Plaintiff (Law Firm Dara, Attorney Lee So-young, Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office (Attorney Kim Yong-sik, Counsel for defendant-appellant)

June 21, 2016

Seoul Administrative Court Decision 2014Guhap68461 decided December 29, 2015

1. Of the judgment of the court of first instance, the part of the judgment against the defendant ordering the revocation of the portion exceeding KRW 670,632,288 of the imposition disposition of KRW 930,163,602 of the gift tax on October 12, 2004, which exceeds KRW 654,275,404 of the imposition disposition of KRW 654,275,404 of the gift tax on the gift in 204, and the part against which the disposition of KRW 953,417,70 of the imposition disposition of KRW 953,417,70 of the penalty tax on the gift in 204 was revoked

2. The plaintiff's appeal and the defendant's remaining appeal are dismissed, respectively.

3. Of the total litigation costs, 95% is assessed against the Plaintiff, and the remainder of 5% is assessed against the Defendant.

1. Purport of claim

Each disposition imposing gift tax (including penalty tax in the case of gift tax on gift in 1998) listed in the separate disposition list 1 of October 12, 2012, which the Defendant issued to the Plaintiff, and each disposition imposing penalty tax listed in the separate disposition list 2 of September 21, 2015, shall be revoked.

2. Purport of appeal

A. The plaintiff

Of the judgment of the court of first instance, the part against the plaintiff shall be revoked. Each disposition of imposition of principal gift tax (the imposition of KRW 930,163,602 of gift tax in 2004 shall be 654,275,404 shall be 654,275,404, among those imposed) listed in the separate sheet 1 as of October 12, 2012 and each disposition of imposition of additional tax listed in the separate sheet 2 as of September 21, 2015 (the imposition of additional tax on gift tax in 2004 shall be 953,417,700, among those imposed by the defendant) shall be revoked.

B. Defendant

The part against the defendant in the judgment of the first instance shall be revoked, and the plaintiff's claim corresponding to the revoked part shall be dismissed.

1. Quotation of judgment of the first instance;

The reasoning for the court's explanation on this case is as follows, and the reasoning for the court's decision is as stated in the first instance court's decision, except for the deletion of 1-5 acts from the bottom of 25 pages. Thus, this is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

A. The height part

○ From No. 4 to No. 7 of the first instance judgment

B. Illegal assertion in the tax investigation procedure and determination thereof

1) The plaintiff's assertion

On January 11, 2012, the Defendant conducted a tax investigation with the Plaintiff on an extension of the scope of the tax investigation on February 16, 2012, and notified the Plaintiff of the reason for the investigation as “pro rata investigation,” and only “verification of suspicion of donation of funds for acquiring assets” on the date of conducting the tax investigation. There is no evidence secured even when the prior notification procedure was omitted. Although the Defendant omitted the procedures for prior notification, the Defendant was subject to a tax investigation on certain tax items, and was subject to an investigation on stock title trust without knowing whether the investigation was conducted or not. As such, the Defendant violated due process by omitting the prior notification procedure and failing to notify specific tax items in the process of expanding the scope of the tax investigation and the scope of the investigation. Accordingly, each of the instant dispositions was unlawful.

(ii) the facts of recognition

(1) On January 7, 206, the Plaintiff concluded an agreement with the Director of the Regional Tax Office of 10% of the shares shares were not sold to the Plaintiff for 10% of the remaining 60% of the shares of Nonparty 1 and the Plaintiff’s remaining 10% of the shares were not sold to the Plaintiff. ① The Plaintiff’s tax investigation was conducted under the name of 10, 10, 11, 16, 17-1 and 2, and the overall purport of the pleadings. However, Nonparty 1 was removed by the career group and the amount of delinquent taxes was generated abroad, and the Plaintiff’s tax investigation was sold to the Plaintiff under the name of 10, 201, 30, 10, 100, 200, 200, 10, 10,0000, 10,0000,000,000,000).

