Supreme Court Decision 2007Du5363 ( November 29, 2009)

In case of acquisition of new shares at a high price and distribution of profits to forfeited shareholders, gift tax is levied.

In case where a person with a special relationship who has renounced the allocation of forfeited shares obtains profits by accepting the forfeited shares, the gift tax is levied on the economic benefits that the forfeited shareholders received gratuitously from the shareholders who have acquired the forfeited shares at a higher price due to the waiver of the acquisition of new shares, in the form of increase in the value of existing shares.

The contents of the decision shall be the same as attached.

Article 42 (Presumption of Donation of Other Benefits)

1. Judgment of the first instance shall be modified as follows:

A. On 05, 2002.02.05, the part of the imposition disposition of KRW 548,158,764 of the corporate tax belonging to the business year 1999 against Plaintiff BB, which exceeds KRW 673,93,00, and the part of the imposition disposition of KRW 662,61,560 against Plaintiff KimA on 21, 2002, which exceeds KRW 500,137,690, among the imposition disposition of KRW 662,61,560 of the gift tax imposed against the Plaintiff KimA on 202.05.

B. The remainder of the claim against the defendant Jung-gu Tax Office of the plaintiff Kim Young-chul Co., Ltd. and the remainder of the claim against the defendant Kim Jong-A is dismissed, respectively.

2. Of the total litigation costs, the part arising between Plaintiff BB and the vice-chief of the Defendant, shall be five minutes, and the remainder shall be borne by the said Plaintiff, and the remainder shall be borne by the said Defendant, while the part arising between Plaintiff KimA and the Defendant Seongbuk Tax Office shall be four minutes, and that three minutes shall be borne by the said Plaintiff, and the remainder shall be borne by the said Defendant.

1. Purport of claim

The disposition of imposition of KRW 673,933,00 of the corporate tax belonging to the business year 1999 against the Plaintiff Company BB (hereinafter referred to as the “Plaintiff Company”) by the Head of Seongbuk Tax Office on October 21, 2002, and the disposition of imposition of KRW 662,61,560 of the gift tax imposed against the Plaintiff KimA on May 21, 2002 by the Head of Seongbuk Tax Office shall be revoked.

2. Purport of appeal

Among the judgment of the first island, each part against the Defendants shall be revoked, and all corresponding plaintiffs' claims shall be dismissed.

1. Scope of adjudication by this Court;

As stated in the purport of the claim, the court of first instance accepted the claim that the Plaintiff Company's imposition of KRW 673,933,00 of the corporate tax against the Plaintiff Company, and that the Defendant KimA sought revocation of the imposition of KRW 662,61,560 of the gift tax against the Plaintiff KimA by the head of Seongbuk-gu Tax Office. The court of first instance accepted the claim that the Plaintiff Company's share of profits and the Enforcement Decree of the Plaintiff KimA of the instant case is null and void, and declared that the portion exceeding KRW 166,209,447 of the corporate tax against the Plaintiff Company exceeds KRW 166,209,447 of the corporate tax against the Plaintiff Company

Therefore, even though the Plaintiff Company and the Defendants appealed each of the appeals, the Court dismissed all appeals filed by the Plaintiff Company and the Defendants by the judgment prior to the remand of the case. In other words, each of the Plaintiff Company and the Defendants appealed. The Supreme Court has dismissed the Plaintiff Company’s appeal with the case remanded, and it is evident that the part against the Defendants was reversed and remanded to this court.

Therefore, the scope of this Court's adjudication is limited to the part against the Defendants' loss recognized as illegal by the court of first instance among the dispositions of this case.

