Seoul Administrative Court 2006Guhap2718 ( November 08, 2006)

National High Court Decision 2005Du1396, Dec. 07, 2005)

title trust with the purpose of tax avoidance

It is reasonable to deem that there was no reason to argue that the Plaintiff Company offered a deposit as security when purchasing its own shares under the name of the personal shareholder, and that there was an intent to avoid the burden of corporate tax to occur when selling its own shares under the real name conversion to the name of the Plaintiff Company for the purpose other than the main purpose of the stock price management of the Plaintiff Company’s shares in the title trust agreement

2011Nu32081 Revocation of Disposition of Imposition of Gift Tax, etc.

AAH Co., Ltd. and three others

Daejeon District Director of the District Tax Office and three others

Seoul Administrative Court Decision 2006Guhap2718 decided Nov. 8, 2006

April 5, 2012

April 19, 2012

1. Revocation of a judgment of the first instance;

2. All plaintiffs' claims are dismissed.

3. The costs of the lawsuit are assessed against the Plaintiffs.

Purport of claim, purport of appeal, and object of trial after remanding

1. Purport of claim

The imposition of the gift tax of KRW 00 on December 29, 2004 by the director of the Daejeon District Tax Office against Plaintiff BB, and the imposition of the gift tax of KRW 000 against Plaintiff AAB, and the imposition of KRW 000 on January 2, 2005 by the director of the Gangnam District Tax Office against Plaintiff BB, and the imposition of the gift tax of KRW 000 against Plaintiff AAB, and the imposition of KRW 00 on January 18, 2005 by the director of the Sungnam District Tax Office against Plaintiff CAB, and the imposition of the gift tax of KRW 00 on January 18, 200 against the Plaintiff AAB, and the imposition of the gift tax of KRW 00 against the Plaintiff CAB on December 30, 204.

2. Purport of appeal

The judgment of the first instance is revoked. All of the plaintiffs' claims are dismissed.

3. Object of the trial after remand.

The judgment prior to the remand was dismissed by both the Defendants and the co-defendants of the first instance court. Accordingly, the Defendants and the co-defendants of the first instance court appealed on this issue. The Supreme Court accepted the Defendants’ final appeal, and revoked the part concerning the imposition of gift tax and the joint and several payment notice against the Plaintiffs among the judgment prior to the remand, and remanded this part of the case to the court, and dismissed the final appeal by the co-defendants of the first instance court. Therefore, the part concerning the co-defendants of the first instance court (the part concerning the notice of change in income amount of KRW 00,000, which was issued against the Plaintiff AABS Co-Defendants of the first instance court on December 10, 2004) was separated and finalized by the judgment of partially reversed and remanded, and the judgment subject to the judgment prior to the second instance is limited to the part concerning the reversal and return, that is, the part concerning the revocation of the respective imposition of gift

1. Details of the disposition;

가. 원고 AA유화 주식회사(이하 '원고 회사'라 한다)는 1999. 8. 11.에 상장한 주식 가액이 공모가액 ○○○원 이하로 하락하자 주가를 공모가 수준으로 유지할 목적으로 원고 회사의 대표이사이던 김EE의 주재로 총무담당이사 박FF, 경영지원실팀 본부장 박GG, 이HH 과장, 경리부장 이II 등이 참석하여 수차례 회의를 한 후, 1999. 8. 20.경 차명에 의한 주가관리를 하기로 결의하고, 1999. 8. 31.부터 1999. 11. 8.까지 JJ종합금융 주식회사(이하 'JJ종금'이라 한다), KK금융 주식회사, LLLL신용금고, MMMMM신용금고 등 4개의 기관에 예금을 하고, 위 예금을 담보로 위 기관으로부터 대출을 받아 그 대출금을 JJ종금, NNNN투자회사, PPPP투자회사, QQ 창업투자회사 명의로 4개 증권사, 9개의 증권예탁계좌에 입금한 후, 장내에서 원고 회사의 자기주식 629，080주를 취득하였다.

나. 원고 회사는 다시 원고 회사의 예금을 담보로 자금을 차입하여 1999. 11. 15.부 터 2000. 2. 17.까지 원고 방BB, 백CC, 김DD(이하 '원고 개인들'이라 한다), 이RR 등(이하 원고 개인들과 이RR 등을 통틀어 '이 사건 개인주주들'이라 한다)과 QQ창 업투자회사로 하여금 장외에서 위 JJ종금 등의 기관투자자들이 취득한 원고 회사 주 식 629，080주를 취득하게 하는 한편, 장내에서 원고 회사 주식 163，670주를 추가 취득 하게 하여 합계 792，750주의 원고 회사 주식을 취득하였다.

