207Guhap4135 Revocation of Disposition of Corporate Tax Imposition

1. Plaintiff 1 corporation

Incheon Gyeyang-gu (hereinafter referred to as the "Stang-gu")

Representative Director;

2. Plaintiff 2 corporation

Incheon Gyeyang-gu (hereinafter referred to as the "Stang-gu")

Representative Director;

3. Plaintiff 3 corporation

Incheon Gyeyang-gu (hereinafter referred to as the "Stang-gu")

Representative Director;

4. Plaintiff 4 corporation

Incheon Gyeyang-gu (hereinafter referred to as the "Stang-gu")

Representative Director;

5. Plaintiff 5 Company

Bupyeong-si, Seocheon-si (hereinafter referred to as the "Sacheon-si")

Representative Director;

6. Plaintiff 6 corporation

Bupyeong-si, Seocheon-si (hereinafter referred to as the "Sacheon-si")

Representative Director

[Defendant-Appellant]

1. The director of the tax office of North Korea; and

2. Deputy director of the tax office.

Defendants Litigation Performers

July 17, 2008

August 28, 2008

1. The plaintiffs' claims against the defendants are all dismissed.

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

The disposition of imposition of KRW 122, 190, 820, corporate tax of KRW 122, 190, and 820 for the Plaintiff Company on November 1, 2006 against the Plaintiff Company and KRW 121, 985, 090 for the corporate tax of KRW 203 for the Plaintiff Company on the same day, KRW 232, 155, and 600 for the corporate tax of KRW 203 for the Plaintiff Company on the same day, and the disposition of imposition of KRW 122,153, and 450 for the Plaintiff Company on the same day by the director of the tax office on KRW 122,153, and 50 for the Plaintiff Company on the same day, respectively, shall be revoked for each of the Plaintiff Company on the same day, KRW 363,60 for the corporate tax of KRW 121, 862, 1206 for each of the Plaintiff Company on the same day.

1. Details of the disposition;

A. The plaintiffs and Jungcheon-si Co., Ltd. were shareholders of ○○○ (hereinafter referred to as “○○”), an unlisted corporation located in Seocheon-si, Seocheon-si (hereinafter referred to as “Sacheon-si”). After acquiring ○○ on January 1, 2002, 1,00 ○○-type (total number of 10,000 shares, 5,000 per share value per share) acquired 1,000 shares, and 10 to 20% shares, respectively. On October 15, 2003, 200 shares were stated as follows: (a) shares of ○○○ (total number of shares, 00, 000 shares, 15, 100 per share, and 00 won per share) are stated as the shares of ○○○○ (hereinafter referred to as “the shares”).

B. On November 18, 2003, the plaintiffs and regular ○○○ (hereinafter "the transferor of this case") assigned 1,000,000 shares (the total number of ○○'s shares; hereinafter "the total number of ○○'s shares") for each share, and the plaintiffs set KRW 5,768 per share, KRW 75,00 per share, and KRW 1,000 per share for each share as listed below (hereinafter "the transferee of this case").

C. In assessing the normal price of the instant shares, the Defendants assessed the market price of KRW 38,459,000 per share of the instant shares on the basis of the average land price of KRW 38,917 per share of the instant land in 2003, based on the land price of KRW 38,459,00,000, and then assessed the market price of the instant shares at KRW 30% per share of the said market price, and assessed KRW 9,041 per share of the instant shares at KRW 30 per share of the instant shares.

D. In addition, on the ground that the plaintiffs' low price of the shares of this case was transferred to the non-special relation transferee of this case, the defendants imposed corporate tax for the year 2003 on November 1, 2006 on each of the plaintiffs as shown in the table (hereinafter referred to as "disposition of this case") by the difference between the normal price (9,041 won per share) and the transfer price (5,768 won per share) of the shares of this case and the transfer price (5 won per share).

[Ground of recognition] The facts without dispute, Gap evidence 2-1, 2, Gap evidence 3, Gap evidence 13-1 through 7, Gap evidence 14, Gap evidence 16-1 through 6, Eul evidence 7-1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Party’s assertion

The Defendants asserted that the instant disposition was lawful on the grounds of the above disposition grounds and relevant statutes, and the Plaintiffs asserted that the instant disposition was unlawful on the following grounds.

