Seoul Administrative Court 2009Guhap53731 (Law No. 24, 2010)

Seocho 209west 2237 (No. 21, 2009)

The shares transferred by a comprehensive exchange contract of shares are compulsory, so it cannot be viewed as a transfer at a low price to minority shareholders.

An all-inclusive share swap shall not be deemed to have been transferred at a very high price without justifiable grounds as there is no way to refuse the transfer of shares by the Plaintiffs, who are shareholders of the non-party company becoming a complete subsidiary, unless the shares are transferred compulsorily regardless of their individual intent, and as long as the shares are approved by a special resolution of shareholders'

2010Nu23035 Revocation of Disposition of Imposition of Gift Tax

Gyeong-gu

O Head of tax office

1. Revocation of a judgment of the first instance;

2. All of the disposition imposing gift tax on the Defendants listed in the separate sheet of imposition of gift tax against the Plaintiffs shall be revoked.

3. The total costs of the lawsuit shall be borne by the Defendants.

The same shall apply to the order.

1. Details of the disposition;

"AAAAAAAA (hereinafter referred to as "BB") on August 12, 2005 determined the share swap ratio of each company between BBBB corporation (hereinafter referred to as "BB") and BB corporation (hereinafter referred to as "BB") as 4.9549407 shares (amounting to 500 won) of BB of the non-party company, and BB issued BB's shares of the non-party company as of the date of share swap to assign 9,909,869 shares (ordinary share and par value of 500 won) to the shareholders of the non-party company (hereinafter referred to as "BB share swap agreement of this case"). At the time, the shareholders of the non-party company were allocated shares of the non-party company in accordance with the share swap agreement of this case on October 28, 2005 (hereinafter referred to as "B share swap agreement of this case").

C. Meanwhile, the director of the Seoul Regional Tax Office: (a) found the Plaintiffs to have transferred the shares of the non-party company at a high price; and (b) notified the Defendants of the research data determined as donated property the amount calculated by deducting 300 million won from the difference between the market price and the transfer price, by evaluating the value of shares of the non-party company at 569

D. Accordingly, the Defendants determined and notified the Plaintiffs of gift tax on October 28, 2005 (hereinafter “instant disposition”), such as in the list of the imposition of gift tax in attached Form.

[Reasons for Recognition] Facts without dispute, entry of Gap evidence 1, 2, and 6 (including each number), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) In the instant share swap contract, the appraisal value of the shares of the non-party company reflects objective exchange value based on the appraisal value assessed by the accounting firm in an objective and reasonable manner, reflecting the market situation at the time, the business prospects of the non-party company, and there is no reason to assess the shares of the non-party company for the purpose of giving economic benefits to the shareholders of the non-party company in the instant share swap contract between the non-party company and the non-party company without special knowledge (limited to the deterioration of the market situation that could not have been anticipated at the time, and the dispute over the management rights of the BBB, etc.). Accordingly, it cannot be deemed that the Plaintiffs’ transfer of shares of the non-party company under the instant share swap contract constitutes transfer of assets at a price significantly higher than the market price without justifiable grounds.

(2) In addition, Article 2(2) of the Inheritance Tax and Gift Tax Act declares the principle of income taxation priority by prescribing that the donee shall not be subject to income tax under the Income Tax Act and gift tax if the gift tax is levied under the Corporate Tax Act on donated property. Thus, even if the Plaintiffs were to transfer their shares at a higher price, if the income derived from such transfer is subject to income tax, the income tax may be imposed, and no gift tax may be imposed.

(b) Fact of recognition;

(1) Details of the conclusion of the share swap contract of this case

(A) BB was established for the purpose of carrying on the business of manufacturing and selling information and communications devices on August 4, 1997 and the consulting service business on May 29, 2001, and listed on the KOSDAQ market on May 29, 2001. The non-party company owned image screen system technology on October 9, 2003 and manufactured and sold documents processing devices used by financial institutions, public institutions, etc.

