The legislative purport of Article 41-3(1) of the former Inheritance Tax and Gift Tax Act and whether new stocks are included in “new stocks” under Article 41-3(6) of the former Inheritance Tax and Gift Tax Act (affirmative)

Article 41-3(1) and (6) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

Plaintiff (Law Firm Squa, Attorneys Cho Young-chul et al., Counsel for the plaintiff-appellant)

Head of tax office

Busan High Court (Chowon) Decision 2012Nu983 decided June 13, 2013

The part of the judgment below against the defendant is reversed, and that part of the case is remanded to Busan High Court.

The grounds of appeal are examined.

1. Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that in case where a person having a special relationship with the largest shareholder, etc. receives a donation of stocks of the relevant corporation from, or acquires a compensation for, the largest shareholder, etc., or such stocks, etc. are listed on the securities market or the KOSDAQ within five years from the date of donation or acquisition, and where the value of the relevant stocks, etc. increases as a result of listing the relevant stocks, etc. to the relevant securities market or the KOSDAQ, if a person who received a donation or a compensation for the relevant stocks, etc. has acquired a specific profit in excess of the original taxable amount of gift tax or acquisition value, such profit shall be deemed the value of the property donated to the person who acquired the relevant stocks, etc., and

The legislative purport of Article 41-3(1) of the former Inheritance and Gift Tax Act is to promote tax equality by imposing gift tax on the listed profits of unlisted stocks and by imposing tax on them before the donation or transfer is expected to be realized at the time of the donation or transfer. Therefore, the “new stocks” under Article 41-3(6) of the former Inheritance and Gift Tax Act shall be deemed to include not only the originally acquired stocks but also the paid new stocks.

In addition, Article 47-2 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter the same) provides that where a taxpayer fails to file a tax base return within the statutory due date of return, an additional tax shall be imposed without filing a return; where a taxpayer files a tax base return under the tax-related Acts within the statutory due date of return; where the reported tax base falls short of the tax base to be reported under the tax-related Acts; and Article 47-5 provides that a taxpayer shall impose an additional tax for underreporting if a taxpayer fails to pay a national tax within the due date of return under the tax-related Acts or falls short of the tax amount to be paid; and Article 48-1 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010; hereinafter the same). Meanwhile, Article 48(1) of the former Framework Act on National Taxes provides that “Where the

In order to facilitate the exercise of taxation rights and the realization of tax claims, penalty taxes under the tax law are administrative sanctions imposed pursuant to the provisions of the Act in cases where a taxpayer violates a duty to report and pay taxes without justifiable grounds, and the taxpayer’s intent or negligence is not considered, and the land or mistake in the law does not constitute justifiable grounds. In addition, even if a taxpayer believed a tax official’s wrong explanation and fails to perform his/her duty to report and pay taxes, if it is evident that it is contrary to the relevant law, such reason alone does not constitute a justifiable ground (see Supreme Court Decision 2003Du10350, Sept. 24, 2004, etc.).

2. According to the reasoning of the judgment below, on December 8, 2004, the Plaintiff acquired 3,000 shares issued by Esco Co., Ltd. (hereinafter “Non-Party Co., Ltd.”) from the Non-Party, who is the largest shareholder, etc. on December 8, 2004, and the Plaintiff was an employee of the Non-Party Co., Ltd., who was in a special relationship with the Non-Party; ② the Non-Party Co., Ltd. offered capital increase on December 22, 2005; ② the Plaintiff acquired 750 shares allocated to it (hereinafter “the Non-Party Co., Ltd.”) for the Plaintiff’s shares at KRW 5,00 per share; ③ the Non-Party’s shares were listed on the KOSDAQ on January 25, 2008; ③ the head of Busan Regional Tax Office imposed an integrated investigation on the Non-Party Co., Ltd. from August 10, 2009 to September 30, 2009; and ④ the Defendant did not impose gift tax on the Plaintiff’s profits under 70000.7.1.

3. Examining the above facts in light of the legal principles as seen earlier, the listed gains on 3,000 shares that the Plaintiff acquired from the Nonparty, who falls under the largest shareholder, etc. of the non-party company, on December 8, 2004, constitute subject to gift tax under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act. Furthermore, the listed gains on the stock acquired on the basis of the above shares through the process for issuing new shares by the non-party company through the process for issuing new shares by the non-party company, also seems clearly to fall under subject to gift tax in light of the language and text, legislative intent, etc. of Article 41-3(1) and (6) of the former Inheritance Tax and Gift Tax Act. Furthermore, according to the evidence duly adopted, the whole amount of the listed gains on the stock acquired on the basis of acquisition at a cost, capital increase, capital increase without compensation, and stock dividends, etc. included in the National Tax Service’s “Case of Tax Investigation” (integrated information system) may be seen as taxable subject to gift tax.

Comprehensively taking account of these circumstances, although a tax official who conducted an integrated investigation into the non-party company did not impose gift tax at the time, it is due to a tax official's wrong statutory interpretation, even if the plaintiff trusted it, it does not constitute a case where there is a justifiable reason to exempt the penalty tax on the gift tax on the exchange marginal profits of new shares for consideration in this case on the sole ground that it is obviously contrary to the relevant laws and regulations.

4. Nevertheless, on the grounds that a tax official who conducted a consolidated investigation did not impose gift tax on the exchange marginal profits of new stocks of this case on his own on the grounds that it is unreasonable for the Plaintiff to trust it, and it cannot be deemed that the Plaintiff did not clearly violate the relevant Acts and subordinate statutes, and thus, the lower court determined that there was a justifiable reason that it was not attributable to the Plaintiff’s failure to report and pay gift tax on the exchange marginal profits of new stocks of this case.

Therefore, the judgment of the court below is erroneous in the misapprehension of legal principles as to legitimate grounds for exempting additional tax, which affected the conclusion of the judgment. The ground of appeal assigning this error is with merit

5. Therefore, the part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)