Board of Audit and Inspection (No. 201.21. 201)

Since a trustee succeeds to the status as a trustee by inheritance, it cannot be viewed as a title trust.

If a person acquires shares by inheritance, he/she succeeds to the status of the inheritee as it is, so it is illegal to levy gift tax pursuant to the title trust on the ground that the first title trust is terminated and no reason exists to conclude a new title trust agreement is found with the inheritor.

2011Revocation of revocation of disposition imposing gift tax, 4474

X et al.

Head of the Gold District Tax Office and one other

June 22, 2012

July 13, 2012

1. The imposition of a gift tax of KRW 000 (including additional taxes) imposed on Plaintiff Cho Jae-A on July 1, 2010 by the head of the tax office having jurisdiction over the imposition of a gift tax of KRW 000 (including additional taxes) and the imposition of a gift tax of KRW 00 (including additional taxes) imposed on PlaintiffHaB on July 6, 2010 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. Status of KimCC

On February 12, 1979, KimCC entered XX Food Co., Ltd. (hereinafter referred to as " XX food") and retired from the office as the representative director from March 20, 196 to March 23, 2004, and the president from March 24, 2004 to August 12, 2008.

B. Title trust of x food holding and shares held by KimCC

1) From March 1978, KimCC acquired x food shares under its name, an unlisted company, from its own name, and held 725,843 shares as of December 1998 (i.e., 42,158 shares as of December 12, 1991 + 683,685 shares free of charge on December 12, 1998).

2) In addition, on March 10, 1978, KimCC held a title trust of 780 shares to the largest DD (former name: Maximum EE) on the same day, and thereafter, the said shares became 19,980 shares as of December 10, 1991 through the allotment of new shares by persons with no charge, etc.

3) In addition, on March 17, 1981, KimCC held a title trust of 10,140 shares with the FF on the same day, and thereafter, the said shares became 7,494 shares as of December 10, 1991 through the change of face value, the allocation of new shares by a person with no charge, and the sale of shares, etc., and became 121,532 shares shares free of charge on December 18, 1998, and became 129,026 shares as of December 198 (i.e. 7,494 shares + 121,532 shares shares free of charge).

4) Meanwhile, KimCC also held title trust with ChoG food shares. The pertinent shares became 172,00 shares as of December 1, 1998 (i.e., 9,90 shares as of December 12, 1991 + 162,010 shares free of charge on December 12, 1998).

5) As a result, the number of food in fact owned by KimCC was the aggregate of 1,370,869 shares as of December 1998 [=725,843 shares in the name of KimCC + 645,026 shares in title trust + 344,00 shares in the name of maximum DD + 129,026 shares in the name of 129,026 + 172,000 shares in the name of ChoG].

(c)the death and transfer of title trustee and return and payment of inheritance taxes;

1) After having died of January 30, 200, the entry was made on June 12, 200 with respect to the 344,000 shares of XX food under his own name on the ground of inheritance in the name of the Plaintiff ChoA, his spouse, and KimCC on July 30, 200, upon acting for Plaintiff ChoA’s inheritance tax return, reported the above shares and dividends related thereto under the name of the deceased ChoA as the inherited property and paid KRW 000 of the inheritance tax.

2) After the FF died on September 19, 2003, on December 18, 2003, the entry was made on the part of the Plaintiff HaB, his spouse, on December 18, 2003 with respect to the shares of XX 129,026 shares. KimCC on March 12, 2004, on behalf of Plaintiff HaB, reported the said shares and dividends related thereto in the name of the deceased FF as Plaintiff HaB’s inherited property and paid KRW 000 of inheritance tax.

(d)the receipt of dividends from KimCC and the return and payment of global income tax;

1) From 1992 to 2007, KimCC directly managed and operated the total amount of dividends deposited in each deposit account under the name of himself/herself or others (i.e., KimCC’s name + KRW 000 + KRW 000 under the name of himself/herself or others, + KRW 000 under the name of himself/herself or Plaintiff HaB’s name + KRW 000 under the name of himself/herself or Plaintiff HaB’s name + KRW 000 under the name of ChoG).

2) The KimCC reported and paid each global income tax each year from May 31, 1993 to May 31, 2008, from 1992 to 2007, and the dividends paid to the deposit account under its name among the dividends received from XX food, the dividends paid to him/her as global income tax return and payment. The dividends paid to the deposit account under the names of others, including the plaintiffs, were divided into his/her income and paid by proxy the global income tax return and payment.

(e) disposal of food shares and global income tax return and payment by KimCC;

The KimCC donated or transferred to another person on August 10, 200 and August 12, 2008 the GATT 725,843 shares and the title trust shares 645,026 shares (i.e., Plaintiff Cho Young-A’s 344,00 shares + Plaintiff 129,026 shares + 172,00 shares out of Plaintiff HaB-name + 172,00 shares) total of 1,370,869 shares (i.e., 725,843 shares + 645,026 shares) (i.e., 725,843 shares + 645,026 shares), while reporting and paying dividends on the above title trust shares for the purpose of 208 global income tax return and payment on May 2009.

(f)Request for correction by the Board of Audit and Inspection;

On January 2010, the Board of Audit and Inspection conducted an audit of the institution operation of the Busan regional tax office, and conducted an audit of the inheritance tax on the net HH and EF, and requested KimCC to collect gift tax omitted from the decision on collection of gift tax on the ground that it again trusted to the plaintiffs immediately after the inheritance of the above plaintiffs, on the following grounds: (i) Plaintiff ChoA’s 344,000 shares + Plaintiff HaB’s name 129,026 shares + Plaintiff HaB 129,026 shares).