(B) BB decided to incorporate a non-party company into a wholly owned subsidiary by a share swap method in order to maximize shareholder value based on a variety of profit structure by promoting growth and management rationalization through strengthening of existing business and diversification of business;

(C) On August 8, 2005, BB requested CC accounting corporation to assess the adequacy of the share swap and transfer ratio due to the share swap and transfer of BB and the non-party company. On the 12th of the same month, CC accounting corporation calculated the share swap ratio based on the share swap ratio as follows:

(D) Meanwhile, under Article 190-2 of the Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007; hereinafter the same shall apply), Article 84-7 of the Enforcement Decree of the same Act, and Article 36-12 of the Enforcement Rule of the same Act, and Article 82 of the Enforcement Rule of the same Act, and Articles 5 through 9 of the Enforcement Rule of the same Act, of the Regulation on Issuance and Public Notice of Securities and Exchange, an accounting corporation assessed the share value of the non-party company as the average of the values higher than the average of the values higher than the values higher than the values higher than the values higher than the values higher than the values higher than the values higher than the other values (where it is impossible to compute

In particular, when assessing profit value, since it is difficult to estimate sales based on the market size and market share in the business operated by the non-party company because it is difficult to estimate sales based on the market size and market share in the future, the sales of the non-party company's products for the business year of 2005 and the business year of 2006 were examined, and based on this, the estimated sales amount for the business year of 2005 and the business year of 1,035,307,000 and the estimated sales amount of 1,059,492,000 won were calculated.

(E) BB and the non-party company entered into the instant share exchange contract by setting the shares of the non-party company at KRW 6,268 per share, and KRW 1,265 per share, based on the written evaluation of the share swap and transfer ratio of the non-party company, which contained the above contents.

(f) The presumption of the business year 2005 and the business year 2006 and the actual amount of sales and profits of the non-party company are as listed below.

(G) BB included the total purchase price (12.536 billion won) of the non-party company’s shares acquired through the instant stock exchange contract in the business year 2005 as investment shares subject to the equity agreement, but determined in the business year 2006 and the 2007 business year 2007 that the estimated recovery value falls short of the book value, and disposed of losses due to the reduction of investment shares subject to the equity agreement.

(2) Market conditions related to the electronic voting instruments at the time of the instant share swap contract

"(A) On January 2005, the National Election Commission announced a road map for the promotion of electronic voting" including the implementation plan by phase for the introduction of electronic voting. On the first half of the same year, the National Election Commission reviewed the method of purchasing additional ballot papers for the efficient ballot counting of local simultaneous elections nationwide at the fourth time in 2006, and the method of improving the performance of the existing voting papers classification system. During that process, the National Election Commission requested the Public Procurement Service to submit a bid for the services to improve the performance of voting papers by replacing the black image list of the previous voting papers with local image consensus, and around that time, requested the Special Election Commission to use the local ballot paper classification system supported by the DDD (hereinafter referred to as DDD) at the Special Election for the Commercial City, Inc. (hereinafter referred to as "DD"), and the National Election Commission produced the electronic voting file from 2005 to 206 billion won to 2000,0000,0000 the electronic voting file list and 240,000.

(C) Meanwhile, the amount of the budget related to the introduction of electronic voting out of the budget amount of the 2006 accounting year by the National Election Commission was KRW 3.74 billion, but the budget amount in the 2007 accounting year was reduced on the grounds that the political and social consensus basis for the introduction of electronic voting and the adjustment of the timing of introduction, etc.

(D) After December 2009, DDR, a partner company of the non-party company, concluded a purchase contract with the National Election Commission to supply the electronic voting system (4 billion won).

(E) On August 20, 2005, the non-party company supplied 723 checks with DD forms (name HCR-2000, 71,5770,000), and DD supplied them to the Ministry of Information and Communication.

(3) Other circumstances

(A) At the time of the conclusion of the instant share swap contract, KimE, directors KimF, auditors KimG, the representative director of BB, held the shares of the non-party company in the name of a third party, but the said shares were exchanged as BB’s shares under the said share swap contract.

(B) A part of the shareholders of the non-party company transferred the shares of the non-party company to a third party during the period from February 25, 2005 to February 28, 2005, to KRW 5,000 to KRW 5,300 per share (at the time, the par value of the non-party company's shares was KRW 5,00, but at the face value was divided on July 10, 2005).

