Seoul High Court 2008Nu15215 ( October 23, 2008)

Seoul Administrative Court 2007Guhap42683

Whether there was an objective of tax avoidance in stock title trust

It is not reasonable to view that the title trust of shares was the purpose of tax avoidance in view of the fact that the title trustee was transferred with respect to the donation of shares in this case by the Plaintiffs, who are the title trustee, and that there was a purpose of tax avoidance, such as preparing a sales contract.

The contents of the decision shall be the same as attached.

Article 43(1) of the former Inheritance Tax and Gift Tax Act

1. All appeals are dismissed.

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

Although all of the records of this case and the judgment of the court below and the grounds of appeal were examined, the argument on the grounds of appeal by the appellant falls under Article 4 of the Act on Special Cases Concerning the Procedure of Appeal, and therefore, all of the appeals are dismissed under Article 5 of the same Act. It is so decided as

[Seoul High Court Decision 2008Nu15215 ( October 23, 2008)]

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked.

On February 13, 2007, the head of Seocho District Tax Office imposed a gift tax of KRW 376,00,000 on Plaintiff Cho Young-chul in the year 198; imposed a gift tax of KRW 352,560,000 in the year 198; imposed a gift tax of KRW 352,560,00 in the year 198 by the head of Sungnam Tax Office with respect to Plaintiff Cho Jong-dong with respect to Plaintiff Cho Jong-dong on February 15, 2007; and imposed a gift tax of KRW 364,00,000 in the year 198 by the head of Gangnam District Tax Office.

The reasoning of the court's explanation concerning this case is the same as the entry of the reasoning of the judgment of the court of first instance. Thus, it is acceptable to accept this as it is in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420

Therefore, the judgment of the first instance court is legitimate, and the plaintiffs' appeal is dismissed. It is so decided as per Disposition.

[Seoul Administrative Court 2007Guhap42683, May 14, 2008]

1. All of the plaintiffs' claims are dismissed.

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

Defendant ○○ Head of the tax office’s imposition of KRW 376,00,000 on February 13, 2007 against Plaintiff ○○○○○, the imposition of KRW 376,00,00 on the gift tax for the year 198; the imposition of KRW 352,560,000 on the gift tax for the year 198 by Defendant △△○○ on February 15, 2007; and the imposition of KRW 364,00,000 on the gift tax for the year 1998 by Defendant △△○ on February 15, 2007.

1. Details of the disposition;

The following facts do not conflict between the parties, or can be acknowledged in full view of the purport of each of the statements in Gap evidence 1-1-2, Gap evidence 1-2, Gap evidence 2, Eul evidence 3, and evidence 1-2, Gap evidence 6, Gap evidence 7, 8-1, 2, Gap evidence 10, Gap evidence 11, 12-1, 2, Eul evidence 1-2, 2-1, 2-2, and 3, respectively.

A. Non-party ○○ Investment Co., Ltd. (hereinafter referred to as “non-party ○○○ Investment Co., Ltd.”) is an unlisted company established on November 10, 198 with the capital of 10,00,000 won (one share value of 5,000,000 won, and 2,000,000,000 shares) for the purpose of running the investment and loan business for business starters at ○○○○○-dong, ○○○○○-dong, ○○○-dong, and indicated respectively in the list of shareholders as the non-party 2,00,000 shares issued at the time of establishment, and the shares of this case are 196,00 shares,00 shares, which are 196,00 shares,8,000 shares, ○○-si, and ○○-si, ○○-si, and 200,00 shares and 40 shares each of the above shares.

B. However, among the newly incorporated shares of this case, the plaintiffs acquired 596,000 shares (=200,000 shares + 200,000 shares + 196,00 shares + 196,00 shares; hereinafter referred to as "the shares of this case") are practically owned by Kim○, and thus, they held a title trust to the plaintiffs at the time of incorporation of the non-party company.