G. Imposition of gift tax by the Defendants

The Defendants, upon the request of the Board of Audit and Inspection, held that KimCC’s 473,026 shares of XX food for the purpose of tax avoidance, such as global income tax, was nominally trusted to the network leastD and EF, and that the above deceased died. The Defendants applied Articles 41-2 and 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter “former Inheritance Tax and Gift Tax Act”) on the ground that the above deceased’s sole inheritance was retitled again to the Plaintiffs, and accordingly, applied the provision on the appraisal of the largest shareholder’s identity under Articles 41-2 and 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 203; hereinafter “former Inheritance Tax and Gift Tax Act”). On July 1, 2010, the head of the Gold Tax Office imposed penalty tax amount of KRW 00,000.

(h)the procedure for a previous trial is completed;

The Plaintiffs, who were dissatisfied with each of the above dispositions, filed a request for review under the Board of Audit and Inspection Act on September 15, 2010, but the Board of Audit and Inspection dismissed all of the request for review on July 21, 201.

(i) Disposition for reduction or correction;

In assessing the shares value on June 15, 2012 during the instant lawsuit, the Defendants, at the position of the Supreme Court precedents on appraisal of the largest shareholder ("largest shareholder, etc." means one shareholder, etc. in cases where the total number of shares held by one shareholder, etc. and persons with a special relationship under each subparagraph of the above Enforcement Decree is the largest shareholder, etc., and such person does not include those who have a special relationship with the former.) decided to make an ex officio decision of reduction of the amount of reduction. ① Defendant Jinju Tax Office, on June 19, 2012, issued 00 gift tax for Plaintiff Jinju Tax Office (=the initial tax amount of 00 won - the deducted tax amount of 00 won), and Defendant Jinju Tax Office, on June 20, 2012, did not reduce the amount of gift tax for 200 won for Plaintiff HB from the initial tax amount of 00 won to the original tax amount of 00 won to the original tax amount of - 000 won.

[Reasons for Recognition] Unsatisfy, Gap evidence 1, Eul evidence 2-1, 3, 7, 8, and 10-1, 2, Eul evidence 1-1, 1-5, Eul evidence 5-1, 2, Eul evidence 6, 7-2, and 3-1, 3-2, 3-2, 3-3, and 4-2, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

1) The plaintiffs' assertion on the deficiency in taxation requirements for deemed donation of trust property under their names

The fact that KimCC trusted the name of shareholders to the network least DD and EF. However, the transfer of the name of shareholders to the names of the plaintiffs, who are the deceased's spouse, is merely a legal succession due to their death and only constitutes a simple change in the form without any change in any new economic, legal value or meaning, and it cannot be deemed a new title trust. In fact, the Plaintiffs cannot be deemed as a constructive gift because they did not have entered into a title trust agreement with KimCC. Even if the change in the name of the Plaintiffs is deemed a new title trust, it is not only based on the limitation of shareholders contract and the management burden of adjusting the rights and interests of minority shareholders, but also it is not only based on the management burden of protecting the rights and interests of minority shareholders, but also it cannot be said that there is no tax avoidance purpose in light of the circumstances that KimCC voluntarily reported the fact of title trust. Accordingly, each of the instant dispositions should be revoked by failing to meet the requirements for taxation on trust property under the name of Article 41-2 of the former Inheritance Tax and Gift Tax Act.

2) The plaintiff HaB's allegation of illegality of imposing excessive additional tax on the part of the plaintiff HaB

Even if the requirements for taxation on deemed donation of trust property under the name of trust property are satisfied, the additional payment is made up of the amount equivalent to 20% of the unpaid tax amount. Article 78(2) of the former Inheritance Tax and Gift Tax Act was amended by Act No. 7010 on December 30, 2003, and the head of the Jinju Tax Office imposes an additional tax on Plaintiff HaB, for whom the tax liability was established prior to the enforcement date of the above amended provision, exceeding 20% of the unpaid tax amount, by retroactively applying the above amended provision, violates the principle of prohibition of retroactive taxation, and thus, it is in violation of the above provision. Therefore, the additional payment for erroneous payment should be revoked to the extent that the amount exceeds the calculated tax amount (00 won x 20% of the lawful tax rate).

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

Each disposition of this case is based on the premise that KimCC held a title trust with maximum DD and eF each title trust with each other, but again held the Plaintiffs a new title trust1 after their death. The provision on deemed donation of trust property under Article 41-2 of the former Inheritance Tax and Gift Tax Act applies only where the actual owner and the nominal owner are different, or where the registration was made in the name of the nominal owner according to the agreement between the actual owner and the nominal owner or the consent of the nominal owner. Thus, first, we examine whether there was a new title trust agreement between KimCC and the Plaintiffs.

In light of the following circumstances: (a) KimCC paid KRW 00 of the inheritance tax imposed by Plaintiff Cho Jae-A on the deceased’s 34,00 shares by inheritance upon the deceased’s 34,00 shares and KRW 129,026 shares; (b) such KimCC and the Plaintiff’s attitude appears to be premised on the acquisition of the names of each of the above shares by inheritance; (c) such acquisition of the Plaintiffs’ name was based on the inheritance of the above shares; (d) even if HH and F were to have succeeded to the above title trust agreement by inheritance, it is not probable that the Plaintiffs were unable to comprehensively assert the status of the deceased’s 34,00 shares under the name of each of the above title trust agreements; and (e) there is no probability that each of the Plaintiffs’ new title trust agreements was cancelled due to the death of the deceased under the name of each of the above 4,000 shares; and (e) there is no possibility that each of the Plaintiffs’ new title trust agreements was cancelled under the name of each of the above Plaintiffs.

3. Conclusion

If so, the plaintiffs' claims are justified and all of them are accepted. It is so decided as per Disposition.