Busan District Court 201Guhap1437 (Law No. 11, 2011)

Cho High Court Decision 2010Da1212 ( December 17, 2010)

Gift tax is legitimate, even if the date of settlement of the gift profit after the death of the donor arrives.

(As stated in the judgment of the court of first instance) The date for settlement of profits from the listing, etc. of stocks or equity shares is merely the date on which donation profits are calculated, and it does not constitute a donation on the date for settlement of accounts, and this is included in the taxable value of inherited property.

Article 13 of the Inheritance Tax and Gift Tax Act

Article 41-3 of the Inheritance Tax and Gift Tax Act

2011Nu3128 Revocation of Disposition of Imposition of Gift Tax

Park AA

Head of Suwon Tax Office

Busan District Court Decision 201Guhap1437 Decided August 11, 2011

December 16, 2011

January 6, 2012

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. The defendant's disposition of imposition of KRW 316,860,830 against the plaintiff on March 16, 2008 shall be revoked.

1. Details of the disposition;

"A. The plaintiff received 28,800 shares ofCC, a non-listed corporation, CC (hereinafter "CC"). On August 21, 2006, the plaintiff obtained 9,833 shares free of charge (hereinafter "the shares of this case" and "the total of the above free shares and the above gift shares" hereinafter) from ParkB, AB, a non-listed corporation, on September 30, 2004. "CC obtained 9,83 shares free of charge pursuant to the gift shares of this case." (b) On October 4, 2006, CC divided 5,000 shares into 5,00 won and 500 won each share and thereafter divided them twice, and died on December 17, 2007, and it listed on the KOSDAQ market on December 27, 2007.

(C) On January 8, 2010, the Defendant calculated the value of donated property as follows pursuant to Article 31-6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree”) as of March 16, 2008, on the ground that the Plaintiff’s profits from the listing of the instant donated stocks and the KOSDAQ market (hereinafter “listed profits of this case”) fall under “the donation of profits from the listing, etc. of stocks or equity shares” under Article 41-3 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”), the Defendant calculated the value of donated property as of March 16, 2008, which is the date of settlement pursuant to Article 41-3(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree”), and imposed gift tax amount of KRW 779,665,180 on the Plaintiff. D. The Defendant calculated the calculated amount of increase in real value per share from KRW 1.734 to KRW 2048, and calculated the gift tax as of KRW 405.7.39.7

E. The Plaintiff appealed and filed a tax appeal on March 31, 2010, and the Tax Tribunal rendered a request on March 31, 2010.

12. 17. According to the determination that the tax base and tax amount should be corrected by applying the ‘profit from substantial increase in corporate value per share' as stipulated in the latter part of Article 31-6(4)2 of the Enforcement Decree of the same Act as the ‘increased in net asset value per share' as stipulated in the latter part of Article 31-6(5) of the same Decree, the defendant finally determined the value of donated property as stated below, and finally imposed the gift tax amount of KRW 316,860,830 (hereinafter referred to as the “final revised disposition”).

F. At the time of the instant donation,CC’s total shares were 480,000, and among them, 61.25% of the Plaintiff’s father’s YE, 61.25% of the mother’s 4%, 14% of the YB, and YG’s 4% of the total shares, and this related party owned 83.25% of the total shares.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 6, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) The Defendant deemed the time of donation as March 16, 2008 and issued the instant disposition. However, ParkB, a donor, died prior to his death, and the deceased cannot be said to have donated. Thus, the instant disposition imposing gift tax on the Plaintiff on the gift portion of March 16, 2008 is unlawful since the requirements for imposition of gift tax are not satisfied.

(2) The instant unlisted shares constitute “property value donated by an ancestor to a person who is not an heir within five years prior to the commencement date of inheritance” under Article 13(1)2 of the Inheritance Tax and Gift Tax Act, and thus, are subject to taxation in the taxable amount of inheritance taxes. Thus, the instant disposition that imposed the instant shares on the instant shares as subject to gift tax

(3) Article 31-6 of the Enforcement Decree, which provides for the method of calculating the value of donated property, provides that "the number of stocks donated or acquired with compensation" shall be multiplied by the amount obtained by deducting the aggregate of the taxable amount of gift taxes per share as of the date of donation from the appraised value per share as of the date of donation and the amount of profit acquired with compensation due to the substantial increase in corporate value per share. Thus, the instant gratuitous stocks, other than the donated stocks, shall be excluded from the calculation of the value of donated property, and the instant gratuitous stocks shall be excluded from the calculation of the value of donated property, even in that there is no substantial increase in economic value. Nevertheless, the instant disposition calculated the appraised value

B. Relevant statutes

Attached Acts and subordinate statutes concerning judgment of the first instance court shall be as specified.

