Cho-2016-west-1624 ( June 29, 2016)

Whether the instant stock transaction between non-specially related persons constitutes a donation of profits from the low-price acquisition and transfer of property

Even if a non-specially related person acquired shares at a price lower than the market price, it is deemed that there is a justifiable reason for the transactional practice. Thus, it cannot be deemed that the transaction of this case constitutes an acquisition of the lower price of assets under Article 35(1) and (2) of the former Inheritance Tax and Gift Tax Act.

Article 35 of the Inheritance Tax and Gift Tax Act: Donation of Profits from Transfer of Low Price or High Price

Seoul Administrative Court-2016-Gu Partnership-76275

AA

BB Director of the Tax Office

August 16, 2017

October 13, 2017

1. The Defendant’s imposition of gift tax of KRW 524,249,90 (including additional tax) against the Plaintiff on February 5, 2016 shall be revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On December 3, 2012, the Plaintiff acquired shares 235,467 shares of HHH Co., Ltd. (hereinafter “HH Co., Ltd.”) at a unit price of 3,343 won (total amount of 787,166,181 won) per share (hereinafter “instant company”, “the shares of this case”, “the shares of this case,” and “the said transactions”) from KimCC, which was not specially related on December 3, 2012, and reported and paid to KimD on September 16, 2013, KRW 150,00 per share among the shares of this case, KRW 17,00 per share and KRW 17,00 per share from March 31, 2014.

B. At the time of the instant transaction, the Defendant assessed (Article 60 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”); Article 49(1) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) the market price of the instant shares as one share (the price settlement date of the instant transaction) on December 15, 2012, which was the nearest day to the date of the settlement of the price settlement for the instant transaction; Article 343 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Dec. 15, 2015; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) that the Plaintiff acquired shares at KRW 13,34343,500.5.

C. The Plaintiff dissatisfied with the instant disposition and requested an inquiry to the Tax Tribunal on April 21, 2016, but was dismissed on June 29, 2016.

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 2, 3, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) Defendant

A) Within a three-month period prior to the instant transaction date, KimD transferred the instant shares toCC Partnership Co., Ltd. (hereinafter “CC Partnership”) 9,000 won per share, and the instant shares were traded at the price of KRW 9,000 to KRW 10,00 per share, such as transfer of the instant shares to NA M&D Investment Co., Ltd. (hereinafter “M”). Therefore, it is reasonable to view that the instant shares were traded at the market price of KRW 10,00 per share, which is the transaction price between the trading price within three months prior to the assessment period under Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is the most nearest date on December 15, 2012, among the trading price within three months prior to the assessment period under Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, as the transaction price between the Ba and J&D Co. (hereinafter “J”) and the trading price within three months prior to the instant trading date.

B) Although there were business examples reflecting the objective exchange value of the shares of the company of this case prior to the instant transaction, the KimCC had no effort to maximize its own interest and made the instant transaction at the market price by using the assessed value according to the complementary evaluation methods under the former Inheritance Tax and Gift Tax Act of the company of this case prior to the merger. KimCC was an employee of the AL Co., Ltd. (hereinafter referred to as the "AAL"), who was in the position of the Plaintiff as the representative director, and the DongB had been aware that the share value of the company of this case, including the instant transaction, would reach 10,000 won per share. In light of the above, if a reasonable economy exists, there was no objective circumstance that the Plaintiff would have not traded the shares of this case under such terms and conditions under the circumstances at the time of the transaction. Therefore, there was no justifiable reason for the Plaintiff to have acquired the shares of this case at a price lower than the market price.

2) Plaintiff

A) The Plaintiff and KimCC assessed the value of the instant shares as KRW 3,343 per share in accordance with the supplementary assessment method prescribed by the former Enforcement Decree of the Inheritance Tax and Gift Tax Act at the time of the instant transaction. As such, KRW 3,343 per share in the instant transaction constituted the market value as a reasonable exchange value in light of transaction practices. Even if KimD, etc. transferred the instant shares to the company prior to the instant transaction, the assessment of the value of shares by unlisted companies may vary depending on the investor’s tendency, etc., and thus, it cannot be readily concluded that the said transaction value is an objective exchange value formed through free transaction between many and unspecified persons with respect to the shares of the company of this case. Accordingly, the Plaintiff purchased the instant shares at the market price, not only at a price lower than the market price.