C. Meanwhile, as a result of the ○○ Regional Tax Office’s tax investigation on the non-party company conducted the above title trust, it revealed that the above title trust was notified to the Defendants, who are the head of the tax office having jurisdiction over the plaintiffs, as taxation data. The defendants presumed the shares of this case to have been trusted by Kim○, and presumed to have been donated under Article 43 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998; hereinafter referred to as the "former Inheritance Tax Act"), the head of the ○○ Tax Office imposed the gift tax amount of KRW 376,00,000 on the non-party Cho○○ in February 13, 2007, and the head of the △△△△ Tax Office imposed the gift tax amount of KRW 352,560,000 for the plaintiff Cho○○ in 15th of the same month, and the head of the △△ Tax Office imposed the gift tax amount of KRW 3000,000 for the same day.

D. On May 3, 2007, the Plaintiffs filed an appeal with the National Tax Tribunal on the instant disposition, but all of the appeals were dismissed on August 16, 2007.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

According to Article 15 (1) 4 of the Support for Small and Medium Enterprise Establishment Act, when the non-party company was established, the non-party company is not allowed to acquire real estate except real estate for business purposes, and the non-party company is exempt from acquisition tax under the Local Tax Act and the regulations on deemed acquisition tax (Article 105 (6) of the Local Tax Act) on deemed acquisition tax on oligopolistic shareholders (Article 105 (6) of the Local Tax Act) are not applicable to the acquisition of real estate for business purposes. If the non-party company, which is classified as a financial company, has made an investment in its own name, in order to avoid unnecessary misunderstanding in the business affairs of △△△ and △△△△, and there was no intention to avoid tax. In fact, the non-party company did not fail to pay taxes until the date of the title trust as well as ten years after the date of the title trust, and thus, there was no possibility to establish secondary tax liability for oligopolistic shareholders, and even if the non-party company did not have any profits from the transfer of stocks under title trust or dividends to the company.

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

The following facts are not disputed between the parties, or may be acknowledged by taking into account the whole purport of the pleadings on the testimony of Gap 4, 8, 12, and 17-1, 2, 18-3, 3-4, 5, 6, 9-1 through 7, 11-1, 11-2, 3, and part of Eul 1-1, 11-2, 3, and 17-2.

(1) At the time of the incorporation of the non-party company, Kim○ was the representative director of △△ who conducts the business of providing domestic and foreign high-quality economic information to large enterprises, such as research and investigation of domestic and foreign economic, management, industries, companies, capital markets, database related to consulting business, etc., and was the representative director and the issuer of △△, a field

(2) According to Article 280(4) of the Local Tax Act (amended by Act No. 6312, Dec. 29, 2000; hereinafter referred to as the "former Local Tax Act"), the non-party company, as an investment company for the establishment of a small and medium enterprise under the Support for Small and Medium Enterprise Establishment Act, provided that the acquisition tax and registration tax shall be exempted for real estate acquired by a person designated as an investment company for the establishment of a small and medium enterprise under the Support for Small and Medium Enterprise Establishment Act to use directly for the establishment of a business incubator. According to Article 13(1) and (3) of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584, Dec. 28, 1998; hereinafter referred to as the "former Regulation of Tax Reduction and Exemption Act"), the capital gains and dividend income from the investment shares of an investment company

(3) In addition to the instant shares, Kim○ held the title trust of 260,000 shares of the non-party company to Kang○○○. As such, the Plaintiffs and Kang○○○○ held the title trust from Kim○○ (=260,000 shares + 200,000 shares + 196,00 shares + 196,00 shares). The share ratio compared to the instant establishment shares was 42.8%.

(4) As ○○○, a person acquiring 200,000 shares of the instant newly established shares and its shares reach 10.0%, constitutes a person having a special relationship under Article 39(2) of the Framework Act on National Taxes with Kim○○○ and Article 39(2) of the Framework Act on National Taxes. If Kim○ did not hold title trust as above, the tax authority, if the above two persons did not hold title trust, could easily recognize that they are the shareholders of the above two shares exceeding 50/10 of the total number of shares issued or total amount invested by the non-party company on the register of shareholders (=42.8% + 10.0%) and are the shareholders of the above law.

