207Guhap40250 Revocation of Disposition of Imposing gift tax

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Samsung Head of Samsung Tax Office

August 2008 8.20

October 15, 2008

1. The Defendant’s disposition of imposing KRW 5,542, 338, 930 on the Plaintiff on August 1, 2007 is revoked.

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

The order is as set forth in the text.

1. Details of the disposition;

The following facts are not disputed between the parties, or may be acknowledged by taking into account the whole purport of the arguments in each statement in Gap 1, 2, 3, 6, Eul 1, 2, Eul 4-1 through 4, Eul 7, and Eul 7:

A. The "non-party company" is a corporation established on April 2, 1998 for the purpose of designing semiconductor chips and related products, manufacturing, and selling such products.

B. On November 1, 2002, A, the representative director of the non-party company, and the largest shareholder, transferred 30,000 shares (a par value of 5,00 won; hereinafter referred to as “the shares of this case”) to the Plaintiff, who was in office as the vice president of the non-party company, at KRW 1,000 per share. The shares of the non-party company were divided into KRW 5,00 per share from KRW 5,00 per share to KRW 50 per share and KRW 500 per share on August 13, 2004, and registered with the Korea Securities Dealers Association on August 13, 2004.

C. On November 13, 2004, when three months have passed from the date of the registration of the shares of the non-party company, the defendant decided and notified the plaintiff of KRW 5,542,338,930 (hereinafter referred to as the "disposition of this case") in accordance with Article 41-3 (1) of the Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of December 18, 2002; hereinafter referred to as the "Gift") on the ground that the difference between the initial acquisition value and the actual increase in corporate value from the price of the shares of this case was increased by not less than 30% of the initial acquisition value. The defendant shall be deemed to have donated profits from the registration of the above shares pursuant to Article 41-3 (1) of the Inheritance Tax and Gift Tax Act (hereinafter referred to as the "Premium Tax Act"), which was calculated as follows, to the plaintiff on August 1, 2006.

[Calculation Details of Taxable Value of Gift Tax]

A person shall be appointed.

[Details of Determination of Gift Tax]

A person shall be appointed.

D. On November 6, 2006, the Plaintiff appealed to the National Tax Tribunal, but was dismissed on July 30, 2007.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

(1) Article 41-3 of the Inheritance and Gift Tax Act provides, without any connection, that a transaction of stocks between the largest shareholder of a company and an executive officer and a related party can not be regarded as a transaction of stocks for the purpose of donation in essence by providing for the transaction of stocks between the related parties, without any connection with the purpose of preventing an irregular change in the value of high-value property, thereby violating the principle of excessive prohibition under the Constitution. Article 31-6 (5) of the Enforcement Decree of the same Act delegated by Article 41-3 of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 17791 of Dec. 5, 202) provides, where the acquired stocks are unlisted stocks, the amount should be calculated only on the basis of the net profit and loss of the company in calculating profits from substantial increase in value, and thereby, it is reasonable to exclude the form of substantial profit and loss from the calculation of corporate profits through investment cases with expertise such as B.

(2) The Plaintiff did not acquire the instant shares with an internal government for the purpose of gaining profits from the market price of registration (in light of the circumstances of the non-party company at the time of the transfer of the instant shares, A does not constitute “the largest shareholder, etc., who is deemed to be in a position to use the information that was not disclosed in relation to the management, etc. of the company” under Article 41-3(1) of the Inheritance Tax and Gift Tax Act at the time of the transfer of the instant shares). After acquiring the instant shares, as a result of efforts made by the officers and employees of the non-party company including the Plaintiff, the value of the instant shares increases due to the registration of the shares of the non-party company, so even if so, it is unreasonable to impose gift

(3) On March 31, 2003, the Plaintiff transferred 1,000 shares of the instant shares to B, and did not own them at the time of registration and did not gain any profit from the registration. Therefore, the amount equivalent to the gift tax on this portion is unfairly imposed.

(4) As the Plaintiff renounced 5,50 shares of stock purchase 5,750 shares, which were already granted from A on the condition of acquiring the shares of this case, the Plaintiff calculated the profit of this case on the basis of the entire shares of this case, even though it should exclude the above 5,50 shares from 30,00 shares in calculating the registration profit.