(1) The allegation of illegality in the application of supplementary assessment methods

Since the transferor of this case transferred the shares to the transferee of this case who is not a specially related party, there are several trades by each party. From the perspective of each party, the transfer value of the shares of this case between the plaintiffs who are the transferor of this case and the transferee of this case can be deemed to be the market value, which is the normal transaction price reflecting the objective exchange value, and thus the transfer value, which is the above transaction price, is preferentially applied, rather than the supplementary evaluation method under the Inheritance Tax and Gift Tax Act (hereinafter "the Inheritance and Gift Tax Act"). Thus, the disposition of this case which assessed the price of the shares of this case according to the supplementary evaluation method under the Inheritance and Gift Tax Act, is unlawful.

(2) The claim that the transfer value of the instant shares is within the scope of the normal price.

Even if the value of the instant shares is assessed as a supplementary assessment method pursuant to the Acts and subordinate statutes, the instant shares shall not be assessed on the basis of the officially assessed individual land price in 2003 of the instant land applied by the Defendants, and the ○○ shall assess the instant shares based on KRW 24,855,940,000, which is the appraised and assessed by the Korea Land Corporation on June 27, 2002, when purchasing the instant land from the Korea Land Corporation, on the basis of the appraised value and acquisition value, which is KRW 24,855,940,00. Furthermore, the appraisal of the instant shares based on this, is within the scope of the normal price of the instant shares (± 30%) at the market price.

(3) The assertion that there is a legitimate reason for the transfer of the instant shares

Even if the transfer value of the instant shares is lower than the normal price claimed by the Defendants, ○○ purchased the instant land for the purpose of construction and operation of a golf range. However, due to the public law restrictions, it is difficult to smoothly implement the instant project due to the restriction on public law, and only the burden of financial expenses, such as interest on loans, etc., is increased, and thus, the value of the instant shares is likely to decline continuously. As such, the Plaintiffs had to sell the instant land at a low price, and the acquisition value of the instant land at ○○ was equivalent to the objective value of the instant land as of June 27, 2002, under the circumstances where there is no specific land price change from the acquisition date of the instant land to the date of the instant land transfer, the appraisal value and ○○○○’s acquisition value of the instant land at the time of June 27, 2002 can be seen as the normal price, considering the fact that the Plaintiff’s transfer price of the instant shares at a lower price than the normal price, there exists justifiable cause as prescribed in Article 35 subparag. 2 of the Enforcement Decree.

(b) Related statutes;

As shown in the attached Form.

(c) Facts of recognition;

(1) On June 27, 2002, ○○ entered into a sales contract to purchase the instant land from the Korea Land Corporation on June 27, 2002, with a fixed price as of June 27, 2002, 24, 855, 940, 900,000 won (294,000 won/m2), and paid all remainder to the Korea Land Corporation on February 27, 2003, and completed the registration of transfer of right to the instant land on July 14, 2003.

(2) The instant land continues to exist from the time ○○ acquired the instant land; land category falls under a sports site, specific use area is a natural green area, and there is a limitation under the public law, such as the building-to-land ratio of 20% in accordance with the Building Act and the Building Bylaws, etc. for the purpose of building sports facilities on the instant land, the usage rate of 80%, and the site area of 40% or more in accordance with the Building Act and the Building Bylaws, etc. for the purpose of building on the instant land.

(3) On the instant land, ○○ filed an application for a building permit for physical training facilities on March 3, 2003 for the purpose of constructing a golf driving range. However, on the instant land, the golf driving range alone was deemed difficult to implement the project because it failed to meet the requirements for the type of sports facilities under the relevant laws and regulations, and the said application for building permit was withdrawn on May 20, 2003.

(4) As between March 20, 2003 and May 20, 2003 before and after the application for the above building permit, ○○ opened the instant land without permission for the construction of sports facilities, and received an order for the restoration of the form and quality of the land without permission from the head of Seocheon-si, Seocheon-si to the original state on May 22, 2003.

(5) On November 14, 2003, when entering into a contract for the transfer and acquisition of the instant shares with the instant transferee, all the instant transferor set the acquisition price of KRW 30,800,00,00. The specific method of payment of the acquisition price is 5,615,00,000 to the instant transferor as the transfer price for the instant shares. The instant transferee pays KRW 7,785,000 to the instant transferor for short-term loans of KRW 7,785,00,000 to the instant transferee, and the instant transferee succeeds to KRW 17,400,000 to the loan obligations against ○○ National Agricultural Cooperative Federation.

