Seoul Administrative Court 2015Guhap79826 (Law No. 19, 2016)

Since Article 42(4)1 of the former Inheritance Tax and Gift Tax Act does not meet the requirements for acquisition of property, it is illegal.

The disposition of this case on the premise that the shares of this case were donated to the person who acquired the shares of this case in cash is unlawful.

The donation of other profits under Article 42 of the Inheritance Tax and Gift Tax Act

2016Nu65109 Revocation of Disposition of Imposing gift tax

The AA et al.

BB Head of the tax office and two others

. 2016.08

oly 2017.17

2017.06.28

1. Revocation of a judgment of the first instance;

2. The imposition of each gift tax listed in the attached Form 1 Disposition List against the Plaintiffs shall be revoked.

3. The total costs of the lawsuit shall be borne by the Defendants.

The same shall apply to the order.

1. Details of the disposition;

This Court's explanation is the same as the corresponding part of the judgment of the court of first instance (not later than the last day of the second to third reasons), except for the following dismissal, and therefore, this Court's explanation is acceptable in accordance with Article 8 (2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

The "attached Form 7" in attached Table 7 below the third page shall be read as "attached Form 1".

○ The title " July 17, 2015," set forth in Part 9 below below of the third table is "Fence 17, 2015".

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The court's explanation on this part is identical to the corresponding part of the judgment of the court of first instance (Articles 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

B. Relevant statutes

Attached Table 2 shall be as stated in the relevant statutes.

(c) Fact of recognition;

The reasoning for this Court’s explanation is as follows: (a) the corresponding part of the judgment of the court of first instance (from No. 6 to No. 15 to No. 2) is the same as that of the judgment of the court of first instance except for dismissal or addition as follows; and (b) thus, they are cited in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure

○ The 7th page "Plaintiffs, etc." in the 4th page is "the shareholders of the plaintiff and DD, etc.".

○ The following shall be added below the 8th Schedule:

“(6) On the other hand, the sales amount of the CCC continued to increase to approximately KRW 9.3 billion in 2008, approximately KRW 12.1 billion in 2009, and approximately KRW 75.5 billion in 2010, and net income was reduced to KRW 1.7 billion in 2008, KRW 80 billion in 2009, but further increased to KRW 40.4 billion in 2010.”

Pursuant to the 8th page, the phrase “A ...” in the part of Category A [based ground for recognition] is as follows: “In fact that there is no dispute, A, 2, 4, 10, 11, 14, 16, 30, 31 (including branch numbers), 4, 6, 7 evidence, and 18-1 of evidence B.”

D. Determination

1) Requirements for the application of Article 42(4)1 of the former Inheritance Tax and Gift Tax Act

This Court's explanation is identical to the corresponding part of the judgment of the court of first instance (from 4th to 5th 11th eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth eth e) except for the addition as follows.

Pursuant to Article 42(4)1 of the former Inheritance Tax and Gift Tax Act and Article 31-9(4)4 through (7) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23591, Feb. 2, 2012), “in front of the fourth twenty (20)” is added.

2) Whether the requirements for property acquisition are satisfied

A) According to the facts acknowledged earlier, it is reasonable to view that the legal form of the transactions conducted by the Plaintiffs, E, and EF has donated cash equivalent to the purchase price of the instant stocks to the Plaintiffs, respectively, and that the Plaintiffs purchased the instant stocks from D, donated in cash.

B) Accordingly, the Defendant asserts that the above transaction between the Plaintiffs and EE, and EF pursuant to Article 2(4) and (3) of the former Inheritance Tax and Gift Tax Act, can be deemed as having the economic substance identical to the donation of the instant shares to the Plaintiffs, and that the E and EF satisfied the requirements for property acquisition under Article 42(4)1 of the former Inheritance Tax and Gift Tax Act.

C) To impose gift tax on an act of unfairly reducing gift tax by interfering with a third party under Article 2(4) of the former Inheritance Tax and Gift Tax Act or undergoing various stages of transactions, etc. The purpose of imposing gift tax is to deny a variety of stages of transactions, and to cope with an act of tax avoidance which unfairly reduces gift tax while bypassing or changing the transaction subject to gift tax, and to ensure fair taxation by deeming the same as one act or transaction subject to gift tax, based on substance. However, one of the forms of application of the substance over form principle is to be determined at a level of gift tax in order to determine whether a taxpayer would take any legal form to achieve a particular economic purpose, and the legal relationship pursuant to the legal method chosen by the parties, barring any special circumstance, should be respected, and the outcome of the transaction can be considered as either the act or transaction, which is subject to gift tax, as well as the one of the parties’ acts or transaction, which is not directly related to the said transaction, as well as the one of the parties’ respective methods of assessment at least 20 percent (see Supreme Court Decision 2015Da16275, supra).

