[1] Whether the “public offering method of securities” under Article 39(1)1(a) of the former Inheritance Tax and Gift Tax Act includes the “public offering method of securities” under Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act (affirmative)

[2] The standard for determining whether a case constitutes deemed public offering under Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act (i.e., whether there is possibility of pre-sale), and whether in the case of deemed public offering, the solicitation of offer under Article 2-4 of the former Enforcement Decree

[1] Article 39 (1) 1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) provides that where a listed corporation issues new stocks in accordance with the method of public offering of new stocks under the former Securities and Exchange Act (repealed by Article 2 of the Addenda of the Financial Investment Services and Capital Markets Act (Act No. 8635 of Aug. 3, 2007) (hereinafter “former Securities and Exchange Act”), the matters concerning the issuance shall be publicly announced; in principle, the issue price shall be determined at a price close to the stock price formed at the securities market, etc. [Article 53 and 57 of the former Securities and Exchange Act (amended by Act No. 8828 of May 16, 2007). In addition, even if a listed corporation obtains new stocks through public offering of new stocks, the issue price of new stocks shall be set at a lower price than the market price of the former Securities and Exchange Act.

Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20551, Jan. 18, 2008; hereinafter “former Enforcement Decree of the Securities and Exchange Act”) does not differ from the general public offering under Article 2-4 (1) of the former Enforcement Decree of the Securities and Exchange Act in that deemed public offering under Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act is subject to various regulations on the procedure for issuing new stocks and the issue value thereof. In addition, in light of the language, content, system, etc. of Article 2(3) of the former Securities and Exchange Act and Article 2-4 of the former Enforcement Decree of the Securities and Exchange Act, Article 2-4 of the former Enforcement Decree of the Securities and Exchange Act can be interpreted as one of the cases falling under the “public offering of new stocks” under the delegation of Article 2(3) of the former Securities and Exchange Act. In full view of these, the “public offering method of securities” in the

[2] In light of the language and text of Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20551, Jan. 18, 2008; hereinafter “former Enforcement Decree of the Securities and Exchange Act”) and the legislative intent of preventing acts of evading various regulations under the Act on the Issuance of Securities and Exchange, it is interpreted that Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act provides that "the number of persons who have been solicited to subscribe is not "the number of persons who have been solicited to subscribe for subscription," but "the existence of possibility of pre-sale," so even without the invitation to subscribe, if the possibility of resale meets the possibility of resale under Article 12(1)1 of the former Rules on the Issuance and Public Notice of Securities and Exchange (amended by Presidential Decree No. 2007-37, May 16, 2007), it constitutes deemed public offering under Article 2-4(4) of the

[1] Article 39 (1) 1 (a) and (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007); Article 2 (3) (see current Article 9 (7) of the Financial Investment Services and Capital Markets Act); Article 2-4 (1) (see current Article 11 (1) and (4) of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act (amended by Presidential Decree No. 2051 of Jan. 18, 2008); Article 11 (3) of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act (amended by Act No. 8828 of Dec. 31, 2007); Article 2-4 (1) and (4) of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act (amended by Presidential Decree No. 20107 of May 16, 2007); Article 15 (2) of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act (amended by Presidential Decree No. 2015 of the Financial Investment Services Commission)

Plaintiff (Law Firm continental Aju, Attorneys Park Jong-soo et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2012Nu14141 decided October 26, 2012

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

The grounds of appeal are examined.

1. Article 39(1)1 Item (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter "the Inheritance Tax and Gift Tax Act") provides that "in case where a person, other than a shareholder of the relevant corporation, obtains profits by directly obtaining new stocks from the relevant corporation as a result of issuing new stocks at a price lower than the market price, the amount equivalent to such profits shall be deemed as the value of donated property." The comprehensive title under subparagraph (a) (a) of the same Article (hereinafter "instant comprehensive title") of the same Article provides that, within the scope of "distribution" under the same Article, a stock-listed corporation or an Association-registered corporation under the Securities and Exchange Act (amended by Act No. 7114 of Jan. 29, 2004; hereinafter "corporation-listed corporation" in combination with the stock-listed corporation is excluded from the market price by directly allocating the gift tax under Article 2(3) of the same Act."

