Cho High Court Decision 2010Du2424 ( October 24, 2011)

Gift tax is illegal on the taxation of gift tax because it is merely allocated new shares as a previous shareholder.

Since it is determined that the transfer procedure of the Plaintiff with respect to the previous shares has been completed, and since the previous shares have been completed, it shall be recognized as a shareholder by meeting the requirements for acquisition of shares. Therefore, the taxation disposition is unlawful on the premise that the new shares have been allocated in the position of shareholders holding the previous shares and received an increase in the capital

2011Revocation of revocation of disposition imposing gift tax, 17455

XX Kim

Head of Guro Tax Office

December 23, 2011

February 24, 2012

1. The Defendant’s imposition of gift tax on June 8, 2010 by KRW 00 and KRW 00,000, respectively, shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On March 23, 2002, HongA, its wife largestB (hereinafter collectively referred to as "reda couple"), and the Plaintiff's East KimCC established a company that manufactures electronic components (hereinafter referred to as "the instant company"), and KimCC was appointed as the representative director. On the other hand, as a company related to the instant company, they take over the OO electronic limited company (hereinafter referred to as "O electronic") located in China, and have established the Dol electronic limited company (hereinafter referred to as "SO electronic company").

B. The capital of the company of this case is 50 million won (in total of 10,000 won) and the above 10,000 won

Of the states, KimCC and LB owned 3,000 shares, each of 3,000 shares and 4,000 shares of HongA. On May 2005, the Plaintiff entered into a business acquisition agreement with HongA couple to acquire shares of the instant company, O electronics, and ○○○○○○○ in total (hereinafter “instant acquisition agreement”). (hereinafter “instant shares of the instant company that the HongA couple transferred to the Plaintiff by RedA couple”).

C. On December 13, 2007, when there was a dispute over the shareholders' rights of the instant company between the Plaintiff and RedA couple since the acquisition price was not paid in full by the Plaintiff, the instant company added 30,000 shares (hereinafter "the instant capital increase") to 10,00 shares of the previous shares (the face value of KRW 5,00,000 and the issue price of KRW 00,00), and allocated 21,00 shares (the total capital increase of KRW 30,00; hereinafter "the instant new shares") to the Plaintiff, and they paid the remaining 9,00 shares to the Plaintiff.

D. The Defendant: (a) based on the result of the investigation on the change of shares of the instant company by the director of the Central District Tax Office, issued capital increase with a third party allotment to the Plaintiff, who is not the shareholder of the instant previous shares; and (b) deemed that there was a gift interest under Article 39(1)1(c) of the Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “Inheritance Tax and Gift Tax Act”); (c) on June 8, 2010, the Defendant issued a tax notice stating a tax notice stating the gift tax amount on the interest raised by HongA from HongA to the Plaintiff (hereinafter “instant disposition”), each tax base, tax rate, calculated tax amount, penalty tax, and total determined tax amount.

E. The Plaintiff appealed to the instant disposition, and filed an appeal with the Tax Tribunal on June 25, 2010, but the Tax Tribunal dismissed the Plaintiff’s appeal on August 24, 2011.

[Reasons for Recognition] Facts without dispute, Gap L (including a provisional number; hereinafter the same shall apply), 3, 5, and 6, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The instant disposition is defective in the duty payment notice inasmuch as it is inconsistent with the provisions on the basis of the disposition of the tax base and the tax rate stated in the tax payment notice, since it is not possible to identify the basis of calculation of the relevant tax amount because the necessary matters are omitted.

2) For the following reasons, the Plaintiff received new shares from a shareholder holding the previous shares at the time of the capital increase. Thus, the instant disposition imposing new shares on the premise that the Plaintiff had received the capital increase at a third party’s position, not a shareholder, was unlawful.

① As long as the instant acquisition contract was concluded, the Plaintiff acquired the previous shares in accordance with the validity of the said contract.

② Even if the validity of the instant acquisition contract alone does not transfer the previous shares to the Plaintiff, the Plaintiff completed the transfer of ownership of the previous shares at the time of issuing new shares, thereby acquiring the shareholders’ rights accordingly.

3) In a case where the Plaintiff assumed that it is not a shareholder of the previous shares at the time of capital increase with new shares, both the resolution of the board of directors resolution and the resolution of the general meeting of shareholders resolution to appoint directors would be null and void, and accordingly, the issuance of new shares in this case is not effective, and thus, the disposition of this case, premised on the transfer of the new shares

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) The main contents of the instant transfer contract executed on May 2005 are as follows.

2) On May 2005, the Plaintiff paid the down payment ○○○○○○ upon the end of the period, and on January 27, 2006, the Plaintiff paid only the remainder under the said transfer contract, among the remainder under the said transfer contract.

3) On February 27, 2006, the Plaintiff and RedA Husband and wife drafted a letter of agreement on the following summary (hereinafter referred to as the “instant additional agreement”).