(b) Related statutes;

It is as shown in the attached Table related Acts and subordinate statutes.

(c) Facts of recognition;

The following facts are not disputed between the parties, or may be acknowledged by comprehensively taking into account the descriptions of evidence A3, evidence A5-1 through 8, evidence A6 through 11, evidence A20, 21, 22, 25, and 26, evidence A30-1, 2, evidence A34-1 through 22, evidence A35-1 through 9, evidence B 2 and 3, evidence A 4-1 through 4, evidence B-5-1, evidence 5-1, 2, 3, and 7, and witness evidence A's testimony, as a whole:

(1) On April 2, 1998, the non-party company was established with capital of KRW 200 million for the purpose of carrying on semiconductor chips and related products design, manufacture, and sales business, and went on to 2.29 billion capital as of the end of 2.9 billion after several capital increase. However, the non-party company suffered approximately KRW 81.9 billion on 2001 and KRW 1.56 million on 2.7.8 million on 2001, and suffered losses due to repeated losses, such as net losses of KRW 1.768 million on 2.7 billion.

(2) On November 1, 2002, A, the representative director and the largest shareholder of the non-party company, assigned 68,300 shares of the non-party company, including the plaintiff, to 12 executive officers and employees, in 1,00 won per share. In order to secure stock options to be distributed to the officers and employees who are assigned the above shares, the non-party company, who are the chief executive officer of the non-party company and the largest shareholder, requested them to waive the right to purchase shares already granted to them at the time of the above transfer, and prepared and submitted a confirmation statement on the same contents.

(3) Accordingly, on November 1, 2002, the Plaintiff acquired the instant shares from A in 1,000 won per share. On December 29, 2000, the Plaintiff prepared a written confirmation to waive 5,500 shares out of 5,750 shares of stock options already granted by the non-party company at the shareholders’ meeting on December 29, 200, and to the non-party company.

The submission was made.

(4) On the other hand, the terms of the stock option agreement concluded on December 29, 200 between the plaintiff and the non-party company are as follows.

A person shall be appointed.

(5) On the other hand, the Plaintiff was holding 6,720 shares of the non-party company as of January 1, 200, and acquired 4,00 shares of the non-party company from A on January 31, 2002, and on March 31, 2003, transferred 1,00 shares of the non-party company to B at KRW 40,000 per share (the above shares were acquired from the officer or employee of the non-party company at the price of KRW 20,000 per share as of March 31, 203).

(6) However, when the Plaintiff transferred 1,00 shares on March 31, 200, the Plaintiff reported and paid the capital gains tax of KRW 3,285,000 per share to the Defendant on April 18, 2003 by transferring 1,00 shares of the non-party company to KRW 1,00 per December 15, 1999 and transferring 40,000 per share to KRW 3,285,000 per March 31, 203.

(7) The Seoul Regional Tax Office conducted a tax investigation on the change of corporate shares with respect to the non-party company from March 20, 2006 to May 31, 2006, and stated that A transferred the shares of the non-party company to the Plaintiff KRW 1,000 on November 1, 2002, which was three years before the registration of the shares of the non-party company in the Korea Securities Dealers Association, and notified the Defendant as taxation data.

(8) In calculating the gift tax on the Plaintiff’s profits from the registration of the instant shares, the Defendant calculated the appraised value per share as of the date of settlement ( March, 2004, Nov. 13, 2004), at KRW 35,431, which is the base price of the Korea Securities Dealers Association in February before and after the date of settlement pursuant to Article 63 of the Inheritance Tax and Gift Tax Act. The substantial increase in the corporate value per share was calculated as KRW 5,00,00 based on the net profits and losses of the non-party company, computed by the non-party company in accordance with Articles 36-6(5) and 56(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which was submitted by the non-party company in 202 through 204.

