Plaintiff (Attorney Seo-gu, Counsel for the plaintiff-appellant)

Head of Dong Daegu Tax Office

November 14, 2008

Daegu District Court Decision 2006Guhap1267 Decided June 20, 2007

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposition of gift tax of KRW 257,846,624 against the Plaintiff on February 11, 2005 is revoked.

2. Purport of appeal

The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

1. Details of the disposition;

The following facts can be acknowledged if there is no dispute between the parties, or if Gap evidence Nos. 1, 2, 3, and 2-1, 2-2, Eul evidence Nos. 1 through 4, 6, 7, and 8 are together with the purport of the whole pleadings.

A. Nonparty 2 Co., Ltd. was an unlisted corporation established on April 16, 1975. On July 21, 2001, the Plaintiff acquired 20,000 won per share of Non-Party 1’s non-listed shares of Non-Party 2 Co., Ltd. to KRW 3,685 (hereinafter “stocks subject to deemed donation”) in total, KRW 73,70,000 per share (hereinafter “transaction value”).

B. However, at the time of transfer and acquisition of the stock subject to deemed donation between the Plaintiff and Nonparty 1, Nonparty 3 as the largest shareholder and representative director of Nonparty 2, owned 5.67% of the total issued shares, and the Plaintiff was the managing director of Nonparty 2 as the children of Nonparty 3. Nonparty 1 was the auditor of Nonparty 2, and Nonparty 1 was the shareholder of Nonparty 2 and the auditor, and there was no shares of Nonparty 2, which were owned by the Plaintiff before the above transfer.

C. On September 30, 204, the Defendant conducted a tax investigation on the Plaintiff’s acquisition of real estate, stocks, etc. between 1997 and 2003: (a) determined that “the Plaintiff and Nonparty 1 at the time of transfer or acquisition of stocks subject to deemed donation on the basis of these facts under the above paragraph (b) determined that “the difference between the value of stocks subject to deemed donation and the value of stocks donated pursuant to Article 35(1)1, 2, and (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 200; hereinafter “Gift 5, hereinafter “Gift 65, etc.”) was 60,50,500,500 won (amended by Presidential Decree No. 18177, Dec. 30, 2003; hereinafter “Enforcement Decree”) 160,516,70,516, etc., which were assessed as deemed gift value of stocks donated by Nonparty 1.”

D. However, on February 11, 2005, the Defendant rendered a decision to increase the amount of gift tax to KRW 257,846,624 (hereinafter “instant disposition”) by applying the premium rate for the largest shareholder’s shares to the shares subject to deemed donation, and notified the Plaintiff at that time.

2. Determination of legality of disposition

A. The parties' assertion

(1) The defendant's assertion

(A) At the time of transfer or acquisition of stocks subject to deemed donation, the Plaintiff has a special relationship under Article 35(1)1, 2, and 35(2) of the Inheritance Tax and Gift Tax Act, Article 26(4)1, Article 19(2)1, and Article 19(2)2 of the Enforcement Decree.

i) Article 26(4) of the Enforcement Decree provides that "a person who has a special relationship with a transferor or transferee" shall be a person who has a relationship under Article 19(2)1 and 2, and the transferor or transferee shall be a person with a special relationship when the transferor or transferee forms a relationship under Articles 19(2)1 and 19(2)2. The plaintiff shall be a relative and an employee under the above subparagraph 1, who is the largest shareholder of the non-party 2 corporation. The plaintiff is a relative and an employee under the above subparagraph 1. The non-party 1 is an employee under the above subparagraph 2.

ii) In light of the provisions of Article 13(6)2 of the Enforcement Decree, an employee under Article 19(2)2 of the Enforcement Decree includes “an employee of a corporation controlled by investment”. Article 19(2) of the Enforcement Decree provides that the total number of stocks held by the largest shareholder or largest investor is the shareholder, etc. in the case where the total number of stocks held by the largest shareholder or largest investor is the largest shareholder, and the Plaintiff is the relative of Nonparty 3, the Plaintiff is an employee of Nonparty 1, and the Plaintiff is a person who actually manages and controls the non-party 2 corporation by taking over the management right of the non-party 2 corporation from Nonparty 3, and thus, the non-party 1 is an employee of the Plaintiff.

(B) If the Plaintiff acquired shares subject to deemed donation at a low price from Nonparty 1 in a special relationship, and the Defendant assessed the value of shares subject to deemed donation in accordance with each provision of the Inheritance Tax and Gift Tax Act on the Evaluation of Non-listed Stocks, the instant disposition that the Plaintiff imposed gift tax on the Plaintiff by deeming that the Plaintiff was donated KRW 586,00,000 remaining after deducting KRW 100,000 from the difference between the appraised value of shares subject to deemed donation and the traded value of Non-Party 1 (759,710,655,655 - 73,700,000) from the assessed value of shares subject to deemed donation from Non-Party 1.

