Cho High Court Decision 2015Do4948 ( December 23, 2015)

Officers within five years after retirement shall be persons with a special relationship.

It is reasonable to interpret that "a person with a special relationship" under Article 26 (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act includes a person who was an officer in whose case five years have not passed since his retirement.

Article 35 (Donation, etc. of Profits from Transfer at Low or High Price)

Article 4 (Definition of Employee of Inheritance Tax and Gift Tax Act)

2016Guhap561 Revocation of Disposition of Imposing gift tax

aa

Head of Yongsan Tax Office

August 24, 2016

September 2, 2016

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of gift tax of KRW 000 (including additional tax) against the Plaintiff on July 1, 2015 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is a major shareholder (share ratio: 41%) of DDR (hereinafter “instant company”) and a representative director with the aim of conducting civil engineering, construction, engineering and technology services, etc. established on August 6, 2002.

B. On April 10, 2006, the Plaintiff sold 3,600 shares out of 15,000 shares of the instant company to bB who works for the head of the ground business division of the instant company as its own director at KRW 5,000 per share, and cC also sold 3,600 shares out of 15,00 shares of the instant company to bB on the same day, and bB acquired 7,200 shares out of 6% of the total shares issued by the instant company.

C. On July 23, 2008, the instant company acquired 600 shares of the instant company according to its equity ratio of 5,000 won per share (the total issued shares before capital increase: 120,000 shares, the total issued shares after capital increase: 130,000 shares), and bb acquired 600 shares of the instant company in addition to its equity ratio.

D. BB, on March 14, 2010, retired from the position of director of the instant company on March 17, 2010, and on May 1, 2010, transferred 3,900 shares out of the shares of the said company (hereinafter “instant shares”) to the Plaintiff at KRW 5,000 per share (hereinafter “instant transfer”).

E. On July 1, 2015, the Defendant: (a) assessed the Plaintiff as KRW 000 per share (total amount of KRW 0000) in accordance with the supplementary assessment method under the former Inheritance Tax and Gift Tax Act (amended by Act No. 10411, Dec. 27, 2010; hereinafter “former Inheritance Tax and Gift Tax Act”); (b) assessed the Plaintiff as an executive officer of the instant company and for whom five years have not passed since his/her retirement; and (c) imposed a gift tax of KRW 000 (including additional tax) on the Plaintiff under Article 35(1) of the former Inheritance Tax and Gift Tax Act (hereinafter “instant disposition”).

F. Accordingly, on September 21, 2015, the Plaintiff filed an appeal on the instant disposition with the Tax Tribunal, but the Tax Tribunal dismissed the said appeal on December 23, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 5, Eul evidence Nos. 1, 2, 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 deemed to have a special relationship between the Plaintiff and BB, and the instant transfer was deemed to have been made as a gift transaction between specially related parties. However, bB resigned from the office of the instant company prior to the instant transfer and was not an officer of the said company at the time of the said transfer, and thus cannot be deemed to have had a special relationship between the Plaintiff and BB.

2) Transactions between persons who are not specially related parties shall not be considered as donation transactions unless there are special circumstances, and the defendant must prove special circumstances, but the defendant does not have any evidence thereof, and the transfer of this case was made in accordance with the agreement to re-purchase with acquisition price and the judgment of a reasonable economic person. Thus, the disposition of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) First, we examine whether the Plaintiff and BB are “a person in a special relationship”.

A) Article 35(3) of the former Inheritance Tax and Gift Tax Act provides that "a person who is in a special relationship with him/her as to the donation of profits from the transfer at a low price and at a high price is delegated by the Presidential Decree." Article 26(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22579, Dec. 30, 2010; hereinafter referred to as "the former Enforcement Decree of the Inheritance Tax and Gift Tax Act") provides that "a person in a special relationship with the transferor or transferee refers to a person in a relationship falling under any of the following subparagraphs:

Article 13(9)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "an employee prescribed by Ordinance of the Ministry of Strategy and Finance (including an employee of a corporation under control by investment; hereinafter the same shall apply)" is "an employee," and Article 4 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 223, Jul. 26, 201; hereinafter the "Enforcement Rule of the former Inheritance Tax and Gift Tax Act") delegated by the Enforcement Decree provides that "an employee means an employee, a commercial employee, or any other person in an employment relationship" with regard to the definition of the employee, and Article 13(7)1 of the Enforcement Decree of the same Act provides that "an employee among the employees, who has been an officer under Article 20(1)4 of the Enforcement Decree of the Corporate Tax Act and in whose case five years have not passed since his/her retirement; hereinafter the same shall apply)" is "all members of the board of directors."

B) As seen earlier, Article 4 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act includes the scope of an employee, and Article 13(7)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act includes a person who was an officer in whose case five years have not passed since his/her retirement due to the definition of an officer, and Articles 13(7)1 and 13(9)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate that "an officer" and "an employee" shall be defined as "an officer" and Articles 26(4) and 19(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate that all of the above Article 13 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act are stipulated as "a person in a special relationship under Article 26(4) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act," and thus, it is reasonable to interpret that the person

C) On March 17, 2010, the Plaintiff retired from the office of director of the instant company on March 17, 2010, and on May 1, 2010, the Plaintiff may recognize that the instant shares were acquired from BB at a price lower than the market price. As such, this constitutes a low-price transfer between persons in a special relationship under Article 35 of the former Inheritance Tax and Gift Tax Act.

2) Therefore, the Defendant’s disposition of this case imposing gift tax on the Plaintiff is justifiable, and the Plaintiff’s remaining arguments on the premise that BB is not a person with a special relationship with the Plaintiff are unnecessary to further examine.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.