Seocho 2018west 2259 (Law No. 18, 2018)

The capital gains tax rate of 20% is applied to the shares transferred by 'major shareholders of the non-emergency small and medium enterprises'.

In the case of stock-listed stocks, if the requirements of Article 156 (4) of the former Income Tax Act are met, it is reasonable to view that Article 104 (1) 11 (b) of the former Income Tax Act is applicable to the case of stock-listed stocks, and 20% of the transfer income tax rate is applied to the case of

Article 104 of the former Income Tax Act (Rate of Transfer Income Tax)

Article 157 of the former Enforcement Decree of the Income Tax Act (Scope of Securities Depository and Large Stockholders)

2018Gudan7297 Revocation of Disposition Rejecting Capital Gains Tax Correction

Note ○

a) the Director of the Tax Office

April 24, 2019

May 22, 2019

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition rejecting correction of KRW 338,370,500 for the transfer income tax belonging to the year 2016 against the Plaintiff on January 17, 2018 is revoked.

1. Details of the disposition;

A. On August 5, 2016, the Plaintiff transferred 70,800 shares (53.70% out of total issued shares 132,000 shares, hereinafter referred to as “the shares of this case”) to the CoCo., Ltd. as a shareholder of BBB (hereinafter referred to as the “instant company”) who is a non-listed small and medium enterprise of stock certificates at KRW 3.75,9 billion.

B. On October 31, 2016, the Plaintiff reported KRW 676,741,00,000 for the transfer income tax for the year 2016 by applying the tax rate of 20% under Article 104(1)11(c) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) on the premise that the transfer of the instant shares constitutes a “small and medium enterprise’s shares transferred by a major shareholder” and paid them in installments.

C. On December 27, 2017, the Plaintiff filed a request for correction with the Plaintiff for reduction of KRW 338,370,50,000 among the transfer income tax accrued in the year 2016, on December 27, 2017, by asserting that “a major shareholder who is exempted from the application of the 10% tax rate under Article 104(1)11(b) of the former Income Tax Act refers to a major shareholder of a stock-listed corporation, and that the instant shares are not the major shareholder of a stock-listed corporation, and thus the Plaintiff is not a major shareholder of a stock-listed corporation.”

D. On January 22, 2018, the Defendant rendered a disposition rejecting capital gains tax correction against the Plaintiff on the ground that “the major shareholder of a non-resident small and medium enterprise” transferred shares is excluded from the application of Article 104(1)11(b) of the former Income Tax Act and the tax rate of 20% prescribed in Article 104(1)11(c)(hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on April 16, 2018, but was dismissed on July 18, 2018.

Facts without dispute over the basis of recognition, entry of Gap evidence 1, 2, and 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Article 104 (1) 11 (b) of the former Income Tax Act provides that the capital gains tax rate of 10% shall apply to the stocks of a small or medium enterprise that is transferred by a person who is not a "large stockholder", and Article 94 (1) 3 (a) of the former Income Tax Act provides that the scope of the "large stockholder" shall be "large stockholder prescribed by Presidential Decree taking into account the ratio of stocks held by a stock-listed corporation under the Financial Investment Services and Capital Markets Act (hereinafter "stock-listed corporation") and the total market price of the stocks held by such corporation." As such, when interpreting the above provision, "large stockholder" shall meet all the requirements that "large stockholder is a stock-listed corporation and is a large stockholder prescribed by Presidential Decree", "large stockholder" shall be deemed to mean a stockholder who holds stocks in excess of the standard prescribed by Presidential Decree among the stockholders who hold stocks of a stock-listed corporation. Accordingly, since the transfer of the stocks of this case, the capital gains tax rate of 10% under Article 104 (1) 1 (b) of the former Income Tax Act should be revoked.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

In light of the language and structure of the relevant statutes, legislative intent and amendment history, etc., it is reasonable to view that, even in the case of stock-listed stocks, 20% of the transfer income tax is subject to the application of Article 157(4) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27829, Feb. 3, 2017; hereinafter the same shall apply) as a “large shareholder” under Article 104(1)11(b)(c) of the former Income Tax Act when meeting the requirements of Article 157(4).

1) Article 94(1)3(a) of the former Income Tax Act provides that the transfer of stocks, etc. of a stock-listed corporation, which meet certain standards, by “large stockholders prescribed by Presidential Decree” and the transfer of stocks, etc. that are not subject to transactions on the securities market shall be subject to capital gains tax.

