Scope of “employee” under Articles 53(3) and 19(2)2 of the Enforcement Decree of the former Inheritance Tax and Gift Tax Act

In full view of the language and text of Articles 13(6)2 and (8)1, 19(2)2 and 6 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree”), and the details of the amendment under Article 13(6)2 of the Enforcement Decree of the Act, “employee” under Articles 53(3) and 19(2)2 of the Enforcement Decree of the Act includes “employee of a corporation controlled by investment” as the same concept as “employee” under Article 13(6)2 of the Enforcement Decree of the Act, and therefore, it includes “employee of a corporation controlled by investment” under Article 3(6)2 of the Enforcement Decree of the Act.

Article 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); Article 13(6)2 (see current Article 13(6) and (8)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008); Article 19(2)2 (see current Article 19(2) and 6 (see current Article 19(2)), and Article 53(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008)

Plaintiff 1 and five others (Law Firm National Law Firm, Attorney Choi Gyeong-tae, Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

Seoul High Court Decision 2010Nu30330 decided February 10, 201

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

The grounds of appeal are examined.

Article 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “the Act”) provides that “in the application of the provisions of paragraphs (1) 1 and (2), 20/100 (10/100 in the case of a small or medium enterprise) shall be added to the value assessed pursuant to the provisions of paragraphs (1) 1 and (2) with respect to the stocks, etc. of the largest shareholder or largest investor as prescribed by the Presidential Decree and shareholders or investors specially related to such shareholder (hereinafter “largest shareholder, etc.”), but where the largest shareholder, etc. holds more than 50/100 of the total number of outstanding stocks, etc. of the relevant corporation, 30/100 (15/100 in the case of a small or medium enterprise) shall be added to those of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008).

According to the reasoning of the judgment of the court below, upon citing the reasoning of the judgment of the court of first instance, the "employee" under Articles 53 (3) and 19 (2) 2 of the Enforcement Decree of the Act refers to the employee who is directly used by the largest shareholder or largest investor (hereinafter " largest shareholder") and does not refer to the employee of the company whose largest shareholder or largest shareholder, etc. invested at least 30% of the shares issuing company held by the largest shareholder. On the premise of this, the court below determined that the tax disposition of this case was unlawful on the premise that the non-party 1 does not fall under the largest shareholder of Sam Pekin Industrial Co., Ltd. (hereinafter "Them"), or Pemmmmmmm Co. (hereinafter "Pemmmmmmmmmmm"), since the non-party 2 is not the employee of the non-party 1 and the non-party 1 did not fall under the largest shareholder of each company

However, we cannot accept the above determination by the court below for the following reasons.

Article 13(6)2 of the Enforcement Decree of the Act provides that “an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply) prescribed by the Ordinance of the Ministry of Finance and Economy as one of the contributors and persons having a special relationship with a special relationship in determining the scope of non-taxation in the taxable amount of taxable amount of taxable amount of taxable amount of taxable amount of the donated property of a public service corporation, etc.” (Article 16(2)2 of the Enforcement Decree of the Act provides that “an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply in this subparagraph and Article 19(2)2) of the Enforcement Decree of the Act” (Article 19(2)2 of the Enforcement Decree of the Act provided that “an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply in this subparagraph and Article 19(2) of the Act)” shall not be included in the meaning or scope of “employee”.

Meanwhile, Article 13(8)1 of the Enforcement Decree of the Act provides that "a corporation controlled by investment" in Article 13(6)2 of the same Act refers to "corporation, etc. falling under Article 19(2)6" and Article 19(2)6 of the same Decree provides that "one shareholder, etc. and a person falling under subparagraphs 1 through 5 shall invest more than 30/10 of the total number of outstanding stocks, etc."

In full view of the language and text of the above provisions and the circumstances leading up to the amendment of Article 13(6)2 of the Enforcement Decree of the Act, “employee” under Articles 53(3) and 19(2)2 of the Enforcement Decree of the Act includes “employee of a corporation controlled by investment” as the same concept as “employee” under Article 13(6)2 of the Enforcement Decree of the Act, and therefore, it should be deemed that an employee of a corporation whose largest shareholder, etc. invested more than 30%.

Nevertheless, on a different premise, the lower court determined that Nonparty 1’s non-party 2’s employee and Non-party 2’s employee did not fall under the largest shareholder, etc. of Sam Pininina or Phemm, and thus, it erred by misapprehending the legal doctrine on “employee” under Articles 53(3) and 19(2)2 of the Enforcement Decree of the Act, thereby affecting the conclusion of the judgment. The grounds of appeal assigning this error are with merit.

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)