Cho High Court Decision 2010Du3809 ( October 19, 2011)

The exchange price under the comprehensive exchange contract of shares is legitimate to be the actual transaction price.

Unless there are special circumstances, such as that the exchange value is based on false data, the exchange value cannot be deemed unfair, and the accounting firm appears to have objectively assessed the value of stocks in accordance with the relevant Acts and subordinate statutes, so it is reasonable to view the exchange value as the actual transaction value.

2011Gu 10105 disposition of revocation of imposition of capital gains tax

XX

The Director of Gangnam District Office

October 5, 2011

November 1, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 67,574,520 for the Plaintiff on July 1, 2010 shall be revoked.

1. Details of the disposition;

(a) Exchange of stocks;

(1) The Plaintiff, an unlisted corporation, owned 9,480 common share shares (amounted to 5,00 won, hereinafter referred to as “the shares of this case”) of the PP filmcom (OO, the first trade name of which was changed to the current trade name on March 19, 2007; hereinafter referred to as “P film”).

(2) On April 3, 2006, the listed corporation, entered into an all-inclusive share swap contract between the listed corporation and OO on May 31, 2006, and the date of share swap as of July 18, 2006.

(b) Reporting capital gains tax;

(1) On May 10, 2007, the Plaintiff reported and paid the transfer income tax to the Defendant with the transfer value of the instant shares KRW 81,765 million [the amount calculated on the basis of the closing price of O shares x 1 x 86,250 won (the amount calculated on July 18, 2006)].

(2) However, on July 1, 2010, the Defendant: (a) re-calculated the transfer value of the instant shares as KRW 1,288,569,00 [the appraised value at the time of exchange x 135,925 per share]; and (b) determined and notified the increase in capital gains tax of KRW 67,574,520 for the year 2006 (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

Inasmuch as there exists no actual transaction value at the time of the exchange of the instant shares, the transfer value of the instant shares ought to be calculated based on the closing price (86,250 won per share) of O at the time of the exchange. Therefore, the instant disposition that calculated capital gains on transfer is unlawful.

(b) Fact of recognition;

(1) On April 3, 2006, theO agreed to comprehensively exchange the O as a complete parent company and to collectively exchange the shares for the purpose of making XX film as a complete subsidiary by means of an all-inclusive share swap provided for in Article 360-2 of the Commercial Act with XX film.

(2) O and X film entered into an exchange contract of the instant shares, and requested a company AA accounting corporation to name its shares. AA accounting corporation assessed the value per share (500 won) of O shares as KRW 5,473, and the value per share (5,00 won) of O shares as KRW 135,925, in accordance with relevant laws and regulations, such as the Securities and Exchange Act.

(3) OO and X film decided that the share swap cost of O and X film is 1:2.5 (the face value shall be converted to 500 won), and that the date of share swap was July 18, 2006. The method of share swap was that O issue an O’s new shares to the shareholders of XX film according to the above exchange ratio, and that for a single share of less than 1 share, the first day of the share exchange shall be paid in cash, calculated on the basis of the closing price on which the first day of the share exchange is listed.

[Grounds for recognition] The above evidence, each of the evidence Nos. 3 and 4, and the purport of the whole pleadings

C. Determination

The tax base of capital gains tax refers to the actual amount agreed on the basis of the actual transaction price in itself or at the time of the transaction, and where the transaction subject to capital gains tax is an exchange and the exchange is a value exchange based on the value of the object, such as following the procedure for settling the difference in the appraised value, etc. where the transaction subject to capital gains tax is an exchange, the monetary value of the object acquired through the exchange and the actual transfer value of the object transferred through the exchange (see Supreme Court Decision 2009Du19465, Feb. 10, 201).

In this case, the following circumstances can be acknowledged by the above evidence, i.e., ① the exchange rate of shares is the most important content of the exchange contract, which is fair in light of the financial status of each company and the actual value of shares accordingly. If the exchange rate is considerably unfair for one company, the exchange rate may be invalid. ② The actual value of each company's shares is determined in consideration of various factors, such as market value, profit value, and relative value, other than the value of the assets, and the exchange rate is determined in addition to the value of the assets. Unless there are special circumstances such as that the exchange rate determined is based on false data or based on non-existent anticipated value, it cannot be deemed that the exchange rate is considerably unfair. ③ The exchange rate of shares is determined based on the requirement, method, procedure, etc. under the Securities and Exchange Act and its Enforcement Decree, and the exchange rate is determined fairly as the appraisal value of shares, i.e., the appraisal value of the shares, i., e., the 3O., the appraisal value per share of the 500 shares.

Therefore, in calculating the transfer value of the instant shares, the instant disposition imposing transfer income tax is lawful by calculating the transfer margin based on the appraised value at the time of exchange (135,925 won per share).

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.