Early High Court Decision 2017J 0175 ( October 27, 2017)

Gift tax shall be levied on the shares of this case by transferring them at a low price from a person with a special relationship without justifiable grounds.

In light of the fact that not only the transaction price of the shares was determined solely by the agreement between the parties to the transaction but also it is difficult to view the value as a reasonable price reflecting fair market values, such as there is a significant difference between the supplementary appraised value under the Inheritance Tax and Gift Tax Act

Article 35 of the Inheritance Tax and Gift Tax Act

Suwon District Court 2017Guhap65907 Disposition of Revocation of Imposition of Gift Tax

MaO

OO Head of the tax office

2017.27

November 08, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 180,310,200 (including additional tax of KRW 45,790,505) on the Plaintiff on November 8, 2016 shall be revoked.

1. Details of the disposition;

A. On March 19, 2015, the Plaintiff acquired KRW 35,000 per share of AAB stocks from Kims and KRW 1,500 per share of KRW 35,00,00, as representative director of ABD Co., Ltd. (hereinafter referred to as “AB”).

B. On November 8, 2016, the Defendant determined and notified the Plaintiff of KRW 180,310,200, including penalty tax of KRW 45,790,50,50, and gift tax of KRW 180,310,200, which was assessed by the Plaintiff according to the supplementary assessment method stipulated in the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”).

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on December 6, 2016, but the Tax Tribunal dismissed the said appeal on March 27, 2017.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

In the case of the acquisition of shares of this case, the Plaintiff and the transferor Kims, the assignee, were unrelated parties, and there were reasonable grounds to believe the transaction price at a normal price that properly reflects the objective exchange value, or the Plaintiff could not be deemed to have taken over shares at a reasonable economic point of view from a reasonable economic person. However, the taxation disposition of this case was unlawful on the other premise that there was no justifiable ground in light of the transaction practice under Article 35(2) of the former Inheritance Tax and Gift Tax Act.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Relevant legal principles

The legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is to cope with and promote fairness in taxation by imposing gift tax on the profits earned by the other party to the transaction in a case where profits equivalent to the difference between the price and the market price are actually transferred without compensation through an abnormal method that manipulates the transaction price for the benefit of the other party to the transaction. However, since the transaction between the unrelated parties does not coincide with each other, it is difficult to view 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. Thus, Article 35(2) of the former Inheritance Tax and Gift Tax Act added the taxation requirement that "for the transaction between the unrelated parties, there is no justifiable reason in light of the transaction practices". In full view of these factors, it is reasonable to deem that the transferor, even if there was no such reason, has been a reasonable reason to believe the transaction price at a price that is properly reflected in the objective exchange value, and even if there was an objective reason that the transferor transferred the assets with the transaction price from a reasonable economic perspective, it is reasonable.

Meanwhile, in order for the taxation disposition under Article 35(2) of the former Inheritance Tax and Gift Tax Act to be lawful, not only the transferor transferred assets at a significantly higher price than the market price to an unrelated party, but also the taxation authority must prove that there is no justifiable ground for transaction practice (see, e.g., Supreme Court Decision 2011Du22075, Dec. 22, 2011). However, if the tax authority is a reasonable economy, it can be proven that there is no justifiable ground for the transaction practice by submitting the objective circumstance, etc. that the transferor would not make any transaction under such transaction conditions under the circumstances at the time of the transaction. If it is proved to a considerable extent, it is necessary to prove that there is a special circumstance that a taxpayer is easy to submit specific data on the transaction circumstance, the reason for determining the transaction conditions, etc. in light of the difficulty of proof to reverse it and the concept of fairness (see, e.g., Supreme Court Decision 2013Du2495, Feb. 12, 2015).

(ii) the facts of recognition

The following facts are not disputed between the parties, or may be acknowledged in accordance with the purport of Gap evidence 1 through 3, 8, 9, Eul evidence 5-1, 2, Eul evidence 1 through 4, 7 through 10, Eul evidence 5-1, 2, Eul evidence 6-1, and Eul evidence 6-2.

A) A cement Cement Co., Ltd (hereinafter referred to as “AC”) is a corporation that has 98.51% of the shares of a A A A AA industry Co., Ltd. (hereinafter referred to as “AA industry”) as of the business year 2015, and AA industry was established by investing 50,000,000 capital (i.e., total issued shares x 10,000 x 5,000 won) on October 20, 2008.

B) On March 28, 201, a industry: (a) transferred 500 shares out of its holding AAB stocks to the Plaintiff; (b) 3,000 shares to Daddddd, 2,500 shares to Kims, and KRW 11,000 shares per share to Dok Kimff; (b) thereafter, on December 3, 2013, Kimff transferred 1,100 shares of the holding AAB to 30,000 shares per share; and (c) on March 19, 2015, Kims transferred the Plaintiff the shares of this case amounting to 1,500 shares out of the holding ABD stocks to 35,00 won per share to j.

C) As of the business year 2014, net profit or loss of a ready-mixed is KRW 1,19,613,323; net asset value is KRW 2,625,019,52; net profit or loss per share of a ready-mixed stock based on net profit or loss value is KRW 937,110; and net asset value per share of a ready-mixed stock based on net asset value is KRW 262,501. Meanwhile, the dividend payment per share of a ready-mixed stock by business year 2009-2016 is as follows.

Unit: Won

D) From February 2003, Kims: (a) retired cement from around January 2009, when performing the duties of the audit team leader, etc. in A AC; (b) retired from around January 2009; (c) earned income was generated during the said period; (d) from March 2009, g companies engaged in mid-term rental business; (d) from around November 201, 201, engaged in the operation of the HH industry for the purpose of ready-mixed business; (d) was a person who has been engaged in transactions with a cement as an auditor of the AC and AA industry; and (e) was appointed on March 20, 2015.

E) The Plaintiff worked in AC from around 2003 to 2009, in the A industry from around 2009 to around 2010, and in A A A A B B from around 2010 to generated earned income during the said period.

3) Determination as to the existence of justifiable reasons for transaction practice

The above 1. The facts of the above disposition and the above 2. In light of the situation that can be known by adding the whole arguments to the facts of the pleading. In other words, in light of a situation where Kims' assets or earned surplus before and after the acquisition of the shares of this case, it is difficult to view that there is a reasonable and objective reason to transfer the shares of this case at a price significantly lower than 5% of the market price assessed by Kims in accordance with the supplementary evaluation methods stipulated in the former Inheritance Tax and Gift Tax Act. On the other hand, the plaintiff's acquisition of the shares of this case increases from 5% to 20%. The plaintiff as the transferee of the shares of this case is the representative director of A AAB and AA industry, who is a company related to AAAAB, and Kims are working for BAA, after the acquisition of the shares of this case. The plaintiff's transaction terms and conditions or transaction conditions of the shares of this case, and the plaintiff's argument that the plaintiff's acquisition of shares of this case is legitimate and reasonable in light of the objective reasons for the above 3.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit, and it is so decided as per Disposition.