Seoul Administrative Court 2010Guhap2128 (2010.09)

Examination donation 2009-0093

Whether the stock transaction example reflects the objective exchange value

It is difficult to deem that the sales price was determined below the objective exchange value in light of the fact that the negotiations were held over 3 months in fact, the final sales price was determined by mutual concession between both parties, and other developments of stockholding, etc.

2010Nu32282 Revocation of Disposition of Levying Gift Tax

Hong-si

O Head of tax office

Seoul Administrative Court Decision 2010Guhap21228 decided September 9, 2010

1. Revocation of a judgment of the first instance;

2. The Defendant’s imposition of gift tax of KRW 227,66,920, and KRW 399,046,270, and KRW 485,780, and KRW 154,717,650, and KRW 994,460 on September 10, 2009 against Plaintiff HongG, respectively, shall be revoked.

3. The costs of the suit shall be borne by the Defendant.

The same shall apply to the order.

1. The part citing the judgment of the court of first instance

2. The reasoning of the lower court’s judgment on January 1, 201 and the reasoning of the judgment on the instant case is as follows: (a) whether the instant disposition is legitimate; (b) whether the instant disposition is legitimate; and (c) whether the relevant part of the reasoning of the first instance judgment is identical to the relevant part of the reasoning of the relevant laws and regulations (the second to the fifth to the fifth to the fifth to the second to the second to the lower); and (d)

2. Facts of recognition;

A. Nonparty 1 and BB established “BBBBB” in 1984 by means of a joint venture of 1984 (hereinafter “OEM”). The 20.0% of the shares issued by Nonparty 1 and 2 were 50.0 billion won of the shares issued by Nonparty 1 and 40.0 billion won of the shares issued by Nonparty 1 and 50 billion won of the shares (hereinafter “BB”). The 209.3 billion won of the shares issued by Nonparty 1 and 50 billion won of the shares issued by Nonparty 1 and 40.6 billion won of the shares issued by Nonparty 1 and 50 billion won of the shares issued by Nonparty 2.60 billion won of the shares issued by Nonparty 1 and the 196.4 billion won of the shares issued by Nonparty 1 and 50.6 billion won of the shares issued by Nonparty 2 by the end of 160.9 billion won of the shares issued by the 196.4 billion won of the shares.

D. While Nonparty Company continued transactions with BB on behalf of BB, management conditions were improved and products were diversified due to the growth of the three companies and the automobile industry in Korea. However, due to the recent increase in trends and personnel expenses for the digitization of household appliances, it is difficult for Nonparty Company’s main supplier, which is the main supplier, to transfer the production base of household appliances to China, India, etc., and to discuss business prospects due to the increase in the ratio of local components to be procured.

In accordance with these changes, BB tried to expand its business to Korea's home companies, which are the customers of the non-party company, in the course of investing in DDD and entering the Chinese market. In order to secure price competitiveness, the non-party company established the foreign EE EE (D) Limited Corporation in China on May 20, 2002. Accordingly, the non-party company and BB had a competitive and conflict relationship surrounding the entry into the Chinese market.

E. According to the balance sheet of the non-party company, on December 31, 2007, KRW 28,336,024,038 as of December 31, 2007, KRW 5,870,077,320 as of December 31, 200, KRW 100 million as capital (amounting to KRW 5,000, KRW 20,000 as of December 31, 200. The current status of changes in net profit before deducting corporate tax for the last four years (205-2008) is as follows.

The current status of transactions between the non-party company and the BB during the last six years is as follows (unit: million won).

F. Following the deepening competition and conflict with BB, RedC: (a) purchased shares held by BB and decided to liquidate the relationship; and (b) ordered LF, a manager in charge of the management of the non-party company, to hold negotiations around September 2007. BB demanded 2-30 million Won by reviewing the financial statements, etc. of the non-party company by its accounting company, etc.; and (c) bB demanded 2-300 million Won. ParkF had discussed the decline in domestic market and the possibility of failure for the non-party company to enter into the Chinese market. On the end of the three-month negotiation, both parties agreed to purchase and sell shares at the meeting of the board of directors on November 2007, based on one proposal made by BBB for a three-month negotiation. The RedC held that the number of shares held by the non-party company BB prior to its reduction of the sole share of the shareholders of the non-party company and the effect of inheritance before its purchase and sale of shares from 3G 207.

