The propriety of the disposition imposing gift tax on the person with a special relationship deeming forfeited stocks as high;

The price acquired by a person with a special relationship can be deemed as the market price in a normal transaction that properly reflects the objective exchange value of new stocks by evaluating the investment value of the venture business ○○, and it shall not be deemed as allocating profits to the plaintiff.

Article 42 of the Inheritance Tax and Gift Tax Act (Presumption of Donation)

The defendant's appeal is dismissed.

Expenses for appeal shall be borne by the defendant.

1. Purport of claim

The Defendant’s disposition of imposition of KRW 397,393,400 on May 1, 2005 against the Plaintiff shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

The reasons for this court's explanation are as follows: Article 34-4 (1) 1 of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 2000; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") means "Article 34-4 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 2002)" (amended by Presidential Decree No. 17039, Dec. 1, 2002) and Article 31-4 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 2002). Thus, it is identical to the entry in the first instance court's

Therefore, the judgment of the court of first instance is just and the defendant's appeal is dismissed, and it is so decided as per Disposition.

Seoul Administrative Court Decision 2006Guhap16472 (No. 21, 2006) - National Failure

1. The Defendant’s disposition imposing KRW 397,393,400 on the Plaintiff on May 1, 2005 is revoked.

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

The same shall apply to the order.

1. Circumstances of dispositions;

The following facts are not disputed between the parties, or may be acknowledged by considering the whole purport of the pleadings in each entry in Gap evidence 1, Gap evidence 3, and Eul evidence 1.

A. The ○○○○○ Co., Ltd. (hereinafter “○○○○○○”) changed the trade name as above on October 12, 199, and the trade name prior to that change was 100,50 shares of ordinary shares on August 4, 199. The Plaintiff renounced the preemptive right of 37,184 shares allocated to her. The Plaintiff waived the Plaintiff’s 37,184 shares, and the Plaintiff and the ○○○ network (the trade name at the time of premium increase was the Korea ○○○ Co., Ltd., but the trade name was changed thereafter; hereinafter “○○○ network”) acquired 65,500 shares out of the shares forfeited by the existing shareholders including the Plaintiff at KRW 57,500 per share (hereinafter “instant shares”).

B. If ○○○○○○○ network, in a special relationship with the Plaintiff, acquired shares at a price higher than the market price by cultivating 37,184 shares of the Plaintiff’s forfeited stocks from ○○○○○ network, the Defendant determined that the difference between the above appraised value and the market price by purchasing high price constitutes a deemed gift for the waiver of forfeited stocks under Article 34-4(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 200; hereinafter referred to as “former Inheritance Tax and Gift Tax Act”) and as at the time of acquisition by a person with a special relationship, the Defendant assessed the value per share as KRW 9,460 according to the supplementary assessment method under Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 16660, Dec. 31, 199; ○○○ network’s disposal of shares to the Plaintiff’s KRW 164,21905,7050.7

C. On July 7, 2005, the Plaintiff appealed to the Director of the National Tax Tribunal for adjudgment, but the Director of the National Tax Tribunal dismissed the above request for adjudgment on February 2, 2006.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

○○○○ network’s acquisition of 57,50 won per share is a normal transaction price that properly reflects the objective exchange value of new shares, and thus cannot be deemed as a higher value than the current market price, and thus, the Plaintiff’s profit cannot be said to have been obtained. The instant disposition based on the value computed by the supplementary assessment method on the premise that the Defendant did not have any market price despite the transaction price that can be recognized as the market price at the time of offering new shares, is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

The following facts may be acknowledged in full view of the evidence mentioned above, Gap evidence 2, Gap evidence 4 through 8, Gap evidence 10-1, 2, Gap evidence 13, Gap evidence 14, and Eul evidence 2.

(1) At the time of issuing capital increase on August 4, 1999, ○○ was a non-registered corporation. The Plaintiff owned 37% shares (334,273 shares), 37% shares (34,284 shares) of ○○○○○○○ (hereinafter referred to as “○○○○”) and other shareholders owned 26% shares (334,284 shares), and 26% shares of ○○○○○○ network as shareholders of ○○○○ network. The Plaintiff was in a special relationship with ○○○○ network.

(2) ○○○○○ Investment Co., Ltd. (hereinafter “○○○○○○○○○○○○○ Investment”) had no special relation with the Plaintiff as well as ○○○○○○○ network, but acquired 35,000 shares at the time of the instant capital increase by KRW 57,500 per share, which is the same price as that of the instant ○○○○○○ network. The ○○○○ Investment assessed the feasibility of the online auction business at the time of acquiring the said shares through an analysis of the status of members secured at the time of acquiring the shares, an auction transaction performance, and a outlook based on the feasibility assessment, estimated the sales based on the feasibility assessment, by dividing such estimates by the number of shares, calculated the sales per share, by multiplying the average value of the ○○○○○ Communications and ○○○○○○○○○○○○○○○○○○○, etc., and by multiplying the sales per share (the value calculated by dividing the share by the sales per share) by 159,642 per share value per share.

