Cho High Court Decision 201Do2450 ( October 31, 2011)

No disposition in violation of the principle of clarification of taxation requirements is possible to know the upper limit of the benefit of donation.

Since the evaluation value per share before the capital increase is calculated as the average value of the base value of the securities business association for 2 months prior to the payment date of the stock price, the evaluation value of the theoretical right has already been determined at the time of the payment of the stock price, and the person to whom new shares are allocated can at least know the upper limit of the contribution profit, it does not

2012Guhap3255 Revocation of Disposition of Imposition of Gift Tax

XX

Head of the tax office;

July 27, 2012

August 24, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposing gift tax of KRW 000 against the Plaintiff on December 1, 2010 shall be revoked.

1. Details of the disposition;

A. On September 28, 2005, the Association-registered corporation SP (hereinafter referred to as "non-registered company") announced the public on the website of the Financial Supervisory Service that "the number of shares issued 3,080,000 shares, the issue price per one share, 000 won per share, the payment date of shares, October 26, 2005, and the payment date of shares, which shall be determined on September 26, 2005, and the third party allotment method shall be conducted on September 28, 2005."

B. On October 26, 2005, the Plaintiff participated in the subscription price for new shares, and paid 000 won per share for new shares, and acquired 420,000 shares for new shares.

C. The director of the Seoul Regional Tax Office conducted an investigation of changes in the shares of the non-party company, and notified the defendant of the taxation data on the ground that the market price of the new shares due to the capital increase by issuing new shares as indicated in the table under Article 29(3)1(a) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21292, Feb. 4, 2009; hereinafter referred to as the "Enforcement Decree of the Inheritance Tax and Gift Tax Act") was calculated as KRW 000,000 for the difference between the market price and the issued price of the non-party company.

D. The defendant decided and notified the plaintiff on December 1, 201 that "the plaintiff received 00 won ( =00x420,000 won) multiplied by 420,000 shares allotted to 10 won per share pursuant to Article 39 (1) 1 (c) of the Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter "the Inheritance Tax and Gift Tax Act") and Article 29 (3) 1 of the Enforcement Decree of the same Act, "the plaintiff received a donation of 420,000 shares (including additional tax)" from the existing shareholders, and the plaintiff raised an objection on February 28, 201 for each of the following reasons: on March 29, 2011, the plaintiff was dismissed as the plaintiff's tax base and the remaining amount of tax on each of the donated shares."

F. In accordance with the decision of the Tax Tribunal, the Defendant calculated the tax base and amount of gift tax by classifying each of the following shareholders as follows: (a) on November 17, 201, the Defendant issued a revised and notified the reduction of KRW 000 (including additional taxes) of the gift tax originally imposed on the Plaintiff on the Plaintiff on KRW 000 (hereinafter referred to as the “disposition imposing gift tax as of December 1, 2010 corrected.”

(The following calculation content omitted)

G. Meanwhile, 1,830,000 shares out of 3,080,00 shares issued with capital increase by issuing new shares in the instant case = Gold A (490,00 shares) + UNB(450,000 shares) + UCC (340,000 shares) + UD (120,000 shares) + UE (30,000 shares) + E (30,000 shares) + E (400,000 shares) was deposited with the Korea Securities Depository for one year from the date of issuance.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4 (including natural disaster) and Eul evidence 1 to 4 (including additional number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Article 39(1)1(c) of the Inheritance Tax and Gift Tax Act and Article 29(3)1(1) of the Enforcement Decree of the same Act (hereinafter “instant legal provision”) provide that the market price of the Association-registered corporation, which is the basis for calculating the gains from donation, shall be the lesser of the average amount of the theoretical rights and the closing price for two months after the capital increase. As such, there is a lack of predictability, such as that it is impossible to calculate the accurate gains from donation because the closing price cannot be known for two months after the capital increase at the time of the capital increase, it is a violation of the principle of clarity of taxation requirements and thus is unconstitutional. Accordingly, the instant disposition

(2) Since 1,830,00 out of the 3,080,000 new shares issued with capital increase with the instant subscription for new shares was protected for one year, it cannot be deemed that the benefits have been realized until the period of safeguard expires. Therefore, the instant disposition is unlawful as a taxation on unrealized profits.

(3) As the issue price of new shares is determined by applying discount rates within 10% for the purpose of improving the financial structure and for the prevention of forfeited rights and prompt financing, there are justifiable grounds for the calculation of the issue price. Even if the new shares are issued at a price lower than the market price, if there are justifiable grounds, Article 39(1)1 (c) of the Inheritance Tax and Gift Tax Act cannot be applied.

