Suwon District Court-2012-Gu Partnership-10100 ( October 18, 2013)

Cho-2012-China-0619 (2012.05.09)

Family business succession is naturally accompanied by family business succession and ownership succession in the exemption of gift tax for family business succession.

Family business succession is naturally accompanied by family business succession and ownership succession in the exemption of gift tax for family business succession.

Article 30-6 (1) of the Restriction of Special Taxation Act

2013Nu6130 Revocation of Disposition of Imposition of Gift Tax

CHAPTER A

port of origin

Suwon District Court Decision 2012Guhap10100 Decided January 18, 2013

June 26, 2013

July 24, 2013

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 imposing OOO on the Plaintiff on July 18, 201 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of disposition;

A. The Plaintiff’s father and fatherB transferred all of the shares of the non-party company owned by himself (hereinafter “the shares of this case”) to the Plaintiff on December 24, 2009. On January 4, 2010, on the ground that the gift constitutes a gift for the purpose of succeeding to the business under Article 30-6(1) of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; hereinafter “former Restriction of Special Taxation Act”) and the transfer of shares of the non-party company to the Plaintiff for 15 years after the incorporation of D&C (hereinafter “non-party company”) by converting the business into a corporation around May 1995.

Total number of shares (share)

HeadB and person interested in the special interest;

Other stockholders

Number of shares (number of shares)

(%) Equity (%)

Number of shares (number of shares)

(%) Equity (%)

208

40,000

40,000

100

0

0

2007

40,000

40,000

100

0

0

206

40,000

40,000

100

0

0

205

40,000

40,000

100

0

0

204

20,000

9,600

48

10,400

52

203

11,000

5,280

48

5,720

52

202

5,000

2,400

48

2,600

52

201

5,000

2,400

48

2,600

52

200

5,000

2,400

48

2,600

52

199

5,000

2,400

48

2,600

52

"The defendant did not hold more than 50% of the total number of shares issued by the non-party company in addition to the shares issued by the non-party company at the time of donation for not less than 10 consecutive years. Thus, the defendant deemed that the donation of the shares in this case does not constitute "the donation for the purpose of succeeding to a family business as provided in Article 30-6 (1) of the former Restriction of Special Taxation Act" and notified the plaintiff on July 18, 201 that OOO (including additional tax) was corrected and notified (hereinafter referred to as "the disposition in this case"). (e) The plaintiff dissatisfied with the disposition in this case and filed an appeal with the Tax Tribunal, but the plaintiff was dismissed.

Grounds for Recognition: Facts without dispute, Gap evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Article 30-6 (1) of the former Restriction of Special Taxation Act provides that a resident shall be exempted from gift tax if he/she receives stocks, etc. from his/her parents who have engaged in a family business under Article 18 (2) 1 of the former Inheritance Tax and Gift Tax Act for the purpose of succeeding to the pertinent family business for at least 10 years. Article 18 (2) 1 of the former Inheritance Tax and Gift Tax Act provides that "a small and medium enterprise prescribed by Presidential Decree, which has continuously operated for at least 10 years for the purpose of succeeding to the pertinent family business." Since a headB is the largest shareholder of the non-party company and the representative director of the non-party company, and continues to operate the non-party company for at least 10 years retroactively from the date of donation of the instant stocks, the donation of the instant stocks constitutes "a donation for the purpose of succeeding to the family business under Article 30-6 (1) of the former Restriction of Special Taxation Act." This applies to the Plaintiff even if the headB did not hold more than 50% of the total stocks issued by the related party at the time of donation.

It is as shown in the attached Form.

C. Key issue of the instant case

Article 30-6 (1) of the former Restriction of Special Taxation Act provides that a resident shall be subject to gift tax by subtracting 50 million won from the taxable value of donated property in cases where he/she receives the donation of stocks or equity shares (the ceiling of the taxable value of gift tax shall be three billion won; hereinafter the same shall apply) for the purpose of succeeding to the relevant family business from his/her parents who have engaged in the family business under Article 18 (2) 1 of the Inheritance Tax and Gift Tax Act for ten or more years, and by adding 10/100 to the taxable value of donated property in cases where he/she succeeds to the family business as prescribed by Presidential Decree. In addition, Article 18 (2) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that a resident shall be subject to the imposition of gift tax by adding 10/100 or more to the total amount of shares issued by the decedent and heir, and Article 18 (2) 3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the largest shareholder or the largest shareholder of the relevant corporation shall be prescribed by Presidential Decree.

To be subject to the special taxation of gift tax under the provisions of Article 30-6 of the former Restriction of Special Taxation Act, where a corporation is the largest shareholder or largest investor of a corporation that operates a small or medium enterprise pursuant to Article 18(2)1 of the former Inheritance Tax and Gift Tax Act and Article 15(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is the provision of this case, and where the aggregate of stocks, etc. of a corporation that is the largest shareholder or largest investor of the corporation that operates a small or medium enterprise holds not less than 50/10 (40/100 if

However, since the period applicable to the provisional business under Article 18(2)1 of the former Inheritance Tax and Gift Tax Act does not exceed 10 years, the gift of the instant shares does not constitute a case where the gift of the instant shares is made for the purpose of succeeding to the family business. The instant disposition is lawful. The reasons are as follows.

