Seoul Administrative Court-2013-Gu Partnership-59835 (Law No. 15, 2015)

The imposition of gift tax is lawful on the ground that there is no justifiable reason in light of transaction practices.

A series of funds flows after stock transfer are bound to be used by the Plaintiff, etc. for their own account. Therefore, the disposition imposing gift tax by deeming that the Plaintiff, etc. acquired the gift tax by transfer of shares at a higher price is legitimate.

Article 35(1) of the Inheritance Tax and Gift Tax Act: Gift, etc. of profits from transfer at high prices

2015Nu46125 Revocation of Disposition of Imposition of Gift Tax, etc.

IsaA

O Head of tax office

April 27, 2016

May 18, 2016

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of gift tax OO(including additional tax) against the Plaintiff on March 21, 2012 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. On December 12, 2006, the Plaintiff entered into a contract for acquisition of shares and management rights to transfer 56,400 shares (the total issued shares; hereinafter referred to as “instant shares”) issued byCC to 15,002,40,000 shares (the total issued shares; hereinafter referred to as “instant shares”) as shareholders ofCC, a company that is an unlisted company that runs a training robot business (hereinafter referred to as “CC”).

B. Kim F, HH, DoE, UD, JJ and Kim II concluded a contract for acquisition of shares and management rights to transfer 3,251,652 shares (10% of total issued shares) issued by K with BB on December 12, 2006 as shareholders of K (hereinafter referred to as "Plaintiff, etc.") who are unlisted companies that run a sexual stem cell business (hereinafter referred to as "K"), and the shareholders of the company (hereinafter referred to as "Plaintiff, etc.") who are unlisted companies that run a sexual stem cell business (hereinafter referred to as "the acquisition agreement of this case") to 35,004,03,780 won (10,765 won per share) (hereinafter referred to as "the acquisition agreement of this case").

C. On May 31, 2007, the Plaintiff reported and paid KRW OOO in accordance with the transfer value of the instant shares.

D. The director of the regional tax office conducted a tax investigation on BB, and then notified the pertinent taxation data to each tax authority, by deeming that BB, who did not have a special relationship, purchased the shares at a higher price without justifiable grounds, even though the shares value of CCC pursuant to the supplementary assessment method under the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter the same shall apply) is not KRW 4,328 per share, and the shares value of K’s shares is not KRW 1,091 per share.

E. Accordingly, on March 21, 2012, the Defendant imposed on the Plaintiff the gift tax and the additional tax OOOO (the same as the above C.) under Article 35 of the Inheritance Tax and Gift Tax Act and Article 26 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”). (hereinafter “instant disposition”).

F. The Plaintiff filed a request for an inquiry with the Tax Tribunal on November 21, 2012, but was dismissed on June 28, 2013.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 11, 12 (including each number; hereinafter the same shall apply), Eul evidence 7, the purport of the whole pleadings

2. The plaintiff's assertion

A. The plaintiff's assertion that the transfer of this case does not have any profit from donation through the contract of this case

1) The Plaintiff et al., while making efforts to resolve the financial difficulties ofCC and K, transferred the shares and management rights issued by it to BB in accordance with the HongL proposal, which is a shareholder of HongL, the Plaintiff et al., and the Plaintiff et al.: (a) transferred the shares and management rights issued by it to BB; and (b) transferred the shares of MP to the RedL on November 16, 2006; (c) transferred part of the shares issued by it to 1.5 billion won, and K transferred to 3.5 billion won, respectively; (b) the above acquisition amount was transferred to B B by dividing the shares transferred to the account of individual transferor; (c) the Plaintiff et al. re- lent the transferred acquisition amount to MF; and (5) the Plaintiff et al. prepared an understanding that they will acquire MF shares from HongL using the acquisition amount received from BB to 22.5 billion won.

The acquisition agreement of this case was concluded in accordance with the above MOU, and the transfer price of this case 15,002,400,000 won of the stock price received by the Plaintiff is merely limited to the external amount created formally in the course of promoting the restructuring related to BB, and cannot be deemed as the actual transfer price.