C. By February 17, 2000, the Plaintiff Company sold 300,030,030 shares out of the Plaintiff Company’s own shares, and transferred 362,210 shares out of 492,720 and 720 shares in the name of the instant individual shareholders (hereinafter “the instant treasury shares”). On November 9, 2001, the Plaintiff Company explained the entire amount of the instant 492,720 shares, including the instant treasury shares, to the name of the Plaintiff Company.

D. Seoul Regional Tax Office: (a) held for not less than three months, a gift tax reporting period, out of the borrowed-name shares, with respect to a personal borrowed-name transaction in which the Plaintiff Company borrowed the name of the instant personal shareholders to the tax office having jurisdiction over the instant personal shareholders; (b) deemed that the instant personal shareholders listed on the shareholder registry as of the date of closing the Plaintiff Company’s shareholder registry ( December 31, 2000) held title trust for the purpose of tax avoidance; and (c) notified that the instant personal shareholders should calculate and levy gift tax pursuant to the provisions of Article 41-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter the same). Accordingly, on the ground that the Plaintiff Company’s personal shareholders had the capacity of imposing gift tax on the Plaintiff Company as of 000 won per share, the head of Seo-gu District Tax Office, on December 29, 2004, and that the Plaintiff Company was jointly and severally liable to pay gift tax to the Plaintiff 2005.

[Based on Recognition] A without dispute; Gap evidence Nos. 2 and 3; Eul evidence Nos. 5; Eul evidence Nos. 2 and 3; Eul evidence Nos. 4-1 through 3; Eul evidence Nos. 5-1 through 4; Eul evidence Nos. 6-1, 2, 7; Eul evidence Nos. 9-1 through 5; the purport of the whole pleadings;

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

1) Although the representative director of the Plaintiff Company Kim E-E ordered this Section to dispose of the instant treasury stocks to this Section, this Section merely converted this into the name of the instant individual shareholder by stealing the name of the Plaintiff Company, and there was no agreement between the Plaintiff Company and the instant individual shareholder to title trust the instant treasury stocks. Even if not, on December 31, 2000, the Plaintiff Company transferred the instant treasury stocks to the so-called operating force, such as SS, etc. at the time when the transfer was made under the name of the instant individual shareholder, and thus, the instant treasury stocks was not the actual owner of the instant treasury stocks, and thus, no title trust relationship with the instant individual shareholder was established. Nevertheless, the Defendant deemed the instant treasury stocks to have been held in title trust to the instant individual shareholder, and thus, was unlawful as it was based on erroneous facts.

2) Since the transaction of the borrowed name between the Plaintiff Company and the instant individual shareholders violates the provisions related to the acquisition of treasury stocks under the Commercial Act and the former Securities and Exchange Act (amended by Act No. 6176 of Jan. 21, 2000; hereinafter the same), it is null and void as a matter of course, no gift tax may be levied on them by applying the donation provision under the former Inheritance Tax and Gift Tax Act. Furthermore, the Plaintiff Company’s disposition that reported otherwise is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) Around October 1999, the SS met the Plaintiff’s representative director Kim E-E-E at the Plaintiff’s head office as an introduction of UU, along with operational experts KimT. At the end of the Plaintiff’s head office, Kim E-E managed the Plaintiff’s stocks under the name of the organization such as DD paper at the time of the SS et al., and asked the SS et al to dispose of the Plaintiff’s stocks until December 200.

2) 이II은 방SS 등과 주가관리방안을 논의한 후 1999. 11. 9. 'JJ종금, EE창업투자회사, PPPP투자회사, QQ창업투자회사 명의 주식 50만 주를 장외거래를 통해 차명 회사와 개인들 명의로 주당 500원에 매수하고, 위 주가를 주당 000원 까지 끌어올려 관리하되, 차명개인들 명의 주식에 대한 안전장치로 원고 회사의 투자자금을 100% 회수할 때까지 원고 회사가 차드, 도장, 비밀번호, 현물관리 등을 직접 한다'는 등의 내용이 포함된 「차명주식매각의 건」 기안문(을 제11호증의 1)을 작성하여 김EE의 내부결재를 받았는데, 내부결재과정에서 향후 주가관리 목표인 000원이 너무 낮아 000원 이상에서 주가관리가 이루어져야 하는 것으로 바뀌었다.