C. Determination

(1) As to whether the instant disposition was unlawful at the time of donation after the donor’s death

(A) The Defendant: (a) died on August 12, 2007 by GB, a donor; and (b) on March 16, 2008, which was after ParkB’s death, the date for settlement of the unlisted stocks in the instant case, deemed B as the date for settlement of the unlisted stocks in the instant case and rendered the instant disposition to the Plaintiff as seen earlier.

(B) The legislative intent of Article 41-3 of the Inheritance Tax and Gift Tax Act, which is the basis of the instant disposition, is to stipulate that, in cases where the unlisted stocks donated by the largest shareholder, etc. of an unlisted corporation, etc. after the listing of the listed stocks on the securities market, bring profits from the listing of the listed stocks, they shall be deemed to have been donated, and thus, gift tax shall be imposed on the above profits. In such a case, the base date for calculating the gift profits under Article 41-3(2) of the Inheritance Tax and Gift Tax Act is only the base date at the time of calculating the gift profits, and it shall not be deemed that the listing profits have been accurately assessed at the time of the donation of the listed stocks under Article 41-3(3) of the Inheritance Tax and Gift Tax Act, and thus, it is apparent that the taxation amount may be imposed after adding the initial taxable value of the gift tax to the listed stocks as of the date of listing or if the listed profits are less than the initial taxable value of the gift tax, the taxation requirement of gift tax under Article 41-3(3) of the gift tax shall be deemed to have been increased or acquired stocks within 16(3).

(2) As to whether it is possible to levy gift tax on the listed interest of the instant shares subject to taxation of inheritance tax

(A) Article 13(1)2 of the Inheritance Tax and Gift Tax Act provides that the value of the property donated by the decedent to a person who is not an inheritor within five years before the commencement date of the inheritance shall be included in the taxable amount of inheritance taxes. The fact that the instant unlisted stocks were the property donated to the Plaintiff, not an inheritor, within five years before the commencement date of the inheritance due to the death of ParkB, is as seen earlier.

(B) The Plaintiff’s assertion that the value of the shares of this case, which the Plaintiff acquired as a person who received a donation or a gratuitous donation of shares from an unlisted land, becomes the subject of the taxable amount of inheritance taxes pursuant to Article 13(1)2 of the Inheritance Tax and Gift Tax Act on the ground that such shares died within five years from the date of the donation, cannot be accepted for the following reasons. The legislative intent of Article 41-3 of the Inheritance Tax and Gift Tax Act is to stipulate that the non-listed shares are listed on the securities market after the largest shareholder, etc. of the non-listed corporation once donated non-listed shares, so that such profits accrue from the listing of the shares, deeming that such profits are donated, and thus, gift tax shall not be imposed on the above profits because it is difficult to accurately evaluate the profits that may arise from the listing of the shares at the time of donation. As such, the Plaintiff’s assertion that the value of the shares of the donated property should not be added to the taxable amount of gift taxes after calculating the date of listing, should be based on the exclusion of the aggregate value of the gift taxes under Article 13-14 of the Inheritance Tax Act.

(3) As to whether the instant gratuitous shares should be excluded from calculating the value of donated property

Since Article 41-6 (6) of the Inheritance Tax and Gift Tax Act explicitly provides that "the acquisition of stocks shall be made by issuing new stocks to increase capital" for the purpose of applying Article 41-6 (1) of the corporation. It shall be interpreted that new stocks shall include not only new stocks for consideration but also free shares for increase of the value (in this sense, if the number of stocks issued byCC was increased twice prior to the listing of KOSDAQ, the profits on the listing of the stocks received by the offering of new stocks shall have been assessed." Article 31-6 (7) and the proviso of Article 56 (3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, Article 17-3 (5) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the total value of the stocks issued by the Plaintiff shall be calculated as 0 per share without consideration for the increase of the value of the stocks held by 10 per share before the date of donation or acquisition of the stocks, and the actual value of the stocks held by the Plaintiff shall be calculated as 30 per share without consideration.

3. Conclusion

Therefore, the judgment of the court of first instance which dismissed the plaintiff's claim of this case on the ground of the ground that it is reasonable, is dismissed.