Meanwhile, Article 2 (3) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007; hereinafter “former Securities and Exchange Act”) provides that “public offering of new securities shall be solicited under the conditions as prescribed by the Presidential Decree.” Article 2-4 (1) of the former Enforcement Decree of the Securities and Exchange Act (amended by the Presidential Decree No. 2051, Jan. 18, 2008; hereinafter “former Enforcement Decree”) provides that “public offering of new securities shall be 50 or more persons who have been solicited to acquire new securities under the provisions of Article 2 (3) of the former Securities and Exchange Act (amended by the Presidential Decree No. 20535, Aug. 3, 2007; hereinafter “former Securities and Exchange Act”) provides that “this Act shall provide that public offering of new securities shall be made within 50 or more years from the date of public offering of new securities under the provisions of Article 2-13 of the former Securities and Exchange Act (amended by the Financial Supervisory Commission).

2. The court below rejected the Plaintiff’s assertion that: (a) on May 4, 2007, the Plaintiff’s 49 persons including the Plaintiff participated in the offering of new shares by a third party (hereinafter “the offering of new shares”) that was conducted by Amino-Laos Co., Ltd. (hereinafter “Nonindicted Co., Ltd.”) and acquired 4,261,394 shares as registered ordinary shares per 11,50 won and paid 49,006,031,000 won in total as the price; and (b) on the instant provision, “the offering of new shares” does not include the method of deemed offering of new shares under Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act; and (c) even if there was no solicitation for offering even if the non-party Co., Ltd. did not receive the offering of new shares through the offering of new shares at the time of the offering of new shares, the Plaintiff’s offering of new shares does not constitute the offering of new shares.

3. However, it is difficult to accept the above determination by the court below for the following reasons.

Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act provides that, in cases where a listed corporation issues new stocks in accordance with the method of public offering of new stocks under the former Securities and Exchange Act, the issuance price shall be determined at a price close to the price formed on the securities market, etc. in principle (Articles 53 and 57 of the Securities and Exchange Act). In addition, considering the fact that it is inevitable for a listed corporation to raise funds through public offering of new stocks in the securities market, etc., the issuance price of new stocks shall be determined to a certain degree of discount, it shall not be subject to gift tax, even if the purchaser gains profits by determining the issue price of new stocks under the method of public offering of new stocks under the former Securities and Exchange Act. Considering that deemed public offering of new stocks under Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act is subject to various regulations on the procedure and issue price of new stocks, it is reasonable to interpret Article 2-4 of the former Enforcement Decree of the Securities and Exchange Act as one of the general public offering of Article 2-4 of the former Securities and Exchange Act.

In addition, in light of the language and text of Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act and the legislative intent of preventing acts of evading various regulations under the Act on the Issuance of Securities and Exchange, it is interpreted that Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act provides that an act constitutes deemed public offering based on “the number of persons who have been solicited to subscribe,” not “the number of persons who have been solicited to subscribe for subscription,” and thus, it is reasonable to deem that even without the invitation to subscribe, if the possibility of resale meets the standards under Article 12(1)1 of the former Enforcement Decree of the Securities and Exchange Act

4. Nevertheless, the lower court rejected the Plaintiff’s assertion as to the instant provision without further proceeding to examine whether the Plaintiff was allocated new stocks through deemed public offering, on the grounds that the “public offering method of securities” as stated in the instant provision is not included in the instant general offering method, and that the instant general offering provision is not applicable in the absence of solicitation for subscription even without such solicitation. In so doing, the lower court erred by misapprehending the legal doctrine on the instant general offering provision and the interpretation and application of Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

5. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, 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 Kim So-young (Presiding Justice)