"1) The purport of the donation through family business succession or family business succession system is to support the economic activities of small and medium enterprises falling under the family business on the premise that the family business is continuing, while to protect the enterprises falling under the family business which are the physical foundation of employment. The family business referred to in the family business succession or family business succession refers to the "family business within the house in which the family business is held in advance." Therefore, the family business succession and ownership are naturally accompanied by the family business succession (in case of family business succession, it is deemed that the family business succession has more important meaning than the succession of the representative director's status without ownership). Meanwhile, in case of family business subject to the Income Tax Act, the property of family business succession means land, building, machinery, etc. used directly for the family business (Article 15 (5) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act), and it is reasonable to establish the scope of shares of a corporation falling under the inherited property (Article 15 (5) 2 of the former Enforcement Decree of the Income Tax Act).

2) Provisions of Article 30-6 of the former Restriction of Special Taxation Act (Special Taxation on Gift Tax on Succession to Family Business)

31. Article 827 of the Inheritance Tax and Gift Tax Act provides that "the largest shareholder of a corporation is 1/100 or more of the total issued and outstanding shares of the corporation and the purport of the new establishment shall be 1/100 or more of the total issued and outstanding shares of the corporation shall be 1/100 or more of the total issued and outstanding shares of the corporation (including 2/100 or more of the total issued and outstanding shares of the corporation which are 1/100 or more of the total issued and outstanding shares of the corporation) so that the founder may succeed to his/her children before the commencement of the new establishment; 2/10 or more of the total issued and outstanding shares of the corporation shall be treated as 1/100 or more of the total issued and outstanding shares of the corporation; 3/100 or more of the total issued and outstanding shares of the corporation shall be treated as 1/100 or more of the total issued and outstanding shares of the corporation; 2/100 or more of the total issued and outstanding shares of the corporation shall be treated as 1/3/1/4).

In addition, if the provision of this case is merely an exemplary one as alleged by the plaintiff, it is unnecessary to use the expression "if a corporation listed in the Korea Exchange holds at least 40 percent of the total number of issued stocks or total amount of investment (hereinafter referred to as "total number of issued stocks, etc.") of the pertinent corporation under Article 15 (3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter referred to as "the total number of issued stocks, etc."). If the provision of this case is an exemplary one, even if the provision of this case does not correspond to 50 percent (40 percent if a corporation listed in the Korea Exchange is listed in the total number of issued stocks, etc.) of the total number of issued stocks or total amount of investment (hereinafter referred to as "total number of issued stocks, etc.") of the pertinent corporation, it can be deemed that the upper limit of shares under the above provision of this case

5) If the instant provision is merely an exemplary provision like the Plaintiff’s assertion, it would result in deducting KRW 500 million from the taxable value of donated property even in cases where the ownership of the corporation owned by the representative director is not related to the family business succession, such as the case where the ownership of the corporation is within 1% if the requirements for the family business succession are met. This interpretation is inconsistent with the literal meaning and legislative intent of the family business, and it is unreasonable to result in donation of the shares owned by the representative director without any tax burden within KRW 500 million, regardless of the family business succession.

6) Article 15(11) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that a person who intends to obtain a deduction pursuant to Article 18(2)1 of the Act shall submit a detailed statement of the property of the family business and documents evidencing the inheritance of the family business prescribed by Ordinance of the Ministry of Strategy and Finance to the head of the tax office having jurisdiction over the place of tax payment along with a report on the tax base of the inheritance tax under Article 64 (hereinafter referred to as “report on the tax base of the inheritance tax”). In such cases, the head of the tax office having jurisdiction over the place of tax payment shall manage whether the deduction for inheritance of a family business falls under any of the items of Article 18(5)1 of the Act, and shall impose inheritance tax by including the amount initially deducted in the taxable amount of inheritance tax at the time of the commencement of the inheritance. Article 6-2 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act delegated by him/her as a document evidencing the inheritance of a family business prescribed by Ordinance of the Ministry of Strategy and Finance under Article 15(3) of the Decree.

Article 6-2 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act provides that “If the provision of this case does not constitute a family business, the person who falls under the largest shareholder or largest investor under Article 15(3) of the Enforcement Rule of the Inheritance Tax and Gift Tax Act does not have any reason to require the submission of documents proving that the person is the largest shareholder or largest investor under Article 15(3) of the Decree. In addition, the provision of Article 6-2 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act, which requires the submission of documents proving that the person is the largest shareholder or largest investor under Article 15(3) of the Decree, continues to have the same contents except some phrases since the first establishment of the Enforcement Rule of the Inheritance Tax and Gift Tax Act as amended by Ordinance of the Ministry of Finance and Economy on April 3, 201, the person who wishes to be subject to family business succession or family business succession provisions, could have known that the provision of this case constitutes a requirement for family business succession or family business succession. If the provision of this case is an example, the purport of Article 6-2 subparag. 158(2) of the Inheritance Tax Act is clear.

8) The National Tax Service, on August 22, 2008, made it clear that the question pertaining to the special provision on gift tax on family business consignment falls under the category of property tax and the instant provision in order to fall under the category of family business by 2390, and explained its purport in the revised tax law theory published by the National Tax Service. Therefore, it is difficult to deem that such interpretation causes unexpected damages to a person who intends to be subject to the special provision on gift tax.

9) In light of the legislative purport of the instant family business’s language and text, the content under Article 6-2 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act, and the purport of the instant provision that embodys the meaning of the family business under Article 18(2)1 of the former Inheritance Tax and Gift Tax Act, it is difficult to deem that the instant provision was exceeded the delegation scope under Article 18(2)1 of the former Inheritance Tax and Gift Tax Act or Article 18(4) of the former Inheritance Tax

3. Conclusion

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.