Incheon District Court-2017-Gu 53587 (21. 2018.06.21)

propriety of the disposition imposing the gift tax by deeming that the key shares were transferred at a low price.

Even if the Plaintiff acquired the instant shares at a price significantly lower than the market price, so long as it cannot be deemed that there was no justifiable reason in light of the transactional practice of the instant shares, the disposition of this case on the premise of a different premise is unlawful.

Article 63 of the Inheritance Tax and Gift Tax Act

Incheon District Court-2017-Gu 53587 (21. 2018.06.21)

O KimO

O Head of tax office

2018.05.31

8.06.21

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition imposing KRW 629,308,600 on the Plaintiff on December 1, 2016 shall be revoked.

1. Reasons for the disposition and the plaintiff's assertion;

The court's explanation on this part is the same as the corresponding part of the judgment of the court of first instance, and thus, this part is cited by Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

2. Whether the instant disposition is lawful

(a) Relevant statutes;

It is as shown in the attached Form.

B. Determination

1) Whether the transaction value of the instant shares is a significantly lower price than the market value

A) The main sentence of Article 60(1) of the Inheritance Tax and Gift Tax Act provides that "the value of an asset on which inheritance tax or gift tax is levied under this Act shall be based on the market price as of the date of commencing the inheritance or the date of donation (hereinafter referred to as the "date of appraisal")." Paragraph (2) provides that "the market price under Article 60(1) shall be the value generally recognized as being established when transactions are made freely between many and unspecified persons and shall include the amount recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public sale price, and appraisal price." In addition, Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter referred to as "Enforcement Decree of the Inheritance Tax and Gift Tax Act") provides that "the value of the asset which is recognized as the market price as the market price under Article 60(2) of the Act, such as the method of sale and sale within six months before the evaluation date (3 months).

According to each of the above provisions, since f○○’s shares were not traded, it is difficult to calculate the market price under Article 60(3) of the Inheritance Tax and Gift Tax Act. The shares of this case shall be deemed to be the market price of 76,659 won, which is the value assessed by the Defendant according to the supplementary evaluation method under the Inheritance Tax and Gift Tax Act.

B) Article 35(2) of the Inheritance Tax and Gift Tax Act provides that "where a person who is not a related party prescribed by Presidential Decree acquires or transfers any property between the parties, without any justifiable reason, the amount equivalent to the profits prescribed by Presidential Decree shall be the value of the property donated to the person who acquired the profits by presumption that the amount corresponding to the difference between the consideration and the market price has been donated in light of the transactional practice." Article 35(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "in applying Article 35(2) of the same Act, the scope of the significantly low or high price shall be prescribed by Presidential Decree." Article 26(5) of the Enforcement Decree of the same Act provides that "Where the value of the acquired property subtracting the consideration from the market price is 30/100 or more of the market price, it refers to the consideration

At the time of the transaction of the instant shares, the market price of the instant shares shall be deemed to be KRW 76,659 per share assessed by the Defendant in accordance with the supplementary assessment methods set forth in the Inheritance Tax and Gift Tax Act as seen earlier. The Plaintiff’s purchase of the instant shares to KRW 13,333 per share through the instant transaction, thereby subtracting KRW 13,333,00,000 (=76,659 KRW 76,659-13,333) from the market price of the property that was acquired by the Plaintiff, is 63,326,000 (=76,659 KRW 76,659 + 6590.3). Therefore, the Plaintiff’s assertion that the purchase price of the instant shares from the Plaintiff did not significantly lower than the market price of KRW 13,333,00 per share constitutes a price under Article 35(2) of the Inheritance Tax and Gift Tax Act is groundless.

2) Whether there is no justifiable reason in light of the practice of the instant stock transaction

The legislative purport of Article 35(2) of the Inheritance Tax and Gift Tax Act is to: (a) where profits equivalent to the difference between the price and the market price are actually transferred free of charge through abnormal means that manipulates the transaction price for the benefit of the other party; (b) thereby coping with and promoting fair taxation by imposing gift tax on the benefit acquired by the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other; (c) it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price; and (d) it is difficult to deem that Article 35(2) of the Inheritance Tax and Gift Tax Act added taxation requirement that “for the transaction between the unrelated parties, unlike the transaction between the unrelated parties, there is no justifiable reason in light of the transaction practice.” In full view of these factors, it is reasonable to view that the transferee’s acquisition of property at a low price is legitimate, not only when there was a reasonable reason to believe that the transaction price at a low price reflects the objective exchange value, but also when there was an objective reason for the transfer of property.

In full view of the following circumstances, it is reasonable to deem that there was an objective reason to view that the Plaintiff purchased the instant shares in KRW 13,333 per share from a reasonable economic standpoint, taking into account the overall purport of the pleadings, and it is difficult to prove that there was no justifiable reason in light of the transaction practices in the instant transaction.