(6) The officially assessed individual land price as to the instant land is 434,000, 2000, 455, 000 won in 203, 455, 000 square meters in / 200, 595, 000 square meters in 204, and / 000 square meters in 204.

(7) ○○ did not object to the officially assessed individual land price of the instant land to the head of Bupyeong-si, Busan Special Metropolitan City, a decision-making agency of the officially assessed individual land price. However, ○ filed an application for rectification on the ground that the assessment of the assessment standard of the aggregate land tax imposed on the instant land was erroneous in calculating the assessment standard of the aggregate land tax, but the said application was not accepted.

(8) From 2000 to 2002, ○ continued to cause losses as follows:

Details of deficit (unit: million won)

A person shall be appointed.

(9) In assessing the value of the shares of this case, if the acquisition value of the shares of this case is based on the acquisition value of the shares of this case (the plaintiffs' assertion) and the officially assessed individual land price at the time of the transfer of the shares of this case (the defendants' assertion), the assessment value per share of each shares of this case shall be as follows:

Value per share of the stock of this case

(Unit) The facts that there is no dispute over the plaintiff 1, 2, 4 through 8, 10, 11, 12-1 through 3, 15, 15, 15-1 through 7-6, 7-1 through 6, and the purport of the whole pleadings.

D. Determination

(1) As to the allegation that applying supplementary evaluation methods is unlawful

Article 35 subparagraph 2 of the Enforcement Decree of the Corporate Tax Act provides that the amount of money which is deemed to have been actually donated out of the difference is determined as the scope of the donation which is not included in the calculation of losses due to transfer of assets to a person other than a person with a special relationship at a price below the normal price without any justifiable reason. In this case, the normal price is determined within the scope of the market price less than 30/100 of the market price at the market price. Article 89 (1) of the Enforcement Decree of the same Act provides that the scope of the market price which is the basis for the avoidance of wrongful calculation is set in similar circumstances to the transaction at the market price in a situation similar to the transaction at the same time, which sets forth the generally traded price or the price which is generally traded between a third party who is not a person

As to the instant case, according to the results of the foregoing study, ① The transferor and transferee of the instant case have traded one share of the instant shares by designating 5,768 won as 75 won (5,000 won in Mao-, Mao-, Mao-, Mao-, Mao-, Mao-) under one contract, and are in the position of the joint seller and the joint buyer respectively.

In light of the fact that: (a) the instant transferor and transferee traded the instant shares to the non-listed corporation that owns only the instant land without any business performance; (b) KRW 5,768, which is less than KRW 12,917 of the instant shares calculated based on the officially assessed individual land price of the instant land; and (c) the transfer value of the instant shares between the transferor and transferee cannot be deemed to be the market price reflecting the objective exchange value as it is difficult to view that the transfer value of the instant shares between the transferor and transferee cannot be deemed to be the market price reflecting the objective exchange value as a whole because it is difficult to view that the transfer value of the instant shares between the transferor and transferee and the non-listed corporation is the price of the instant shares regularly traded with many and unspecified persons or the price of the instant shares traded with a third party; and (d) this part of the Plaintiffs’ assertion is without merit without further review.

(2) As to the assertion that the transfer value of the instant shares is within the scope of normal price

Article 60(3) of the Inheritance and Gift Tax Act (amended by Presidential Decree No. 7010, Dec. 30, 2003; hereinafter the same) provides that where it is difficult to calculate the market price, the appraisal of real estate shall be based on the appraised value by the method provided for in Articles 61 through 65 in consideration of the type, size, transaction status, etc. of the relevant property, and Article 61(1)1 of the same Act provides that the appraisal of real estate shall be based on the officially assessed individual land price under the Act on the Public Notice of Values and Appraisal of Land, Etc. (amended by Presidential Decree No. 1810, Jan. 14, 2005).

However, according to the above, ○○○ acquired the land of this case from the Korea Land Corporation on June 27, 2002, while the transfer and acquisition date of the stocks of this case on November 18, 2003, the period of which exceeds one year and four months, and during that period, there was a continuous increase in the land price of this case. Thus, it is difficult to view the acquisition price of this case on June 27, 2002 as the market price of the land of this case at the time of November 18, 2003, the acquisition price or appraisal price of this case, as of November 18, 2003, because there is no other evidence to calculate the market price of this case, and thus, it is difficult to find any other reason to view the Defendants as the market price of this case as the market price of this case’s land of this case without any justifiable reason.