3) Determination

A) According to Article 81-7(1) of the Framework Act on National Taxes and Article 63-6 of the Enforcement Decree of the Framework Act on National Taxes, where a tax official conducts a tax investigation excluding a tax offense investigation under the Procedure for the Punishment of Tax Offenses Act, he/she shall notify the taxpayer subject to the investigation of the tax items to be investigated, the period and reason for the investigation, the name and domicile or domicile of the taxpayer, and other necessary matters in writing ten days prior to the commencement of the investigation, but the same shall not apply where it is deemed impossible to achieve the purpose of investigation due to destruction of evidence, etc. If a prior notification is made. Furthermore, according to Article 81-9 of the Framework Act on National Taxes and Article 63-1(1)1 of the Enforcement Decree of the Framework Act on National Taxes, a tax official is obliged to notify the taxpayer of the reason and scope thereof in writing.

B) First of all, as to whether it was erroneous in the prior notice procedure, (1) it was recognized that Nonparty 1 was the actual owner of the Couris shares in the process of dispute over the ownership of Couris shares between Nonparty 1 and the Plaintiff prior to the tax investigation, but it appears that the Defendant did not have any taxation data to directly verify the title trust. (2) The Plaintiff commenced the ownership dispute over Couris shares from around 2008, and claimed that he actually acquired the shares through Couris in the above case. After the disposition of this case, the Plaintiff asserted that he actually acquired the shares in the tax appeal case. Since the tax amount notified of the disposition of this case was a large amount of KRW 10,182,50,040, the tax amount was so large that the Plaintiff asserted that he actually acquired the shares in the process of the tax investigation, and that there was a high possibility to destroy, conceal, or withdraw the relevant evidence, and ③ if the evidence was not destroyed as a result of the prior notice procedure omitted, it could not be deemed that the evidence was destroyed before it was destroyed.

C) Next, as seen earlier, the Seoul Regional Tax Office notified the Plaintiff on the date of the tax investigation, and notified the tax items to be subject to investigation, of the purport that “the Plaintiff received a donation of the acquisition fund from 2003 to 2004” as the object of the tax investigation. In addition, it is difficult to deem that the Seoul Regional Tax Office has a duty to clearly specify the tax item as “ gift tax pursuant to the constructive gift on title trust” beyond the notification to the extent that the gift tax would be levied. Moreover, it is difficult to deem that the Seoul Regional Tax Office has a duty to notify the Plaintiff of the tax item by clearly specifying the tax item as “ gift tax pursuant to the constructive gift on title trust” beyond the notification to the extent that the said tax amount would be levied. Moreover, if a taxpayer subject to the tax investigation did not acquire shares with its own funds, it is deemed that the taxpayer was donated with the acquisition fund from a third party or obtained a title trust of shares owned by a third party, and thus, it is difficult to deem that the Plaintiff did not have any defect in the procedure of the tax investigation.

D) In addition, according to the above facts, the Seoul Regional Tax Office extended the scope of the tax investigation, and notified the Plaintiff of the extended purport of “ gift tax on the ground that the Plaintiff received a title trust from Nonparty 1 for the period from 1996 to 2002.” Therefore, it cannot be deemed that there was a procedural defect in the process where specific tax items to be investigated were not notified in the process of expanding the scope of the tax investigation. In light of the above notification, it is difficult to deem that the Plaintiff could not expect that the additional tax investigation would have been conducted on whether the title trust of the shares of the Couris from 1996 to 2002.

E) The Plaintiff’s assertion as to the defect in the notice procedure of tax investigation is without merit.

