Whether it is subject to the legal fiction of title trust donation for shares free of charge

From a legal and formal point of view, it is subject to the application of the title trust donation agenda as long as there is a tax avoidance purpose, since new shares are issued as capital increase with no compensation.

Donation of trust property under Article 42-2 of the Inheritance Tax and Gift Tax Act

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance is revoked, and each disposition of imposition of gift tax of 5,529,760 won for the Plaintiff on May 24, 2004, and 2,490,960,126 won for the portion of gift tax of 2000, and 208,796,971 won for the portion of gift tax of 202 (including each additional tax) for the Plaintiff on May 24, 2004 is revoked.

1. Details of the disposition;

A. On May 31, 1999, ○○○○, a major shareholder, and director of ○○ Communications (hereinafter “○○ Communications”) intended to transfer 60,000 shares out of the shares of the company in which ○○○, a person who was one of the major shareholders of ○○○○○○, was in possession of ○○○○. Upon receiving a request from ○○○○, the Plaintiff, who was in possession of ○○○○, transferred the shares transferred from ○○○○○○, ○○, upon receiving a request from ○○○, was able to transfer ○○○○’s shares, so that ○○○ may open an account for consignment in the name of ○○○○ and made it available for ○○○○○○ to use the said account. On May 31, 1999, ○○○ deposited 30,000 shares out of 60,000 shares (hereinafter “one shares”).

B. After that, according to ○ Communications’s provision of capital increase without compensation, ○○ Communications registered 6,00,050 shares issued on July 16, 199 as common shares (hereinafter “second shares”) and 26,586 shares of common shares on February 7, 200 (hereinafter “third shares”). Meanwhile, ○○ Communications registered 6,00,050 shares issued on an Association brokerage market (KOSK Q) on November 1, 199.

C. This, ○○, a total of 60,872 shares of Nos. 1, 2, and 3 were transferred between 199 and 2003, and the shares were traded under the name of the Plaintiff as follows.

① On April 6, 200, an acquisition by transfer of 10,000 shares of ○ Technology Co., Ltd. (hereinafter referred to as “○○ Technology”) on April 6, 200, 5,000 shares among them on April 11, 200, and the remainder of 5,000 shares on April 19, 200, respectively.

② On April 19, 200, 1,000 shares of ○ Electronic Co., Ltd. (hereinafter referred to as “○○ Electronic Co., Ltd.”) were each transferred on April 19, 200; 2,000 shares of ○ Electronic Co., Ltd. on April 27, 200; and 3,000 shares totaled on June 30, 200.

③ Each transfer of 1,00 shares of ○ electronic shares on June 4, 200, 1,500 shares of ○ electronic shares on June 28, 2002, 500 shares out of that on July 3, 2002, 1,000 shares out of that on July 8, 2002, 1,000 shares out of that on July 8, 2002, and 1,000 shares remaining on October 30, 202 (hereinafter “4 shares”).

라. 원고는 2000. 11.경 이○○으로부터 위 주식에 대한 실질적인 권리가 이○○에게 있다는 확인서를 써다랄는 부탁을 받고, 같은 달 30.경 이○○통해 이○○에게 '채권'이라는 제목 아래 '정○○(주민번호 : )은 (주)○○커뮤니케이션의 KOSDAQ 상장 전 취득한 당사의 주식 모두 및 본인의 명의로 된 향후 이로 파생되는 수익과 주식에 관한 일체의 권리가 이○○(주민번호 : )에게 있음을 밝힙니다'라는 내용의 서면을 작성해 주었다.

Date of acquisition

Issuing Company

Quantity

Value of donated

Price per Share

Total amount

Jinay

May 31, 1999

○ Communications

30,000

6,500

195,000,000

SU. 1 Stocks

July 16, 1999

○ Communications

4,286

16,000

68,576,000

Section 2. Stocks

February 7, 2000

○ Communications

26,586

164,200

4,365,421,200

3Shares

April 6, 2000

○ ○ Technology

10,000

50,784

507,841,800

April 19, 2000

○ ○ Electronics

1,000

280,500

280,500,000

April 27, 2000

○ ○ Electronics

2,000

280,500

560,000,000

June 4, 2002

○ ○ Electronics

1,000

354,000

354.00,000

June 28, 2002

○ ○ Electronics

1,500

312,666

469,000,000

Category 4 Shares (1,000 Shares)