2) Even if the Plaintiff received KRW 15,002,40,000 as the price for the transfer of the instant shares, it is reasonable to deem that there exists a justifiable reason in light of transactional practice, since it is the amount agreed upon between the unrelated parties through legitimate negotiations in accordance with the purpose of resolving financial difficulties betweenCC and K and promoting BB-related restructuring.

3) In addition, the Plaintiff merely lent the name of the account in accordance with the above memorandum of Understanding, but did not have accrued to the Plaintiff from the beginning that was remitted as the transfer price of the instant shares, and the Plaintiff did not actually enjoy economic benefits equivalent to the said money. Therefore, in relation to the transfer of the instant shares, there is no benefit of donation or donation subject to gift tax.

4) Nevertheless, the instant disposition taken on a different premise is unlawful as it was rendered on the basis of only a part of the entire transaction, without examining the overall process or purpose, as to legitimate transactions between unrelated parties.

B. The allegation that the instant disposition was unlawful as a double taxation

Under Article 2(2) of the Inheritance Tax and Gift Tax Act, gift tax may not be levied on a donee where income tax under the Income Tax Act is levied on the donee for donated property. In this case, the Plaintiff’s final return and payment of capital gains tax in relation to the transfer of shares in this case constitutes a case where income tax under the Income Tax Act is levied on the donee according to the said provision. Therefore, insofar as the Defendant did not extinguish the validity of the final return by adjusting the amount of tax for the Plaintiff’s final return of capital gains tax by separate correction

3. Relevant statutes;

The court's explanation on this part is the same as the corresponding part of the judgment of the court of first instance (from No. 9 to No. 10). Thus, this part is cited in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

4. Whether the instant disposition is lawful

A. Relevant legal principles

1) Article 35(2) of the Inheritance Tax and Gift Tax Act provides that where a property is transferred to a person other than a person with a special relationship at a price substantially higher than the market price without any justifiable reason, the transferor of the property shall be deemed to have received a donation of the amount equivalent to the difference between the price and the market price, and then the amount equivalent to profits prescribed by the Presidential Decree shall be deemed to be the value of the property donated to the person who has acquired such profits. Article 26(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act on delegation by the former provides that "where there is a difference between the market price and 30/100 or more of the market price of the transferred property, the value calculated by subtracting the market price from the price of the transferred property shall be deemed to be the value of the property donated to the person who has acquired such profits." Article 35(2)

2) The legislative purport of the aforementioned provision, etc. is to: (a) in a case where profits equivalent to the difference between the price and the market price are actually transferred without compensation by means of manipulating the transaction price for the benefit of the trading partner, to cope with an unlawful donation and promote fairness in taxation by imposing gift tax on the profits earned by the trading partner. However, since the transaction between unrelated parties does not coincide with each other; (b) it is general that there is a difference between the price and the market price, it is difficult to view that the difference was donated to the trading partner; and (c) Article 35(2) of the Inheritance Tax and Gift Tax Act adds the taxation requirement that “for the transaction between unrelated parties, unlike the transaction between

3) In full view of these facts, it is reasonable to view that there exists a justifiable reason under Article 35(2) of the Inheritance Tax and Gift Tax Act where the parties to a transaction who transferred or acquired property at a higher price have any reasonable reason to believe that the transaction price was properly reflected in the objective exchange value, as well as where there is an objective reason to deem that the transferee’s acquisition of property at a reasonable market price was an abnormal reason from a reasonable economic standpoint even if there is no such reason (see, e.g., Supreme Court Decision 2012Du20915, Jun. 12, 2014).

4) Meanwhile, in order for the taxation disposition under Article 35(2) of the Inheritance Tax and Gift Tax Act to be lawful, not only the transferor transferred assets to an unrelated party at a significantly higher price than the market price, but also the tax authority must prove that there is no justifiable ground for transaction practice (see, e.g., Supreme Court Decision 2011Du22075, Dec. 22, 2011). However, if the tax authority is a reasonable economy, it can be proven that there is no justifiable ground for transaction practice by submitting materials, such as objective circumstance that the transferor would not have made any transaction under such transaction conditions at the time of the transaction. If it is proved to a considerable extent, it is necessary to prove that there is a special reason that the taxpayer could easily submit specific materials, such as the transaction circumstance, the reason for determining the transaction conditions, etc., in light of the difficulty of proof to reverse the said provision or the concept of fairness (see, e.g., Supreme Court Decision 2013Du2495, Feb. 12, 2015).