D. Determination

(1) Determination on the first argument

(A) The purpose of Article 41-3 of the Inheritance and Gift Tax Act is to make it possible for the largest shareholder, etc. to perform an irregular inheritance by donating or transferring stocks to a related party such as his/her children, etc. for the purpose of obtaining large profits from the registration of the Korea Stock Exchange or the Korea Securities Dealers Association using internal government of the company, or to make it possible for the largest shareholder, etc. to do so by transferring stocks to his/her children, etc., or continue to hold the same without transferring it by the donee or the acquisitor, and in fact, to solve the problem of controlling the affiliate without any tax burden. In this case, the expected size of the profits from listing and registration in the future cannot be evaluated as appropriate at the time of donation of the unlisted stocks, and it is possible to do so after listing or registration, and it is a system to accurately evaluate and assess the value of the profits from listing and registration before changing the value of the listed

(B) Accordingly, the above provision is in line with the above legislative intent and is within the scope of the donor.

It is limited to the case where the largest shareholder, etc. who is entitled to use information that is not disclosed as to the management, etc. transfers it to a gift. As such, it is not a legislation that violates the constitutional principle of proportionality by infringing on the legitimacy of the legislative purpose and the appropriateness of the means, and thus infringing on the legitimacy of the legislative purpose and the appropriateness of the means to make a taxation on the marginal profit from listing or registration which is made later after the issuance of stocks, as it is not highly likely to impede the sound corporate management by making a public announcement of the control of an affiliate without tax burden by means of donation or transfer of unlisted stocks

(C) In addition, in calculating the listing or registration profit, it should be calculated by deducting the taxable value or acquisition value of the gift tax of unlisted stocks from the appraised value of the relevant stocks as of the date on which the settlement of accounts is based. However, in a case where it is considerably time from the donation or acquisition of unlisted stocks to the listing or registration, it may include the substantial increase in the corporate value due to the improvement of the business performance of the corporation that issued stocks during that period. Therefore, it is necessary to deduct the profits accruing from the substantial increase in the corporate value.

However, Article 31-6(5) of the Inheritance and Gift Tax Act provides that the calculation of profits from a substantial increase in corporate value shall be based on the net profits and losses of the relevant company, in principle, on the basis of the amount of net profits and losses of the relevant company. This seems to be a relatively fair and objective assessment of corporate value, based on the materials, such as financial statements reflecting the business performance of the relevant company. Thus, it cannot be deemed as a unreasonable calculation method that does not conform to the substance of the above Enforcement Decree.

Therefore, this part of the Plaintiff’s assertion is without merit.

(2) Judgment on the second argument

'A person who is deemed to be in a position to use a undisclosed line in respect of corporate management, etc.' under Article 41-3 (1) of the Inheritance Tax and Gift Tax Act means a person who has learned of his position and duties, shareholder status, corporate governance, etc., and actually has been in a position to use the inside information about corporate management, etc. in light of the company's corporate management, etc., and whether there was such a notice inside the company at the time, in particular, whether there was a specific plan or information related to corporate disclosure, or whether the person actually has been aware of such information, or not requiring the actual knowledge of such information, in interpreting the meaning of donor as alleged by the plaintiff, there is no special reason to interpret it as a person who has obtained material information that may cause a change in the value of the company's stocks, such as listing or registration plan, and such interpretation also goes against the principle of strict interpretation under the tax law.

Therefore, inasmuch as it is recognized that A was in the position of being directly involved in the management of the non-party company as the largest shareholder and the representative director at the time of transfer of the instant shares to the Plaintiff and was in the position of using information inside the non-party company more easily than anyone, it cannot be deemed that A does not constitute “the largest shareholder, etc. determined to be in the position of using the non-party company information that was not disclosed in relation to the management, etc. of the non-party company under Article 41-3(1) of the Inheritance Tax and Gift Tax Act, even if the management performance of the non-party company becomes worse at the time of the Plaintiff’s assertion,

Therefore, the plaintiff's assertion on this part is without merit.

(3) Judgment on the third argument

In general, the burden of proving the facts of taxation requirement in a lawsuit seeking revocation of disposition imposing tax shall be borne by the imposing authority. However, if it is revealed that the facts of taxation requirement have been inferred in light of the empirical rule in the specific litigation process, it cannot be readily concluded that the other party is an illegal disposition that failed to meet the taxation requirement, unless the other party proves that the pertinent facts at issue cannot be eligible for application of the empirical rule (Supreme Court Decision 97Nu13894 delivered on July 10, 1998).

