[1] Scope of earned income under Article 20 (1) of the former Income Tax Act

[2] Meaning of “the case of acquisition with compensation” under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act, and whether the case constitutes “the case of acquisition with compensation” where a person with a special relationship with the largest shareholder, etc. acquires stocks for the provision of labor from

[3] In applying Article 41-3(1) of the former Inheritance Tax and Gift Tax Act, whether the base date for appraisal, which is the standard point for determining whether to be exempted from the application of the premium rate under the overall subparagraph of Article 63(3), is the standard date for settlement under Article 41-3(2) (affirmative)

[1] Wage and salary income under Article 20 (1) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008) includes not only all economic benefits, regardless of the form of payment or title, which are related to the provision of labor, but also benefits which form the contents of working conditions closely related to the provision of labor on the premise of labor, in addition to the direct remuneration for labor.

[2] Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides for the purpose of promoting tax equality by imposing gift tax on listed profits of non-listed stocks or tax prior to the gratuitous transfer predicted at the time of acquisition of stocks through the imposition of gift tax on listed profits of non-listed stocks. In light of the legislative intent, language, and structure, etc. of Article 41-3(1) of the former Inheritance Tax and Gift Tax Act, “where stocks are acquired at a price” refers to a case where the acquisition of stocks is made as a performance of consideration in relation to the acquisition of stocks in return for provision of labor from the largest shareholder, etc., if a person with a special relationship with the largest shareholder, etc. has acquired stocks at a price for provision of labor from the largest shareholder, etc., this constitutes

[3] In full view of the language and structure of Article 41-3(2), Article 60(1), and Article 63(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”), Article 31-6(3)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter “former Inheritance Tax Act”), and the legislative intent of Article 41-3(1) of the former Inheritance Tax and Gift Tax Act, it is reasonable to view that the standard point at which to determine whether to be exempted from the application of the premium rate under the overall provision of Article 41-3(3) of the former Inheritance Tax and Gift Tax Act is the standard date for appraisal under Article 60(1)1(a) and (3) of the former Inheritance Tax and Gift Tax Act as the standard for settlement under Article 41-3(2) of the former Tax Act.

[1] Article 20 (1) of the former Income Tax Act (Amended by Act No. 9270, Dec. 26, 2008) / [2] Article 41-3 (1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010) / [3] Article 41-3 (1) and (2), Article 60 (1) 1 (a) and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 31-6 (3) 1 (a) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22042, Feb. 18, 2010)

[1] Supreme Court Decision 2007Du1941 Decided October 25, 2007

Plaintiff (Law Firm Squa, Attorneys Kim Na-in et al., Counsel for the plaintiff-appellant)

Sungbuk Tax Office (Law Firm Dakel, Attorneys Park hee-ju et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Nu60848 decided April 27, 2016

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. As to the Defendant’s ground of appeal

Wage and salary income under Article 20 (1) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008; hereinafter the same) includes not only all economic benefits, regardless of payment form or name, which are related to the provision of labor, due to their nature, but also benefits which form the contents of working conditions closely related to the provision of labor on the premise of labor (see Supreme Court Decision 2007Du1941, Oct. 25, 2007).

citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: (a) the Plaintiff served as the representative director of the e-energy Co., Ltd. (hereinafter referred to as “e-energy”) from January 2007 to 2008; (b) the Plaintiff paid the Plaintiff 76,000 non-listed shares of the e-energy as compensation for the e-energy business performance (hereinafter referred to as “instant shares”) on December 2, 2008 following the resolution of the board of directors; and (c) thereafter, the Plaintiff served as the representative director of the e-energy by November 14, 201.

