Plaintiff (Law Firm LLC, Attorneys Lee Do-min et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

April 10, 2012

1. The Defendant’s disposition of imposition of gift tax of KRW 524,736,00 against the Plaintiff on June 9, 201 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On March 2, 2007, the Plaintiff transferred the above 300,000 shares (hereinafter “instant shares”) that Nonparty 2 acquired from Nonparty 1,6, and 7 (hereinafter “Nonindicted 1, etc.”) totaling KRW 100,000 per share of the shares issued by the global interest corporation, an unlisted corporation, to KRW 5,000,000 per share (hereinafter “instant transfer”). On the same day, the Plaintiff transferred the said shares (hereinafter “instant shares”) totaling KRW 30,000 per share of KRW 10,000 per share (hereinafter “instant transfer price”).

B. Since May 14, 2007, the Plaintiff reported and paid KRW 133,425,000 upon the transfer price of the instant shares by setting the transfer price per share of the instant shares as the transfer price per share of the instant shares.

C. From February 17, 201 to March 18, 2011, the director of the Central District Tax Office: (a) conducted an investigation of changes in stocks with respect to global taxation; (b) deemed that the Plaintiff transferred the stocks of this case to Nonparty 2 at KRW 10,000 per share, which is the value significantly higher than the market price (5,000 per share) without justifiable grounds; (c) calculated the value of donated property pursuant to Article 35(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax Act”); and (d) accordingly, the Defendant decided and notified the Plaintiff of gift tax of KRW 524,736,00 on June 9, 201 (hereinafter “instant disposition”).

D. The Plaintiff appealed and filed a request for examination with the Commissioner of the National Tax Service on June 14, 2011, but the Commissioner of the National Tax Service dismissed the said request for examination on August 26, 2011.

[Reasons for Recognition] Each entry of Gap evidence Nos. 11 through 16 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The acquisition price of the instant 1 transaction is KRW 5,00 per share and KRW 10,00 per share of the transfer price of the instant 1 transaction constitutes “market price” inasmuch as both parties to the transaction are determined freely in an equal relationship pursuing the maximizement of their respective economic interests by taking into account the situation at which each party to the transaction was in no special relationship. Therefore, the Plaintiff’s transfer of the instant shares to KRW 10,00 per share does not constitute “where property is transferred at a price substantially higher than the market price without justifiable grounds in light of transaction practice.”

2) In addition, Article 2(2) of the former Inheritance and Gift Tax Act declares the principle of priority in income taxation by prescribing that gift tax shall not be imposed in the event income tax is imposed on a donee for donated property. As such, in a case where the Plaintiff’s income derived from transferring the shares of this case to KRW 10,000 per share is subject to the transfer income tax, only the transfer income tax may be imposed, and gift tax may not

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

First, we examine whether gift tax may be imposed on the income accrued from the transfer of the shares of this case, if it is subject to the transfer income tax.

Article 2(2) of the former Inheritance and Gift Tax Act provides that gift tax shall not be imposed when income tax under the Income Tax Act is imposed on a donee with respect to donated property on which gift tax is levied. This is to prevent double taxation on the same source of taxation as that where income tax is subject to taxation of income tax, the gift tax may not be imposed in duplicate.

In addition, Article 96 (3) 2 of the Income Tax Act, amended by Act No. 8825 of Dec. 31, 2007, where a resident transfers an asset at a price higher than the market price to a person other than a person with a special relationship, and where there is an amount which is deemed a donated property of the relevant resident pursuant to Article 35 of the former Inheritance Tax Act, the market price under the same Article (this part was amended by Act No. 9897 of Dec. 31, 2009) was newly established that the amount calculated by subtracting the donated property from the transfer value shall be deemed as the actual transaction price at the time of transfer of the relevant asset. Accordingly, from the amended Income Tax Act (see Article 3 of the Addenda of the former Income Tax Act) to the first high-priced transfer portion made after the enforcement of the amended Income Tax Act (see Article 3 of the Addenda of the amended Income Tax Act), the difference between the relevant transfer value and the market value is resolved by imposing the gift tax, and the difference between the market price and the transfer value.

In other words, where assets subject to capital gains tax are transferred at a price higher than the market price and there is a value of donated property equivalent to the difference between the price and the market price under Article 35 of the former Inheritance and Gift Tax Act, gift tax is levied on the transferor in accordance with Article 35 of the former Inheritance and Gift Tax Act along with the capital gains tax. As seen earlier, in cases where high-priced transfer is made on or before January 1, 2008, gift tax is levied prior to the imposition of income tax in accordance with Article 2 (2) of the former Inheritance and Gift Tax Act; in cases of high-priced transfer after January 1, 2008, the difference between the relevant transfer value and the market price of the gift by dividing the income section into income and the relevant transfer value with the characteristics of the gift is resolved by imposing capital gains tax, and only the remaining transfer gains (the difference between the market price and acquisition value) are to be resolved by imposing capital gains tax.

On March 2, 2007, under the premise that the Plaintiff transferred the instant shares to Nonparty 2, who is not a person with a special relationship, at KRW 10,000 per share, which is higher than the market value of KRW 5,000 per share, the Defendant: (a) deemed that the amount equivalent to the difference between the transfer value of the instant shares and the market value was donated; and (b) pursuant to Article 35(2) of the former Inheritance and Gift Tax Act and Article 26(3)2 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20323, Oct. 15, 2007; hereinafter the same), the Defendant calculated the donated shares [1.2 billion won] pursuant to Article 35(2) of the former Inheritance and Gift Tax Act and Article 26(3)2 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20323, Oct. 15, 200; hereinafter the same) and imposed KRW 524,736,000 per share.

Therefore, even if the Plaintiff transferred the instant shares at a higher price than the market price, the instant disposition based on the premise that the gift tax pursuant to Article 35 of the former Inheritance and Gift Tax Act may not be imposed on the instant shares transfer pursuant to Article 35 of the former Inheritance and Gift Tax Act, is unlawful, without examining the remainder of the Plaintiff’s assertion.

The Supreme Court Decision 98Du11830 Decided September 21, 1999 cited by the Defendant in relation to the assertion that the imposition of the gift tax is justifiable is lawful to impose the transfer income tax on the transferor and the gift tax on the transferee, who is the donee, in accordance with the provision of the denial of unfair act and calculation under the Income Tax Act, in a case where the transfer of shares is not an elevated transfer but a low-price transfer of shares, and thus, it is inappropriate to invoke the case differently

3. Conclusion

The plaintiff's claim is justified and accepted.

[Attachment Form 5]

Judges Cho Il-young (Presiding Judge) Kim Yong-dong