(5) On February 18, 2002, ○○ donated 143,497 shares of Nonparty Company to ○○○○, but ○○○ did not report and pay gift tax accordingly. Of the above donated shares, 13,497 shares were part of the shares initially trusted to ○○○○○○, and the remainder of 130,000 shares was part of the shares trusted to ○○○○○, and this ○○ submitted a share acquisition agreement to the tax authority, deeming that the shares were transferred by ○○ and the Plaintiff Kang○○.

(6) On April 12, 2007, the head of △△ District Tax Office clarified that the Plaintiff donated the above shares to ○○○○○, and imposed and notified the gift tax amount of KRW 81,029,984 (the principal tax out of the amount including additional tax is KRW 57,878,560) on this ○○.

(7) The non-party company did not pay taxes after its establishment to the present, nor did it distribute profits to shareholders.

(8) 한편, 김○○은 1999. 8. 12. 소외 회사의 대표이사로 취임하여 2000. 6. 16. 사임하였고, 소외 회사의 설립 당시 주식회사 **퀘스트의 출자지분 중 45%를, 주식회사 *바이의 출자지분 중 62%를, 주식회사 **컨트롤의 출자지분 중 88.3%를 각 보유하고 있었으며, 1999.경 주식회사 *테크롤러지의 출자지분 중 33.3%를, 주식회사 ㅇㅇ바이오의 출자지분 중 48%를 각 취득한 바 있다.

D. Determination

(1) The legislative intent of Article 43(1) of the former Inheritance Tax Act is to recognize an exception to the substantial taxation in the purport of effectively preventing the act of tax avoidance using the title trust system and realizing the tax justice. As such, the proviso of the same Article can only be applied unless the purpose of tax avoidance is not included in the purpose of title trust, and the taxes prescribed in the proviso cannot be limited to the gift tax, and the burden of proving that there was no purpose of tax avoidance in the title trust exists the person who asserts it (Supreme Court Decision 2003Du7545 Decided January 28, 2005).

However, the purpose of tax avoidance is to prove it as the intention of the truster and the indirect fact. Thus, whether there was such purpose at the time of the title trust should be determined by examining the specific case whether there was a clear purpose other than the tax avoidance, the type and amount of the tax avoided, and whether there was a result of the actual tax avoidance.

(2) The following facts revealed in this case: (a) it cannot be deemed that ○○○○○○○ Company’s act of title trust of the instant shares to the Plaintiffs to avoid various legal restrictions, or to satisfy the number of promoters required under the Commercial Act; (b) it is alleged that ○○○○○○○ was in title trust because it might cause unnecessary misunderstandings in the business affairs of △△△ and △△△△; (c) in light of the fact that ○○○○ was appointed to the representative director of the Nonparty Company after it, or that ○○○ was already holding stocks of other companies at the time of its establishment, it is difficult to view the Plaintiffs’ above assertion that it would not be persuasive because of the fact that the purpose of ○○○○○○○○○○○○○ Company’s act of acquiring the instant shares by means of investment in its own capital, and thus, it is difficult to say that the Plaintiff’s act of tax evasion and transfer of the instant shares to the Plaintiff’s ○○○○○○○ Company’s capital gains by means of title trust.

(3) Therefore, the plaintiffs' assertion is without merit, and the disposition of this case, which the defendants presumed to have held the shares in this case as a gift to the plaintiffs pursuant to Article 43 of the former Inheritance Tax Act, is lawful.