In addition, the lower court determined that the instant shares were unlawful, on the ground that: (a) the ero-energy trading, which may directly or indirectly affect the management and performance of duties of the ero-energy, was paid to the Plaintiff as compensation for the ero-energy business performance; (b) the Plaintiff’s ero-energy was an earned income under Article 20(1) of the former Income Tax Act; and (c) the Defendant’s disposition of this case premised on the donation under the Inheritance Tax and Gift Tax Act

Examining the record in accordance with the aforementioned legal doctrine, such determination by the lower court is justifiable. In so doing, it did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the scope

2. Plaintiff’s ground of appeal

(1) Article 41-3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that where a person having a special relationship with the largest shareholder, etc. receives a donation of stocks of the relevant corporation from the largest shareholder, etc. or acquires a compensation therefor, the relevant stocks shall be listed on the securities market or the KOSDAQ within five years from the date of donation or acquisition, and where the value of the relevant stocks increases as a result of listing the relevant stocks on the relevant stocks to the securities market or the KOSDAQ, and where a person who received a donation or a compensation for the said

Article 41-3(1) of the former Inheritance and Gift Tax Act is prepared to promote tax equality by imposing gift tax on listed profits of unlisted stocks at the time of donation or acquisition with compensation, and considering the legislative purport, language, and structure, etc. of Article 41-3(1) of the former Inheritance and Gift Tax Act, “where stocks are acquired with compensation” in Article 41-3(1) of the former Inheritance and Gift Tax Act means where the acquisition of stocks is made as a performance of consideration in a quid pro quo relationship. Therefore, it is reasonable to deem that if a person with a special relationship with the largest shareholder, etc. acquires stocks from the largest shareholder, etc. as a consideration for provision of labor, etc., it constitutes “where stocks are acquired with compensation.”

(2) Meanwhile, the former part of Article 60(1) of the former Inheritance and Gift Tax Act provides that “The value of property on which inheritance tax or gift tax is levied under this Act shall be based on the market price as of the date of commencing the inheritance or donation (hereinafter “date of appraisal”), and Article 63 of the former Inheritance and Gift Tax Act provides that the stocks traded on the Korea Securities and Futures Exchange under Article 63(1)1(a) of the former Inheritance and Gift Tax Act shall be assessed by the average value of the daily closing price at the Korea Securities and Futures Exchange published on two months before and after the date of appraisal, respectively, and Article 60(3) of the former Inheritance and Gift Tax Act provides that, in applying the provisions of Article 14(1)1 of the former Inheritance and Gift Tax Act, the rate of increase of the premium shall apply to the stocks of the largest shareholder and its specially related shareholders for three years from the business year immediately before the date of appraisal, which falls within the scope of the business year in which

Article 41-3 of the former Inheritance and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010) provides that “The profit under the provisions of paragraph (1) shall be calculated on the basis of the date on which three months elapse from the listing date of the relevant stocks (hereinafter “the closing date”),” and Article 31-6 (3) of the former Enforcement Decree of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010) provides that “the method of calculating the profit from listing of stocks pursuant to the delegation of Article 41-3(1) of the former Inheritance and Gift Tax Act shall be determined on the basis of the calculation date of the value per share of stocks listed in subparagraph 1 as of the settlement date of accounts.”

In full view of the language and structure of the relevant provisions and the legislative intent of Article 41-3 of the former Inheritance and Gift Tax Act as seen earlier, in applying Article 41-3(1) of the former Inheritance and Gift Tax Act, the base date for determining whether to be exempted from the application of the premium rate under the overall title of Article 63(3) of the former Inheritance and Gift Tax Act shall be deemed the base date for settlement under Article 41-3(2) of the former Inheritance and Gift Tax Act, notwithstanding the former part of Article 60(1) of the former Inheritance and Gift Tax Act.

(3) In the same purport, the lower court is justifiable to have determined that the Plaintiff’s acquisition of the instant shares in return for the provision of labor constitutes “the case of acquisition with compensation” under Article 41-3(1) of the former Inheritance and Gift Tax Act, and that as of September 30, 2010, which was the date of settlement as stipulated in the former part of Article 41-3(2) of the same Act, the Defendant’s application of the premium rate under Article 63(3) of the former Inheritance and Gift Tax Act, when calculating the Plaintiff’s donation profits, was lawful. In so doing, it did not err by misapprehending the legal doctrine on the base point of time of application of the premium rate and gift rate under Article 41-3 of the former Inheritance

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)