3) On November 1, 1999, this Section written the Agreement on Stock Purchase and Sale (No. 11-2) of the Plaintiff Company’s 500,000 shares of the Plaintiff Company with the SS and KimT, a operating force after the internal resolution of the Plaintiff Company. According to this, this Section, the number of the Plaintiff Company’s shares held in the name of 500,000 shares, which the KimT wants among these 50,000 shares, shall be entered into the Securities Company’s account as agreed between this Section and KimT, and KimT shall trade the said shares smoothly, and this Section collects 00 won per share of the purchase price, and the remaining balance shall be paid to the BankS, and KimT agreed that the price of the shares shall be more than KRW 00,000 after the full disposal of the shares.

4) This Section, upon request from the individual shareholders of this case, opened a securities consignment account with five securities companies, including Hyundai Securities Co., Ltd., in the name of the individual shareholders of this case from November 1, 1999. The individual shareholders of this case, as security of the Plaintiff’s deposit, borrowed funds from LLL Credit Co., Ltd. from November 15, 199, and acquired 500,000 shares owned by the institution outside of the name of the individual shareholders of this case.

5) At the time this Section discussed the SS, Kim TT and the share price management scheme of the Plaintiff Company, the Plaintiff Company had already been holding the Plaintiff Company’s shares on behalf of the Plaintiff Company expressed its intent not to name any longer, but also caused a problem that the Plaintiff Company should preserve the corporate tax arising from transactions in the name of the said organization. In such a situation, there is a defect in indicating that the SS et al.’s holding of the Plaintiff Company’s shares in the account in the name of an individual for share management is convenient for the share price management, the Plaintiff Company, through this Section, prepared the share purchase agreement as above, and subsequently transferred and held the Plaintiff Company’s shares in the account in the name of the instant individual shareholder.

6) From November 26, 1999 to February 17, 2000, S, etc. issued an elevated purchase order on 150 and 450 shares of the Plaintiff Company over a total of 52 occasions, and issued an order on 53,040 shares of the Plaintiff Company over a total of 23 occasions, and prevented the increase of the share price or the decline of the shares below 00 won by purchasing the shares of the Plaintiff Company at a price similar to the immediately preceding one. After selling 29,030 shares of the Plaintiff Company’s own shares to the Plaintiff Company through the borrowed account of the instant personal shareholders, the Plaintiff Company deposited 00 won per share (the average sales price per share 00 won) out of the transferred shares to the Plaintiff Company (the time when the operation force has delayed and raised the shares to 00 won per share) and the remaining profit margin reverts to 00 won.

7) During the period of price management at the ○○○○○○○○, the Plaintiff Company’s shares were flowing in large volume, and as a result, failed to manage the share price. The Financial Supervisory Service conducted an investigation into the Plaintiff Company from February 2, 200 to July 7, 200, and filed a criminal charge against the prosecution due to the suspicion of stock price manipulation, and the prosecution investigated the Plaintiff Company from August 200 to March 2001 and prosecuted the Plaintiff Company. As such, the share purchase and sale agreement in this Section, Kim TT, and TTS was de facto reversed.

8) On December 31, 200, the Plaintiff Company entered 81,930 shares out of the shares entered into the R account with the Plaintiff’s individual in the register of shareholders, and entered 81,930 shares in the Plaintiff’s name, 28,800 shares under the Plaintiff’s name, 92,80 shares in the name of Plaintiff KimD, 158,680 shares in the name of Plaintiff KimD (total 362,210 shares). On November 9, 2001, the Plaintiff Company converted the ownership of 362,210 shares and 130,510 shares in the remaining shares into the name of the Plaintiff Company, and made a voluntary publication on November 13, 2001, pursuant to the real name, etc. of the second shares.

9) The Plaintiff Company: (a) fully repaid the loans borrowed in the name of the instant individual shareholder to the instant individual shareholder; (b) fully compensate the Plaintiff Company for damages incurred in connection with the borrowed name trading; and (c) the Plaintiff Company is responsible for and closed the old accounts established in financial institutions and securities companies under the name of the instant individual shareholder; and (d) the instant individual shareholder agreed to deliver the Plaintiff Company’s own stocks to the Plaintiff Company.

[Reasons for Recognition] A without dispute, Gap evidence 8, Eul evidence 9, Eul evidence 8-1, 2, Eul evidence 9-1 through 5, Eul evidence 10, Eul evidence 11-1 through 3, Eul evidence 12, Eul evidence 13-1, 2, Eul evidence 14-1 through 4, Eul evidence 15-1, 2, Eul evidence 16-1 through 17, Eul evidence 21-1 through 11, Eul evidence 22, Eul evidence 23-1, Eul evidence 2-1, Eul evidence 1, 11 through 17, each of the statements in Eul evidence 12, Eul evidence 1, 15, and 17 is difficult to believe the purport of the whole pleadings.