2. Circumstances concerning the imposition and disposition of the instant case; and

A. On October 31, 1997, Nonparty BB Living Industry Co., Ltd. (formerly, BBC Co., Ltd.; hereinafter referred to as “Nonindicted Co., Ltd.”) decided to issue new shares and issue new shares to the board of directors as follows. The issued shares are 1,519,14 shares with registered ordinary shares, and the par value per share is 5,000 won with a face value of 1,519,144 shares, and the price per share is 5,000 won with a face value of 5,000 shares (pre-paid date of new shares; December 01, 1997; hereinafter referred to as “Nonindicted Co., Ltd.”). On November 17, 1997, the shareholders listed on the register of shareholders as of November 17, 1997 were allocated in proportion to the shares held in the register of shareholders, and the representative director decided to delegate the disposal of new shares due to the waiver

B. Meanwhile, at the time of November 17, 1997, the shares issued by the non-party company were all 4,30,31 shares. The non-party company divided the 1,419,479 shares (self-stocks), the 1,061,061,872 shares by the non-party company, the 1,224,287 shares by the plaintiff company, and other shareholders owned a total of 594,693 shares. However, the non-party company excluded the shares issued by the non-party company from its own shares owned by the non-party company in accordance with the board of directors’ decision as above, and issued a demand to subscribe new shares by the non-party company 59,952 shares by the non-party company, the 645,596 shares to the plaintiff company, and 313,596 shares to other shareholders.

C. Accordingly, on December 01, 197, the Plaintiff Company made an offer to subscribe new shares with respect to 645,596 shares allocated, while the Plaintiff KimA and the other shareholders renounced all the subscription to new shares allocated as above. On December 02, 1997, the Plaintiff Company made an preemptive offer with respect to the new shares with respect to 1,519,14 shares as the Plaintiff KimA and other shareholders have renounced their subscription, and paid a total of KRW 7,595,720,000 for the price for the new shares with respect to 7,595,720,000 shares, and acquired the status of shareholders as to the above new shares on December 03, 1997 (hereinafter referred to as “the capital increase”).

D. At the time of December 02, 1997, Plaintiff KimA held 24.46% of the Plaintiff Company’s shares, and constitutes a person having a special relationship as stipulated in Article 20 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereinafter the same shall apply) and Article 46(1) of the former Enforcement Decree of Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998; hereinafter the same shall apply) in relation to the Plaintiff Company.

E. On October 06, 199, the non-party company decided to retire 4,203,274 shares including 2,743,431 shares owned by the Plaintiff company at the general meeting of shareholders of the non-party company without compensation, and reduced capital of KRW 21,016,370,000.

F. Under Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582, Dec. 28, 1998; hereinafter the same shall apply), Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998; hereinafter the same shall apply), the value of the shares after the increase of the capital of the non-party company shall be assessed as KRW 955 per share (referring to evidence No. 206), and the value of the shares after the increase of the capital of this case shall be assessed as KRW 2,010 per share (refer to evidence No. 2229; hereinafter the same shall apply) and calculated as KRW 970 per share by calculating the income amount of the non-party company's 2,509, KRW 9750 per share, KRW 9750 per share, KRW 9750 per share for the same purpose.

G. Meanwhile, as seen earlier, the director of the Sungbuk District Tax Office: (a) deemed that the Plaintiff Company received the forfeited stocks of this case by cultivating the forfeited stocks of this case and donated such distribution profits to the Plaintiff KimA; and (b) imposed KRW 662,61,560 on the Plaintiff KimA on May 21, 2002 (hereinafter “instant disposition imposing gift tax”).

H. On October 18, 2002, the Plaintiff Company filed an appeal with the National Tax Tribunal to revoke the above employment income tax collection disposition and the pertinent corporate tax imposition disposition. The Defendant Heavy Tax Office revoked the employment income tax collection disposition ex officio, and the National Tax Tribunal dismissed the Plaintiff Company’s appeal seeking revocation of the pertinent corporate tax imposition disposition on July 30, 2002.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, Gap5, 6, 9, 10, 20, 22, Eul evidence No. 1 through 7, and the purport of the whole pleadings