(3) However, ○○○ Network and ○○○○ Investment agreed to make a new investment through capital increase with ○○ through prior consultation with ○○○○ through an offering of new shares, and subsequently, ○○○○○○’s participation in capital increase with ○○○’s capital increase through a third party allotment method based on the content of the consultation

(4) On November 17, 1999, 199, ○○○○’s representative director, sold 20,000 shares to ○○ Investment Company, which did not have any special relation with ○○○○○○○○○ network, etc., after capital increase, and purchased the shares by 57,50 won per share after examining the investment of ○○ Investment Company. At the time of purchase of the shares, ○○ Investment Company concluded that the sales price per share was appropriate for 57,50 won per share.

(5) On November 27, 1999, OOO sold 4,000 shares per share to 57,500 shares to OOO or to ○○○ and an unrelated pre-related ○○○○.

(6)The ○○○○○○ on January 19, 200 sold 23,50 per share of ○○○ Communications to KRW 250,000 per share (the shares on December 13, 1999, the par value of which was KRW 5,000 per share and the par value was KRW 5,000 per share; the par value was converted to KRW 5,000).

(7) On the other hand, ○○ registered to the KOSDAQ on June 13, 200. At the time of registration, the base price was 400,000 won per share (in the case of converting the face value into 5,000 won), and the price per share on June 15, 2000, which was the first trading day, became 448,000 won.

(8) On February 15, 2001, 2001, the ○○○ network sold 63,963 shares of the instant shares to 240,000 won per share (in a case where the face value is converted to 5,000 won), including selling 63,963 shares of the instant shares to ○○○○○○ on March 5, 2002.

423 Shares (the face value of shares shall be 500 won per share; hereinafter the same shall apply) shall be 26,100 won per share; 24,000 won per share; 4,947 shares on March 14, 200; 200 won per share; 28,452.9 won per share; 28,413 shares on April 21, 2002; 28,100 won per share; 3,000 won on April 3, 2002; 587 shares on April 4, 2002; and each share shall be purchased and sold to 11,97,425,80 won per share; and each share shall be sold to 28,100 won per share;

D. Determination

(1) The term “market price” under the relevant provisions of the former Inheritance Tax and Gift Tax Act, which provides for the method of evaluating donated property, means, in principle, an objective exchange price formed through normal transactions (see, e.g., Supreme Court Decision 94Nu5472, Sept. 27, 199

(2) However, according to the above facts, ○○○○○○ network on the day on which the instant shares were acquired, as well as ○○○○ network or ○○○○ investment without any special relationship with the Plaintiff, acquired 35,000 shares, a relatively large of 57,50 won per share, which is the same price as ○○○○○ network, based on the investment evaluation conducted by reflecting ○○○○ network’s feasibility, investment risk level, etc. The ○○○○ network acquired the instant shares and ○○○○○○○○○ Investment Company and ○○○○ Investment Company without any special relationship with ○○○○○○○○○, based on the investment evaluation conducted by ○○○○○○○○ network and ○○○○ Investment Company based on the same price as 20,000 shares and 4,000 shares and 6 months after that ○○○○ network had no reasonable market value of 20,700,000 won per share.

(2) Therefore, on the premise that there is no transaction price which can be recognized as the market price of the instant shares at the time, not based on such market price, the Defendant’s calculation of the value by the supplementary assessment method is erroneous. Thus, the instant disposition based on the erroneous assessment is unlawful.

3. Conclusion

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

Related statutes

○ Article 39 of the Inheritance Tax and Gift Tax Act (amended by Act No. 6301 of Dec. 29, 2000)

(1) In the event that the capital or amount of investment of a corporation is increased or decreased, the person who receives the benefits falling under any of the following subparagraphs, shall be deemed to have received the benefits, as a donation:

1. In allocating new stocks or equity shares (hereafter in this paragraph, referred to as "new stocks") for the purpose of increasing the capital or investment amount of the corporation, benefits provided for in each of the following items (where there are not less than 2 minor shareholders who have renounced in whole or in part the right to receive new stocks, referring to the benefits that is calculated by deeming that one of the minor shareholders has renounced the right to receive new stocks, in case where there exist 2 or more minor shareholders who have renounced the right to receive new stocks):

(a) In case where such renounced new shares (hereafter in this paragraph, referred to as the “actual shares”), are again allocated (excluding the case where allocating such forfeited shares by the method of public offering of securities under Article 2 (3) of the Securities and Exchange Act), the benefits prescribed by the Presidential Decree from among the benefits acquired by a person who was allocated the relevant forfeited shares, by obtaining such

○ Article 42 of the Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199)

(1) As corresponding to Articles 33 through 41-2, where a property (including economic profits or de facto or de facto rights which can be realized into money; hereafter the same shall apply in this Article) is de facto gratuitously transferred by an indirect method through a third party, the transferee of the property shall be deemed to have donated the value of property as prescribed by the Presidential Decree from the person who has transferred the property through a third party at the time of its transfer.