(b) Fact of recognition;

The reasoning for this Court’s explanation is as follows: (a) it is identical to the entry of the third to fifth to fifth to fifth to fifth to fifth to fifth to the judgment of the court of first instance; and (b) it is also accepted by Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

○ From Nos. 3, 20 to 4 are as follows.

“○B transferred KRW 6 billion to the KN’s account, KRW 5.2 billion, and KRW 4.8 billion to the Plaintiff’s account. UD, headH, and the Plaintiff, on December 13, 2006, pursuant to the proposal of the HongL, changed to NN Co., Ltd. (O., Ltd.; hereinafter “N” without distinguishing before and after the change, entered into a monetary loan agreement with NN to lend KRW 15 billion in total to the NN for one month, and transferred KRW 1.5 billion out of the above KRW 1.6 billion to the KN’s account. On December 13, 2006, N concluded an agreement with MM to lend KRW 1.5 billion to the same day.”

○ From Nos. 4, 11 to 16 are as follows.

【6) On December 22, 2006, UDR entered into a contract on acquisition of shares and management rights with HongL and 100,000 shares of MM (10% of shares issued), BB shares 4,125,722 shares (39% of shares issued) with 22.5 billion won. However, UDR entered into a contract on acquisition of shares and management rights with PPP corporation (hereinafter referred to as “PP”) with the condition that shares of 3,083,333 shares of the listed company held by BB shall be transferred to a person designated by HongL or HongL at 16.5 billion won. In addition, UD loaned U.S. to HongL for 22.5 billion won on the same day, U.S. agreement on transfer of shares and management rights with PP corporation (hereinafter referred to as “PP”), but if HongL did not repay the above shares, U.S. agreement on transfer of shares and management rights to PPP corporation.

The Red LL did not repay the above loan 22.5 billion won to UD, and accordingly, UD, HH, DoE, and KimF acquired the entire stocks of MM from the Hong L on June 15, 2007 under each of the following names, but the Plaintiff did not acquire the stocks of MM.

"4,885,00 won" in the 5th page 11 is added to "4,885,000 won".

The ○ 5th page 14 and 15th page are as follows.

“Unsatisfy ] Unsatisfy, Gap’s 13 through 26, 28 through 30, 46, 47, each entry of Eul’s 3 and 4, and testimony of H by a witness of the first instance court.”

C. Whether the transfer contract of this case constitutes subject to gift tax

In full view of the facts as seen earlier, the evidence as seen earlier, Gap evidence Nos. 31 through 35, Eul evidence Nos. 5 and 6, and the overall purport of arguments, the following circumstances were comprehensively taken place. The plaintiff: (a) calculated the value per share of the shares calculated by the supplementary evaluation method stipulated under the Inheritance Tax and Gift Tax Act x 266,00 won per share to BB unrelated parties; and (b) sold the shares at an expensive price by transferring the shares to 15,002,40,000 won per share; (c) thereby, the plaintiff sold the shares at an expensive price; (d) calculated by adding the shares calculated pursuant to Article 35 of the Inheritance Tax and Gift Tax Act, Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 35 of the Inheritance Tax and Gift Tax Act, and Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (26,000 won - - 4,328 billion won) x 56,400 billion won per share.

① The Plaintiff, etc. entered into the instant transfer agreement with BB, and received KRW 15,002,40,000 from BB the transfer proceeds of the instant shares and KRW 35,004,03,780 in total, and KRW 50,006,43,780 in the transfer proceeds of KK shares.

② After concluding the instant transfer agreement, the Plaintiff voluntarily reported and paid KRW 1,464,288,800 to the competent tax office on the premise that the transfer price of the instant shares is KRW 15,002,40,000.