E. Accordingly, on May 18, 2004, the Defendant: (a) deemed that ○○○ held a title trust with all of 5,500 shares (1,00 shares + 2,000 shares + 1,500 shares + 1,500 shares + 1,500 shares + 1,500 shares) including ○○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 1,50 shares; (b) deemed that it held that it held a title trust with the Plaintiff; (c) pursuant to the main sentence of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 200; hereinafter the same shall apply); (d) recognized that it imposed on the Plaintiff ○ ○ ○ ○ ○ ○ ○ ○ ○ 5 shares.

F. The plaintiff dissatisfied with the above disposition and filed an appeal with the National Tax Tribunal on May 24, 2004. On December 13, 2004, the National Tax Tribunal decided to the effect that the value of the third stocks under Article 63(1)1(a) of the Inheritance Tax and Gift Tax Act shall be calculated as KRW 162,426 per share, the average amount of the final market price from February 8, 2000 to April 7, 2000, which is the day following the date of free capital increase, shall be calculated as KRW 162,426 per share, and ② the entire ○○ electronic stocks except the entire ○○ technical stocks and 4 stocks, sold respectively by the deadline for filing a gift tax return, and the price belongs to the ○○○, thereby excluding it from the subject matter of gift tax.

Date of acquisition

Issuing Company

Quantity

Value of donated

Jinay

Price per Share

Total amount

May 31, 1999

○ Communications

30,000

6,500

195,000,000

SU. 1 Stocks

July 16, 1999

○ Communications

4,286

16,000

68,576,000

Section 2. Stocks

February 7, 2000

○ Communications

26,586

162,426

4,318,257,636

3Shares

June 28, 2000

○ ○ Electronics

1,000

314,500

314,000,000

4Shares

사. 피고는 위 결정에 따라 그 증여재산가액을 다음과 같이 결정한 후 2000년 귓고분 증여세를 2,490,960,126원으로, 2002년 귀속분 증여세를 208,796,971원으로 각 감액하였다(이하 2004. 5. 18.자 증여세 부과처분 중 일부 취소되고 남은 1999년 귀속분 증여세 55,529,760원, 2000년 귀속분 증여세 2,490,960,126원, 2002년 귀속분 증여세 208,796,971원의 각 부과처분을 '이 사건 각 처분'이라 한다).

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 5, Eul evidence 2-1 to 2-1 to 4, Eul evidence 3-1, 2, Eul evidence 4, Eul evidence 5-1, 2, Eul evidence 5-10, Eul evidence 10, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) As to the first share

(A) The Defendant’s imposition of gift tax on the title trust of the first shares to the Plaintiff on May 31, 199 was unlawful, since there was no tax avoidance purpose at all in title trust with the Plaintiff on May 31, 199.

(B) Article 49 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 16660, Dec. 31, 199; hereinafter the same) provides that when the value of the donated property is assessed due to business example, the value of the donated property shall be calculated on the date nearest to the evaluation base date. Thus, despite the fact that ○○ transferred ○○ on May 30, 199, which is the day preceding the evaluation base date of the first stocks, to ○○○, ○○, ○○, and Kim○, ○○, a day before the evaluation base date, KRW 3,500 per share, the assessment and imposition of gift tax is unlawful.

(2) As to 2 and 3 shares

The Plaintiff’s gratuitous allocation of shares and shares Nos. 2 and 3 is merely due to the fact that the shares No. 1 were under the name of the Plaintiff, and there was no separate title trust agreement between ○○ and ○○. Even if there was a title trust agreement, if acquisition of shares by free capital increase is limited to the division of shares, but does not actually increase assets or income, and thus, if gift tax is imposed, it would be contrary to the substance over form principle. The imposition of gift tax on shares No. 2 and shares No. 3 allocated without compensation by the Defendant while imposing gift tax on the title trust of shares No. 1 constitutes double taxation. The imposition of gift tax on shares No. 2 and shares No. 3 under the name of the Plaintiff constitutes a double taxation. The imposition of gift tax on shares No. 2 and shares No. 3 was made.