B) On the contrary, in light of the following: (a) the AA Accounting Corporation and BB Accounting Corporation, an outside appraisal organization, calculated the shares value of the instant company in accordance with the complementary assessment method under the Inheritance Tax and Gift Tax Act; and (b) the Plaintiff or KimCC trusted and made the instant transaction; (c) the Plaintiff or KimCC traded the instant shares in the private equity fund, etc. prior to the instant transaction; (d) was unaware of the fact that the instant shares were traded in KRW 9,000 to KRW 10,000 per share; (c) even if the instant shares were obstructed, even if the information was obstructed by the unlisted company, it was impossible to know about the current status of the transaction; and (d) there was no reason to sell the instant shares to the Plaintiff without any interest to the Plaintiff at a price significantly lower than the market value. In light of the foregoing, there is a justifiable reason in the practice of the

B. Relevant statutes

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

C. Determination

(i)It u 3000

The following facts in full view of the statements in Gap evidence 8-2, 3, 9, 10, and 13, the statements in Eul evidence 4, 5, and 6, the witness KimD, and the purport of the whole pleadings in each testimony by DongB:

Recognized.

(1) AD Restructuring Fund, operated by B, acquired the instant company’s shares in around 2004, and was dissolved around 2007, transferred to E the instant company’s shares (which is equivalent to 30.23% of the total issued shares) of the instant company, which were held at the time of dissolution. After that, the Plaintiff, KimCC, and ED acquired part of the instant company’s shares from E in accordance with the proposal of BB, and the Plaintiff traded the instant company’s shares by the broker of BB on December 3, 2012 (the Plaintiff and B were de facto in a de facto marital relationship with the Plaintiff, and there was ASEAN in 207 between them).

B from March 31, 2004 to March 30, 2007, the director of the instant company, from April 16, 2004 to February 2, 2007, and from February 2, 2007, the representative director of the instant company was in the status of the instant company. KimD, according to its proposal, was appointed to the representative director from March 4, 2005 to was in the status of joint representative director with the said B, and even after BB resigned from the representative director, it is solely in the status of the representative director of the instant company.

(2) The net income of the instant company was rapidly increased by KRW 1.3 billion in the business year 2009, KRW 1.7 billion in the business year 2010, KRW 4 billion in the business year 201, KRW 7.2 billion in the business year 2012, and KRW 10.6 billion in the business year 2013.

HInvestment Partnership purchased the shares of the instant company in KRW 10,00 per share in accordance with the internal report on the instant company with the following content in 201, and at the time, the content of the sales contract at the time includes the term “in the event that the listing is delayed without any special reasons even when meeting the external requirements of listing within three years after the investment, the term “Buy-Bak for exercising options (the annual interest rate of 8%)” for common shares.

It is necessary to secure and maintain a stable growth trend by securing multi-level sales offices with domestic main companies in this field.

It seems that the growth trend will continue because the electric disaster prevention industry is 20 to 30% high growth industry, and in particular, it is judged that there is sufficient pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool pool 2013. It is expected to be listed on the KOSDAQ in the second half of 2013.

(3) According to the instant company’s increase in capital by three times on May 16, 2012, the number of shares issued by the instant company was increased from 1,929,750 to 5,789,250 shares during the period of 2012. Moreover, the instant company, as of October 16, 2012, in order to increase sales by using the business network of the Korea Qu Co., Ltd (hereinafter “K Qu”), a same kind of company in which KimD was operated, was merged on December 20, 2012 with the approval of the temporary general shareholders’ meeting on December 20, 2012, as of the date of merger, on which the merger took place, and on December 20, 2012, as of the date of merger, there was a net loss of approximately KRW 5.2 billion on the date of merger.

(4) A specialized investment company, such asCC partnership, MC, GG investment association, and J-investment, purchased the instant shares at KRW 9,000 to KRW 10,00 per share within a period of three months prior to the instant transaction date (However, the evaluation base date pursuant to Article 28(8) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is December 15, 2012, which is the payment date).

(5) Since then, the instant company did not meet the listing requirements of the KOSDAQ market, and was listed on the KONEX 3 on December 10, 2015.

