[1] The case holding that Article 157 (4) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 158485, Aug. 28, 2005) shall apply in principle on the ground that the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21301, Dec. 31, 2005) was applied to the transfer of shares issued by a KOSDAQ-registered corporation Gap during the period between January 25, 2005 and August 11, 2005, where the tax authority imposed capital gains tax on Eul on the ground that Eul owned shares issued by the company Eul at least 3% as of March 11, 2005 and became a major shareholder under Article 157 (4) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21585, Aug. 28, 2005) since the transfer income tax for which tax liability is established upon the end of the taxable period, unless there are any special circumstances.

[2] Whether Article 157 (4) 1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988 of Aug. 5, 2005) can be interpreted to mean that “where a person owns more than 3/100 as of the end of the immediately preceding business year, but thereafter owns less than 3/100 and thereafter owns more than 3/100 as of the end of the immediately preceding business year, and thereafter comes to fall under a major shareholder, it shall be interpreted that income from the transfer of stocks for the following business year shall not be excluded from capital gains tax (affirmative)

[1] Articles 4(1)3 and 94(1)3(a)3(b) of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 157(4)1 of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 18988 of Aug. 5, 2005), Article 157(4)1 of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 21301 of Feb. 4, 2009), Article 157(4)1 of the former Enforcement Decree of Income Tax Act, Article 2 of the Addenda / [2] Article 157(4)1 of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 18988 of Aug. 5, 2005)

[2] Supreme Court Decision 2006Du8969 Decided February 15, 2008

Plaintiff

Head of the District Tax Office

Seoul High Court Decision 2011Nu28303 decided February 15, 2012

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

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 2 and 3

A. Article 4(1)3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) provides that capital gains shall be generated from the transfer of assets under Article 4(1)3 of the same Act, and Article 94(1)3 provides that the scope of such capital gains shall include the transfer of stocks, etc. of a stock-listed corporation under the Securities and Exchange Act (hereinafter “stock-listed corporation”) by a major shareholder as prescribed by the Presidential Decree (hereinafter “major shareholder”) taking into account the ratio of stocks owned, the total market value, etc. of the stocks of the stock-listed corporation under the Securities and Exchange Act (hereinafter “stock-listed corporation”) and the transfer of stocks, etc. of an Association-registered corporation under the Securities and Exchange Act (hereinafter “Association-registered corporation”) to a major shareholder of the relevant corporation, and transfer of stocks, etc. of an Association-registered corporation under the same Act not through transactions in the Association Brokerage market (hereinafter “Association-registered

Therefore, Article 157(4) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 1898 of Aug. 5, 2005) provides for the scope of the majority shareholder as to the scope of the majority shareholder, without distinguishing a stock-listed corporation from a stock-listed corporation and an Association-registered corporation as of the end of the business year immediately preceding that in which the transfer date of stocks, etc. belongs, one shareholder and other shareholders of the relevant corporation and 3/100 or more of the total amount of stocks of the relevant corporation as of the end of the business year immediately preceding that in which the transfer date of stocks, etc. belongs; and Article 157(4) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 1598 of Aug. 5, 2005) provides that “one shareholder and other shareholders of the relevant corporation after the date of acquisition of stocks, etc. shall be deemed to fall under the majority shareholder, and Article 157(1) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 1571/7/1/1/1/1/1/1/1/2 of the amended of the Act later.

According to the above laws and regulations, capital gains tax for which tax liability is established upon the termination of the taxable period is applied to the laws and regulations enforced as of December 31 of each year, barring any special circumstance. Thus, in this case where capital gains tax belonging to the year 2005 is at issue, as a matter of principle, Article 157 (4) of the Enforcement Decree after the amendment as of December 31, 2005 is applicable, but Article 157 (4) of the former Enforcement Decree of the Income Tax Act shall apply to stocks, etc. transferred before August 5, 2005 pursuant to Article 157 (2) of the former Enforcement Decree of the Income Tax Act (Presidential Decree No. 18988 of August 5, 2005).