3. Whether the imposition and disposition of the instant case are proper; and

A. The plaintiffs' principal

1) The plaintiff company

The Plaintiff Company did not accept forfeited shares from the Nonparty Company, but did not accept forfeited shares from the Plaintiff KimA, a related party. Under the principle of shareholder limited liability, Plaintiff KimA did not have a duty to accept forfeited shares. Thus, even if the Plaintiff Company accepted forfeited shares of this case, it cannot be deemed to have distributed any profit to Plaintiff KimA. Article 46(2) subparag. 1 through 8 of the former Enforcement Decree of the Corporate Tax Act does not stipulate any type of act as to offering the relevant corporation’s benefits free of charge to the shareholders, a related party, regarding waiver of new shares and acquisition of forfeited shares of this case. Thus, Article 46(2) subparag. 8 of the former Enforcement Decree of the Corporate Tax Act does not stipulate any type of act as to offering the relevant corporation’s benefits free of charge to the shareholders

Even if it falls under Article 46 (2) 9 of the Enforcement Decree of the Corporate Tax Act of the household taking over the real rights of the plaintiff company, the act of taking over the real rights of the plaintiff company is the act of taking over the real rights of the plaintiff company in order to prevent the acquisition of the real rights of the company which includes the non-party company of the plaintiff company, and such act is an economic harmony, so it does not fall under the object of the avoidance of wrongful act.

In addition, there is no provision on how to calculate the amount of income for the pertinent business year related to the acquisition of forfeited shares under the former Enforcement Decree of the Corporate Tax Act, which is applicable to the disposition of this case. Therefore, the calculation of the profit by distribution as above as the tax base pursuant to the provisions of Article 31-2(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree provision of this case”) is unlawful since there is no legal basis in the corporate tax law.

2) Plaintiff KimA

A) Article 42(1) of the former Inheritance Tax and Gift Tax Act (hereinafter referred to as the “instant provision”) stipulates that the subject matter of taxation is increased due to the increase in the value of shares due to the cultivation of forfeitedism, while the instant provision provides that a shareholder of a stock company, who is a preemptive right holder under the Commercial Act, has committed an acquisition of new shares, shall take the loss incurred in the case where the shareholder, who is the remaining holder of new shares, has taken advantage of the waiver of the preemptive right to underwrite new shares, and shall be subject to taxation. Therefore, the instant provision is completely different from the subject matter of taxation under the instant provision, and thus, the instant provision is null and void by expanding the subject matter of taxation beyond the scope delegated by the instant provision, thereby infringing on the taxpayer’s rights and property, and the instant disposition of imposition of gift tax based on the invalid provision is unlawful.

B) On December 19, 2001, the director of the Jung-gu Tax Office decided that the Plaintiff Company’s act of acquiring forfeited stocks of the Plaintiff KimA is subject to wrongful calculation based on the high-priced purchase, and revoked the above fixed-water disposal ex officio on the premise that the Plaintiff Company was notified of changes in the amount of income arising from bonus disposal on December 19, 2001, and that the Plaintiff Company was subject to collection of wage and salary income tax of KRW 736,671,530 on October 19, 2002, which was revoked ex officio on the premise that the benefit from the waiver of preemptive right does not belong to the Plaintiff KimA, and the disposition of imposing the gift tax of this case that deemed otherwise that the benefit was donated to the Plaintiff KimA is inconsistent with the Defendant’s preceding act. Therefore, the disposition of imposing the gift tax of this case is unlawful as it violates the

In addition, if the tax authority calculates the wrongful calculation under the Corporate Tax Act and revises the corporate tax after inclusion in the tax base of the corporate tax, it takes the disposition of income such as bonus, dividend income, and other outflow from the company according to the person to whom the profits accrue, and if the person to whom the income accrue is an individual, the classification of income such as earned income or dividend income is determined pursuant to the Income Tax Act. Therefore, if the income is disposed of in the gross income industry as the subject of the avoidance of wrongful calculation, it is only an issue of imposing income tax if the person to whom the income accrues is an individual, and there is no room to impose gift tax. The imposition of gift tax without discussing the income tax on the subject of such imposition of income tax is the same, and it is contrary to the principle of equality that considers otherwise, and the imposition of gift tax

On the other hand, the non-party company had non-performing loans of 22.2 billion won in the business year of 197, and if this is reflected in the net asset value before and after the capital increase of the non-party company, the net asset value is not more than 0 '0' and the value per share is less than '0 '0' accordingly, so there is no profit received as donation by the plaintiff KimA at all.