(1) 원고와 한□□는 이 사건 주식 거래 이전에 전혀 알지 못하는 사이였다가 원고 남편 소외 박◇◇가 평소 알고 지내던 플○○의 대표이사 문▨▨으로부터 한□□를 소개받아 원고는 한□□로부터 이 사건 주식을 매수하게 되었다.

(2) Since the shares of this case were not previously traded, the Plaintiff and Han-gu used a model using the share price ratio of 17,134 won per share, one of the methods of assessing the value of the shares, using a method of assessing the value of the shares. Although the price per share of the shares calculated through the above model was 17,134 won, and 30,000 won (=17,134 x 30,000), the Plaintiff’s available funds was less than 449,000 won, which is the sales cost of the apartment located in Ansan-si, Gyeonggi-do, where the Plaintiff had been holding, and the Plaintiff’s available funds was less than 449,00,000 won, taking into account the fact that the market price of the valves at the time was not good, the purchase price of the shares of this case was set at 40,000,000 won. Even if the Plaintiff and Han-gu did not request the experts to calculate the market price at the time of trading the shares of this case, it cannot be considered to use the price model.

(3) While having acquired the instant shares at a face value of 5,00 won per share and transferred the instant shares to the Plaintiff at KRW 13,333 per share, △△△△△ KRW 249,90,000 per share due to the transfer of the instant shares (i.e., KRW 8,333 x 30,000). There is no special circumstance for one △△ to distribute profits to the Plaintiff while giving up its own profits.

(4) Also, since one of the parties held 30% shares of ○○○ and the shares held are transferred to the Plaintiff, it is difficult to view that the above transaction entails transfer of management rights of the company.

(5) The existence or absence of justifiable cause for the transaction under Article 35(2) of the Inheritance Tax and Gift Tax Act shall be determined by comprehensively taking into account the relevant transaction’s circumstances, relationship between the parties to the transaction, process of determining the transaction price, etc. Meanwhile, if the parties to the transaction, who are in an equal relationship pursuing their respective economic interests under the legal order based on private autonomy and freedom of contract, have reasonable knowledge of facts and information on the transaction and have made a transaction free of charge, caution should be taken to deem that the transaction is not a general and ordinary transaction, on the ground that there is a substantial difference between the market price at the time of the transaction and the price agreed between the parties to the transaction after the objective evaluation. Therefore, in the event of whether Article 35(2) of the Inheritance Tax and Gift Tax Act is applicable, it shall not be easily recognized that there is no justifiable reason for

3) Sub-decisions

Therefore, even if the Plaintiff acquired the instant shares at a price significantly lower than the market price, so long as it cannot be deemed that there was no justifiable reason in light of the transactional practice of the instant shares, the instant disposition, based on which the premise was different, is unlawful.

3. Conclusion

If so, the plaintiff's claim is reasonable, and the judgment of the court of first instance is unfair with different conclusions, so the plaintiff's appeal is accepted and the disposition of this case is revoked.

Related Acts and subordinate statutes

former Inheritance Tax and Gift Tax Act (Amended by Act No. 13557, Dec. 15, 2015)

Article 35 (Donation, etc. of Profits from Transfer at Low or High Price)

(1) When the relevant property is acquired or transferred to any of the following persons, an amount equivalent to the difference between the price and the market price, which is equivalent to the profits prescribed by Presidential Decree, shall be deemed the value of donated property:

1. Where a person takes over property from a third person at a price lower than the market price, the transferee of such property;

(2) In applying paragraph (1), where property is acquired or transferred between persons who are not specially related persons prescribed by Presidential Decree, without justifiable grounds, by transfer or transfer of property at a price significantly lower than the market price or at a price significantly higher than the market price in light of transaction practices, the amount equivalent to profits prescribed by Presidential Decree shall be presumed to have been donated to the person who has acquired such profits, as

(3) In applying paragraph (2), the scope of significantly low or high values shall be prescribed by Presidential Decree.

Article 60 (Principles, etc. of Appraisal)

(1) The value of property on which inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value (excluding cases falling under Article 63 (2)) appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b)

(2) The market price referred to in paragraph (1) shall be the price generally recognized as a transaction between many and unspecified persons, including the expropriation price, public sale price, appraisal price, and others recognized as the market price, as prescribed by Presidential Decree.

(3) Where it is difficult to compute the market price in applying paragraph (1), the value appraised by the methods prescribed in Articles 61 through 65 in consideration of the type, scale, transaction status, etc. of the relevant property shall be deemed the market

Article 63 (Evaluation of Securities, etc.)

(1) Securities, etc. shall be appraised by any of the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares other than those under item (b), which are not listed in the Exchange, shall be appraised by the methods prescribed by Presidential Decree, in consideration of the assets, profits, etc.