(4) Since the tax requirements are unclear and the time limit for return and payment are not sufficiently guaranteed, it was practically impossible for the Plaintiff, not a tax specialist, to report and pay the gift tax that the Plaintiff expressed as the instant capital increase with the capital increase within the time limit for return and payment, and the Defendant’s imposition of additional tax at the time when five years have elapsed since the time of donation was too harsh, there is a justifiable reason that does not cause the Plaintiff to breach of its duty, and thus, the imposition of additional tax is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) As to the first argument

(A) Article 39(1)1 (c) of the Inheritance Tax and Gift Tax Act provides that in case where a corporation issues new stocks in order to increase its capital at a price lower than the market price, a person other than the shareholder of the relevant corporation shall be deemed to have donated the amount equivalent to the benefits acquired by being directly allocated new stocks from the relevant corporation. Paragraph (3) of the same Article provides that the method of calculating the benefits under paragraph (1) and other necessary matters shall be prescribed by the Presidential Decree. According to delegation, Article 29(3)1 of the Enforcement Decree of the same Act provides that the method of calculating the benefits received by the purchaser of new stocks shall be prescribed by the Presidential Decree. Article 29(3)1 of the same Decree provides that the method of calculating the benefits received by the purchaser of new stocks shall be ① [The appraised value per share before the increase x the total number of new stocks before the increase x the number of new stocks increased by the increase x the number of stocks before the increase) calculated by the formula of the total number of issued stocks before the increase (hereinafter referred to as "evaluation value of new stocks") and the amount calculated by paragraph (3).

In addition, Article 60 (1) of the Inheritance Tax and Gift Tax Act provides that the value of property on which inheritance tax or gift tax is levied shall be the market price as of the date of commencing the inheritance or the date of donation (hereinafter referred to as the "date of appraisal"), and the value appraised by the method of appraisal under Article 63 (1) 1 (a) and (b) shall be deemed the market price. Article 63 (1) 1 (a) and (b) shall apply mutatis mutandis to the method of appraisal of stocks traded by the Korea Stock Exchange for two months before and after the base date of appraisal: Provided, That where it is inappropriate to determine the average amount based on the average amount of the securities business before and after two months before and after the base date of appraisal, the average amount of the period calculated under the conditions as prescribed by the Presidential Decree shall be determined by the Presidential Decree among two months before and after the base date of appraisal, and Article 52-2 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that where any cause such as capital increase or merger has occurred before the base date, the average period from two months after the date of appraisal date.

(B) In the case of the allocation of new shares to a third party, the requirements and methods for imposing gift tax are specified in the law as above, so it is not clear that the requirements for imposing gift tax cannot be seen as unclear (the plaintiff did not know it properly). ② The evaluation value per share before the capital increase is calculated as the average value of the base value of the Securities Association for the two months before the payment date of the stock price. Thus, the evaluation value of the right per share before the capital increase is already determined at the time of the payment of the stock price, and the person to whom new shares are allocated can know at least the upper limit of the gift profit at the time of the payment of the stock price. ③ However, the plaintiff's above assertion is without merit.

(3) As to the third argument

① Article 39(1) of the Inheritance Tax and Gift Tax Act provides, unlike Article 35(2) of the Inheritance Tax and Gift Tax Act, that if new shares are issued at a price lower than the market price, regardless of whether there is a justifiable reason, the difference shall be deemed as a donation. Thus, it is clear that there is no justifiable reason. ② The provision on issuance of securities provides that “in cases where new shares are issued at the market price, and where new shares are issued at the market price, such as a stock-listed corporation, the issue price shall be calculated by applying the discount rate set by the stock-listed corporation, etc. to the base price, but the said discount rate shall be set within 10/100 in cases of third party shares increase.” However, the above provision is merely a certain limitation on the issue price of new shares and subscription procedure to ensure fairness and transparency of the issue price of new shares, it cannot be deemed as a legitimate market price even if the non-party company issued new shares under the Securities and Exchange Act, a stock-listed corporation or Association-registered corporation under Article 2(3) of the Securities and Exchange Act excludes the Plaintiff from issuance of new shares.

(4) As to the fourth argument

(A) Under the tax law, in order to facilitate the exercise of taxation rights and the realization of tax claims, the taxpayer’s intentional and negligent acts are not considered as administrative sanctions imposed as prescribed by the law in cases where the taxpayer violates the tax return, tax liability, etc. as prescribed by the law without justifiable grounds (see, e.g., Supreme Court Decision 2000Du1652, Feb. 8, 2002).

(B) In the case of the allocation of new shares by a third party under the law, the method of calculating the gift tax is specified in detail, so the taxation requirement cannot be deemed unclear, and the Plaintiff’s failure to know it is merely attributable to the site or mistake of the law. ② The gift tax base is determined only after the lapse of two months after the date of donation. However, the deadline for filing the gift tax is within three months after the date of donation (Article 68 of the Inheritance Tax and Gift Tax Act), and it is within three months after the date of donation (Article 68 of the Inheritance Tax and Gift Tax Act), and there is no special circumstance that the Plaintiff is able to report the gift tax by the due date, and there is no other reason that the Plaintiff cannot be found to have any justifiable reason that the Plaintiff cannot be deemed to have caused the Plaintiff’s failure to perform his duty to report the gift tax base even if considering the circumstances of the Plaintiff’s internal tax payment.

3. Conclusion

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