(b) Related statutes;

It is the same as the entry of the attached statutes.

C. Determination

1) On the behalf of the Plaintiff Company

In full view of the evidence mentioned above and evidence No. 7 evidence No. 7-1, the plaintiff company and the non-party company all together hold 24.46% of the shares issued by the plaintiff company, which is the main company of the above affiliates at the time of the capital increase, and held 36.86% of the shares issued by the non-party company. The non-party company attempted to issue new shares at 5,000 won at par value, and other shareholders, including the plaintiff KimA, have waived their acceptance of new shares. On the other hand, the plaintiff company did not accept all new shares issued by other shareholders including the plaintiff KimA upon the withdrawal of forfeited shares. In light of the relationship between the plaintiff and the non-party company, details of preemptive rights issued, and disposal of new shares, the plaintiff KimA and the plaintiff company's economic profit and loss from the capital increase, the non-party company's act of denying the plaintiff company's new shares by an objective and reasonable calculation method under Article 2-4 of the former Corporate Tax Act, and thus, the plaintiff company's act can be viewed and forfeited of the forfeited shares of the plaintiff company.

2) As to the plaintiff KimA's assertion

A) The legal provisions of this case provide that "in case where assets having economic value are, similar to those of Articles 32 through 41, and 43 through 45, not through normal transactions, but through trades between persons having special relations prescribed by Presidential Decree, are actually gratuitously transferred without compensation, the amount equivalent to the benefits prescribed by Presidential Decree shall be deemed to have been donated among the persons having such special relations." The provisions of the Enforcement Decree of this case, upon delegation, stipulate that in allocating forfeited stocks, where a person who has renounced all or part of the right to receive new stocks and a person having a special relationship obtains profits by acquiring forfeited stocks, the benefits from the deemed donation shall be deemed to have been made by the person who has renounced the relevant right to receive the forfeited stocks, the benefits from the deemed donation shall be the value per share after the capital increase (the total number of issued stocks before the capital increase by the person having special relations before the capital increase)" = (the number of new stocks before the capital increase by the person having special relations before the capital increase + (the number of stocks increase by the total number of forfeited stocks before the capital increase)."

In light of the contents and purport of each of the above provisions, and the effect of the high-priced acquisition of new stocks on the value of existing stocks, the amount calculated by subtracting the appraised value per stock after the capital increase from the acquisition value per stock of new stocks in the instant formula means the economic loss that a shareholder who acquired the high-priced stocks additionally acquires as one stock after the capital increase from the acquisition value of the forfeited stocks. This amount of loss is consistent with the economic profit amount that the forfeited shareholder takes over without compensation from the shareholder who acquired the forfeited stocks at high-priced stocks in the form of an increase in the value of existing stocks as a result of waiver of the acquisition of the forfeited stocks. Thus, the provision of the Enforcement Decree of the instant case does not constitute an invalidation provision that expands the taxable object beyond the delegation scope of the instant legal provision. Accordingly, calculating the profit that a shareholder who acquired the new stocks at high-priced under the Enforcement Decree of the instant case distributes to the forfeited shareholder pursuant to the provisions

However, in light of the structure of the instant formula, the value of the benefits is calculated on the premise that economic benefits are to be transferred between the shareholders who have acquired new stocks at a higher price and the forfeited shareholders. Therefore, in applying the instant formula, in cases where there exist treasury stocks whose acquisition of treasury stocks is restricted under the Commercial Act, and thus, there are treasury stocks not allocated new stocks, the value of the shares before the capital increase or the total number of shares issued before the capital increase should be calculated except