2) Whether the transaction value determined by the instant transaction is lower than the market value

A) Article 35(1)1 of the former Inheritance Tax and Gift Tax Act provides that "if an asset is acquired by transfer from another person at a price lower than the market price, the difference between such price and the market price, which is equivalent to the profits prescribed by Presidential Decree, shall be deemed the value of the asset acquired by the transferee." Article 60 provides that "The value of the asset on which an inheritance tax or gift tax is imposed under the said Act shall be in accordance with the market price as of the date the inheritance commences or the donation is made (paragraph (1)), and the market price under Paragraph (1) shall be the value generally recognized as being established if a transaction is made freely between many and unspecified persons, and shall include "the market price is recognized as the market price as prescribed by Presidential Decree

Article 26 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "if the market price of the acquired property differs by 30/10 or more of the market price, or the difference is at least 300 million won, it refers to the price calculated by subtracting the price from the market price of the transferred property, or if the difference is at least 300 million won, it refers to the price." Article 49 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "if there is a fact of sale of the relevant property during the period of six months before or after the base date of appraisal (three months in cases of donated property) within six months after the base date of appraisal, the transaction price shall be defined as "if the transaction price is deemed objectively unfair due to a transaction with a specially related person falling under any of the subparagraphs of Article 12-2 (1) (a), it shall be excluded. Article 49 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the transaction price shall be the most near before or after the base date of appraisal.

Meanwhile, in the case of unlisted stocks with low market value, the transaction value shall be deemed the market value and the stock value shall not be assessed based on the supplementary evaluation method stipulated in the former Inheritance Tax and Gift Tax Act. However, since the market value means the objective exchange value formed through the general and normal transaction, in order to be recognized as the market value, the circumstances that can be seen as properly reflecting the objective exchange value at the date of donation should be acknowledged (see, e.g., Supreme Court Decision 2010Du26988, Apr. 26, 2012).

B) Comprehensively taking account of the following circumstances revealed by the above facts, the market price of the instant shares is 10,000 won per share, and 6,657 won calculated by subtracting 3,343 won from the market price of the instant transaction from the above market price is 30,000 won per share. Thus, it is reasonable to deem that 3,343 won in the instant transaction constitutes “ lower than the market price” under Article 35(1)1 of the former Inheritance Tax and Gift Tax Act and Article 26(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

(1)CC partnerships, GG investment associations, and Jinvestment companies have purchased the instant shares of KRW 9,00 to KRW 10,00 per share within 1,20 months prior to the instant transaction. This transaction example is that a private equity fund or an investment association becomes the purchaser of the instant company and has no special relationship therewith. Since a private equity fund is mainly engaged in assessing the company’s value and acquiring profits at an appropriate price, it seems that it reasonably calculated the value of the instant shares. Even if a private equity fund has a tendency to invest high profits and make high-risk investments, it cannot be deemed that the said transaction amount includes such risk above, and thus, it cannot be deemed that a private equity fund has acquired shares at a higher price than its market price than its market price. In addition, even if it is anticipated that its sales would have been listed at the market price of KRW 1,00 per share, it cannot be deemed that it would have been listed at the market price of KRW 20,000 per share after the exchange of shares at KRW 20,000 per share.

Furthermore, since HaA transferred 30,00 won per share of the company of this case to J-investment on December 4, 2012, the value of the transaction case nearest to December 15, 2012, which is the base date for appraisal (hereinafter “the transaction case of this case”) falls under the market price under the former Inheritance Tax and Gift Tax Act as seen earlier.

(2) According to the aforementioned legal doctrine, in the case of unlisted stocks, where an objective exchange price formed by a general and ordinary transaction is confirmed, such exchange price shall be deemed the market price, and it shall not be assessed based on a supplementary assessment method under the Inheritance Tax and Gift Tax Act. The 3,343 won, which the Plaintiff claims as the market price, is the assessed based on a supplementary assessment method under the Inheritance Tax and Gift Tax Act. In addition, the net profit and loss per share in the appraisal of stock value according to the supplementary assessment method is calculated by dividing the average net profit and loss per share for the last three years by the net profit and loss exchange rate per share, and it may be difficult to evaluate the objective exchange value of the stocks of the instant company, which was rapidly growing, by reflecting only the net profit and loss per share in the business year from 209 to 201

(3) On October 16, 2012, immediately before the aforementioned transaction cases, the instant company merged K Q with the degree of KRW 5 billion. However, in light of the fact that the sales of the instant company were rapidly growing, and that the instant company was anticipated to increase its sales by utilizing the K Q’s business network, the same kind of company, it cannot be deemed that it would have been abnormal to assess the shares of the instant company as KRW 10,000 on the ground that there was a merger with the hostile company.