However, according to the above facts, when the Plaintiff transfers 1,00 shares on March 31, 200, the Plaintiff submitted a transfer income tax return to the Defendant on April 18, 2003, stating that “The Plaintiff shall transfer 40,000 shares per share on December 15, 199, to KRW 1,000 per share on March 31, 2003” to the effect that “the Plaintiff shall transfer 40,000 won per share on March 31, 2003.”

On the other hand, it is reasonable to calculate profits from the registration of the shares of this case without excluding 1,00 shares out of the shares of this case, since the facts at issue were not sufficiently qualified for the application of the empirical rule.

Therefore, the plaintiff's assertion on this part is without merit.

(4) Judgment on the fourth argument

(A) According to the above facts, it is reasonable to view that the Plaintiff acquired the instant shares from Nonparty Company A on the condition that the Plaintiff renounced 5,500 shares for the stock option. However, the waiver of the said stock option agreed between the Plaintiff and the Plaintiff was merely a consideration for the acquisition of the instant shares at a price lower than the market price at the time of the transaction. (Although the Plaintiff’s waiver of the stock option was in a relationship with the Nonparty Company, it is deemed that the Plaintiff was in a quid pro quo relationship between the acquisition of the instant shares and the economic rationality, as it was based upon the demand of Nonparty Company, and is in a quid pro quo relationship between the acquisition of the instant shares and the acquisition of the instant shares). It seems to have

Therefore, the plaintiff's assertion that in calculating the registration profit of the shares of this case, when the defendant acquired the shares of this case without any condition to waive the stock option, the difference between the registered profit when he acquired the shares of this case by waiver of the stock option, and the registered profit when he acquired the shares of this case shall be deducted from the registered profit (the same as the argument that the above 5,500 shares should be excluded from the calculation of the registration profit of the shares of this case) is groundless.

(B) However, Article 31-6(3) of the Enforcement Decree of the Inheritance and Gift Tax Act adopts the method of deducting the acquisition value per share as of the date of acquisition from the evaluation value per share as of the date of acquisition as of the date of settlement. As seen earlier, the Plaintiff waivers the stock option, which is an intangible property right, even in addition to the payment of KRW 1,00 per share to acquire the instant stocks. Since the waiver is in substantial relationship with the acquisition price of the instant stocks, the said waiver should also be included in the “acquisition value” under Article 31-6(3) of the Enforcement Decree of the Inheritance and Gift Tax Act, along with the acquisition price paid by the Plaintiff. (In the current Income Tax Act, under the principle of confirmation of rights, it is reasonable to determine or realize the economic benefits derived from the difference between the market value and the exercise price of the said stocks, and it is reasonable to view that the said provision has an economic obligation to secure the value of the stock option as the basis of the taxation obligor’s income for the purpose of tax evasion, as well as to ensure the fair acquisition price of stocks.

Therefore, even though the Defendant had to calculate the registration profit of the instant stocks by reflecting the acquisition value, which is an element for calculating the registration profit of the instant stocks, after properly calculating the fair market value of the said stock option that the Plaintiff waived at the time of acquisition by transfer of the instant share, the Defendant’s disposition, which was otherwise reported differently, is determined to be unlawful (the lawfulness of the disposition in the revocation lawsuit is determined to exceed a reasonable tax amount. As such, the parties may submit arguments and materials supporting the objective tax base and tax amount until the closing of pleadings at the fact-finding court, and when calculating the legitimate tax amount to be imposed lawfully by such materials, only the portion exceeding a reasonable tax amount shall be revoked. However, in the instant case, the pertinent tax amount cannot be calculated on the grounds that there was no submission of any material to calculate the fair market value of the said stock option at the time of the transfer of the instant shares, and thus, the entire disposition of the instant case

3. Conclusion

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

Judges Kim Yong-chul

Judges Choi Jong-chul

Judges Song Min-soo,

Related Acts and subordinate statutes

Inheritance Tax and Gift Tax Act

Article 22 (Inheritance Deductions of Financial Property)

(2) The financial assets as referred to in the provisions of paragraph (1) shall not include the stocks or investment shares which the largest shareholder or largest investor is holding and determined by the Presidential Decree.