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Related Acts and subordinate statutes

Inheritance Tax and Gift Tax Act

Article 43 Presumption of Donation of Title Trust Property

(1) With respect to the property (excluding any land and building) which requires a registration, etc. for the transfer or exercise of the right, if the actual owner or the nominal owner is different, it shall be presumed that the actual owner or the title holder donates to the person under his title on the date of registration, etc. as the nominal owner, notwithstanding the provisions of Article 14 of the Framework

1. Where registration, etc. is made in another person's name without any tax avoidance purpose, as prescribed by Presidential Decree;

2. Where, among stocks or equity shares (hereafter in this Article, referred to as “stocks, etc.”), the stocks, etc. entered in the register of stockholders or the register of members under the name of another person or the transfer of which is made, under a trust or agreement prior to the enforcement of this Act, are converted to the name of the real owner within the period not later than December 31, 1998 (hereafter in this Article, referred to as the “period of grace”): Provided, That the same shall not apply to the cases where any title is converted to the names of the persons having special relationship with

(2) Where a registration, etc. is not made in the name of the actual owner during the grace period as prescribed in paragraph (1) 2, or is made in the name of a person who is not the actual owner after the enforcement date of this Act, it shall be presumed to have

(3) The provisions of paragraph (1) 2 shall apply only to a case where a person who has converted stocks into a title of actual owner submits the details of conversion to the head office or head office of a principal office of a corporation which issued the relevant stocks or the head office having invested the said stocks under the conditions as prescribed by

(4) Paragraph (1) shall not apply to registration, etc. of the fact that is a trust property under the Trust Business Act or the Securities Investment Trust Business Act.

(5) The term “taxs” in paragraphs (1) 1 and (2) means the national tax and local tax as provided in subparagraphs 1 and 7 of Article 2 of the Framework Act on National Taxes, and the customs as provided in

(6) The scope of persons having a special relationship under paragraph (1) 2 shall be prescribed by the Presidential Decree (amended by Act No. 5582 of Dec. 28, 1998).

Enforcement Decree of Inheritance Tax and Gift Tax Act

Article 32 In the event that no such purpose exists for the avoidance of taxes

(1) The term “cases as determined by the Presidential Decree” listed in Article 43 (1) 1 of the Act means any of the following subparagraphs:

1. Where the de facto owner is a non-resident and a registration, etc. is made in the name of legal representative or administrator;

2. Where a person engaged in the trust business under the Trust Business Act or the Securities Investment Trust Business Act displays the fact that the person is a trust property;

(2) The term “person with a special relationship” in the proviso of Article 43 (1) 2 of the Act means a person with a relationship under the provisions of Article 27 (3) 1 through 3 with a stockholder of the corporation who issued the relevant stocks or investment shares

(3) The report on the conversion of title to the actual owner of the stocks held in title trust as prescribed in Article 43 (3) of the Act shall be made within one month from the date of conversion into the name of the actual owner by the report as prescribed by the Ordinance of the Prime Minister.

Support for Small and Medium Enterprise Establishment Act

Article 15 (Restrictions on Activities of Investment Companies for Small and Medium Enterprises)

(1) No investment company for the establishment of small and medium enterprises shall engage in any of the following activities: Provided, That the same shall not apply to cases prescribed by Presidential Decree as unlikely to undermine the soundness of the operation of its assets:

1. Investing in a company engaged in a type of business prescribed in the proviso to Article 3;

2. Investing in a company belonging to an enterprise group subject to limitations on mutual investment under Article 9 of the Monopoly Regulation and Fair Trade Act;

3. Acquisition or ownership of stocks of financial institutions determined by Presidential Decree;

4. Acquiring or owning real estate for non-business use (hereinafter referred to as "real estate for non-business use"), excluding real estate for business use within the scope prescribed by Presidential Decree, such as a business incubator: Provided, That the same shall not apply to the case of acquiring real

Local Tax Act

§ 105. Taxpayers, etc.