③ In connection with the acquisition agreement of this case, the acquisition agreement of acquisition of stocks and management rights to acquire stocks of 15 billion won which were concluded between the Plaintiff, etc. and N, N and N and L with the U.S. representing the Plaintiff, etc. for each monetary loan agreement of 15 billion won, the HongL agreement of acquisition of stocks and management rights to acquire 3,083,333 shares of PE owned by B and HongL with the acquisition of PE in 16.5 billion won by HongL in 22.5 billion won, but if HongL did not repay this, it was concluded with the Plaintiff, etc., but it was not reasonable to view that the acquisition agreement of this case was invalid because of the above series of contracts (this case’s acquisition agreement was concluded with the Plaintiff, etc.). The agreement of this case’s acquisition of stocks and management rights between the Plaintiff, etc. and the Plaintiff, etc. was concluded with the Plaintiff, etc., and thus, it cannot be viewed as invalid.

④ The Plaintiff asserted that, due to the acquisition agreement of this case, the Plaintiff et al. transferred and acquired shares ofCC and K were 100% shares and management rights of MF, and the Plaintiff did not acquire shares of MF differently from other KR shareholders, and that CC, other than the Plaintiff, was provided with funds through a series of transaction processes. However, the Plaintiff et al. acquired shares of 50,006,43,780 won in return for the transfer of shares of CC and K, and the Plaintiff’s acquisition in return for the transfer of shares of this case is 15,002,40,000 won. In other words, the Plaintiff et al. finally concluded the acquisition agreement of this case, through the acquisition agreement of this case, a series of shares acquisition limit and financial transactions thereafter, and 100,12,461,400,000 won, and 15,000,000 won, 306,000,000 won through the acquisition of shares of this case.

Furthermore, the Plaintiff et al. paid approximately KRW 3.10 million to the JJ, Co., Ltd., Ltd., which was a shareholder of K, out of the above KRW 50,006,433,780, and most of the BB convertible bonds ( KRW 12,461,40,00) acquired from part of the above transfer proceeds, to investors of K, such as Kim II, as agreed refund, KRW 4.18 billion, and the Plaintiff et al. acquired shares from the existing shareholders of K, such as the area immediately preceding the contract, and KRW 3.5 billion, the Plaintiff et al. was used to pay KRW 4,469,876,596, and the amount of tax that the Plaintiff et al. shared when entering into the acquisition agreement of this case, to the other shareholders of K, KRW 300 million,00,000,000,000,000,00 won, were actually used for the interest of the Plaintiff et al., thereby strengthening’s.

⑤ Through the instant acquisition agreement between the Plaintiff, etc. and the Plaintiff, etc., the MF share and management right acquisition agreement between the Plaintiff, etc., and the HongL and the PE-based PP share acquisition agreement between the Plaintiff, etc., there was an agreement between the Plaintiff, etc. on the Plaintiff, etc. to acquire BB’s shares instead of acquiring the CC and KK’s shares. As a result, even if approximately KRW 44 billion out of the total amount of KRW 50,006,43,780 transferred to the Plaintiff, etc. and KRW 50,006,43,780, which was ultimately recovered to BB, it cannot be denied that the Plaintiff, etc. received KRW 50,06,43,780, which was the total amount of KRW 50,000 from the CC and KK’s share transfer price, and the series of funds thereafter, the Plaintiff, etc. used their shares transfer price for their own account.

④ The value per share assessed as a supplementary assessment method under the Inheritance Tax and Gift Tax Act on the shares of this case is KRW 4,328, and the Plaintiff transferred it to BB at KRW 266,000 per share. As seen earlier, the amount calculated by subtracting the market price calculated by the supplementary assessment method under the Inheritance Tax and Gift Tax Act from the transfer value (=26,00 won - KRW 266,000 - 4,328) is apparent that it exceeds 30/100 of the market price of KRW 4,328, and thus, the value that the Plaintiff transferred the shares of this case to B may be deemed to be the “value significantly higher than the market price.”

