Cho High Court Decision 201Do0871 (Law No. 106.03)

It is unlawful to calculate the value of donated property by applying the first in first out method.

The date of purchase of shares acquired by a securities company managing the securities deposit account shall be stated in the customer account book, and in case a part of shares is transferred, it is reasonable to deem that the shares acquired later have been transferred first.

2011Guhap30786 Revocation of Disposition of Imposition of Gift Tax

Kim XX et al.

The Head of Gangwon Tax Office and two others

April 6, 2012

May 4, 2012

1. On December 1, 2010, the part exceeding the amount indicated in the separate sheet No. 2 through No. 5 in the separate sheet No. 2 of the details of imposition of gift tax imposed on Plaintiff KimA as of December 1, 2010, among the separate sheet No. 2 through No. 5 in the separate sheet No. 1 of the separate sheet No. 2 of the separate sheet No. 2 of the separate sheet No. 2 of the tax amount of political party, which the director of the Gangseo-gu Tax Office imposed on Plaintiff KimA, exceeds the amount indicated in the separate sheet No. 7 through No. 9 of the separate sheet No. 1 of the separate sheet No. 7 through No. 9 of the separate sheet No. 1 of the tax amount of the Party, which the director of the separate sheet No. 1 of the separate sheet, and the separate sheet No. 11 and No. 12 of the separate sheet No. 2 of the Party’s tax amount of the Defendant DD Tax Office’s each disposition of imposition exceeding the amount indicated No. 1 through No. 148. 18.

2. Each of the plaintiffs' remaining claims is dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the Plaintiffs, and the remainder by the Defendants, respectively.

The portion in excess of the amount indicated in the legitimate tax amount column of the Plaintiff’s assertion among the items of imposition of gift tax on December 1, 2010 Nos. 1 through 5 of the separate sheet No. 1 through 5, which the head of Gangnam Tax Office rendered against Plaintiff KimA on December 1, 2010. The portion in excess of the amount indicated in the separate sheet Nos. 6 through 9 of the separate sheet No. 1, which the head of Sungbuk Tax Office issued against Plaintiff Choibuk Tax Office on December 9, 2010, among the items of imposition of gift tax on the separate sheet No. 1 through 10 through 12, exceeds the amount indicated in the separate sheet No. 10 through 138 of the separate sheet No. 1, which was stated in the separate sheet No. 1, which was stated in the separate sheet No. 1, which was stated in the separate sheet No. 31, Dec. 1, 2010 through No. 138, respectively, is revoked.

1. Details of the disposition;

A. From August 2, 2010 to September 10, 2010, the director of the Seoul Regional Tax Office conducted a tax investigation into changes in shares of the XX Pharmaceutical Co., Ltd. (hereinafter referred to as "PP drug").

B. As a result of the above tax investigation, EE, the representative director and shareholders of the XX medication, requested the Plaintiffs to open the securities deposit account, and received them. From 2002 to 2007 through the securities deposit account in the name of Plaintiff KimA, the fact that each of the instant shares was acquired and transferred from 2002 to 2006 through the securities deposit account in the name of Plaintiff KimA, and through the securities deposit account in the name of Plaintiff LA during the period from 2002 to 2006 (hereinafter referred to as “the instant shares acquired and transferred each of the instant shares”).

C. The director of the Seoul Regional Tax Office determined that the time of acquisition of the pertinent shares is unclear, and determined that the shares first acquired in accordance with Article 162(5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890, Feb. 28, 2007; hereinafter “Enforcement Decree of the Income Tax Act”) is deemed to have been first transferred, and calculated the number of annually-end shares as of each year of 200 to 206. Meanwhile, he notified the Defendants of the amount calculated pursuant to Article 63(1)1 (a) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006; hereinafter “the Inheritance Tax and Gift Tax Act”) as the amount calculated pursuant to Article 63(1)1 (a) of the former Inheritance Tax and Gift Tax Act at the end of each year (the value calculated as prescribed by Presidential Decree among two months before and after the base date of appraisal) as the gift amount of transfer at the end of each year.

D. According to the notification of the above tax decision, as indicated in the [Attachment 1] Nos. 1 through 5 Notice No. 1 to Plaintiff KimA on December 1, 2010, the head of the Defendant Gangnam-gu Tax Office imposed each gift tax on Plaintiff LA on December 9, 2010 as indicated in the table Nos. 6 through 9 of the same list on Plaintiff LB on December 9, 2010 (hereinafter collectively referred to as “each disposition of this case”). As indicated in the notice Nos. 10 through 12 of the same list on December 8, 2010, Defendant DD Tax Office issued a disposition imposing each gift tax on Plaintiff LA on December 8, 2010 as indicated in the table Nos. 13 through 18 of the same list ( collectively referred to as “each disposition of this case”).

E. The Plaintiffs appealed and filed an appeal with the Tax Tribunal on February 14, 201, but the Tax Tribunal dismissed the said appeal by the Plaintiffs on June 2, 2011.

