2016Du63439 Revocation of Disposition of Imposing capital gains tax

Plaintiff

Law Firm LLC et al., Counsel for defendant-appellant

[Defendant-Appellee] Plaintiff 1 and 3 others

The Director of Gangnam District Office

Law Firm LLC et al., Counsel for the defendant-appellant

Attorney Lee Jong-chul et al.

Seoul High Court Decision 2016Nu55102 Decided November 3, 2016

may 7, 2021

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Case summary

A. On May 24, 2012, the Plaintiff, as a corporation listed on the KOSDAQ market in a special relationship, transferred 680,000 shares (hereinafter “instant shares”) issued by Yangyang corporation, the largest shareholder of which was 5,80,000 won per share by means of overtime trading (hereinafter “instant transfer”), and on the same day, the final market price of the instant shares issued by the Korea Exchange (hereinafter “SP”) was KRW 9,200 per share.

B. On August 31, 2012, the Plaintiff reported and paid the transfer income tax, etc. on the instant transfer at KRW 5,984,00,000 with the transfer value as KRW 5,984,00.

C. Pursuant to the latter part of Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013; hereinafter “former Inheritance Tax Act”), which is applicable mutatis mutandis pursuant to Article 167(5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27829, Feb. 3, 2017; hereinafter the same), Article 60(1)1(a), (b), and (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11845, May 28, 2013; hereinafter the same) and Article 63(1)1(a), (b), and (3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20150, May 24, 2012; hereinafter the same shall apply), the Defendant calculated the transfer value of shares to the Plaintiff pursuant to Article 10(10(15)1)1(3)5)15(2) of the former Enforcement Decree.

2. Judgment on the grounds of appeal

A. (1) Article 101 (1) of the Income Tax Act provides that "where the head of a tax office or the director of a regional tax office having jurisdiction over the place of tax payment deems that any act or computation of a resident who has capital gains has reduced the tax burden on his income by any transaction with a related party to the resident, he may calculate the income amount in the relevant taxable period regardless of the resident's act or calculation," and Paragraph (5) of the same Article provides that "the scope of the related party under paragraph (1) and other matters necessary for wrongful calculation shall be prescribed by Presidential Decree." Further, Article 167 (3) 1 of the former Enforcement Decree of the Income Tax Act provides that "where a resident transfers assets at a price lower than the market price to the related party" as one of the types of acts governed by Article 101 (1) of the Income Tax Act concerning the wrongful calculation, the transfer value shall be calculated based on the market price, and the market price shall be calculated by applying mutatis mutandis Articles 60 through 64 of the Inheritance Tax and Gift Tax Act and Article 59 of the Enforcement Decree.

Meanwhile, Article 60 (1) of the former Inheritance and Gift Tax Act provides that "the value of property on which inheritance tax or gift tax is imposed under this Act shall be the market price as of the date of commencing the inheritance or the date of donation (hereinafter "date of appraisal").

In this case, Article 63 (1) 1 (a) and (b) of the Act provides that "the value assessed by the method of evaluation (excluding cases falling under Article 63 (2)) as provided for in Article 63 (1) 1 (a) and (b) (excluding cases falling under Article 63 (2)) shall be deemed the market price." In addition, Article 63 of the same Act provides that "the stocks prescribed by Presidential Decree among the stocks of listed corporations in the KOSDAQ market shall be assessed as "the average daily closing price published every two months before and after the evaluation base date," and Article 63 (1) 1 of the same Act provides that "in applying paragraph (3) of the same Article, 20/100 of the value shall be added to the value assessed under subparagraph 1 of paragraph (1) for the stocks of the largest shareholder and

In light of the legislative intent of Article 60(1) of the former Inheritance and Gift Tax Act which provides that the value assessed according to the evaluation methods stipulated in Article 63(1)1(a) and (b) shall be considered as the market price in order to exclude arbitraryness and to ensure objectivity in the evaluation, the market price of the transferred listed stocks in determining whether they are subject to wrongful calculation of capital gains shall be deemed as the market price, taking into account the structure of Articles 60 and 63 of the former Inheritance and Gift Tax Act concerning the evaluation methods of listed stocks, the purport of the system of wrongful calculation, and the above provisions, barring special circumstances, the market price of the transferred listed stocks in determining whether they are subject to wrongful calculation of capital gains shall be deemed as the market price according to the latter part of Article 60(1)1(a) and (b) of the former Inheritance and Gift Tax Act (see, e.g., Supreme Court Decision 201Du37130, Apr. 1, 201).

(2) The main text of Article 167(6) of the former Enforcement Decree of the Income Tax Act (hereinafter “Enforcement Decree of this case”) provides that “Where an individual acquires or transfers property between the individual and the corporation, and the price falls under the value under Article 89 of the Enforcement Decree of the Corporate Tax Act and Article 52 of the Corporate Tax Act does not apply to the transaction of the corporation, Article 101(1) of the Income Tax Act shall not apply.” In full view of the language and structure of the provision of this case and related provisions, and the purport of the provision of the Enforcement Decree of this case, the provision of this case provides that “the price of the transfer of property, such as stocks, between the individual and the corporation in a special relationship, falls under the market price stipulated in Article 89 of the Enforcement Decree of the Corporate Tax Act, Article 101(1) of the Income Tax Act concerning the transfer income of the corporation shall not apply to the other party to the transaction of the corporation, where Article 52 of the Corporate Tax Act concerning the wrongful calculation of the market price of the corporation.”

B. Examining the aforementioned facts in light of the aforementioned provisions and legal principles, the provision of this case’s transfer where the Plaintiff did not transfer the shares of this case to Eddi and Eddi to KRW 9,200 per share, which is the market price under the Corporate Tax Act, cannot be applied. Thus, the provision of this case’s transfer should be applied. Accordingly, pursuant to Article 167(5) of the former Enforcement Decree of the Income Tax Act, the latter part of Article 60(1) of the former Inheritance Tax Act, and Article 63(1)1 and (3) of the former Inheritance Tax Act, “the amount calculated by adding 20% to the average of the closing price per day, 9,565 won per day before and after the date of transfer,” which is 11,478 won per share, which is “the amount calculated by adding 20% to the average of the closing price per

C. In the same purport, the lower court was justifiable to have determined that the instant disposition was lawful on the ground that the market price of the instant shares was KRW 11,478 per share. In so doing, the lower court did not err by misapprehending the legal doctrine on the interpretation of the Enforcement Decree of the instant case or by misapprehending the legal doctrine on the wrongful calculation panel, contrary to what is

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Min You-sook

Justices Kim Jae-hyung

Justices Lee Dong-won

Chief Justice Noh Tae-ok