(2) The plaintiff's assertion

The plaintiff does not have a special relationship under Article 35 (1) 1, 2, and (2) of the Inheritance Tax and Gift Tax Act, and Articles 26 (4) 1, 19 (2) 1, and 26 (2) 2 of the Enforcement Decree of the Enforcement Decree of the same Act, and even if there is a special relationship with domestic affairs, 20,000 won per share, which is the transaction value of stocks subject to deemed donation, is not an objective market value, and is not a transfer at a low price, and in addition, 206,163 won per share, which is the value of stocks subject to deemed donation assessed by the defendant, is unfairly high, and thus, the disposition of this case is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

First, we examine whether the plaintiff and the non-party 1 are in a special relationship.

(1) The meaning of “transferr or transferee” under Article 26(4) of the Enforcement Decree of the Gift Tax Act where a person having a special relationship is defined and used by the transferor and the transferee in cases where the lower price under Article 35(1)1 of the Gift Tax Act is taken over, the meaning of the transferor and the transferee in cases where a high price is transferred under Article 35(1)2 of the Gift Tax Act, and the meaning of the transferor and the transferee in cases where a high price is transferred under Article 35(1)2 of the Gift Tax Act, and the relationship between the largest shareholder and the person having a special relationship under Article 19(2) of the Enforcement Decree is not the same. In order to become a person having a special relationship, the relationship under each subparagraph of Article

(2) Even if an employee of Article 19(2)2 of the Enforcement Decree includes a “executive of a corporation controlled by investment” and Nonparty 1 is an employee of a person who controls Nonparty 2 by investment, the “major shareholder or largest investor as prescribed by the Presidential Decree” under Article 19(2) of the Enforcement Decree refers to a shareholder, etc. in the case where the total number of shares held by a shareholder or one investor and a person in a relationship falling under any of the following subparagraphs is the largest number of shares held by such shareholder, etc., and the largest shareholder or largest investor shall be a shareholder or investor. At the time of acquisition of shares subject to donation, the Plaintiff was not a shareholder or an investor of Nonparty 2 at the time of acquisition of shares subject to donation, and the Plaintiff cannot be said to control Nonparty 2 by investment solely on the ground that the largest shareholder was a relative of the largest shareholder

(3) However, according to the facts acknowledged in the course of the disposition, the plaintiff is the managing director of the non-party 2 corporation at the time of the transfer and acquisition of the shares subject to deemed donation between the plaintiff and the non-party 1, and the non-party 1 was only the shareholders and auditors of the non-party 2 corporation. The plaintiff is not enough to recognize that the plaintiff transferred the management right of the non-party 2 corporation from the non-party 3 and actually managed the non-party 2 corporation or controlled the non-party 2 corporation through investments. Since there is no other evidence to recognize otherwise, the non-party 1 cannot be deemed the plaintiff's employee, and the plaintiff cannot be deemed the non-party 1's employee, and the non-party 1 is the non-party 1's employee, and there is no other evidence to prove that the plaintiff is an employee of the plaintiff or the non-party 1 maintains his livelihood with the plaintiff's property, or that the plaintiff maintains his livelihood with the non-party 1's property at the time of the transfer and acquisition of the shares subject to deemed donation between the plaintiff and the transferee.

(4) Therefore, the Defendant’s disposition of this case, based on the premise that the Plaintiff and Nonparty 1 had a “special relationship” under Article 35(1) and (2) of the Gift Tax Act and Article 26(4)1 of the Enforcement Decree of the same Act at the time of transfer or acquisition of the shares subject to deemed donation between the Plaintiff and Nonparty 1, is unlawful without any need to further examine the Plaintiff’s remaining arguments.

3. Judgment on the Defendant’s conjunctive assertion

The defendant asserts that on June 1, 2007, the disposition of this case is legitimate, since the non-party 3 held the shares to be donated to the non-party 1 under title trust, and that the non-party 3 transferred the shares to his own children, and even in this case, the provisions of the high-priced donation agenda can be applied.

However, in an appeal litigation seeking the revocation of an administrative disposition, adding facts without identity of basic facts to the grounds for disposition are contrary to the trust and protection of the people, who are the other party to the administrative disposition, and it is not allowed to guarantee the other party’s right to defense. The grounds for the Plaintiff’s acquisition of shares subject to constructive gift under a title trust from Nonparty 3, which are the grounds for the disposition of this case, by Nonparty 1, who is the grounds for the disposition of this case, is different from the fact that the Plaintiff acquired shares subject to constructive gift directly from Nonparty 1, which are the grounds for the disposition of this case, at low price, and there is no identity of basic facts. Thus, the Defendant’s conjunctive assertion cannot be asserted to be legitimate for the disposition of this case without imposing a new gift tax on the grounds for the Defendant’s conjunctive assertion and based on

4. Conclusion

Therefore, the disposition of this case shall be revoked in an unlawful manner, so the plaintiff's claim seeking its revocation shall be accepted on the grounds of its reasoning, and the judgment of the court of first instance is legitimate on the same conclusion, and the defendant's appeal is dismissed as it is without merit.

[Attachment]

Judges Choi Jin-sik (Presiding Judge)