(3) As to the assertion that there are justifiable grounds for the transfer of the shares of this case

In light of the following circumstances, i.e., ① the instant land from the time the O acquired the instant land to the time the Plaintiffs transfer the instant land, as a sports facility site, was subject to restrictions under the public law on the instant land. ② In light of the fact that the Plaintiffs were sufficiently aware or could have been aware of such restrictions under the public law, and were making ○○ acquire the instant land and making it unreasonable to implement the golf driving range business, and giving up the instant land. However, as alleged by the Plaintiff, it would be difficult to deem that the Plaintiffs have justifiable grounds as to the transfer of the instant stocks at low price on the sole basis of the circumstance alleged by the Plaintiff, such as: (a) the Plaintiff was forced to acquire the instant land; (b) the Plaintiff was making ○ acquire the instant land; and (c) the Plaintiff neglected to implement the golf driving range business; and (d) the financial

3. Conclusion

Therefore, all of the plaintiffs' claims against the defendants of this case are dismissed without merit. It is so decided as per Disposition by the assent of all.

Judges of the presiding judge

Judges

Judges

Related Acts and subordinate statutes

Corporate Tax Act

Article 24 (Non-Inclusion of Donations in Calculation of Losses)

(1) Of donations prescribed by Presidential Decree in consideration of the public interest, such as social welfare, culture, art, education, religion, charity, and science (hereinafter referred to as "designated donations") from among donations made by a domestic corporation in each business year, the amount in excess of 5/100 of the amount obtained by subtracting the amount under subparagraph 2 from the amount under subparagraph 1 (hereafter referred to as "amount in deductible expenses" in this Article) and donations other than designated donations shall not be included in deductible expenses in the calculation of the income amount for the relevant business year:

Article 52 (Dispudiation of Wrongful Acts)

(1) Where the chief of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent Regional Tax Office deems that the tax burden of a domestic corporation has been unjustly reduced through transactions with persons with a special relationship as prescribed by the Presidential Decree (hereinafter referred to as "specially related persons"), he/she may calculate the amount of income for each business year of the relevant corporation regardless of the activities of the corporation or the calculation of the amount of income of the corporation (hereinafter referred to as "Calculation by wrongful acts").

(2) In the application of the provisions of paragraph (1), the standards for rates, interest rates, rents, exchange rates and other similar rates (including rates, interest rates, rents, exchange rates and other similar rates; hereafter referred to as “market price” in this Article) shall be the prices applied or to be applied in sound social norms and commercial practices and normal transactions between persons other than persons with a special relationship.

(3) A domestic corporation shall submit to the chief of the district tax office having jurisdiction over the place of tax payment the detailed statement of transactions with a specially related person for each business year.

(4) In applying the provisions of paragraphs (1) through (3), matters necessary for the application of the types of wrongful calculation and the assessment of market price shall be prescribed by the Presidential Decree.

(1) Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891 of Feb. 28, 2007)

Article 35 (Scope of Donations)

Donations under the provisions of Article 24 (1) of the Act shall be designated donations under the provisions of Article 36 and those falling under any one of the following subparagraphs:

2. Where a corporation transfers assets to a person other than a person with a special relationship under the provisions of Article 87 at a price below the normal price or buys assets from such a person at a price above the normal price without any justifiable reasons, the margin value which is deemed in material donation. In this case, the normal price shall be the price within the scope of 30/100 less the market price but less than 30/100 of the market price.

Article 89 (Scope, etc. of Market Price)

(1) In the application of the provisions of Article 52 (2) of the Act, if there is a price generally traded between a corporation and a third party who is not a specially related person, in a situation similar to the relevant trade, the price shall be determined.

(2) In the application of Article 52 (2) of the Act, where the market price is unclear, the amount calculated by applying in sequence the provisions in each of the following subparagraphs:

1. Where an appraisal corporation under the Act on the Public Notice of Land Prices and Evaluation of Land, etc. has a value appraised, that value: Provided, That stocks, etc. not listed on the Stock Exchange shall be excluded;

2. The amount appraised by the mutatis mutandis application of the provisions of Articles 38, 39, and 61 through 64 of the Inheritance Tax and Gift Tax Act.