(3) As to the fourth share

Since the acquisition of shares No. 4 in the Plaintiff’s name on June 28, 2002 by ○○ is the fund for the sale price of shares No. 1, 2, and 3, the Defendant’s imposition of the secondary gift tax on shares No. 1, 2, and 3 in imposing the gift tax on shares No. 4 is a double taxation.

(b) Related statutes;

The entry in the attached Form is as specified in the relevant statutes.

C. Determination

(1) Determination on the assertion of the above A. (1) (A)

The legislative purport of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is to effectively prevent the act of tax avoidance using the title trust system and realize the tax justice. Thus, the proviso of the same Article is applicable only to cases where the purpose of tax avoidance is not included in the purpose of the title trust, and the taxes prescribed in the proviso cannot be limited to the gift tax, and the burden of proving that there was no purpose of tax avoidance in the title trust exists a person claiming it (see, e.g., Supreme Court Decision 2003Du4300, Jan. 27, 2005). Thus, only if the plaintiff did not have the purpose of tax avoidance in the title trust, the plaintiff did not assert specific arguments as to the reasons why the title trust was conducted. If ○○○ acquires the first shares in its own name, there is no room to acknowledge that there was a lack of grounds for tax avoidance under Article 25 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003).

(2) Determination as to the assertion of the above A. (1) (B)

According to Article 60 of the Inheritance Tax and Gift Tax Act, the value of the property on which gift tax is levied shall be, in principle, the market price which is the value generally accepted when free transactions have been made between many and unspecified persons as of the date of donation, and such market price shall be deemed to include the expropriation and public sale price, appraisal price, etc. as prescribed by Presidential Decree. Accordingly, Article 49(1)1 and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that, in cases of donated property, where there is a fact of sale of the relevant property during the period from March of the base date of assessment to March of the base date of assessment, the transaction price near the base date of assessment shall be the market price, but it shall not include cases where the transaction price is objectively deemed to be unfair, such as the transaction price with a person with a special relationship (see, e.g., Supreme Court Decision 9Du2505, Feb. 11, 200).

The facts of this case's transfer of ○○ Communications to ○○, ○, ○○○, and ○○○○○, a representative director of the ○○○ Communications prior to the evaluation base date of the first stocks, do not conflict between the parties, but in full view of the overall purport of the pleadings in the evidence Nos. 4 and 5-2, this case's transfer of ○○ Communications's stocks to ○○○, ○, ○, ○, and ○○, a director of the ○○○, ○○, and ○○, a director of the ○○○ Communications, to ○○, ○○, ○○, and ○○○, a director of the ○○○○ Communications, also transferred the same value of ○○○ Communications to ○○, ○○, ○○, and ○○○, a director of the 1st stock evaluation base date, and other facts that the Defendant transferred the shares of ○○○ to ○○, an objective case of transaction example.

(3) Determination on the assertion of the above A. (2)

① In accounting and economic substance, there is a mere division of shares. However, in legal and formal aspect, new shares are issued due to the increase of capital as well as new shares issued through the issuance of new shares. As such, shares issued as above are an independent property independent from old shares as a unit of capital. Thus, the first shares are deemed to have been donated to the Plaintiff pursuant to Article 41-2(1) of the former Inheritance Tax and Gift Tax Act, and the second and third shares allocated as free shares do not necessarily constitute the Plaintiff’s property separate from the original shares. ② The pertinent provision on deemed donation of shares under Article 41-2(1) is not applicable to the property separate from the original shares. In light of the fact that there was no provision on the allotment of new shares under Article 30 of the former Inheritance Tax and Gift Tax Act to the Plaintiff, even if there was no difference between the Plaintiff and the actual owner and the title holder, it is reasonable to deem that the above provision on the donation of new shares was applicable to the Plaintiff’s 1,000 shares under the name of the title truster.