D. Determination

1) As to the establishment of title trust

A) According to the above facts, the representative director of the plaintiff company Kim E-E has discussed the following methods: the plaintiff company's representative director Kim E-E has discussed the resolution for the sale of borrowed stocks prepared by this Section; and approved the resolution for the sale of borrowed stocks; according to the above sale proposal, the plaintiff company provided deposits as security; thus, the plaintiff company purchased treasury stocks under this Section's name in accordance with the representative director Kim E-E's instruction; even if the plaintiff company was not aware of the method for the sale of borrowed stocks, this Section, which received the direction of Kim E-E's instruction, took all practical steps, such as borrowing the name from the individual shareholders of this case; thus, the legal effect belongs to the plaintiff company and the actual fact that the plaintiff company can be deemed to have purchased treasury stocks in the name of the individual shareholders of this case. Accordingly, the plaintiff company's illegal use of the name to this Section; and the plaintiff company and the shareholder of this case did not accept the plaintiffs' assertion that there was no agreement on the title trust between the plaintiff company and the private shareholders of this case.

B) According to the share purchase and sale agreement with the Plaintiff Company, the Plaintiff Company is likely to have transferred its own shares under the name of the Plaintiff Company to the SS, etc., in fact, in addition to paying 30,500 won per share to the Plaintiff Company under this Section and the SS et al. In such a case, the actual owner of the shares in the name of the instant individual shareholders at the time of the stock price manipulation by the operating force cannot be deemed the Plaintiff Company. However, even if the Plaintiff Company appears to have transferred its own shares to the SS et al. at the time of the stock price manipulation by the operating force, it cannot be deemed that the SS et al. failed to pay 30,50 won per share to the Plaintiff Company, due to the situation where the SS et al. cannot be managed by the Financial Supervisory Service’s investigation from February 2, 200 to July 2, 200, the Plaintiff Company’s transfer of the shares in the name of the Plaintiff Company to the Plaintiff Company. Accordingly, the Plaintiff Company’s transfer to the Plaintiff Company did not actually belong to the Plaintiff Company.

2) As to the application of the provision on deemed donation and the purpose of tax avoidance

A) The main text of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (hereinafter “the Act”) provides that “where the actual owner and the title holder are different from the property that requires a transfer or exercise of the right, the value of the property shall be deemed to have been donated to the actual owner on the date when the title holder is registered as the title holder, notwithstanding the provisions of Article 14 of the Framework Act on National Taxes,” and subparagraph 1 of the proviso provides that “the same shall not apply where the title holder has registered the property in another person’s name without any purpose of tax avoidance.” The legislative intent of the Act provides that the tax stipulated in the proviso of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act is not limited to gift tax in the purport of effectively preventing the act of tax avoidance using the title trust system and realizing tax justice. The legal provision of this case does not require that the legal provision of this case be subject to regulation in cases where the actual owner of the property differs from the actual owner of the property, and thus, it does not require that the company be excluded from the acquisition of the Plaintiff’s own shares under the name of this case.

B) Meanwhile, in light of the legislative intent of the legal provision of this case, if the title trust was established for reasons other than the purpose of tax avoidance, and it is merely a minor reduction of tax incidental to the title trust, it cannot be concluded that there was "the purpose of tax avoidance". However, only when the purpose of tax avoidance is not included in the purpose of the title trust, it cannot be deemed that there was an intention of tax avoidance if there was an intention of tax avoidance by applying the proviso of the above provision. Thus, it cannot be said that there was an intention of tax avoidance. Furthermore, the burden of proving that there was no purpose of tax avoidance is against the person who asserts it (see, e.g., Supreme Court Decision 2007Du19331, Apr. 9, 200). According to the above facts, the Plaintiff company transferred the corporate tax of this case, which was acquired under the name of institutional investors, to the Plaintiff company's name, and thus, it cannot be accepted in light of the purpose of the Plaintiff company's own stocks to be converted to the Plaintiff company's own stocks in the name of this case.

3. Conclusion

Therefore, the disposition of this case is legitimate, and all of the plaintiffs' claims seeking its revocation are dismissed as it is without merit. Since the judgment of the court of first instance is unfair in conclusion, the judgment of the court of first instance is revoked, and all of the plaintiffs' claims are dismissed. It is so decided as per Disposition.