(4) Meanwhile, at around 2011, HInvestment Partnership had a white option as seen earlier at the time of acquiring the instant company’s shares from KimD in KRW 10,000 per share, but this is an option to transfer the risk of a decline in the value of shares normally to the transferor of the shares. Therefore, it cannot be readily concluded that the transfer price of shares is higher than that of the stock in the instant transaction. Moreover, there is no evidence suggesting that the instant transaction case pertains to the transaction between 2A and J investment, and that there was a lower option in the said transaction.

3) Whether there was no justifiable reason for a transaction practice

A) The legislative intent of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to: (a) in a case where profits equivalent to the difference between the price and the market price are substantially gratuitously transferred by means of abnormal methods that manipulate the transaction price for the benefit of the transaction partner; (b) thereby, by imposing gift tax on the profits earned by the transaction partner; and (c) thereby, to cope with an unlawful act of donation and to promote the fairness of taxation. However, in the transaction between the unrelated parties, if the interests conflict with each other, it would be general and easy for the transaction to give up the opportunity for the transaction to gain profits; and (d) thus, Article 35(2) of the former Inheritance Tax and Gift Tax Act adds to the taxation requirement that “for the transaction between the unrelated parties, there is no justifiable reason for the transaction practice

In full view of these facts, it is reasonable to view that there exists a justifiable reason under Article 35(2) of the former Inheritance Tax and Gift Tax Act, even in cases where the transferor did not have any such reason, even if there was an objective reason that the transferor transferred property at a low price at a normal price reflecting the objective exchange value, and even if there was an objective reason that the transferor could not be deemed to have been an abnormal transaction from a reasonable economic perspective, it is reasonable to view that there was a justifiable reason for the transaction under Article 35(2) of the former Inheritance Tax and Gift Tax Act. However, even in cases of a transaction between the unrelated parties, there is no reason not to appropriately reflect the objective exchange value that can be formed among the unspecified parties in determining the transaction terms and conditions, and even in cases of a negotiation for favorable transaction terms or a physical color of a new transaction partner, it is difficult to view that there was a justifiable reason under Article 35(2)5 of the former Inheritance Tax and Gift Tax Act, barring any special circumstances.

Meanwhile, in an administrative litigation seeking revocation of a taxation disposition on the grounds of illegality, the tax authority bears the burden of proving the legality of the taxation disposition and the existence of the taxation requirements. As such, in the transaction between unrelated parties, the burden of proving that there is no justifiable ground under Article 35(2) of the former Inheritance Tax and Gift Tax Act (see, e.g., Supreme Court Decisions 2011Du22075, Dec. 22, 201; 2013Du5081, Aug. 23, 2013; 2013Du24495, Feb. 12, 2015).

B) The fact that the net income of the instant company was rapidly increased around the trading date of the instant case is as seen earlier, and according to the respective evidence Nos. 7, 9, and 10, “H Investment Partners invested KRW 4.8 billion in the instant company’s BW and common shares in the Internet article, which is media related to the capital market, on August 22, 2011,” and the Plaintiff was the largest shareholder holding 21.1% (1.57,658 shares) of the total number of shares issued by AL as of 2012 as of 201 and 21.1% of the total number of shares issued by AL as of 201 and 2012 as of 2012, 201, 2012, and 3.4% of the total shares issued by the employer (2.4% of the total shares issued by the Plaintiff).

C) However, according to the above facts, the company of this case did not transparently disclose its information as an unlisted company. As a result, the trading price of the company's shares seems to have been formed from 3,000 to 4,000 won per share in transactions between minority shareholders, not with investment companies. ② KimCC transferred its shares to KimD on December 27, 2010, to 6,737 won per share. However, the company's shares were to increase to 3 times its capital, and it was hard to find that the company's shares were traded in the market of this case without compensation, and there was no possibility that the company's shares were traded more than 90 times its shares. Since KimCC's shares were traded in the market of this case, it can be seen that there was no possibility that the company's shares were traded in the market of this case, and that there was no possibility that the company's shares were traded in the market of this case.

3) Sub-decisions

Even if the Plaintiff acquired the instant shares from KimCC at a price lower than the market price, it is deemed that there is a justifiable reason for the transactional practice. Accordingly, the instant transaction does not constitute the acquisition of the property under Article 35(1) and (2) of the former Inheritance Tax and Gift Tax Act. The instant disposition based on a different premise is unlawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and it is so decided as per Disposition.