Article 41-3 (Presumption of Donation of Benefits from Listing, etc. of Stocks or Equity Shares) (Amended by Act No. 6780, Dec. 18, 2002)

(1) In case where a person falling under any of the following subparagraphs, who is recognized as having the status of using undisclosed information as to the management, etc. of an enterprise, has, pursuant to the Securities and Exchange Act, donated or transferred the stocks, etc. of the relevant corporation to a person in a special relationship prescribed by the Presidential Decree within 3 years retroactively from the date of listing the stocks, etc. of the relevant corporation in the Korea Stock Exchange under the Securities and Exchange Act, or registered with the Korea Securities Dealers Association, and where the value of the relevant stocks, etc. has increased as a result of listing or registering the relevant stocks, etc., and a person who has received or acquired the relevant stocks

1. The largest shareholder or the largest investor under Article 22 (2);

2. A person prescribed by Presidential Decree who holds not less than 25/100 of the total number of issued stocks or total amount of investment of a domestic corporation.

(2) The profit under the provisions of paragraph (1) shall be calculated on the basis of the date of the listing of the relevant stocks, etc. or the date of registration with the Association (hereafter in this Article, referred to as the "listed date, etc."), if the person who holds the relevant stocks, etc. dies, donates or transfers the relevant stocks, etc. during the period of three months from the listing date, etc., referring to the date of death, donation or both of them; hereafter in this Article and Article 68, referred to as the "basic date for settlement"). The profit shall be calculated on the basis of the documents prescribed by Presidential Decree, such as financial statements, etc. presented by the person who holds the relevant stocks, etc., if it is confirmed that it is the profit from the substantial increase of corporate value

(3) With respect to a person who is deemed to have received a donation under the provisions of paragraph (1), the tax base and tax amount of gift tax shall be adjusted by adding the relevant benefits to the original amount of gift tax assessed: Provided, That in cases where the value of stocks, etc. as of the date of settlement is smaller than the original amount of gift tax, and such difference is in excess of the standard prescribed by the Presidential Decree, the amount of gift tax equivalent to such difference (referring to the original amount of gift tax paid at the

(4) The listing date, etc. referred to in paragraph (1) of this Article shall be the date of commencing the first transaction of stocks, etc. on the securities market or the Association brokerage market referred to in paragraph (14) of Article 2 of the Securities and Exchange Act (amended by Act No. 88289 of Dec. 31, 2007)

(1) The appraisal of securities, etc. shall be made according to the following methods:

1. Appraisal of stocks and investment shares:

(a) Stocks and equity shares traded with the Korea Stock Exchange shall be published respectively for two months after the evaluation base date before or after the evaluation base date;

on a daily basis the average market price at the Korea Stock Exchange (whether or not there is a transaction record): Provided, That the average:

For calculating the amount, there is a cause for a merger, etc. of capital during the period of two months before or after the appraisal base date.

Where it is inappropriate to do so on the average amount of the sea, the President during two months after the evaluation base date, respectively.

The average amount of such periods as calculated under the conditions as prescribed by this Decree shall apply.

(b) Stocks and investment shares of Association-registered corporations as prescribed by the Presidential Decree; and

The provisions of item (a) shall apply mutatis mutandis to shares. In this case, the final market price at the Korea Stock Exchange shall be the securities.

The standard price for the business association shall be deemed the standard price for the business association.

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be the assets and equity shares;

Evaluation shall be conducted in accordance with the methods determined by the Presidential Decree in consideration of profits, etc.

Addenda No. 6780, Dec. 18, 2002

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2003: Provided, That the amendments referred to in Articles 16 (2) and (4) and 48 (2) and (4) shall be made.

The prescribed rules shall enter into force on the date of their promulgation.

Article 6 (Application Examples concerning Presumption of Donation of Benefits Following Listing, etc. of Stocks or Equity Shares)

The amended provisions of Articles 41-3 and 41-5 shall apply to the first donation of stocks, etc. or acquisition for compensation after this Act enters into force.

