In a case where Eul, the representative director of Gap corporation, was in title trust with Byung, and thereafter Byung was allocated shares for capital increase in its name, the head of the competent tax office, applying Article 45-2 of the former Inheritance Tax and Gift Tax Act to Byung, and notified Byung of gift tax on the donation amount by applying Article 45-2 of the former Inheritance Tax and Gift Tax Act, but decided to reduce part of the amount of gift tax imposed on Byung by evaluating the value of the shares held in title in accordance with the decision of the Tax Tribunal that "the tax base and tax amount shall be calculated as a net profit and loss value reflecting the number of shares issued when calculating the net profit and loss per share for the assessment of shares issued by Gap for capital increase in consideration of the amount of net profit and loss per share," the case affirming the judgment below that there was no proof that there was no purpose of tax avoidance in the title trust of the above shares, and that the method of evaluating the value of shares

Articles 45-2(1)1 and (2) (see current Article 45-2(3) and (3), 60(1) and (2), and 63(1)1(c) [see current Article 63(1)1(b)] of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); Article 54(1), (2), and (4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 20621, Feb. 22, 2008);

Plaintiff (Law Firm Sejong, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

Director of the District Office

Seoul High Court Decision 2015Nu63540 decided July 6, 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

(1) The Plaintiff was an employee of the Postal Card Co., Ltd. (former Co., Ltd., Ltd., Ltd.; hereinafter “instant company”). Nonparty 1, the representative director of the instant company, transferred 91,301 shares of the instant company to the Plaintiff, while taking over 41,465 shares of the instant company (30%) around 204, the Plaintiff held a title trust with Nonparty 2, respectively, with 27,643 shares (20 percent shares).

(2) When the instant company issues new shares with a total of 60,000 shares on December 28, 2005 by the shareholder allotment method (hereinafter “instant shares”), the Plaintiff received 18,000 shares equivalent to 30% shares in its own shares (hereinafter “instant shares”) from 24,940 won per share.

(3) Around February 2012, the director of the Central District Tax Office assessed the value of shares issued with capital increase allocated to Nonparty 1, etc. under his/her name as KRW 136,025 per share, and notified the Defendant of the rectification of gift tax by applying Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax Act”).

(4) On August 8, 2012, the Defendant notified the Plaintiff of KRW 1,113,980,910 of the gift tax on the donated portion on December 28, 2005, and the Plaintiff filed an appeal with the Tax Tribunal.

(5) On November 26, 2014, the Tax Tribunal decided that “The instant company’s calculation of net profit and loss by reflecting the number of shares issued by capital increase with capital increase for the purpose of assessing the shares issued by capital increase with capital increase and corrected the tax base and tax amount.”

(6) Accordingly, the director of the Central Regional Tax Office assessed the value of the instant shares held in title by the Plaintiff as KRW 105,773 per share, and notified the Defendant. On December 17, 2014, the Defendant rendered a decision to reduce the amount of KRW 114,159,310 among the amount of gift tax imposed on the Plaintiff on the Plaintiff on December 17, 2014 (hereinafter the disposition imposing the remaining amount of KRW 99,821,60 that remains after the rectification of reduction as above is referred to as

2. Regarding ground of appeal No. 1

The main text of Article 45-2(1) of the former Inheritance and Gift Tax Act provides, “where the actual owner and the title holder are different with respect to property which requires a registration, etc. for the transfer or exercise of rights, the value of such property shall be deemed to have been donated to the actual owner on the date when it is registered, etc. as the title holder.” Meanwhile, Article 45-2(2) of the former Inheritance and Gift Tax Act provides, “The same shall not apply to cases where property has been registered, etc. in the name of another person without any intention to avoid taxes,” and the main text of Article 45-

For the reasons indicated in its holding, the lower court determined that it was insufficient to prove, on the premise that Nonparty 1 paid the subscription price for new shares in the Plaintiff’s name, that there was a clear objective of tax avoidance to the extent that it was recognized that there was no objective of tax avoidance in the title trust of the instant shares, or that there was no tax avoidance at the time of the title trust or in the future

Examining the record in accordance with the aforementioned provisions and relevant legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on the requirements and interpretation of Article 45-2 of the former Inheritance and Gift Tax Act.

3. Regarding ground of appeal No. 2

Article 60 (1) of the former Inheritance and Gift Tax Act provides that the value of inherited and donated property shall be based on the market price as of the base date of appraisal. Paragraph (2) provides that “The market price shall be the value deemed to be normal when free transactions take place between many and unspecified persons.” Paragraph (3) provides that where it is difficult to calculate the market price, the market price shall be based on the value appraised by the supplementary valuation methods provided for in Articles 61 through 65, taking into account the type, size, transaction circumstances, etc. of the relevant property. Article 63 (1) 1 (c) of the former Inheritance and Gift Tax Act, which provides for the supplementary valuation method of unlisted stocks, provides that “non-listed stocks shall be appraised by such method as prescribed by the Presidential Decree, taking into account the assets, profits, etc. of the relevant corporation, the net asset value per share and net asset value per share (hereinafter referred to as “net net asset value per share”) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter referred to as “former Enforcement Decree”).

Based on the circumstances indicated in its holding, the lower court determined that the method of assessing the value per share of the instant shares based on net asset value and net asset value pursuant to Article 54(1) of the Enforcement Decree of the former Inheritance and Gift Tax Act was lawful on the ground that the value of the instant shares cannot be deemed as the market price, on the grounds that there were no circumstances to deem that the objective exchange value of the instant shares was appropriately reflected at the base date of appraisal, and that there was no ground to evaluate the value of the instant shares by only net asset value pursuant to Article 54(4) of the Enforcement Decree of the former Inheritance and Gift Tax Act.

Examining the record in accordance with the aforementioned provisions and relevant legal principles, the lower court did not err in its judgment by misapprehending the legal doctrine on whether the issue price of the instant shares was the market price or the method of evaluating the value of the shares.

4. Regarding ground of appeal No. 3

Based on its stated reasoning, the lower court determined that it cannot be deemed an illegal reinvestigation conducted by the director of the Central Regional Tax Office on February 2012 by Nonparty 1, etc. in violation of Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013) and thus, cannot be deemed as an illegal reinvestigation.

Examining the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine regarding double tax investigations or by violating the rules of evidence.

5. 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 on the bench.

Justices Min You-sook (Presiding Justice)