In a case where: (a) Party A, an executive officer of Party A, or its affiliated companies, purchased shares in the name of each other; and (b) Party B, etc. were designated as joint and several taxpayers pursuant to Article 41-2(1) of the former Inheritance Tax and Gift Tax Act, which is a provision on deemed donation of trust property under the name of the affiliated tax office; and (c) the head of the competent tax office imposed gift tax by designating Party B, etc. as a joint and several taxpayers; (b) the case holding that the lower court erred by failing to exhaust all necessary deliberations on the ground that there was no evidence to acknowledge the existence of the shareholder registry of Party A, even

Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003) (see current Article 45-2(1))

Plaintiff 1 and two others (LLC, Kim & Lee LLC, Attorneys Yu-type et al., Counsel for the plaintiff-appellant)

Head of the Guro Tax Office and two others

Seoul High Court Decision 2015Nu66983 decided September 21, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The judgment of the court below

A. The court of first instance maintained by the court below acknowledged the following facts in full view of the evidence adopted by the court below.

(1) On December 2003, the Plaintiffs purchased the shares of the non-party company in the name of Non-party 2, non-party 3, and non-party 4, etc. (hereinafter “instant share transaction”). Accordingly, on March 30, 2004, the non-party company reported the corporate tax base for the business year of 2003 to the Gangnam Tax Office, and submitted a detailed statement of changes in the shares, etc. stated in the instant share transaction, etc. as accompanying documents.

(2) Around June 2014, the director of the Seoul Regional Tax Office confirmed that the Plaintiffs acquired shares in another person’s name as above and notified the Defendants of the result of tax investigation by deeming them as donation. Accordingly, on September 14, 2014 and October 1, 2014, the Defendants designated the relevant Plaintiffs as joint taxpayers and imposed each gift tax (hereinafter “instant disposition”).

B. Next, in applying Article 45-2(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “the former Inheritance Tax and Gift Tax Act”) which was enacted on January 1, 2004, where the list of shareholders is not prepared, the court below determined whether the transfer of shareholders is made based on the documents concerning shareholders, etc. submitted to the head of a tax office having jurisdiction over the place of tax payment under Articles 109(1) and 119 of the Corporate Tax Act and the detailed statement on the change of stocks, etc.; however, the above provision cannot be applied retroactively to the stock transaction in this case established prior to the enforcement date; thus, the Defendants’ primary disposal grounds under the premise that the above provision is illegal; ② the Defendants’ primary disposal grounds under the premise that the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “the former Inheritance Tax Act”) were unlawful on the date of transfer of shares under the name of the Defendants.

2. Judgment of the Supreme Court

A. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) A non-listed corporation established on December 14, 1990 and owned all outstanding shares at the time of its establishment. However, at the time of the instant stock transaction through a merger, capital increase with new shares, acquisition of shares, etc., there was a shareholder who had not been related with a major shareholder at the time of the instant stock transaction. The Plaintiffs also purchased shares in non-party company or its affiliated company from Non-party 1 (total shares owned at the time, 32,000 shares, 16% shares), who is a major shareholder of the non-party company or its affiliated company, from Non-party 2’s name, the non-party 1 purchased shares in non-party company’s share certificates at KRW 46,90,00,000 in the name of the non-party 3, 175,000 won in the name of the non-party 3 (the shares actually purchased by Non-party 3 with KRW 46,000,00 in the name of the non-party 3).

(2) From 2003 to 2009, the non-party company paid cash dividends in KRW 700 million each year. The non-party company prepared a document stating the names and addresses of each shareholder, resident registration numbers, and the number of shares held in the course of performing the duty to withhold income tax on cash dividends. On March 2004, the non-party company entered the statement of changes in stocks, etc. on which the stock transaction of this case was entered in the tax office. On November 201, 2014, when the change of capital due to reduction in capital due to reduction in capital for consideration, the company submitted the list of shareholders to the registrar through a notary public. Moreover, the document stating the “current status of stock transfer” stored on the computers of the executive officers of the non-party company was recorded in detail from the incorporation of the non-party company until the stock transaction of this case until the incorporation of the non-party company.

B. We examine the reasoning of the lower judgment based on these facts.

(1) Since its establishment in December 1999 and July 200, there were several shareholders who did not have any relationship with a major shareholder prior to the instant share transaction. In the Commercial Act, when issuing capital increase, shareholders who did not have relationship with a major shareholder are required to determine a certain date and publicly notify that they have a preemptive right to new shares (Article 418(3) of the Commercial Act), and when applying for corporate registration change due to capital increase through capital increase, etc., it is common cases to obtain authentication by attaching the minutes of the shareholders’ meeting and the shareholders’ list. In addition, the fact that the non-party company did not take any procedure stipulated under the premise of the existence of the shareholders’ list is extremely rare. In addition, it was confirmed in the hearing process of the lower court that the non-party company submitted the shareholders’ list immediately after the capital increase due to the capital increase in 2014, and the Plaintiff did not disclose the process of preparing the shareholders’ list for 20 years after the incorporation of the non-party company.

(2) When a stock company issues shares, it shall state the name and address of each shareholder in the register of shareholders, and the type and number of shares held by each shareholder (Article 352(1) of the Commercial Act). In addition, when a stock company distributes shares, it shall suspend a change of entry in the register of shareholders for a certain period or take the procedure to determine the shareholder as a right holder on the basis of a certain date (Article 354(1) of the Commercial Act). Under the tax law, a domestic corporation is obligated to prepare and keep the register of shareholders stating the name, address, etc. of the shareholder (Article 118 of the Corporate Tax Act). Notwithstanding the aforementioned provisions of the Commercial Act and other tax laws, in the case of a so-called one company or its family members holding all outstanding shares, there may be cases where the real necessity to prepare and keep the register of shareholders is low, and thus, the non-party company was not such family company at the time of the instant stock transaction. The non-party company prepared the list of shareholders following the instant stock transaction to the date of acquisition of shares, and its address, etc.

C. Nevertheless, the lower court determined that the Defendants’ conjunctive disposition was unlawful on the ground that there was no evidence to acknowledge the existence of the Nonparty Company’s shareholder registry without examining any circumstance in which the Nonparty Company did not perform its duty to prepare and keep the shareholder registry. In so determining, the lower court erred by failing to exhaust all necessary deliberations, which affected the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit

3. Conclusion

Therefore, the judgment of the court below is reversed without examining the grounds of appeal on the grounds of main disposition, which is premised on the fact that the register of shareholders was not prepared, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench

Justices Park Poe-dae (Presiding Justice)