Enforcement Decree of Inheritance Tax and Gift Tax Act

Article 19 (Inheritance Deductions of Financial Property)

(1) "Financial property prescribed by Presidential Decree" in the main sentence of Article 22 (1) of the Act means money and valuables, such as deposits, installment savings, installments, fraternitys, money, trust property (limited to money trust property), insurance money, mutual aid money, stocks, bonds, beneficiary certificates, equity shares, and other valuables and valuables prescribed by the Ordinance of the Ministry of Finance and Economy, which are handled by financial institutions prescribed in subparagraph 1 of Article 2 of the Act on Real Name Financial Transactions and Confidentiality.

(2) For the purpose of Article 22 (2) of the Act, the term “major shareholder or largest investor as prescribed by the Presidential Decree” means the relevant stockholder, etc. in case where the total number of stocks held by one stockholder or one participant (hereinafter referred to as “shareholders, etc.”) and persons in a relationship falling under any of the following subparagraphs is the largest:

2. Other persons than employees and employees who maintain their livelihood with the property of such stockholders, etc.;

Article 31-6 (Presumption of Donation of Benefits from Listing, etc. of Stocks or Equity Shares) (Amended by Presidential Decree No. 17791, Dec. 5, 2002)

(1) The term "person in a special relationship prescribed by Presidential Decree" in the main sentence of Article 41-3 (1) of the Act means a person in the relationship falling under any subparagraph of Article 19 (2) with one stockholder, etc. In such cases, an officer under Article 19 (2) 3 and 5 shall include a person who was an officer of the relevant company.

(2) The term "persons who hold not less than 25/100 and who are prescribed by the Presidential Decree" in Article 41-3 (1) 2 of the Act means the relevant stockholders, etc. in case where they hold not less than 25/100 of the total number of stocks, etc. owned by those referred to in

(3) For the purpose of Article 41-3 (1) and (3) (proviso) of the Act, the term “interest beyond the standard prescribed by the Presidential Decree” means the relevant interest and difference in case where the difference between the value under the provisions of subparagraph 1 and the value under the provisions of subparagraphs 2 and (5) is 30/100 or more of the value under the provisions of subparagraph 2, and the difference under the provisions of paragraph (4) is five hundred million won or more. In this case, if the value under the rule of subparagraph 1 is smaller than the value under the provisions of subparagraph 2, the value under the provisions of subparagraph 2 shall not be added up:

1. Values per stock as of the base date of settlement (referring to the values appraised under the provisions of Article 63 of the Act);

2. The taxable value of the gift tax per share as of the date on which stocks, etc. are donated (in cases of acquisition, one share as of the acquisition date;

(Acquisition Value per Acquisition Value per Party)

(4) The difference under paragraph (3) shall be calculated by deducting the amount computed under the provisions of subparagraph 2 from the amount computed under subparagraph 1. In this case, if the value under the provisions of paragraph (3) 1 is smaller than the value under the provisions of subparagraph 2 of the same paragraph, the value computed under the provisions of subparagraph 2 shall not be deducted:

1. (Difference between the value referred to in paragraph (3) 1 and the value referred to in paragraph (3) 2)x stocks that have been donated or acquired with compensation;

(5) The profits from the substantial increase in the net asset value per share referred to in paragraph (4) 2 shall be calculated by multiplying the amount referred to in subparagraph 1 by the number of months referred to in subparagraph 2. In such cases, where it is unreasonable to calculate the relevant profits by the net profit amount per share due to the occurrence of loss, etc., the relevant profits may be calculated by the increase in the net asset value per share calculated under Article 55:

1. The amount obtained by dividing the total amount of net profits and losses per share (referring to the total amount of net profits and losses calculated on a business year basis as prescribed by the Ordinance of the Ministry of Finance and Economy) between the date of donation of the relevant stocks, etc. or the date preceding the date of listing, etc. from the date of acquisition to the date of listing, etc. by the monthly week (the number of

2. The number of months from the donation date or acquisition date of the stocks, etc. concerned to the date of settlement standards (the number of months less than one month shall be deemed one month); and

(6) "Documents prescribed by Presidential Decree" in the latter part of Article 41-3 (2) of the Act means the following documents:

2. Income statement;

3. Other documents verifying a substantial increase in the value of the enterprise.

(7) In the application of the provisions of paragraphs (3) through (5), in case where the free share is issued between the donation date or the acquisition date of the relevant stocks and the day immediately before the date of listing, the total number of issued stocks shall be governed by the proviso of Article