(6) Where a corporation becomes an oligopolistic stockholder by acquiring the stocks or shares of the corporation, the oligopolistic stockholder shall be deemed to have acquired the real estate, vehicles, mechanical equipment and facilities, aircraft, ships, mining rights, fishing rights, golf membership rights, riding club membership rights, condominium membership rights, or membership rights for sports complex complex: Provided, That this shall not apply where a person becomes an oligopolistic stockholder by acquiring the stocks or shares issued at the time of incorporation.

Article 280 Reduction or Exemption for Support to Small or Medium Enterprises

(4) Any real estate acquired by a person designated as an operator of a business incubator under the Support for Small and Medium Enterprise Establishment Act to use directly for a business incubator shall be exempted from the acquisition and registration taxes, and 50/100 of the property tax shall be reduced: Provided, That if such real estate is closed within two years after the establishment of a business incubator or used for any purpose other than a business incubator, the exempted acquisition and registration taxes shall be collected additionally (amended by Act No. 6312, Dec.

Tax Reduction and Exemption Control Act

Article 13 (Special Taxation for Investments in Investment Companies, etc.)

(1) The provisions of subparagraph 4 of Article 94 of the Income Tax Act shall not apply to the transfer of stocks or equity shares in the following subparagraphs:

1. Stocks or investment shares acquired by investing directly in a specialized credit financial business company that has registered only new technology venture capital business pursuant to Article 3 (1) of the Specialized Credit Financial Business

2. Stocks or investment shares acquired by a small and medium enterprise establishment investment association under the Support for Small and Medium Enterprise Establishment Act (hereinafter referred to as “small and medium enterprise establishment investment association”) by investing directly

3. Stocks or equities acquired by a new technology business investment association under the Financial Assistance to New Technology Businesses Act (hereinafter referred to as the “new technology investment association”) by directly investing in a new technology

(3) The provisions of Article 14 (4) of the Income Tax Act shall not apply to dividend income received by a resident from an investment company for the establishment of small and medium enterprises or a specialized credit financial business company that has registered only new technology venture capital business pursuant to the provisions of Article 3 (1) of the Specialized Credit Financial Business Act (amended by the Restriction of Special Taxation Act

Restriction of Special Taxation

Article 14 (Special Taxation for Investment in Small and Medium Enterprise Investment Companies, etc.

(1) The provisions of Article 94 (1) 3 of the Income Tax Act shall not apply to the transfer of stocks or equity shares falling under any of the following subparagraphs (limited to the case of acquiring stocks or equity shares under subparagraphs 1 through 4 and 6 by the methods under any subparagraph of Article 13 (2)): Provided, That the case of acquiring stocks or equity shares owned by others shall be excluded:

1. Stocks or investment shares acquired by investing only in a specialized credit financial business company that has registered only new technology venture capital business pursuant to Article 3 (1) of the Specialized Credit Finance

2. Stocks or equities acquired by a small and medium enterprise establishment investment association under the Support for Small and Medium Enterprise Establishment Act (hereinafter referred to as the “small and medium enterprise establishment investment association”) by investing

3. Stocks or equity shares acquired by a new technology venture business investment association under the Specialized Credit Financial Business Act (hereinafter referred to as the "new technology business investment association") by investing in a

4. Stocks or equities determined by the Presidential Decree that are acquired by investing in a venture business (including the case of acquisition by investing in a venture business through an association under Article 13 of the Act on Special Measures for the Promotion

5. Stocks or investment shares acquired by a corporate restructuring association under Article 15 of the Industrial Development Act (hereinafter referred to as the “corporate restructuring association”) by investing in an enterprise subject to restructuring under Article 14 (4) of the same Act (hereinafter referred to as the “enterprise subject to restructuring”);

6. The end of shares or equity shares (amended by Act No. 7601, Jul. 13, 2005) acquired by an investment association specializing in parts and materials (hereinafter referred to as "investment association specializing in parts and materials") by investing in a founder, a new technology enterprise, or a venture business under the Act on Special Measures for Fostering Enterprises Specializing in Parts and Materials;