Cho High Court Decision 2013west0367 ( December 24, 2013)

If there is a legitimate practice in transactions between non-specially related persons, Article 35 (2) of the former Inheritance Tax and Gift Tax Act shall not apply.

In order for the tax imposition of gift tax under Article 35 (2) of the former Inheritance Tax and Gift Tax Act to be lawful, the tax authority shall prove not only that the transferee acquired the property at a price significantly lower than the market price from a person other than the person with a special relationship, but also that there is no justifiable reason

Article 35 of the Inheritance Tax and Gift Tax Act

2013Guhap62862 Revocation of Disposition of Imposition of Gift Tax

SAA

BB Director of the Tax Office

Seoul Administrative Court Decision 2013Guhap62862 Decided November 14, 2014

May 2, 2014

November 14, 2014

1. On October 1, 2012, the Defendant revoked the disposition imposing gift tax of KRW 000,000,000 on the Plaintiff.

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

The same shall apply to the order.

1. Details of the disposition;

A. On April 1, 2009, the Plaintiff transferred 00,000 shares (hereinafter “instant shares”) of △△△ Co., Ltd. (hereinafter “instant company”) from the relevant △△ to KRW 0,000 per share.

B. In accordance with Articles 60 and 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter referred to as the "former Enforcement Decree of the Inheritance Tax and Gift Tax Act"), the Defendant determined that the market value of the shares of this case is KRW 00,000, and notified the Plaintiff of KRW 00,000 on Oct. 1, 2012 pursuant to Article 35 of the former Inheritance Tax and Gift Tax Act and Article 26 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter referred to as the "disposition in this case").

C. On December 18, 2012, the Plaintiff appealed to the Tax Tribunal. However, the said claim was dismissed on September 25, 2013.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Considering the fact that the market price of the instant shares is most unlisted stocks where the market price cannot be known, and that there was economic pressure at the time of transferring the instant shares, and that there was no reason to give economic benefits to the Plaintiff, the Plaintiff cannot be deemed to have acquired the instant shares at a price significantly lower than the market price without justifiable grounds in light of the transactional practice.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Article 35(2) of the former Inheritance Tax and Gift Tax Act provides, “If a person, other than a person in a special relationship, acquires any property at a remarkably lower price than the market price without justifiable grounds as a result of transactional practice, the amount equivalent to the profits determined by the Presidential Decree shall be presumed to have been donated to the person who acquired the profits, and the amount equivalent to the profits determined by the Presidential Decree shall be deemed to be the value of donated property to the person who acquired the profits.” Article 26(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides, “Where the market price of the acquired property differs by not less than 30/100 of the market price.”

2) In general, in light of the fact that the tax authority bears the burden of proving the facts of taxation in a lawsuit seeking revocation of taxation, and the language, content, and form of provision under Article 35(2) of the former Inheritance Tax and Gift Tax Act, the tax authority shall prove not only that the transferee acquired the property at a price significantly lower than the market price from a person other than the person with a special relationship, but also that the transferee does not have any justifiable reason in light of transactional practices (see Supreme Court Decision 2011Du22075, Dec. 22, 2011).

Furthermore, the legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to: (a) where profits equivalent to the difference between the price and the market price are actually transferred free of charge by means of manipulating the transaction price for the benefit of the other party to the transaction; (b) thereby coping with and promoting fair taxation by imposing gift tax on the profits earned by the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other; (c) it is difficult to deem that the difference was donated to the other party to the transaction solely on the basis that there is a difference between the price and the market price; (d) it is difficult to deem that the former Inheritance Tax and Gift Tax Act Article 35(2) of the former Inheritance Tax and Gift Tax Act provides that “no justifiable reason exists for the transaction between the unrelated parties, unlike the transaction between the unrelated parties.” Considering these factors, it is reasonable to deem that the transferee’s acquisition of property at a low price had a reasonable reason to believe the transaction price at a reasonable price reflecting the objective exchange value; and (e) even if there was no such reason, an objective reason for the acquisition of property from the transaction.

3) We examine the following circumstances: (a) △△△△△△ and the Plaintiff’s overall purport of the arguments, i.e., the following circumstances revealed by adding the aforementioned evidence and the overall purport of the arguments; (b) △△△△ and the Plaintiff are not recognized as a special relationship under the former Inheritance Tax and Gift Tax Act; (c) the acquisition of the instant shares appears to be a normal transaction based on an equal will between the parties; and (c) the relevant △△△△△ was declared bankrupt on June 22, 2009 upon filing an application for bankruptcy on May 25, 2010. According to the above facts, the relevant △△△△△ was deemed to have been subject to economic pressure at the time of transferring the instant shares; (d) there is no special circumstance that the relevant △△△△△△△△△ was obligated to transfer the profits equivalent to the difference between the price of the instant shares and the market price without compensation; and (d) it is difficult to sell the instant shares to the Plaintiff as non-listed shares that are not frequently traded.

3. Conclusion

Thus, the plaintiff's claim of this case is reasonable, and it is so ordered as per Disposition.

shall be ruled.