In a case where another shares are acquired as the sale price of the first shares sold in title trust which are subject to a deemed donation and are subject to taxation, and another transfer is made in the name of the same person, whether gift tax may be levied on other shares transferred in such manner by applying the main sentence of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (negative in principle)

Article 41-2 (see current Article 45-2) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 7010, Dec. 30, 2003); Article 45-2 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); Article 45-2 (1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010);

Supreme Court Decision 2011Du10232 Decided February 21, 2017 (Gong2017Sang, 646)

Plaintiff (Law Firm Branch, Attorneys Yang Sung-min et al., Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

Seoul High Court Decision 2013Nu48424 decided September 5, 2014

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

The grounds of appeal are examined.

1. The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) provides that “where the actual owner and the title holder are different with respect to property that requires a registration, etc. for a transfer or exercise of the right, the value of such property shall be deemed to have been donated to the actual owner on the date when it is registered, etc. as the title holder, notwithstanding Article 14 of the Framework Act on National Taxes (see, e.g., Articles 45-2 and 41-2 of the former Inheritance Tax and Gift Tax Act before the amendment by Act No. 8828, Dec. 31, 2007; hereinafter referred to as “instant legal provision”).

In addition to the content of the legal provision of this case, in order to prevent the act of title trust for the purpose of tax avoidance, the legal provision of this case permits the taxation of gift tax by deeming the pertinent property to have been donated from the actual owner to the title holder as an exception to the substance over form principle. As such, in order to prevent the act of tax avoidance, it should be applied to only necessary and appropriate extent in order to prevent the act of tax avoidance. ② In a case where the first stocks under title trust are sold after having been subject to the deemed donation of gift tax or taxable amount, and another stocks are acquired at the price of sale, and then a transfer of ownership is again made in the same name under the same name, the imposition of gift tax by applying the legal provision of this case without restriction on other stocks re-transfered as such may result in contradictions that deny the effect of the first stocks under title trust in relation to the imposition of gift tax. ③ When the first stocks are acquired after the sale price, and another stocks are transferred under the name of the same person, it is reasonable to view that the first stocks under title trust or the first stocks under title trust 20.

2. According to the reasoning of the first instance judgment as cited by the lower court and the record, ① the Nonparty, the spouse of the Plaintiff, opened two borrowed-name securities accounts under the Plaintiff’s name and deposited investments, and thereafter, purchased and sold several listed stocks from 2002 to 2009 and made stock investments by using such accounts; ② the Nonparty, on December 31, 2002 with respect to the shares held through the above securities account, he was not subject to the disposition of each of the instant shares, on the ground that each of the instant shares was disposed of to the Plaintiff on the ground that each of the instant shares was disposed of for 20 years, and that each of the instant shares was disposed of to the Plaintiff on the ground that each of the instant shares was disposed of by the Plaintiff on December 31, 2004, and December 31, 2005, and December 31, 2006, and on December 31, 2007, 2002.

Examining these facts in light of the legal principles as seen earlier, there is room for the shares after 2003 out of each of the shares of this case to constitute re-acquisitions under the same person’s name using the sales price for shares in 2002, which are subject to first deemed donation. In such cases, the transfer of ownership of the relevant shares may not be subject to taxation by applying the legal provisions of this case.

Nevertheless, the lower court determined that the instant disposition was lawful without examining whether the shares were re- acquired as the selling price of the shares in 2002 after 2003. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of deemed donation under the legal provisions of this case, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

3. 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 Kwon Soon-il (Presiding Justice)