B. Although the Plaintiff’s shares transferred before August 5, 2005 were inappropriate in the reasoning of the court below, the above transfer of shares is governed by Article 157(4)1 of the Enforcement Decree before the amendment stipulating the scope of major shareholders based on not less than 3/100 of the share holding ratio, rather than distinguishing the stock-listed corporation and the Association-registered corporation. Thus, the court below’s measure taken based on not less than 3/100 of the share holding ratio in determining whether the Plaintiff was the major shareholder at the time of the above transfer of shares is erroneous in the application of the law, contrary to what is alleged in the grounds of appeal.

C. However, as to the shares transferred by the Plaintiff after August 5, 2005, the court below should examine whether the said shares were transferred to the status of the major shareholder in accordance with the standard of not less than 5/100 of the share holding ratio under Article 157(4)1 of the Enforcement Decree after the amendment, as long as the shares are shares of KOSDAQregistered corporations, as can be known to the facts established by the court below.

Nevertheless, the lower court determined that the Plaintiff transferred shares that it transferred after August 5, 2005 to a major shareholder in accordance with the holding ratio of 3/100 or more, and thus, the lower court erred by misapprehending the legal doctrine on Article 157(4)1 of the Enforcement Decree after the amendment, thereby adversely affecting the conclusion of the judgment.

D. Meanwhile, the Plaintiff asserted that the Defendant violated the first in the first in the first in the procedure under the Income Tax Act at the time when the Defendant imposed the instant tax disposition, by applying the same and the same method without any legal basis, or by identifying the time of acquisition of the stocks subject to the instant tax disposition, but such assertion is a new argument in the final in the final in the appeal

2. Regarding ground of appeal No. 1

As seen earlier, Article 157 (4) 1 of the Enforcement Decree prior to the amendment provides that income from transfer of stocks shall be subject to transfer income tax if stockholders, etc. who own not less than 3/100 of the total amount of stocks, etc. of the relevant corporation as of the end of immediately preceding business year in which the transfer date of stocks, etc. belongs, and stockholders, etc. possess not less than 3/100 as of the end of the immediately preceding business year but thereafter possess not less than 3/100 of stocks, etc., income from transfer of relevant stocks after the date of acquisition shall also be subject to transfer income tax. In light of the legislative intent and contents of the above provision, the above provision cannot be interpreted to the effect that “where stocks, etc. were owned by not less than 3/100 but less than 3/100 after the end of the immediately preceding business year, such subsequent stocks shall not be excluded from transfer income tax (see, e.g., Supreme Court Decision 2006Du8969, Feb. 15, 2008).

The court below determined to the effect that the entire stocks transferred from the date on which the above status of the majority shareholder falls under the status of the majority shareholder to the end of the pertinent business year are transferred to the status of the majority shareholder and thus constitutes subject to taxation of capital gains tax. Thus, the court below did not err by violating the principle of no taxation without the law or by misapprehending the legal principles as to Article 157 (4) 1 of the Enforcement Decree before the amendment, as alleged in the grounds of appeal.

3. As to the fourth ground for appeal

Under the tax law, penalty taxes are administrative sanctions imposed in accordance with the law in order to facilitate the exercise of the right to impose taxes and the realization of tax claims where a taxpayer violates a return, tax liability, etc. as prescribed by the law without justifiable grounds, and the taxpayer’s intention or negligence is not considered, and the land or mistake of the law does not constitute justifiable grounds (see Supreme Court Decisions 2000Du5944, Apr. 12, 2002; 2005Du3714, Oct. 26, 2006, etc.).

Examining the reasoning of the lower judgment in light of the aforementioned legal principles, the lower judgment that determined that the ground for the Plaintiff’s assertion alone does not constitute a justifiable ground for exemption of penalty tax is not recognized. In so doing, it did not err by misapprehending the legal doctrine on justifiable grounds in penalty tax

4. Conclusion

Therefore, 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 Shin Young-chul (Presiding Justice)