7) From the standpoint of BB acquiring the shares ofCC and K, under the agreement on the acquisition of the shares of this case, it acquired the shares and management rights ofCC and K by acquiring the shares of 26,00 won per share of 4,328 won under the Inheritance Tax and Gift Tax Act, and of 10,765 won per share of 1,091 won under the Inheritance Tax and Gift Tax Act. While it is difficult for BB to collect the shares of 50 billion won paid by B due to the acquisition of the shares of this case, it is difficult to conclude that 64 billion won was collected from 50 billion won out of 50 billion won paid by B under the agreement on the acquisition of the shares of this case, BB issued new shares of 2.9 billion won to M, and it is difficult to conclude that 3,3400,000 won was an outstanding share of 12,461,400,000 won, and that 3,3340,3400,000 won of the investment shares of CC and 34.

The Plaintiff asserts to the effect that M&A was achieved through a series of contracts, including the instant transfer contract, based on a reasonable management judgment, because the Plaintiff, etc. and the Plaintiff, etc. were not related parties, and that there was justifiable grounds for transaction practices. However, as seen earlier, it is difficult for BB to find reasonable grounds to conclude the instant transfer agreement. Nevertheless, the conclusion of the instant transfer agreement with the Plaintiff, etc., which were controlled by B B through MM, was likely to induce BB to enter into the instant transfer agreement for the purpose of taking one’s own personal interest (SL was deducted through BB’s funds and obtained 3,083,333 shares from the Plaintiff, etc., and used 7 billion won in cash (=2.5 billion won - 16.5 billion won + 1 billion won received from M&), and it is deemed that the Plaintiff, etc. actively acquired the instant transfer agreement with the Plaintiff, etc. and the Plaintiff, etc. to acquire the instant transfer agreement by means of investment attraction, etc. and by means of investment attraction and transfer).

8) The gift tax was imposed on the Kim II as a shareholder of KK and the JJ on the premise that the transfer amount of KRW 2,798,90,00,00 per share calculated as KRW 10,765 per share due to the instant transfer agreement (=10,765 won x 260,00 won) and KRW 3,09,243,50 (=10,765 won x 287,900) were reverted, but there was no objection to this.

D. double taxation

The Plaintiff asserts to the effect that the disposition of this case, which was imposed on the gift tax pursuant to the contract of this case, is unlawful, even though the transfer income tax was already reported and paid based on the amount acquired by the transfer of shares.

On the other hand, Article 2 (2) of the Inheritance Tax and Gift Tax Act provides that "if income tax under the Income Tax Act, corporate tax under the Corporate Tax Act, and agricultural income tax under the Local Tax Act is levied on a donee for donated property under paragraph (1), gift tax shall not be levied. In this case, the same shall apply to the case where income tax, corporate tax, and agricultural income tax is exempted or reduced under the provisions of the Income Tax Act, the Corporate Tax Act, the Local Tax Act, or other Acts, and the fact that the plaintiff reported and paid capital gains tax of KRW 1,464,28,80 in relation to

However, Article 2(2) of the Inheritance Tax and Gift Tax Act provides that the gift tax shall not be imposed concurrently in cases where the subject matter of taxation of income tax is subject to income tax, and even if the income tax is not a legitimate subject matter of taxation, it shall not be imposed at all times, or the gift tax shall not be imposed without cancelling the disposition imposing the income tax erroneously imposed (see Supreme Court Decision 94Nu15189, May 23, 1995). Thus, the disposition in this case cannot be deemed double taxation solely on the ground that the Defendant did not adjust the amount of tax for the Plaintiff’s final return of capital gains tax through a separate correction disposition. In addition, in the instant disposition by the Defendant, so long as the Defendant deducts the amount of capital gains tax reported and paid by the Plaintiff as the amount of tax payable at zero won, the Defendant did not impose capital gains tax and gift tax twice on the same tax base

5. Conclusion

Therefore, the plaintiff's claim shall be dismissed as it is without merit, and since the judgment of the court of first instance is unfair with different conclusions, the defendant's appeal shall be accepted and the judgment of the court of first instance shall be revoked and the plaintiff's claim shall be dismissed as per Disposition.