Pursuant to the capitalization of earned surplus, gratuitous grants allocated in proportion to shares held to a trustee shall not be subject to the deemed donation provision.

In the case of capital increase with consideration of this case, if the net assets of the company increase as much as the amount equivalent to the capital increase, it is not different from the case of capital increase without consideration. Therefore, it is reasonable to view that the provision on deemed donation under the main sentence of Article 45-2 (1) of

Donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2015Guhap5646 Revocation of Disposition of Imposition of Gift Tax

Gangwon ○

Director of the District Office

September 18, 2015

October 7, 2015

1. The Defendant’s imposition of gift tax against the Plaintiff on ○○, 2012 is revoked.

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

1. Details of the disposition;

A. The Plaintiff was an employee of the non-party corporation ○○○ Tax Credit System (former company, △△△, hereinafter “instant company”). The representative director of the instant company, who was the non-party corporation, was taking over the entire shares of the instant company owned by △△△ in 2004, and the non-party 1, who was the representative director of the instant company, was in title trust with the Plaintiff △△△△△ (contribute of equity ratio) among them, and the △△△△ (contribute of equity ratio) was held by each of the parties to the

B. Since then, when the instant company received new shares 60,000 shares in total on October 2005 by the shareholder allotment method (hereinafter “instant new shares”), the Plaintiff received an allocation under its name of a standardized terms and conditions (24,940 won per share; hereinafter “instant shares”) equivalent to the 00% shares, which are the shares of the Plaintiff, thereby resulting in the Plaintiff’s total shares in the instant company’s name as of the end of 2005.

C. In February 2012, the director of the Gwangju Regional Tax Office assessed the value of the shares issued with capital increase that the Plaintiff received under his/her name at KRW 136,025 per share, and notified the Defendant of the rectification of gift tax by applying Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006; hereinafter “former Inheritance Tax and Gift Tax Act”) to the fact that the Plaintiff acquired shares issued with capital increase.

D. Accordingly, on October 2012, the Defendant issued a correction and notification of △△△△ on the donated portion on ○○ on 2005 to the Plaintiff, and the Plaintiff appealed and filed an appeal with the Tax Tribunal.

E. On November 26, 2014, the Tax Tribunal decided that “The pertinent company’s net profit and loss should be calculated as the value of net profit and loss reflecting the number of shares issued by capital increase with capital increase when calculating the net profit and loss per share for the assessment of the shares issued by capital increase with capital increase.”

F. Accordingly, the Director of the Gwangju Regional Tax Office shall have one share of the value of the shares of the instant company trusted in title to the Plaintiff

Evaluation of KRW 105,773 per party and notification to the defendant, and the defendant made a decision to reduce the amount of KRW 00 among the amount of gift tax imposed on the plaintiff on △△ on 2014 (hereinafter referred to as "the remaining disposition of this case").

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 3 (including each number in case of additional evidence) and the purport of the whole pleadings

2. The plaintiff's assertion

Since the issue price of this case, 24,940 won per share, which is the issue price of this case, is deemed to be the market price under the Inheritance Tax and Gift Tax Act, it cannot be deemed to be a low-price issue. Even if the issue price is low-price, it does not constitute the subject of gift tax under Article 45-2 of the former Inheritance Tax and Gift Tax Act in the case of capital increase with a shareholder allotment method. In addition, since the Defendant had already imposed tax on the shares of this case by applying the provision on the constructive gift of title trust through a tax investigation in 2011, the instant disposition was unlawful as it was conducted through an unlawful duplicate tax investigation. Meanwhile, since the price per share of this case should be assessed by reflecting the dilution effect of capital increase with a net asset value only under the laws and regulations at the time of

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination

(a) Facts of recognition;

1) On January 2007, the Plaintiff calculated 59,465 shares of the instant company as KRW 23,00 per share, and transferred all of them to Hong △△△△△, and reported and paid the transfer income tax to the transfer value ○○○○.

2) Around August 2010, the Defendant conducted a tax investigation on the Plaintiff’s above details of capital gains tax and terminated the investigation. On August 201, 201, the Seoul Regional Tax Office: (a) determined that the instant company’s shares were in title trust to the Plaintiff through a regular audit with the Defendant; and (b) notified the Plaintiff that gift tax should be imposed on the Plaintiff.