B) As seen earlier, the Plaintiff’s waiver of the preemptive right of Plaintiff KimA and the Plaintiff’s acceptance of the preemptive right and thereby making Plaintiff KimA gain profit from the increase of the real value of the existing shares constitutes a wrongful calculation subject matter, and this is deemed as a donation between the related parties under the legal provisions of this case. Thus, the disposition imposing the gift tax of this case cannot be deemed as a violation of the binding force of the disposition of income due to the transfer to other foreign countries, and it cannot be deemed that the disposition imposing the gift tax of this case violates the principle of equality in preparation for imposing the income tax, nor goes against the principle of excessive prohibition under the Constitution. As seen below, since the net value of the non-party company prior to the capital increase in this case should be calculated, it cannot be said that Plaintiff KimA has no profit as a donation.

3) The amount of gains deemed as gains on the donation of this case

First, the appraised value per share before the capital increase is calculated pursuant to Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act [the rate as determined by the Ordinance of the Prime Minister in consideration of the average of the net asset value of the corporation concerned / the total number of issued stocks + the average interest rate formed in the financial market for the last three years per share] ±2 (excluding the number of treasury shares in the total number of issued stocks before the capital increase as seen earlier in applying the above formula]. The net asset value of the non-party company before the capital increase in this case is 6,861,975,019, and 4,300,31 shares, the number of treasury shares is 1,419,479 shares, and the average amount of net profit and loss per share for the last three years / 1,000 won per share before the capital increase in this case is calculated based on each description of "the total number of issued stocks before the capital increase in this case" / 1,191, / 196 / 3094, 197

Next, the appraised value per share after the capital increase (the number of stocks issued before the capital increase) + (the number of new stocks issued before the capital increase) + (the number of stocks increased by the number of new stocks issued before the capital increase + the number of stocks increased by the total number of stocks issued before the capital increase) ± (the number of stocks issued before the capital increase) ± (the same as in this formula is excluded from the number of the total number of stocks issued before the capital increase). In addition, after the capital increase in this case, the values per share of the non-party company after the capital increase in this case are replaced with 2,568 won [2,568 won [2,286,1599 + 1,191 x 594,693 weeks] + (5,000 won x 1,519,14 shares] - (4,300, 140, 1,419, 419, 149] - 14 weeks

On the other hand, as seen earlier, the acceptance price per new shares of the non-party company is KRW 5,00, and the number of forfeited shares by the shareholders who renounced the acceptance of new shares is KRW 873,548 (=Plaintiff Kim KimA 559,952 + other shareholders 313,596). The number of forfeited shares acquired by those who have a special relationship with the forfeited shareholders is 559,952, and the total number of forfeited shares is 873,548 shares.

Therefore, the value of deemed donation by the instant formula is 1,361,803,264 won (=(5,000 won - 2,568 won) ¡¿ 873,548 note x (559,952 note/873,548 note).

4) Legitimate tax amount on the imposition disposition of this case

If the reasonable tax amount of the corporate tax of this case against the Plaintiff Company is calculated by reflecting the deemed gift amount calculated as above, it shall be KRW 548,158,764 as stated in the separate sheet of calculation of the corporate tax, and when calculating the reasonable tax amount of the gift tax of this case against the Plaintiff KimA, it shall be KRW 500,137,690, such as the detailed statement of calculation of

4. Conclusion

Therefore, the claim of the plaintiff company is justified only for the portion exceeding KRW 548,158,764 of the disposition of imposition of KRW 673,93,00 of the corporate tax of this case, and the part exceeding KRW 500,137,690 of the disposition of imposition of KRW 662,61,560 of the gift tax of this case. The plaintiff's claim of the plaintiff company shall be accepted only for the portion exceeding KRW 500,137,690 of the disposition of imposition of KRW 662,61,560 of the gift tax of this case. The remaining claim against the defendant of the plaintiff company and the remaining claim against the defendant of the defendant Kim Yong-A against the defendant of the defendant Kim Jong-Nam shall be dismissed as