Enforcement Decree of the former Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 26960, Feb. 5, 2016)

Article 26 (Calculation Method, etc. of Profits Arising from Transfer of Low Price or High Price)

(2) The term "high value" in Article 35 (1) 2 of the Act means the value obtained by subtracting the market price from the price of transferred property (excluding those falling under any subparagraph of paragraph (1)) is 30/100 or more of the market price or the difference is 300 or more million won.

(5) For the purpose of Article 35 (2) of the Act, the term "value of the property acquired by transfer (excluding that under each subparagraph of paragraph (1)) minus the price therefor shall refer to the price where there is a difference between 30/100 and 30/100 of the market price.

Article 49 (General Principles, etc. of Appraisal)

(1) The term "those recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public auction price, and appraised price, in accordance with Article 60 (2) of the Act means any of the following amounts verified in cases of sale, appraisal, expropriation, auction (referring to an auction under the Civil Execution Act; hereafter the same shall apply in this paragraph) or public auction (hereafter referred to as "sale, etc." in this Article) during a period not exceeding six months before or after the evaluation base date (in cases of donated property, three months; hereafter the same shall apply in this paragraph) : Provided, That even during a period not exceeding two years before the evaluation base date, where sale, etc. occurs during a period not falling under any of the following subparagraphs from the evaluation base date to the date falling under any of the subparagraphs of paragraph (2), if it is deemed that there are no special circumstances in view of the management status, lapse of hours, changes in surrounding environment, etc. of the company issuing stocks during the period not exceeding two years before the evaluation base date, the relevant value of sale

1. The transaction amount, if any, of the relevant property: Provided, That any of the following cases shall be excluded herefrom:

(a) Where the transaction value is deemed objectively unfair due to transactions, etc. with the specially related persons falling under any subparagraph of Article 12-2 (1);

(b) Where the value (referring to the total value of face value) of the transacted unlisted stocks is less than the lesser of the following amounts (excluding where the transaction value is deemed to be justifiable in light of the customary practices of the transaction, following consultation with the Evaluation Deliberative Committee under Article 56-2 (1):

(a) An amount equivalent to 1/100 of the total amount of issued stocks or total amount of investment of the relevant corporation, calculated as the face value;

2) 300 million won

2. In cases where there exist the appraisal values appraised by the reliable appraisal institutions prescribed by Ordinance of the Ministry of Strategy and Finance (hereinafter referred to as the "appraisal institutions") with respect to the relevant property (excluding the properties prescribed in Article 63 (1) 1 of the Act), the average value of such appraisal values: Provided, That this shall not apply to those falling under any of the following items, and where the relevant appraisal values fall short of the smaller of the value assessed under Articles 61, 62, 64 and 65 of the Act and the value equivalent to 90/100 of the market price under paragraph (5) (hereafter in this subparagraph, referred to as the "standard amount"), whichever is smaller (including the case where it is deemed improper in view of the purpose of appraisal after consultation with the Evaluation Deliberation Committee under Article 56-2 (1) even if the relevant value is above the standard amount), the head of a tax office (including the head of a regional tax office, etc.; hereinafter referred to as the "head of a tax office, etc.") shall request another appraisal institution for the appraisal, but the

(a) Values which are not suitable for the payment purpose of inheritance tax and gift tax, such as the assessment of relevant property on the condition that certain conditions are met;

(b) Value of the relevant property not appraised in the original form as of the standard date of appraisal;

Article 54 (Appraisal of Unlisted Stocks)

(1) Stocks and equity shares not listed in an exchange under Article 63 (1) 1 (c) of the Act (hereafter in this Article and Article 56-2, referred to as "non-listed stocks") shall be the weighted average value of the net asset value per share in the ratio of 3 to 2 of each of the following formula (hereinafter referred to as "net profit and loss value") and the net asset value per share: Provided, That in cases of a corporation in excess of real estate (referring to a corporation falling under Article 158 (1) 1 (a) of the Enforcement Decree of the Income Tax Act) 1 (referring to a corporation falling under Article 158 (1)

The value per share = the weighted average amount of net profits and losses for the latest three years per week ¡Àthe rate determined and publicly announced by the Minister of Strategy and Finance in consideration of the rate of circulation of opportunity bonds guaranteed by financial companies, etc. (hereinafter referred to as the "net profit and loss exchange rate").

(2) The net asset value per share under paragraph (1) shall be the value appraised by the following formula:

The value per share = the net asset value of the corporation ± the net asset value of the corporation ± (hereinafter referred to as the “net asset value”).

(3) In applying paragraphs (1) and (2), where a corporation that has issued stocks and investment shares under Article 63 (1) 1 (c) of the Act owns stocks and investment shares not exceeding 10/100 of the total number, etc. of outstanding stocks of a corporation that has issued other unlisted stocks, the assessment of such other unlisted stocks may be based on the acquisition price provided for in Article 74 (1) 1 (e) of the Enforcement Decree of the Corporate Tax Act, notwithstanding paragraphs (1) and (2): Provided, That where any market price provided for in Article 60 (1) of the Act exists