4) After the above additional agreement, the Plaintiff paid ○○○○○ to the RedA husband and wife additionally from April 7, 2006 to December 3, 2007. However, the Plaintiff failed to pay the total amount of monthly payments for two years (2006, 2007) under the instant additional agreement (206, 2007), and only part of the remainder was paid.

5) Meanwhile, after the transfer contract of this case, the Plaintiff jointly and severally guaranteed a total amount of loans to a national bank on May 27, 2005 and May 2006, 2006, ○○○○○, ○○○○, and ○○○○, respectively, on November 2007, as the credit payment obligations to a customer, and on July 2007, to a corporate bank.

6) In order to obtain a loan for operating funds of the instant company, the Plaintiff and KimCC planned capital increase to lower the debt ratio of the instant company. On December 13, 2007, the Plaintiff and KimCC held a temporary general meeting of shareholders consisting of the Plaintiff and KimCC as a shareholder and passed a resolution to appoint the Plaintiff as a director (Evidence No. 18-3). On the same day, the Plaintiff and KimCC resolved to increase the capital by holding a board of directors during the Plaintiff’s attendance (Evidence No. 18-7).

7) On December 13, 2007, the Plaintiff subscribed for new shares and paid the advance payment, thereby allowing the instant new shares to be allocated. On December 14, 2007, the instant company completed registration of modification with respect to the capital increase in this case.

8) If the process of changes in the shares by the register of shareholders from the time of incorporation of the instant company to the time of the capital increase is summarized as follows: Provided, That the Plaintiff did not officially prepare and manage the register of shareholders from the time of conclusion of the instant transfer contract to the time of the capital increase, and there was no new register of shareholders around December 13, 2007, which is the time of the capital increase, around December 13, 2007.

9) Meanwhile, without reflecting the transfer contract of this case, the company of this case submitted to the defendant a statement of changes in stocks, etc. in 2005, where the former shareholder registry (Evidence A No. 4) and the former shareholder registry were the same as that of the former shareholder registry, and only when entrusting the return of corporate tax in 2007 to a new certified tax accountant. However, the above new shares, which had been accepted by the HongA couple, were transferred to the plaintiff as in the shareholder registry of this case, was the transfer of the previous shares to the plaintiff as in the previous shares of this case. If the statement of changes in stocks, etc. was prepared, the transfer income tax problem of the previous shares of the HongA couple was caused. Thus, unless the balance under the transfer contract of this case was not settled, the previous shares of this case was decided on their own, and on its own basis, on the premise that HongA and the largestB had not yet been transferred to the plaintiff, unlike the previous shareholder registry of this case, prepared a statement of changes in stocks for the business year 2007, 2100% (B) and 305%

10) On January 16, 2009, after the registration of change due to the capital increase in this case was made, the Red A couple urged the Plaintiff and KimCC to pay the transfer price under the transfer contract in this case (Evidence A-1), and on April 2010, the Plaintiff and KimCC included the Plaintiff who did not have a shareholder right and filed a criminal complaint for the crime of false entry in the authentic copy of the authentic deed on the ground that the Plaintiff had held a general meeting of shareholders and a board of directors and registered the capital increase in this case. However, the Seoul Southern Southern District Prosecutors' Office issued a disposition on October 12, 2010 on the ground that it is highly probable that the Plaintiff’s shareholder right is transferred to the Plaintiff on the date of the conclusion of the transfer contract in this case, and both the prosecution’s appeal and the appellate court’s application for adjudication against the Plaintiff were dismissed.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 3, 4, 6, 8, 9, 12 through 21, Eul evidence Nos. 1 and 2, witness testimony and the purport of the whole pleadings

D. Determination

1) As to the assertion of defects in the duty payment notice

According to Article 9(1) of the National Tax Collection Act, the head of a tax office shall issue to a taxpayer a written notice indicating the taxable year, items, and amount of national tax, the grounds for calculation, deadline for payment, and place of payment thereof. Attached Form 10 related to Article 6 of the Enforcement Rule of the National Tax Collection Act provides the form of a tax payment notice under the aforementioned legal provisions. The instant disposition based on the foregoing form of tax payment notice is sufficient to state the basis for calculation of the amount of tax and the calculation details of the amount of tax are sufficient to the extent stated as above. The disposition of tax payment in this case cannot be deemed unlawful on the ground that it did not state the substantial grounds, route, circumstance, and ground for calculation of the amount of tax, etc. (see, e.g., Supreme Court Decision 2001Du1014, Jan.