(2) In addition to the cases of paragraph (1) and Articles 33 through 41-2, where the property is transferred without compensation through transactions prescribed by the Presidential Decree between related parties, the value of the property shall be deemed to be donated to the person having a special relationship as prescribed by the Presidential Decree when the person who has received the property transfers it

○ Article 60 of the Inheritance Tax and Gift Tax Act / [Principles of Appraisal, etc.]

(1) The value of property on which an inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). 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))

(2) The market price referred to in paragraph (1) shall be the price which is deemed to be normal in cases of free trade between many and unspecified persons, and shall include the price of confinement and public auction, appraisal price, and others recognized as the market price, as prescribed by

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

○ Article 63 of the Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199)

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

1. Appraisal of stocks and investment shares:

(c) Stocks and investment shares not listed on the Korea Stock Exchange shall be appraised by the method as prescribed by the Presidential Decree in consideration of the corporation's assets and profits;

3. In the application of the provisions of paragraphs (1) 1 and (2), with respect to the stocks and equity shares of the largest shareholder or largest investor and those of the shareholder or investor in a special relationship with him as prescribed by the Presidential Decree, 10/100 of the value appraised under the provisions of paragraphs (1) 1 and (2) shall be added; and

○ Article 29 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039 of Dec. 29, 2000)

(2) The term "gains prescribed by the Presidential Decree" in Article 39 (1) 1 (a) of the Act means the amount calculated by multiplying the value calculated under subparagraph 1 minus the value under subparagraph 2 by the number of new stocks under subparagraph 3:

1. [The number of stocks issued before X capital increase] + (the number of stocks increased by X capital increase per new stocks) ± (the number of stocks increased by X capital increase per stock) ± (the number of stocks increased by the total number of stocks issued before capital increase + the number of stocks increased by capital

2. The acceptance price per stock of new stocks;

3. The number of new stocks for those who have been allocated in excess of the number of new stocks to be allocated under equal conditions; and

Article 31-4 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (Presumption of Donation for Distribution of Real Rights, etc.)

(1) In one of the following cases, the amount equivalent to the relevant benefits shall be deemed to have been donated to a person having a special relationship or the largest shareholder, etc. pursuant to Article 42 (2) of the

1. Where, in allocating forfeited stocks under Article 39 (1) 1 (a) of the Act, a stockholder who has renounced all or part of the right to receive new stocks, and who has renounced such right acquires profits by accepting forfeited stocks: The amount calculated by the following formula (the value under Article 29 (2) 2 - the value under Article 29 (2) - the value under Article 29 (2) 1 - the value under Article 29 (2) 1), X new stocks x the number of forfeited stocks owned by the stockholders who have renounced such right, and the total number

Article 49 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 16660 of Dec. 31, 199)

(1) For the purpose of Article 60 (2) of the Act, the term "those recognized as the market price, such as expropriation or public auction price, appraisal price, appraisal price, etc., as prescribed by Presidential Decree" means the amount confirmed pursuant to the provisions of the following subparagraphs only where there is a sale, appraisal, expropriation, auction (referring to an auction under the Civil Procedure Act; hereafter the same shall apply in this paragraph) or public auction during the period from six months (three months in the case of donated property) before the base date of appraisal to the

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not apply where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship provided for in Article 26 (4);

○ Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 16660 of Dec. 31, 199)

(1) Stocks and investment shares not listed on the Korea Stock Exchange (hereinafter referred to as “nonlisted stocks” in this Article) under Article 63 (1) 1 (c) of the Act shall, except in the case of paragraph (2), be the value assessed by the following formula:

the net asset value of the corporation concerned;

Value per share = [The net asset value (hereinafter referred to as “net asset value”) + total number of outstanding stocks

The weighted average amount of net profit and loss per share in the last three years;

----------------------- (hereinafter referred to as “net value of profit and loss”) ±2

Average Freedom formed in the financial market;

such rate as determined by Ordinance of the Ministry of Finance and Economy

(4) In applying the provisions of paragraph (1), "total number of issued stocks" shall be based on the total number of issued stocks as of the evaluation base date.