[Basis] Facts without dispute; Gap evidence 1 and 2; Eul evidence 1 through 5; Eul evidence 2-1 through 4; Eul evidence 3-1 through 3; Eul evidence 4-1 through 6; Eul evidence 5-1, 2, and Eul evidence 6-3; the purport of the whole pleadings;

2. Whether each of the dispositions of this case is legitimate

A. The parties' assertion

1) The plaintiffs' assertion

A) the first argument

In order to apply the provisions of Article 45-2 of the Inheritance Tax and Gift Tax Act, not only the account book of a securities company but also the shares of the same item that are acquired and transferred in the year should be entered in the account book of a company as the nominal owner in the account book of beneficial shareholders. Even if the shares of the same item that are acquired and transferred are traded by the post-sale, the Korea Securities Depository in charge of transfer takes the transfer of ownership only for the difference of shares stored in combination without considering such individual stock transaction situation. Therefore, in calculating the number of shares for which the transfer of real shares takes place, it is unreasonable to individually calculate the shares acquired and transferred by the plaintiffs during the year, and ultimately, the amount of the shares acquired and transferred during the year should be calculated as a donation for the trust.

B) the second argument

In a case where a securities company managing the securities deposit account in the name of the plaintiffs entered the date of purchase in the customer account book and some of the shares are transferred, as long as the shares which were later entered pursuant to the later entry method under Article 80(7) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by the Enforcement Decree of the Restriction of Special Taxation Act, Dec. 31, 1998; hereinafter referred to as the "Enforcement Decree of the Restriction of Special Taxation Act") are treated as being first transferred, the amount of deemed donation should be calculated on the basis that the transaction of the shares at issue was made under the later entry method.

2) The defendants' assertion

The management of stocks entered and released by a securities company in accordance with the post-election method is merely based on the business guidelines of the securities company, and there is no difference between shareholders' rights of the same kind issued by the unification company and thus there is no way to specify the same. Thus, the stock at issue at issue at issue at issue at issue in this case is difficult to regard the time of acquisition. Therefore, by applying the first-aid method stipulated in Article 162(5) of the Enforcement Decree of the Income Tax Act,

B. Relevant statutes

Attached Form 3 is as shown in the relevant statutes.

(c) Fact of recognition;

1) Under the Securities and Exchange Act, the securities market and the KOSDAQ market (hereinafter referred to as “securities market, etc.”) shall, when all the stocks owned by a securities company or a customer are deposited with the Korea Securities Depository pursuant to the Securities and Exchange Act on the grounds that the transfer of stocks accompanied by actual objects, such as establishment, theft, etc. caused by actual possession of stocks, complexity of receipt of affairs due to actual delivery, increase in stock issuance cost, etc., are inefficient, enter the issuer, type, items and quantity of stocks deposited by them in the account book of the depositor or customer, and thereafter enter the stocks in the account book of the bank or customer when purchased the stocks in subsequent stock transaction, the stocks were entered into the account injury, and the account injury stock shall

2) However, according to Article 1181-3 of the former Regulation of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act, Dec. 28, 1998; hereinafter “amended by the Restriction of Special Taxation Act”) newly established on December 31, 1997, where a person owns specific stocks for not less than three years, he/she shall not add the dividend income from such stocks to the global income tax base, but shall reduce the withholding tax rate to 10/100. Thus, in cases where a person holding stocks transfers a part of the stocks, he/she would be able to receive more tax benefits because the number of stocks acquired first and the number of stocks acquired first are larger than that of the long-term possession. Meanwhile, Article 80(7) of the Enforcement Decree of the Punishment of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act, which is the single exchange of savings support measures, provides that the number of stocks acquired later shall be deemed to have been first transferred in order to achieve the purpose of the Act.

3) According to the above legislation, when a stock-listed corporation pays dividends to a stock-listed corporation, the securities company classified the shares of the shareholders into long-term holding shares and notified the Korea Securities Depository of the contents thereof. However, the securities company could not confirm whether the shares deposited in the account of the customer are long-term holding shares solely on the issue and quantity of the shares. As such, since January 1, 1998, when Article 81-3 of the FSC went into effect, the date of purchase of the remaining shares held by the customer was entered in the customer account book, and the securities company is bound to deal with the transfer of the transferred shares by specifying the date of acquisition of the shares in order for the customer to specify the date of purchase of the remaining shares.

4) Ultimately, in consideration of the purport of the provision of Article 80(7) of the Enforcement Decree of the Mediation Act and the customer’s interest, all securities companies have been managing the customer’s account by disposing of tin acquired later by the method of delivery first, unless the customer specifically specifies the stocks to be transferred at the time of transfer of stocks.

5) It seems that the securities, Korea investment securities, and new investment financing securities that managed the instant shares also managed each of the securities deposited account in the name of the Plaintiffs by the post-issuance of the shares in the event that the said shares were transferred.

[Ground of recognition] Unsatisfy, Gap evidence Nos. 4 and 5, the purport of the whole pleadings

D. Determination

(i) the time of acquisition and transfer of shares, if shares are acquired or transferred by year (whether the plaintiff's second assertion is determined);

First, I examine the second argument that if shares of the same item are acquired and transferred during the year, the time of acquisition and transfer should be specified by the later entry method.