In full view of the overall purport of the pleadings in the statement No. 12-1 and No. 2 of the evidence No. 12, ○○ Communications may recognize that the 30 million won of the shares were transferred to the Plaintiff when the capital reserve was set aside by issuing capital increase on July 1, 1999 and July 3, 199, and 7.465 billion won of the shares issued after offering capital increase, and that the 200 million won of the shares was allocated to the Plaintiff by deciding to transfer capital of the 300 million won out of the shares to capital and implementing capital increase without compensation. After offering new shares by means of public offering on November 6, 1999, when a considerable amount of the issued shares was set aside, the 3 billion won of the shares were determined to be transferred to capital and the 30 million won shares were transferred to the Plaintiff by implementing capital increase without compensation. Accordingly, according to the above recognition, it is difficult to deem that the 2000 and 3 shares were merely a simple share transfer based on the profits acquired from title trust after 1 shares issued by ○ Communications.

Therefore, even if there was no title trust agreement on the second and third shares, or there was a title trust agreement on the second and third shares, it is against the principle of substantial taxation that there was no purpose of tax avoidance, or that gift tax is imposed separately, and the Plaintiff’s assertion that it is unlawful as it constitutes double taxation is also without merit.

(4) Determination on the assertion of the above A. (3)

According to the facts found above, the title trust on shares No. 4 was made between the Plaintiff on June 28, 2002 and Lee ○○○. Thus, in light of the fact that the provision on deemed donation under Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is an independent property requiring transfer or registration, etc. of the right, and that in case where it differs from the actual owner and the nominal owner, it is a provision imposing gift tax on the shares No. 4, solely on the fact that the funds required for acquiring the shares No. 4 were obtained from the sale price of shares No. 1, 2, and 3, the imposition of gift tax on the shares No. 4 cannot be deemed unlawful against the principle of prohibition of double taxation.

4. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Related Acts and subordinate statutes

○ Donation of title trust property under Article 41-2 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 6780, Dec. 18, 2002) as deemed donation of title trust property

(1) In case where the actual owner and the nominal owner are different in property (excluding land and buildings; hereafter the same shall apply in this Article), which requires a registration, etc. for the transfer or exercise of rights, the value of such property shall be deemed to have been donated to the actual owner on the date when it is registered, etc. to the nominal owner, notwithstanding the provisions of Article 14 of the Framework Act on National Taxes:

1. Where assets are registered, etc. in the name of another person without the purpose of tax avoidance;

(2) Where property is registered, etc. in the name of another person and the name of stocks, etc. is not converted into the name of the actual owner during the grace period under paragraph (1) 2, it shall be presumed that there exists a

④ 제1항의 규정은 신탁업법 또는 증권투자신탁업법에 의한 신탁재산인 사실의 등기 등을 하는 경우와 비거주자가 법정대리인 똔는 재산관리인의 명의로 등기 등을 하는 경우에는 이를 적용하지 아니한다.

(5) The term "taxes" in paragraphs (1) 1 and (2) means the national tax and local tax as provided in subparagraphs 1 and 7 of Article 2 of the Framework Act on National Taxes and the customs as provided in the Customs Act.

(6) The scope of persons in special relationship under paragraph (1) 2 shall be prescribed by Presidential Decree.

Article 60 of the Inheritance Tax and Gift Tax Act:

(1) The value of property on which an 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 appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 63 (2))

(2) The market price under the provisions of paragraph (1) shall be the price which is generally deemed to be established in cases of free trade between many and unspecified persons, and shall include the price which is recognized as the market price, such as the price of expropriation and public auction and appraisal

(3) In the application of paragraph (1), where it is difficult to calculate the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, size, transaction status, etc. of the relevant property.

Article 49 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 16660 of Dec. 31, 199) is the principle of appraisal.

(1) For the purpose of Article 60 (2) of the Act, the term "those recognized as the market price, such as expropriation, public auction price, appraisal price, etc. as prescribed by Presidential Decree" means the amount confirmed pursuant to the provisions of the following subparagraphs only where the sale, appraisal, expropriation, auction (referring to an auction under the Civil Procedure Act; hereafter the same shall apply in this paragraph) or public auction is conducted from six months (three months in the case of donated property) before the standard date of appraisal to the extent of the assessment of inheritance tax or the period

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not apply where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship provided for in Article 26 (4);

(2) Where the value deemed the market price referred to in paragraph (1) is two or more, it shall be based on the value corresponding to the date of evaluation.