2) In the past, the Income Tax Act, in principle, included the transfer of unlisted stocks in the taxable subject matter, while (2) in the case of the transfer of listed stocks, even if the transfer margin accrues in order to promote the stock market, it shall not be treated as taxable income under the Income Tax Act, and (3) in consideration of the taxation balance on capital gains, etc., the first time prescribed the “income accruing from the transfer of stocks or equity shares listed in the Korea Stock Exchange, which are prescribed by the Presidential Decree” under Article 94 subparag. 3 of the Income Tax Act, as capital gains, has been imposed on the transfer margin in cases where the stockholders and persons in a special relationship with them own more than a certain size or the total amount of stocks owned is more than a certain size.

In other words, Article 94 (1) 3(a) of the former Income Tax Act provides that capital gains tax shall be imposed on cases where listed stocks are traded in order to prevent changes in donation using listed stocks and transfer of real estate or other assets in order to ensure equity in taxation. However, in a lump sum, in order to alleviate the shock of the capital market and to protect the interests of small investors, rather than for all listed stocks, the provision on "the scope of taxation, which reflects the legislative intent to gradually expand the scope of the capital market when the sound development of the capital market," is "the scope of taxation" (see, e.g., Constitutional Court Decision 2004Hun-Ba32, Feb. 23, 2006; 2005Hun-Ba63,04,04,05 (combined))" and Article 94 (1) 3(a) of the former Income Tax Act provides that "the total amount of listed stocks owned by a stock-listed corporation shall not be deemed to be more than the scope of "the total amount of stocks subject to taxation" of the capital gains tax, regardless of such exceptions.

3) In addition, Article 157 (4) of the former Enforcement Decree of the Income Tax Act provides that the requirements for falling under the "large stockholder" are different depending on the "large stockholder", "holding stocks of KONEX-listed corporation", "stocks of venture business" and "stocks of other corporations", and Article 157 (6) of the same Act provides that the standards for calculating the total market price to fall under a large stockholder shall be divided into cases other than cases where a stock-listed corporation is a stock-listed corporation and cases where a stock-listed corporation is a stock-listed corporation. This is only based on the premise that the concept of "large stockholder" is applied.

4) Meanwhile, the Plaintiff asserts that “Before that time, there is no concept of “large stockholder” in the stock certificates under the Income Tax Act, and that “Before that time, there is no provision separately defining the concept of “large stockholder” as to the concept of “large stockholder,” unlike the previous one, as amended by Act No. 14389, Dec. 20, 2016, Article 104(1)11(a) of the Income Tax Act, which was amended by Presidential Decree No. 27829, Feb. 3, 2017; accordingly, Article 167-8(1) of the Enforcement Decree of the Income Tax Act which was amended by Presidential Decree No. 27829, which was divided into “large stockholder of the stock-listed corporation” and “large stockholder of the stock-listed corporation.”

① However, Article 157(4) and (5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 29, 2000) separates the transfer of 'stocks of a corporation (stock-listed corporation) which issued stocks listed on the securities market and 'stocks not listed on the Korea Stock Exchange', and stipulates only major shareholders of a stock-listed corporation. However, even under the former Enforcement Decree of the Income Tax Act, the concept of major shareholders of a stock-listed corporation should be equally applied to the major shareholders of a stock-listed corporation (see Supreme Court Decision 2006Du18041, Nov. 29, 2007). ② The requirements for corresponding to 'major shareholders' from the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988, Aug. 5, 2005) to the former Enforcement Decree of the Income Tax Act.

‘The shares of the KOSDAQ-listed corporation, ‘the shares of the KONEX-listed corporation', ‘the shares of the venture business', and other shares of the corporation are separately defined. Such provision should also be deemed to exist in the case of shares of the stock-listed corporation, ③ there is no provision that newly introduces the criteria for non-listed shares in the bills of amendment or amendment of the Income Tax Act (amended by Act No. 14389, Dec. 20, 2016). ④ In the reason of the amendment of Article 167-8(1) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27829, Feb. 3, 2017), it is reasonable to distinguish between the shares of the KOSDAQ-listed corporation from those of the non-listed corporation and those of the non-listed corporation as stated in the above revised Act (amended by Presidential Decree No. 167829, Feb. 1, 2017).

5) Therefore, the Defendant’s assertion on a different premise is without merit, and the instant disposition is lawful.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

1) Article 94 (1) 3(a) of the former Income Tax Act clearly specifies that the concept of a major shareholder will be used uniformly in the same chapter by adding the provisions of "major shareholder" immediately after "major shareholder prescribed by Presidential Decree" (hereafter referred to as "major shareholder" in this Chapter)", and Articles 94 and 104 of the former Income Tax Act belong to all the provisions of Chapter 3.