3) Accordingly, on October 201, the Defendant applied Article 45-2 of the former Inheritance Tax and Gift Tax Act to the instant shares, and notified the Plaintiff of the correction and notification of KRW 00,000 per share price (24,940 per share) of the instant shares (hereinafter “the imposition of primary gift tax”).

4) Since then, the Defendant assessed the market price of the instant stocks as △△△△ per share (the amount shall be reduced to △△△ per share according to the decision of the Tax Tribunal) and calculated the gift tax, and then the instant disposition was taken against the Plaintiff after deducting the amount of the

[Ground of recognition] Facts without dispute, entry of evidence Nos. 2, 3, 5, and 10, the purport of the whole pleadings

B. Whether the instant disposition is lawful

1) First, we examine the Plaintiff’s assertion that the disposition of this case was unlawful because it was conducted in accordance with the unlawful tax investigation. The Plaintiff’s tax investigation means questioning taxpayers, etc., or inspecting, investigating, or ordering submission of the pertinent account books, documents, or other things to determine or correct the tax base and amount of national tax (see, e.g., Article 81-2(2)1 of the Framework Act on National Taxes; Article 170 of the Income Tax Act); Article 81-4 of the former Framework Act on National Taxes (amended by Act No. 11604, Jan. 1, 2013); Article 63-2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 24366, Feb. 15, 2013) that the Plaintiff’s disposition of this case was conducted in the name of the Director of the Regional Tax Office of the Regional Tax Office, which was conducted in the manner of questioning and inspection of the Plaintiff’s shares, and thus, cannot be deemed unlawful.

2) Next, it is reasonable to view that the Plaintiff’s instant shares allocated by the method of allotment of shares through the offering of new shares constitutes the subject matter of the provision on deemed donation under Article 45-2 of the former Inheritance Tax and Gift Tax Act. The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act provides that “where the actual owner and the nominal owner are different from the property (excluding land and buildings; hereafter the same shall apply in this Article), the value of the property shall be deemed to have been donated by the actual owner on the date of registration, etc. as the nominal owner (where the property is subject to transfer, referring to the date following the end of the year following the year in which the date of acquisition of ownership falls), notwithstanding the provisions of Article 14 of the Framework Act on National Taxes, insofar as the transfer of shares is not applicable to the capital increase under the name of another person or transfer of shares under the name of the actual owner who acquired the ownership without any purpose of avoidance, it is reasonable to view that the existing net assets are not subject to the imposition of capital gains within the extent of tax evasion without consideration.”

① The instant shares were allocated in proportion to the shares owned by the existing title trustee to the Plaintiff, following the title trust of 30% of the instant shares to the Plaintiff by Hong △△△△, and then the shares were allocated in proportion to the shares held by the existing title trustee. Therefore, if the amount equivalent to the capital increase in accordance with the issue price of the instant shares was excluded even after the instant shares were issued, there is no change in net assets or interests of the instant company, shareholders’ share ratio or substantial property value, and thus, it

② Even if the difference between the market value of shares issued at low price and the issue value of the shares issued at low price arises, considering that the value of the shares previously held due to the issuance of new shares is added to the value of the shares, it is difficult to deem that the value of the total shares held by the title trustee increased as much as the difference between the market value and the issue value after the issuance of new shares

③ Since Hong △△△△△, regardless of whether it was before and after the issuance of new shares, owned 50% shares of the instant company, and thus there is no difference in the secondary tax liability ratio, and it was deemed that Hong △△△△△△△ paid some of the dividends (50%) to the Plaintiff and Kim Young-gu, the nominal owner of the instant company, and avoided the comprehensive income tax due to the application of the progressive tax rate because it was based on the earned income for 2004 fiscal year, which is later the transfer of the instant capital increase, and there was no additional dividend until the Plaintiff transfers all the shares of the instant company to Hong △△△△△△△△, and as long as the share ratio of each shareholder is maintained at the same level before and after the instant capital increase, it cannot be said that there was an additional tax avoidance purpose with respect to the instant shares other than the previous shares issued by the Plaintiff for the purpose of tax avoidance (see Supreme Court Decisions 2011Du181, Sept. 26, 2013; 2013Du753, etc.).

5. Conclusion

The plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.