Grounds for Recognition: Facts without dispute, Gap evidence 1 through 5, 7 through 10, 13, 15, 17, and Eul evidence 1 (including each number), the whole purport of the pleading, and the whole purport of the pleading

3. Determination

A. According to Article 35(1) and (2) of the Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010); the value of property on which gift tax is imposed shall be calculated based on the market price as of the date of donation; the market price shall be the value generally recognized as having been freely traded between many and unspecified persons; and the value shall be calculated based on the supplementary method of assessment if it is difficult to calculate the market price (Article 35(3)); Article 49(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008); Article 60 of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008); and Article 60(2)6 of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 23, 2008>

B. The acquisition by transfer of property at the time of the instant sale by determining the trading price of KRW 375,00 per share does not constitute acquisition of property at a price considerably below the market price in light of the following circumstances. The reasons are as follows.

① In essence, the instant transaction aims to arrange the shares of the non-party company owned by BB and liquidate the partnership relationship between the two companies. After the instant transaction, two companies are placed in the same kind of product and take place in the name of a forum in which mutual competition should be punished in the Chinese market. It is difficult to understand that the transfer of shares at a price lower than the market price solely on the basis of the fact that there was a mutual benefit relationship with the past.

② The transaction between BB and the non-party company was constantly reduced in 2004. As of 2007, the sales price of BB made by the non-party company was 342 million won (total sales price) and the purchase price of BB from the non-party company was 796 million won (total purchase price of 4.8%). The sales price of BB after the instant sales was reduced in 2008 to 250 million won (1.1%) and 698 million won (3.8%). Accordingly, at the time of the instant sales, there is no special meaning in the partnership relationship between the two companies.

③ It is recognized that the non-party company was a non-standing company, and the ratio of shares BB is merely 16.54%, and it was difficult for the non-party company to seek the counter-party to dispose of shares held by the non-party company other than redC. However, there was no urgent circumstance that the non-party company should adjust the shares at the time of the non-party company, but in fact, redC was not a small number of shares, but there was no serious imbalance in the negotiations held by both parties, since it proposed the purchase of shares first, as it would cause inconvenience to the competition and conflict with the BB, which is a shareholder. In fact, negotiations were conducted over three months, and the final sales price was determined by mutual concession between both parties.

④ Since around 2007, Nonparty Company recorded a continuous increase in sales due to domestic demand and automobile industry growth. However, recently, the production base of mechanical home appliances, which is a major supply unit, was faced with a situation where business prospects was unexpected due to the reorganization of international industrial structure, such as moving to the next generation station including China. In fact, in 2008, the net income before corporate tax deduction was recorded as KRW 79,532,000.

(5) Where it is basically difficult to calculate the market price based on supplementary evaluation methods, the value of stocks is a constructive concept based on the past performance or property relationship expressed in the financial statements, and does not reflect elements, such as enterprises and industrial prospects, management ability, etc. which are considered important in the real transactions. The assertion that the value of stocks in this case was not reflected in the objective exchange value due to considerable difference between the value of stocks in accordance with supplementary evaluation methods and the value of stocks in this case is not persuasive.

6) A trade-related BB was merged into a non-party company in accordance with the company reorganization plan. As a result, BB was newly allocated 218,449 shares exceeding 7 times the amount of free investment according to the capital increase from Non-party company’s non-party company’s shares and the revaluation reserve based on asset revaluation among 29,600 shares. The stock holding ratio itself was 16.54% to 18.7% prior to 2006 (which was returned to 16.54% at the time of capital reduction without compensation). The sales price of this case was calculated by multiplying the number of stocks held by BB at the time of capital reduction in 206 by the face value. In light of the circumstances surrounding the ownership of stocks held by BB as seen earlier, it is difficult to recognize that the sales value was determined below the objective exchange value disadvantageous to BB.

C. The instant transaction does not seem to be a donation of profits from a low-price transfer under the Inheritance Tax and Gift Tax Act. Since the said sale price is objectively unreasonable, the Plaintiffs’ return and payment of gift tax calculated according to the said sale price with respect to the instant donation made within three months from the date of the instant sale does not amount to under-reported and paid the value of donated property.

4. Conclusion

The instant disposition is unlawful. The judgment of the court of first instance is unlawful on a different basis from this conclusion. The judgment of the court of first instance is unlawful.

cancel this subsection and accept the claim of the plaintiff.