Plaintiff 1 and three others (Law Firm Sejong, Attorneys Kim Ba-young, Counsel for the plaintiff-appellant)

The Head of Gangseo-gu Busan Metropolitan Government (Law Firm Shinsung, Attorney Cho Yong-jin, Counsel for the plaintiff-appellant)

October 13, 2006

Busan District Court Decision 2005Guhap13 delivered on November 3, 2005

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked. The defendant's imposition of acquisition tax of KRW 335,218,00 and special rural development tax of KRW 30,686,970 against the plaintiffs on January 25, 200 shall be revoked.

1. Details of the disposition;

The following facts are not disputed between the parties, or acknowledged by comprehensively taking account of the overall purport of the pleadings as follows: Gap evidence 1, Gap evidence 2, Eul evidence 3, Eul evidence 4-2, Eul evidence 1-3, Eul evidence 1-2, Eul evidence 1-2, Eul evidence 2, Eul evidence 3, Eul evidence 4-1, Eul evidence 4-2, Eul evidence 4-3, Eul evidence 6, Eul evidence 6.

A. On October 8, 1996, the non-party 1 Co., Ltd. was established for the purpose of civil engineering and construction work on the part of October 8, 1996, and the total number of its issued stocks is 21,000 (10,000 won per share) and changed its trade name to the non-party 2 Co., Ltd. (hereinafter “non-party 1”) around October 2002. In addition, on October 7, 2002, the plaintiff 1 was appointed as the representative director of the non-party company, the non-party 3, and the non-party 5 as the auditor, respectively.

B. At the time of reporting changes in stocks at the competent tax office at the end of 2002, the non-party company owned 10,290 shares of the non-party company (49%) on October 10, 202, and the non-party 4 (15%), the non-party 3 (15%) and the non-party 5 (21%) owned the remaining shares. On November 28, 2002, the non-party 2 purchased 3,150 shares (15%) from the above non-party shareholders, 3,150 shares (15%), 4, 3,360 shares (16%), and 4, 3,360 shares (16%). The plaintiff 2,3, and 4 reported that the non-party 1's shares were owned by the non-party 2, 3, and 4, respectively, and submitted the securities transaction tax to the transferor.

C. However, as a result of the local tax investigation conducted in 2003, the head of Busan Metropolitan City notified the Defendant of taxation data that the Plaintiffs are obligated to pay acquisition tax on the real estate, vehicles, etc. of the non-party company since they are oligopolistic shareholders holding 95% of the stocks of the non-party company as specially related persons (on the basis of Plaintiff 1, Plaintiff 2, Plaintiff 3, and Plaintiff 4 are their children) under the relevant Acts and subordinate statutes. On January 25, 2004, the Defendant imposed and notified the Defendant on the Plaintiffs on January 25, 2004, the sum of acquisition tax on the property owned by the non-party company (including additional tax; hereinafter the same shall apply) including the land, etc. of the non-party company, such as the land, etc. of the Gangseo-gu Busan Metropolitan City, Busan Metropolitan City, to jointly pay KRW 365,904,970 (hereinafter “instant disposition”).

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

The instant disposition shall be revoked on the grounds that it is unlawful for the following reasons.

(1) The non-party 6 and the non-party 7 acquired the non-party company around October 2002 in order to carry on the apartment building project on the premises of the Gangseo-gu Busan Special Metropolitan City (number omitted). At the time, both the non-party 6 and the non-party 7 entrusted the name of the shareholder to both the non-party 1 and the non-party 4, the non-party 3, and the non-party 5, who are the wife of the non-party 6 and the non-party 7, due to the bad credit standing relationship. However, in fact, the non-party 6 registered the plaintiff 1 as the representative director and was actually registered as the non-party 7 in order to secure the sole management right to the non-party 3, 4, and 5 in order to secure the conflict with the non-party 7 while he operated the company, the shares were transferred in the name of the non-party 2, 3, and 4 as seen earlier, and submitted it to the tax office.

(2) An oligopolistic shareholder liable to pay acquisition tax on the property of a corporation under the Local Tax Act shall be a person who actually runs the corporation. However, the Plaintiffs did not acquire the shares of the non-party company and did not participate in the management thereof.