○ From 16 to 10 pages 3 of the first instance judgment

Article 41-2(1)1 and (2) of the former Inheritance and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003) that applies to the imposition of gift tax on gift in 203 shall be added to the same contents as Article 41-2(1)1 and (2) of the former Inheritance and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002) that applies to the imposition of gift tax on gift in 203; (1) where a transfer of ownership is not made in the name of the actual owner who acquired the ownership, i.e., where a transfer of ownership is not made in the name of the actual owner who acquired the ownership, but where a transfer of ownership is not made in the name of the actual owner, the title owner shall be deemed to have been donated from the actual owner; and (3) where the transferor files a report on the return of ownership in accordance with Articles 105 and 110 of the Income Tax Act or the change of ownership.

○ Up to 10 pages 10 to 13 of the first instance judgment.

The purport of Article 41-2(1)1 and (2) of the former Inheritance and Gift Tax Act (amended on December 18, 2002) is to impose gift tax by deeming it as a title trust because the substance is identical to that of a title trust, even if a long-term transfer is not made even when a person acquires shares despite the acquisition of the shares. In this case, the date when a registration, etc. was made under the name of a transferor who is the nominal owner is much more than the date when the substance of the title trust took place. Thus, in the case of a property for which a transfer of ownership is required under the name of the actual owner is not a long-term transfer, the following day of the year following the year in which the actual owner actually acquired the ownership by paying the price, etc. to the actual owner, and thus, the title holder is deemed to have donated the following day of the year in which the actual owner acquired the ownership from the actual owner. In the process of reporting the tax base of the securities transaction tax or reporting the change of ownership to the actual owner, if the relevant

○ “A No. 1” No. 18 of the first instance court ruling No. 11

3. Each entry of Gap evidence 1, Eul evidence 1

○ Section 15 to 17 of the judgment of the first instance court

(Non-party 1 cannot be said to have no purpose of tax avoidance on the sole basis of the fact that the amount of the deemed acquisition tax is limited to the minor extent, unless only the deemed acquisition tax is avoided).

○ From 14th to 19th of the first instance judgment

(1) Even if a title trust agreement was made between the plaintiff and the non-party 2, etc. with respect to the cocoin shares held in title trust with the non-party 2, etc. from the time when the title trust was made to the non-party 2, etc., the trustee is deemed to be the non-party 2, etc. so long as the title trust relationship was established between the non-party 1 and the non-party 2, etc., and the title trust relationship was established between the non-party 1 and the plaintiff when the transfer of title was made in the name of the plaintiff. Furthermore, the change of the title trustee is at the same time when the title trust relationship between the non-party 1 and the non-party 2, etc

○ From the bottom of the 22th judgment of the first instance to the 5th to the 24th 8th.

4) Determination as to the allegation of illegality in the return of re-donation

A) Article 47(1) of the former Inheritance and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003) provides that, as of the date of donation, the taxable amount of gift tax shall be the total amount of the donated property (any tangible or intangible property, profit, etc. which is deemed or presumed to be a donation and gift) under the provisions of Articles 31 through 45 of the same Act, minus the amount taken over by a donee as a debt secured to the pertinent donated property. However, Article 47(2) of the same Act provides that, where the total amount of the donated property received from the same person within 10,000 won, within 10 years prior to the pertinent donation date, the value thereof shall be added to the taxable amount of gift tax, and Article 55(1) of the same Act provides that the tax base of gift tax shall be the amount obtained by subtracting the donated property under Article 53 of the same Act from the taxable amount of gift tax under the provisions of Article 47 of the same Act and the amount of

B) Article 47(1) of the amended Inheritance and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; Act No. 9916, Jan. 1, 2010) provides that the aggregate of the value of donated property under the provisions of the same Act as of the date of donation (excluding any donated property excluded from aggregate, but any trust property does not include any donated property excluded from aggregate) shall be the amount obtained by subtracting the amount taken over by a donee as debts secured for the donated property from the total amount of the value of donated property as of the date of donation. Article 47(2) of the same Act provides that where the aggregate of the value of donated property received from the same person within 10 years before the date of donation exceeds 10,000 won, such value shall be added to the taxable value of donated property (excluding any donated property excluded from aggregate), Article 55(1) of the same Act provides that the tax base of donated property shall be deducted from the amount of gift tax (Article 57(1)1)3) of the same Act less the amount of the donated property.