(1) Inheritance tax and Gift Tax Act (amended by Act No. 7010 of December 30, 2003)

Article 60 (Principles of Evaluation, etc.)

(1) The value of property on which an inheritance tax or a gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereafter referred to as the "date of appraisal" in this subparagraph). In such cases, the value appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 63 (2)) shall be deemed the market price.

(2) The market price as referred to in paragraph (1) shall be the price which is considered to be normal in the case of free trade between many and unspecified persons, and shall include the price which is deemed to be the market price under the conditions as prescribed by the Presidential Decree such as the public auction price

(3) In the application of paragraph (1), where it is difficult to compute the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, size, transaction conditions, etc. of the relevant property shall be followed.

Article 61 (Appraisal of Real Estate, etc.)

(1) Real estate shall be appraised by the methods prescribed in the following subparagraphs:

1. Land:

The officially assessed individual land price under the Act on the Public Notice of Land Price and the Evaluation of Land, etc. (hereinafter referred to as the “officially assessed individual land price”): Provided, That the price of land for which no officially assessed individual land price exists, shall be the amount appraised by the method as determined by the Presidential Decree, taking into account the individually announced land prices in the vicinity of the district having jurisdiction over the place of tax payment, and with respect to the land of the area as determined by the Presidential Decree, whose price sharply rise, the

(1) The appraisal of securities, etc. shall be conducted by the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be assessed according to the method as prescribed by the Presidential Decree in consideration of the assets and revenue of the corporation concerned

Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18989 of August 5, 2005)

Article 49 (Principles of Evaluation, etc.)

(1) The term "those recognized as the market price pursuant to Presidential Decree, such as the expropriation and public sale price and appraisal price, etc." in Article 60 (2) of the Act means the price confirmed pursuant to the provisions of the following subparagraphs only for sale, appraisal, expropriation (referring to an auction under the Civil Procedure Act; hereafter the same shall apply in this paragraph) or public sale within six months before or after the base date of appraisal (three months in the case of donated property) or within six months before or after the base date of appraisal:

1. If there exists a fact that the relevant property has been traded, the transaction price: Provided, That the fact that the transaction price is deemed objectively unfair, such as the transaction price with a person with a special relationship provided for in Article 26 (4) shall be excluded;

2. In case where there exists the appraisal value assessed by a reliable appraisal institution as prescribed by the Ordinance of the Ministry of Finance and Economy (hereinafter referred to as the “appraisal institution”) with respect to the relevant property (excluding the properties prescribed in Article 63 (1) 1 of the Act), the average amount of the appraisal value: Provided, That in case where the relevant appraisal value is less than 80/100 of the value assessed under Articles 61, 62, 64 and 65 of the Act, it shall be based on the appraised value by requesting it to an appraisal institution which is issued by the head of a tax office (including the Commissioner of the competent Regional Tax Office; hereinafter referred to as the “head of a tax office, etc.”), but this shall not apply to the case where such value is lower than the appraisal value presented by a person liable for duty payment of inheritance tax or gift tax:

(a) Values not suitable for the purpose of paying inheritance tax or gift tax;

(b) The appraised value in cases where a person fails to appraise the relevant property in its original form as of the standard date of appraisal;

3. Where there is a fact of expropriation, auction or public sale of the property concerned, the compensation amount, the amount of such auction or public sale;

Article 54 (Assessment of Unlisted Stocks)

(1) Stocks and investment shares that are not listed on the Korea Stock Exchange under Article 63 (1) 1 (c) of the Act (hereafter in this Article, referred to as the “unlisted stocks”) shall be the weighted average amount of net profits and losses per share over the last three years according to the value appraised by the following formula: An average of net profits and losses per share formed in the financial market in consideration of autonomy, as prescribed by the Ordinance of the Ministry of Finance and Economy (hereinafter referred to as the “net profits and losses”):

(2) Where the value of unlisted stocks appraised under paragraph (1) falls short of the value appraised by the following formula, the value shall be the value appraised by the following formula:

Value per share = Net asset value of the relevant corporation: Total number of outstanding stocks (hereinafter “net asset value”).

.