and filed an appeal with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s appeal on January 18, 2018.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 3, Eul evidence 1 to 4, the purport of the whole pleadings

2. Relevant statutes;

The entries in the attached statutes are as follows.

3. Summary of the plaintiff's assertion

BB, which was jointly invested by the Plaintiff and AAA, purchased real estate in order to run a logistics warehouse business, and caused capital increase due to failure to prepare funds to pay the purchase price. AAB, as a shareholder of BB, did not have the preemptive right to new stocks, but failed to prepare the purchase price, and accordingly, the Plaintiff and AAA first paid the purchase price of new stocks to the Plaintiff within 2014, and then the Plaintiff paid the purchase price of new stocks to the Plaintiff within 2014, and agreed to additionally hold 15% of the shares of BB in the event AA fails to pay the purchase price of new stocks to the Plaintiff. Accordingly, there is a justifiable reason for the Plaintiff to transfer the instant stocks to AA in value of KRW 5,000,000,000 of the purchase price of the instant stocks, and the disposition of this case should be revoked on the premise that the Plaintiff cannot be deemed to have actually donated the purchase price of the instant stocks, and thus the disposition of this case should be revoked.

4. The legality of disposition.

A. Relevant regulations and legal principles

Article 24(1) of the former Corporate Tax Act (amended by Act No. 13230, Mar. 27, 2015; hereinafter the same) provides that donations (non-designated donations) other than those made by a domestic corporation during each business year shall not be included in deductible expenses in calculating the amount of income for the pertinent business year. Article 35 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26981, Feb. 12, 2016; hereinafter the same shall apply) provides that donations under Article 24(1) of the former Corporate Tax Act and those falling under any of the following subparagraphs shall be deemed as having been designated donations under Article 36 of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 13230, Mar. 27, 2015; hereinafter the same shall apply) shall be deemed as having de facto donated to a person other than a specially related person under Article 87 at a price below the normal price or at a price below 30% of the market price.2.

B. Determination

Based on the relevant provisions and legal principles as above, the following facts or circumstances that can be acknowledged by the aforementioned facts and evidence No. 6, Eul evidence No. 3, and Eul evidence No. 4, and the purport of the entire pleadings are as follows; i.e., MCC is the representative director of ACC; AA also transfers 12,00 shares out of the shares of this case to MCC on the same day as the date of transferring 64,000 shares of this case to MCC; (b) the price per share is set at 12,50 won as the transferred price per share to MCC; (c) the acquisition of shares prepared by AA and YangD constitutes an unlawful act of 150,000 won per share purchase price per share related to the payment of the purchase price under the contract; and (d) it is difficult to view the remainder of the price of the shares to be subject to the exchange of funds under Article 8 of the "Special Agreement on Investment in Bonds" between the parties to this case and 87 of the former Enforcement Decree of the Corporate Tax Act.

5. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is decided as per Disposition by the assent of all participating Justices.