Meanwhile, the Plaintiff asserts that the tax base of the instant disposition is appropriate to be written on the basis of Article 39(1)1(c) of the Inheritance Tax and Gift Tax Act when deeming the grounds for the instant disposition as ○○○○○, and the tax rate is 30%, but the benefits received by the Plaintiff from the existing shareholders RedA or the leastB, a donor, shall be individually calculated by the formula of (value per share of new stocks - the value per share - the value per new stocks - the value per share) x (number of shares that can have been allocated by HongA or the largestB) x (number of shares) pursuant to Article 29(3)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Thus, the tax base of the HongA cannot be deemed to have been erroneous in the instant tax disposition, stating the tax base of the HongA as ○○○○, and the tax base for the

2) Confirmation of shareholders' rights of the previous shares of this case

According to Article 39(1)1(c) of the Inheritance Tax and Gift Tax Act, in case where a corporation issues new stocks to increase its capital and a person, other than the shareholder of the relevant corporation, obtains profits from the issuance of new stocks directly, the amount equivalent to the relevant profits shall be deemed the value of property donated to the person who obtains such profits. However, the instant disposition is premised on the premise that the Plaintiff received capital increase as a third party, other than the shareholder of the instant previous stocks, and thus, it is problematic whether the Plaintiff, who received the new stocks before the balance of the capital transfer amount

A) Whether agreement on the transfer of the previous shares was reached

First of all, we examine whether there was an agreement between the Plaintiff and HongA to transfer the previous shares under the instant transfer contract. ① In accordance with Articles 1 and 2 of the instant transfer contract, the assets for business including the previous shares shall be transferred to the transferee on the date of conclusion of the instant transfer contract, and the validity of the said transfer contract shall be the date when the transferee pays the down payment to the transferor. The Plaintiff paid 50 million won to the HongA husband and wife immediately after the conclusion of the instant transfer contract. ② The existence of the remainder of the transfer payment excluding the down payment under Articles 4 and 5, which provide for the transfer payment, is not stipulated under the condition of the transfer of the previous shares, under the premise that the Plaintiff is a major shareholder of the instant company after the instant transfer contract. ③ The Plaintiff was conducting various loan obligations of the instant company on the premise that the Plaintiff was a major shareholder of the instant company, and HongA couple appears to have not agreed to transfer the previous shares to the Plaintiff on the condition that it was difficult for the Plaintiff to make the transfer payment of the new shares from the date of the instant transfer contract to the Plaintiff.

B) Determination on the transfer time of shareholders' rights

According to Article 335 (3) of the Commercial Act, shares for which six months have passed after the incorporation of the company can be transferred without issuing the share certificates, and shares prior to issuance of the share certificates can be transferred by the declaration of intention of the parties, but if the company has opposing power in relation to the company, notification of the transferor or the company's consent is required in accordance with the requirement for setting up against the transfer of claim pursuant to Article 450 (1) of the Civil Act.

Therefore, in applying Article 39(1) of the Inheritance Tax and Gift Tax Act, it is a matter of whether the Plaintiff can be treated as a shareholder when the above agreement is accepted by the parties. Article 88(1) of the Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter the same shall apply) provides that "transfer" refers to the actual transfer of assets at cost due to sale without relation to the registration or enrollment of the assets, and Article 98 of the same Act delegates to the Presidential Decree concerning the time of acquisition and transfer of the assets. Article 162(1) of the Enforcement Decree of the Income Tax Act (amended by Act No. 10408, Dec. 27, 2010; hereinafter the same shall apply) provides that the transfer of stocks between the Plaintiff and the Plaintiff was made at the time of settlement of the price for transfer of the assets in principle, but it is reasonable to view that the transfer of stocks was made at the time of the transfer of shares in accordance with the former tax law without regard to the transfer of shares.

C) Whether the transfer of the Plaintiff is recognized

The change of entry means the act of entering the name and address of each shareholder in the register of shareholders when the company issues the registered shares, and the kind and number of shares held by each shareholder. As seen earlier, the transferee of the shares prior to the issuance of the share certificates can file a claim for change of entry with the company by meeting the requirements for setting up against the transferor’s notification or consent. However, this is a requisite for setting up against the company. As such, it is at issue as to whether the above change of entry was made in the register of shareholders at the time of the capital increase, and it is related to whether the company’s act of preparing the register of shareholders can be seen as having completed a lawful change of entry. Considering the above facts and the purport of the entire pleadings, the company’s separate statement of change of entry into the register of shareholders is difficult to prepare and keep the register of shareholders as part of the representative director’s execution procedure, regardless of whether the company consented to the transfer of shares, and it is also difficult for the company to prepare and keep the register of shareholders within the scope of 7th of the previous list of shareholders.

C) Sub-determination

As long as the Plaintiff completed the transfer of ownership for the previous shares at the time of the capital increase, the Plaintiff is deemed to be a shareholder of the previous shares by meeting the requirements for acquiring shares under Article 88(1) of the Income Tax Act and Article 162(1)2 of the Enforcement Decree of the same Act. Accordingly, the instant disposition of imposing new shares on the premise that the Plaintiff is not a shareholder of the previous shares, which, on the premise that the Plaintiff’s act of acquiring new shares of this case constitutes Article 39(1)1(c) of the Inheritance Tax and Gift Tax Act, is unlawful. Accordingly, without having to examine further the Plaintiff’s remaining assertion (the allegation that the issuance of new shares

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.