[Ground of recognition] Facts without dispute, Gap's 3 through 12, 15 through 18 (including each number, each of them), Eul's 1 through 5, witness of the first instance court, witness of the first instance court, testimony of the court of the first instance, inquiry results to the National Election Commission of the first instance, the purport of the whole pleadings, and the purport of the whole pleadings

C. Determination

(1) Article 35(2) of the Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006; hereinafter "the Inheritance Tax and Gift Tax Act") provides that where property is transferred between persons, other than those having a special relationship, an amount equivalent to the profits prescribed by the Presidential Decree shall be presumed to have been donated an amount equivalent to the difference between the consideration and the market price, and the profits equivalent thereto shall be deemed to be the value of donated property to the person who has acquired such profits. Article 26(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 1933, Feb. 9, 2006; hereinafter "the Enforcement Decree of the Inheritance Tax and Gift Tax Act") provides that where the value of the transferred property subtracting the market price is 30/100 or more of the market price, the price of the property shall be freely determined by the market price under Article 60(1), (2), and (3) of the Inheritance Tax and Gift Tax Act.

(2) If the parties to a transaction have an equal relationship pursuing maximizes their respective economic interests, and have reasonable knowledge of facts and information about the transaction, and have conducted free transaction without coercion, it cannot be readily concluded that the transaction is not a general and normal transaction on the ground that there is a substantial difference between the market price and the price determined by the parties to the transaction at the time of the transaction after objectively evaluating the transaction. In addition, in the comprehensive exchange of shares, the exchange cost of shares is the most important content of the exchange contract, and is fairly determined in light of the company’s property status and the actual value of shares accordingly. If the exchange rate is considerably unfair on one of the companies, the exchange cost can be deemed null and void. In calculating the exchange cost, the substantial value of shares of each company cannot be determined by taking into account various factors, such as market value, profit value, and value, other than the value of each company, and if all of the factors were considered within a reasonable scope, the exchange rate determined is considerably unfair, and the exchange rate cannot be determined by 160% of the exchange cost or 160% of the exchange value based on the procedure basis.

(3) In light of the above legal principles and the following circumstances recognized by the above facts, the transfer of the shares held by the plaintiffs to BB based on the value of the shares of the non-party company assessed by the CC Accounting Corporation does not constitute “the transfer of the shares held by BB at a significantly higher price without justifiable grounds in light of the transaction practice.”

(A) The instant share swap contract is concluded through a special resolution of each general meeting of stockholders between the non-party company and BBB by reflecting the adequate opinions of the CC accounting corporation in order to maximize shareholderization through expansion of business collapse and improvement of business effectiveness by making best use of the advantages held by both companies and parties to the contract. Considering that the assessment of the non-party company shares of the CC accounting corporation and the review of the share swap rate was made by BBB, a transaction partner who is not the plaintiffs or the non-party company, the instant share swap is regarded as a normal transaction based on free will between the parties.

(B) In addition, Article 60 of the Inheritance Tax and Gift Tax Act provides that the value of the property on which the gift tax is levied shall be the market price as of the date of donation, but if it is difficult to calculate the market price, the value shall be calculated by the supplementary method stipulated in Article 63 of the Inheritance Tax and Gift Tax Act. It is reasonable to view that the appraised value of the shares calculated by an outside appraisal organization pursuant to the Securities and Exchange

(C) There is no evidence to deem that the plaintiffs or the non-party company actively participated in the appraisal of the shares of the non-party company, or that there was a mutual solicitation with the non-party company BB, andCC accounting corporation has no reason to make an excessive appraisal of the shares value of the non-party company, and if the appraisal was conducted in an abnormal manner, it would be a very unfavorable contract condition to the shareholders of the BB, and it is true that the BB shareholders approved the share swap of this case at that time that it was acceptable to accept the appraisal of the shares of the non-party company.

(D) Although it is acknowledged that some shareholders of the non-party company sold the old shares to KRW 500 or KRW 530 (based on the par value split of KRW 500 per share) on or around February 2005, the above shareholders appear to have been aimed at promptly recovering some of the investment proceeds in the state that they were not able to have been aware of the recovery of the investment proceeds ordinarily visible to the investors who invested in the venture company. At that time, the above shareholders did not anticipate the fact that they were bypass through the share swap method, and it is difficult to view that there was an objective evaluation of the non-party company.