Article 56 (Calculation Method of Net Profit and Loss per Share for the latest Three Years) (amended by Act No. 18627 of Dec. 31, 2004)

(1) The weighted average amount of net profits and losses per share of the preceding three years under Article 54 (1) shall be the value under subparagraph 1, and in cases prescribed by the Ordinance of the Ministry of Finance and Economy that it is unreasonable to follow the value under subparagraph 1 on the grounds that the relevant corporation has commenced its business for less than three years, or that the net profits and losses for the preceding three years have increased normally due to a temporary postal case, etc., the value under subparagraph 2 may be made. In this case, if the value is not more than zero won, it shall be zero won

1. The amount calculated by the following formula:

The weighted average amount of net profits and losses per share for the preceding three years = [3] (the net profits and losses per share for one business year that has become one year before the evaluation base date) + (2) + (the net amount of net profits and losses per share for one business year that has become two years before the evaluation base date x 1) + (the net amount of net profits and losses per share for one business year that has become three years before the evaluation base date x 1)] 6

2. The average value of the following: The estimated value per share calculated by two or more credit-rating specialized institutions prescribed by the Ordinance of the Ministry of Finance and Economy or accounting corporations under the Certified Public Accountant Act according to the standards prescribed by the Ordinance of the Ministry of Finance and Economy (in case where a return is filed within the time limit for filing an inheritance tax base return and gift tax base return under Articles 67 and 68 of the Act, the date for calculating the estimated profit per share and the date for preparing the assessment report belongs to the time limit for filing the tax base return;

(2) In the application of the provisions of paragraph (1) 1, the number of stocks for each business year shall be determined by the total number of stocks issued as of the end of each business year: Provided, That where there is a fact that capital increase without compensation or free reduction has been made within three years before the business year in which the base date for appraisal falls, the total number of stocks held without compensation as of the end of each business year before the capital increase or free reduction

(3) The amount of net profits and losses under paragraph (1) 1 shall be the amount calculated by subtracting the amount under subparagraph 2 from the amount calculated by adding the amount under subparagraph 1 to the income for each business year under Article 14 of the Corporate Tax Act. In this case, where the reserves or reserves included in deductible expenses are temporarily returned in accordance with the provisions of tax-related Acts in calculating the income for each business year, the amount divided in proportion to the income for each business year in which the relevant amount is returned shall be added to the income for each

1. Amounts under subparagraphs 4 and 6 of Article 18 of the Corporate Tax Act and other amounts as determined by the Ordinance of the Ministry of Finance and Economy:

(a) The amount of corporate tax for the business year concerned, the amount of reduction and exemption of corporate tax, or the amount of special rural development tax imposed on the tax base, and income-proportional

(b) The amount under subparagraphs 4 and 5 of Article 21 and Article 27 of the Corporate Tax Act, and the amount paid or payable due to the nonperformance of collection under each tax-related Act;

(c) Amounts provided in Articles 24 through 26 of the Corporate Tax Act, Article 28 of the same Act, and Articles 135 through 137 of the Restriction of Special Taxation Act and other amounts prescribed by the Ordinance of the Ministry of Finance

Enforcement Regulations of Inheritance Tax and Gift Tax Act

Article 10-4 (Calculation of Profits Due to Substantial Increase in Corporate Value)

(1) In calculating the total amount of net profits and losses per share under Article 31-6 (5) 1 of the Decree, the net profits and losses per share for the period from the date of donation of stocks or equity shares (hereinafter referred to as “stocks, etc.”) not listed in the Korea Securities and Futures Exchange, to the business year which includes the date of listing the relevant stocks, etc. from the date of commencing the business year which includes the date of acquisition to the business year which includes the date of listing the relevant stocks, etc., shall be the net profits and losses per

(2) In calculating the total amount of net profits and losses per share under the provisions of Article 31-6 (5) 1 of the Decree, where it is difficult to calculate the net profits and losses per share from the beginning date of the business year in which the listing date, etc. of stocks, etc. falls to the day preceding the listing date, etc., it may be calculated by dividing the net profits and losses per share for the business year immediately preceding the business year in which the listing date, etc., calculated under the provisions of paragraph (1), by the number of months from the beginning date of the business year in