D) In light of the above legal principles as to the instant case, comprehensively taking account of the following facts and circumstances acknowledged by the aforementioned facts, and each of the evidence as seen above, Gap evidence Nos. 32 and Eul evidence No. 14, and the following facts and circumstances, it is difficult to conclude that the Plaintiffs’ act of acquiring the instant shares by receiving cash from EE and JeongF to achieve the purpose of tax avoidance from the beginning, i.e., the means to avoid gift tax to be additionally borne by the Plaintiffs pursuant to Article 42 (4) 1 of the former Inheritance Tax and Gift Tax Act by being listed on the stock of the instant case, is merely a means to avoid gift tax to be additionally borne by the Plaintiffs, and there is no other evidence to prove otherwise.

① EE and EF immediately remitted the cash that was donated to the Plaintiffs to DD with the purchase price of the instant shares, however, insofar as E and E and EF were legal representatives of the Plaintiffs at the time of the transfer, it does not seem that the above form would be particularly exceptional.

② As to the reasons for taking the aforementioned transaction form at the time, the Plaintiffs explained that EE and EF would acquire the instant shares and donate cash not only to the Plaintiffs, but also to allow them to acquire the instant shares, on the grounds that the instant shares were low market value at the time, and thus, it is not easy to assess the accurate value. This does not mean that D would sell the entire amount of 59,674 shares of CCC shares, which correspond to the assets unrelated to the business assets owned by DD at the time of the request for purchase by the largest shareholder of CCC and the preparation for listing D KOSDAQ. In such a case, D would explain that D would purchase the entire amount of 29,837 shares, which were not purchased by CCC, by shareholders or related parties of DD’s 29,837 shares, correspond to this.

③ Since acquiring the CCC’s stocks on October 2007, DD appears to have maintained strategic friendly relations with CCC. Although CCC’s newspaper article was published on July 7, 2010, which was seven months after the time when the Plaintiffs acquired the instant stocks, that the CCC plans to list in the year from the time when they acquired the instant stocks, even if considering that a considerable period of time was spent for the prior preparation procedures for listing, it is difficult to view that CCC actually listed on December 5, 201, around two years after the acquisition of the instant stocks, and around one year and five months after the said report, and there was no data on the commencement of preparation for listing from the specific time after the date when CCC acquired the instant stocks, and that CCC’s outlook or information on the issuance of CCC’s stocks was not known at the time of the Plaintiffs’ listing on December 18, 2009 and around December 12, 2010 to December 10, 2010.

④ Although the sales of the CCC increased in 2009 more than 2008, net income was reduced by approximately half in 2009 compared to the year 2008, the sales and net income of CCC increased to a very large amount in 2010. However, as a result of CCC’s offering of funds through bond issuance and extension of production facilities, it is a circumstance after the plaintiffs acquired the instant shares. From 2009 to 2010 to 2010 to CC market produced by CCC, it is difficult to view that DD, E, and HaF could have sufficiently predicted the listing of CCC shares at the time when the plaintiffs acquired the instant shares.

⑤ At the time when DD sells the instant shares to the Plaintiffs, GGG, etc., who acquired the shares of CCC from DD with cash donated by the parents, also reported gift tax on the ground that it constitutes Article 41-3 of the former Inheritance Tax and Gift Tax Act. However, GG, etc. cannot be deemed as a situation that has a decisive influence on ascertaining the substance of transactions between the Plaintiffs, EE, and F, in that it is a child of executive officers, such as the representative director of CCC

3) Sub-decisions

Therefore, the instant disposition based on the premise that the Plaintiffs received a donation of the instant shares, not in cash, at the time of December 2009, should be revoked in an unlawful manner without any further need to determine the remaining arguments of the Plaintiffs.

3. Conclusion

Therefore, the plaintiffs' claim of this case is justified, and the judgment of the court of first instance differs from this conclusion, so the appeal of the plaintiffs is accepted and the judgment of the court of first instance is revoked and the disposition of this case is revoked. It is so decided as per Disposition.