(E) In addition, according to Article 190-2(2) and (1) of the Securities and Exchange Act, Article 84-7 of the Enforcement Decree of the Securities and Exchange Act, and Article 36-12 of the Enforcement Rule of the Securities and Exchange Act, the Stock Exchange Act, which was applied at the time of the instant stock exchange contract, does not provide for a separate provision for all-inclusive stock exchange, regulates all the requirements and procedures such as the appropriate ratio of stock exchange, etc. In the meantime, according to Article 38(1) of the Inheritance Tax and Gift Tax Act and the proviso of Article 28(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 28(1) of the Enforcement Decree of the Securities and Exchange Act, a stock-listed corporation or Association-registered corporation under the Securities and Exchange Act and Article 190-2 of the Securities and Exchange Act and Article 84-7 of the Enforcement Decree of the Securities and Exchange Act excludes the case of merger under the Securities and Exchange Act from the subject of gift tax.

(F) In addition, the provisions of the Securities and Exchange Act stipulating that the procedures for a merger shall apply mutatis mutandis to all-inclusive share swap, which is similar to a merger, is to prevent the Plaintiff, who received shares from a complete parent company due to an all-inclusive share swap, from being distorted or giving or receiving unfair benefits through an all-inclusive share swap by undermining fair and transparent procedures, such as calculating the appropriate ratio of share swap, approving a general meeting of shareholders and granting appraisal rights to shareholders who oppose the share swap, even though they completed all fair and transparent procedures pursuant to the Securities and Exchange Act, such as granting appraisal rights to shareholders who have received shares of a complete parent company by means of an all-inclusive share swap, is difficult to accept.

(G) Under the instant exchange contract, the shareholders of the non-party company who transferred the shares of the non-party company to BB do not fall under both the shareholders of the non-party company who transferred the shares of the non-party company to BB and the non-party company, and otherwise, the shareholders of BB or BB did not have any circumstance to distribute profits to the shareholders of the non-party company including the plaintiffs through the instant exchange contract.

(h) Moreover, insofar as an all-inclusive share swap satisfies the requirements, regardless of the shareholder’s personal intent, and as long as the shares are transferred by a special resolution of the shareholders’ general meeting of both companies, there is no way for the Plaintiffs, who are shareholders of the non-party company that became a wholly owned subsidiary, to refuse the transfer of shares. In light of this, it cannot be deemed that the Plaintiffs, who were minority shareholders, forced to transfer

(E) Meanwhile, in determining the corporate profit value, the provisions of the Securities and Exchange Act and the relevant supervisory regulations separately stipulate that the estimated profit of two years in the future and the amount of the Inheritance Tax and Gift Tax Act shall be considered respectively as the income of three years in the past. However, it cannot be readily concluded that the method of judgment under the Inheritance Tax and Gift Tax Act, which focuses on the past, is superior to the method that focuses on the future, such as a cash flow,

(j) At the time of the evaluation of the CC accounting corporation, the non-party company was developing and holding high-speed document processing equipment and local typer technology, and there were only two special sourcer suppliers in Korea, which is anticipated to increase sales through the expansion of the document processing machine market in the National Election Commission, banks, department stores, etc., and around August 2005, the non-party company’s plan to replace the local ballot counting machine and the electronic voting business promotion project was carried out in detail at the time of assessing the stock value of the non-party company’s stock price. Since the possibility of receiving orders by the non-party company was very high, it seems that there was a reasonable reason to calculate the estimated sales and operating profit as seen earlier by the CC accounting corporation.

(4) Therefore, the instant disposition based on the premise that the share swap based on the instant share swap contract constitutes “cases where property is transferred at a price significantly higher than the market price without justifiable grounds in light of the practice of transaction” is unlawful without having to examine the remaining arguments of the Plaintiffs.

3. Conclusion

Therefore, all of the plaintiffs' claims are justified, and the judgment of the court of first instance is unfair with different conclusions, so the plaintiffs' appeal is accepted and the disposition of this case is revoked and it is so decided as per Disposition.