C) In light of the following circumstances, considering the process of amending the provisions on the subject of gift tax and the tax base as above, the legislative intent and purpose of the system on deemed donation of title trust, harmony with the overall legal order, etc., Article 55(1) of the same Act merely appears to mean that the deduction of donated property or the deduction of disaster loss, etc. shall not be recognized in calculating the tax base, and it does not mean that the re-donation should not be made.

① Article 47(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003) prior to and after the amendment, which is a provision on the re-donation of gift tax, was amended by the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003) and there is no provision on the excluding donated property, except for the addition of the provision on the excluding donated property.

② Article 55(1) of the former Inheritance and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; Act No. 9916, Jan. 1, 2010) does not explicitly state any provision on the exclusion of the provision on a re-donation and gift, and comparing each of the following provisions, it seems that Article 55(1) of the same Act provides that only how to obtain a deduction in calculating the tax base for each of the donated property in accordance with Article 47(1) of the same Act (Article 47(1)1 does not include any provision on a non-title trust property; subparagraph 2 of the same Act on the donated property excluded from summing-up; subparagraph 3 on the donated property excluding summing-up, subparagraph 3 of the same Article provides that deduction of donated property and disaster loss deduction amount pursuant to Articles 53 and 54 of the same Act shall be deducted). In light of the aforementioned provisions, Article 55(1) of the same Act provides that the name of the trust property and the trust property shall not recognize any other donated property.

③ The legislative purport of imposing gift tax by deeming title trust as a gift is to effectively prevent tax avoidance and to recognize exceptions to the principle of substantial taxation in order to realize tax justice (see Supreme Court Decision 2007Du17175, Sept. 8, 201). Thus, unlike other donated property in calculating gift tax on the title trust property deemed as a gift, the failure to stipulate a deduction system of donated property, etc. differently from the other donated property is to give disadvantages to the title trustee compared to the donee in order to achieve the legislative purpose to effectively prevent the act of tax avoidance. From this perspective, in the case of title trust deemed as a gift, the legislators cannot be deemed to have excluded the re-donation donation system, thereby enabling the title trustee to evade the progressive tax rate.

D) The Plaintiff’s assertion that the imposition of gift tax on the gift in 2004 and the imposition of additional tax on the gift tax on the gift tax is erroneous is without merit.

B. Additional parts

○ At the bottom of the 10th judgment of the first instance court, in addition to the following:

This does not constitute a case where a long-term transfer of ownership is not made, but does not report the details of the change of ownership (in light of the legislative intent of preventing title trust for the purpose of tax avoidance, it is difficult to view that reporting the details of change of ownership is included in the report of change of ownership excluding the presumption of tax avoidance purpose, rather than the details of change of ownership as the actual owner, in light of the

○ On the 11th judgment of the first instance court, the second “not” is followed:

(only asserting that there is no purpose of tax avoidance and no act of tax avoidance in the tax investigation stage is a nominal trust property)

2. Conclusion

If so, the plaintiff's claim on the imposition of additional tax on the gift tax of 1998 among the claims in this case is well-grounded, and the plaintiff's remaining claims shall be dismissed as it is without merit. Among the judgment of the court of first instance, the part exceeding 654,275,404 won among the disposition of imposition of 930,163,602, October 12, 2012 in excess of the above recognized part among the disposition of imposition of 930,275,602, and the part of the disposition of imposition of 953,417,700, which ordered the revocation of the imposition of additional tax on the gift tax of 204 as of September 21, 2015, which exceeds 670,632,288 won is unfair. Accordingly, the plaintiff's appeal and the defendant's remaining appeal are dismissed as it is without merit.

[Attachment]

Judge highest order (Presiding Judge)