In full view of the provisions on deposit under the Securities and Exchange Act, and the method of stock transaction as seen earlier, the owner of the stocks listed on the securities market, etc. shall be deemed to have owned his/her co-ownership right over the stock certificates mixed and kept with the Korea Securities Depository, not by the stock certificates themselves. Moreover, even if the owner of the stocks transfers the stocks by specifying the items and quantity in the securities market, it is merely a co-ownership right over the stock certificates mixed and kept with the Korea Securities Depository, not by the real subject of the transfer, but by the real right itself. The right to co-ownership over the stocks is not a specific stock certificate but by the Korea Securities Depository. Therefore, if a part of the stocks acquired over several occasions are transferred, it is essentially impossible in light of the nature of the right to share ownership.

In addition, since the parties to a stock transaction generally have a significant meaning between the parties to the transaction by entering and shipping shares only on the account book and only the items and quantity of the shares have important meaning, it seems that there is no practical benefit to specify the date of acquisition of the shares (i.e., shares in stock certificates mixed and kept by the Korea Securities Depository) and that there was no transaction by specifying the date of acquisition of the shares actually transferred. However, even if the nature of the transfer of shares is transfer of shares in stock certificates deposited with the Korea Securities Depository, it cannot be deemed technically impossible to specify the shares transferred according to the date of acquisition of the shares.

However, from January 1, 1998 when the company grants tax benefits on the dividend income of long-term holding stocks as stipulated in Article 81-3 of the Enforcement Decree of the Early Reduction and Exemption Act, since there is a need to distinguish whether the shares owned by the shareholders are long-term holding shares, the date of acquisition of the shares has to be managed separately. The transferred shares also become non-specific depending on the date of acquisition. In addition, Article 80(7) of the Enforcement Decree of the Early Reduction and Exemption Act also requires the determination of whether long-term holding shares are held on the premise that the transfer of shares is made in accordance with the later return method.

Meanwhile, it cannot be deemed that such a method is applied to the application of the Income Tax Act and the Inheritance Tax and Gift Tax Act, etc., on the ground that the Enforcement Decree of the Early Reduction and Exemption Act provides that the said method shall be applied in calculating the number of stocks held in a long term. However, as seen earlier, a securities company classifys balance stocks remaining in the account of a customer since January 1, 1998 by the date of acquisition, taking into account the legislative intent of the Enforcement Decree of the Early Reduction and Exemption Act and the customer’s interest, and manages the stocks acquired later in accordance with the Early Reduction and Exemption Act if a part of the shares is transferred, first of all. Such management method takes place in light of the general accounting principles and practices of all securities companies including the securities company that managed the instant shares, and it appears that the specific method of transfer under the Early Selection and Removal Act appears to be fair and reasonable in light of the legislative intent of Article 80(7) of the Enforcement Decree of the Early Reduction and Exemption Act and the interests of customers, and it can be seen that the Defendants’ shares are transferred in accordance with the aforementioned provision.

Therefore, it is reasonable to deem that each of the instant shares was acquired and transferred in the way that the shares subsequently acquired were first transferred. Therefore, the Plaintiffs’ assertion on this point is reasonable, and each of the instant dispositions based on the premise that the acquisition and transfer time of each of the instant shares cannot be specified is unlawful.

2) The scope of validity of the transfer of entry into force at the end of the year (the determination on the first argument of the Plaintiff)

Furthermore, in light of the following circumstances revealed by the Health Team, the facts acknowledged earlier, and the purport of the entire pleadings, the change of ownership in the manner to increase shares in proportion to the volume of pure shares increased compared to the end of the year prior to the end of the year is deemed to constitute a transfer of ownership with respect to all shares acquired and transferred during the year, and held at the end of the year, pursuant to the Act on the Elimination and Printing, and thus, the aforementioned change of ownership constitutes a transfer of ownership with respect to all shares acquired and transferred at the end of the year. Accordingly, this part of the allegation by the prior

A) Even if a change of entry is made in such a way as to increase the share of shares in proportion to the volume of shares increased purely in comparison with the end of the preceding year, it may be deemed a change of entry in the simplified way in which the process to reduce the share of shares in proportion to the volume of shares reduced during the pertinent year in accordance with the ex post facto entry method and to increase that share in proportion to the volume of shares increased during

B) The Plaintiffs’ assertion that the transfer of ownership does not extend to a part of the shares acquired annually and held at the end of the year, but it is not permissible to deny all legal relations (stock dividends, voting rights, etc.) with the premise that the transfer of ownership is completed with respect to the total shares held at the end of the year.

(iii) a reasonable tax amount;

In light of the fact that each transaction of the instant shares was conducted pursuant to the post-Entry Act, and when the gift tax pursuant to the title trust of each of the instant shares was calculated, the amount indicated in [Attachment 2] No. 1 through No. 18 of the list of political party tax amount in [Attachment 2] to the pertinent disposition is unlawful.

3. Conclusion

Therefore, the plaintiffs' claim of this case is justified within the scope of the above recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.