(3) It is unlawful to impose the full amount of the Plaintiffs’ shares acquisition ratio disregarding the Plaintiffs’ shares acquisition ratio.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) As to the allegation in paragraph (1) above

(A) The acquisition of a corporation’s stocks referred to in Article 105(6) of the Local Tax Act, which provides for the liability to pay acquisition tax upon becoming an oligopolistic stockholder, includes all cases of acquisition of stocks in the form of transfer of ownership, regardless of whether the purchaser of the stocks acquires the ownership in substance, regardless of whether the purchaser of the stocks acquires the ownership in substance. In this case, acquisition tax imposed on the oligopolistic stockholder is naturally arising from the existence of a taxation requirement that became an oligopolistic stockholder by acquiring the stocks (see Supreme Court Decision 2003Du9008, Oct. 15, 2004). The fact of ownership of stocks is proved by data such as a list of stockholders, a statement of stock transfer, a list of the register of stockholders, the register of stockholders, etc., and even if it appears to be a single stockholder in light of this data, if there are circumstances such that the actual stockholder was stolen from the name of the stockholder, or registered in a name other than the name of the real owner, but it cannot be viewed as a shareholder merely by the title holder who is not a stockholder (see, etc.).

(B) On October 10, 2002, Plaintiff 1 acquired 10,290 shares of the non-party company (49% of the total number of shares issued) on October 10, 2002, Plaintiff 2 acquired 3,150 shares (15%) on November 28, 11 of the same year, Plaintiff 3,150 shares (15%) and Plaintiff 4,3,360 shares (16%) respectively. Based on Plaintiff 1, Plaintiff 2 was the mother, Plaintiff 3 was the father, and Plaintiff 4 was the birth partner, and Plaintiff 5% of the total number of shares issued by the non-party company. The plaintiffs constitute oligopolistic shareholders under Article 22 subparagraph 2 of the Local Tax Act.

(C) As to Nonparty 6’s title trust to the Plaintiffs, or Nonparty 6’s misappropriation of the Plaintiffs’ names by forging a share sale and purchase contract under the Plaintiffs’ names, Nonparty 12-2 was examined, and Nonparty 6’s testimony as to the fact that Nonparty 6 forged or exercised the said share sale and purchase contract from the Plaintiffs, there was no complaint from Nonparty 6, or there was no investigation by an investigation agency (the part of Nonparty 6’s witness), Plaintiff 1 was aware of the fact that Nonparty 6 was registered as Nonparty 6 as the representative director of the Nonparty company, and in fact, Nonparty 6 was involved in the process of acquiring the apartment construction project under the Plaintiff’s name, and signed and sealed the Plaintiff’s name (number omitted), Nonparty 15’s testimony, No. 16-1, No. 71, No. 75, No. 14, and evidence No. 81, and evidence No. 16-1, No. 75, and No. 9, No.

(2) As to the allegation in paragraph (1) (2) above

Article 105(6) of the Local Tax Act merely requires a person liable for tax payment of acquisition tax as “overpoint shareholder” and does not de facto operate a corporation, which is the requirement of the secondary person liable for tax payment under Article 22 subparag. 2 of the Local Tax Act. Thus, the oligopolistic shareholder liable for acquisition tax should be deemed as sufficient if he is in a position that substantially controls the operation of the company, i.e., a position that is a shareholder holding stocks of a certain ratio or more., whether the company is operating the company as an actual manager or not.

(3) As to the assertion of the above A. (3)

Article 105 (7) of the Local Tax Act applies mutatis mutandis to oligopolistic shareholders who are liable to pay acquisition tax under paragraph (6) of Article 105 to the provisions on joint and several tax liability under Article 18. Therefore, the plaintiffs are jointly liable to pay acquisition tax of KRW 335,218,00 in total.

(4) Therefore, the plaintiffs' above assertion is without merit.

3. Conclusion

Therefore, the judgment of the court of first instance is just, and the plaintiffs' appeal is groundless, and it is so decided as per Disposition.

Judges Park Jong-dae (Presiding Judge)