Cho High Court Decision 201Do2824 ( October 12, 2011)

It is insufficient to recognize that there was a solicitation to subscribe for new issuance of securities.

In order to be subject to the allotment by the method of public offering of new securities, which is the exception that does not include the profits accrued from the issuance of the low price in the value of the donated property, there should be activities of notifying the fact that the securities are issued or sold or providing guidance on the acquisition procedure. However, it is insufficient to recognize that the subscription for the acquisition of new

2012Guhap1174 Revocation of Disposition of Imposing gift tax

Hong Kong et al.

Head of the Eastern Tax Office and four others

September 25, 2012

November 1, 2012

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

On May 14, 201, the head of Gangnam-gu Tax Office revoked the imposition of gift tax of KRW 000, gift tax of KRW 000, gift tax of KRW 000, gift tax of KRW 00, gift tax to Plaintiff LeeB made to Plaintiff Lee Dong-B on May 14, 201 by the head of the tax office of Gangnam-gu, KRW 00, gift tax of KRW 00, gift tax of KRW 00, gift tax granted to Plaintiff HongCC on May 14, 201 by the head of the tax office of Gangnam-gu, and KRW 00, gift tax of KRW 00, gift tax granted to Plaintiff RedCC on May 14, 201 by the head of the tax office of Songnam-gu, and KRW 00, gift tax of KRW 00,000, gift tax imposed on Plaintiff ParkF on May 14, 201.

1. Details of the disposition;

A."O alone, Co., Ltd. was established for the purpose of manufacturing and selling electronic measuring instruments, various machinery and tools, and parts thereof on July 5, 197, and the current trade name is changed as follows, and the current trade name was changed."B. Oodo Holdings reported and announced major management to the Financial Services Commission in accordance with Article 186 of the Securities and Exchange Act, while conducting a emulculation as follows:

- Class and number of new shares: 67,984,704 shares per common share.

- Par value per share: 00 won;

- Total number of outstanding shares before the increase of capital: 47,437,206 common shares, 24,000 Preferred Shares

- Method of capital increase: Third party allotment;

- New shares: the issue price of 000 won

- Payment Date: July 8, 2008

- Third party allotment: 37 persons, such as YY, etc.

(C) The plaintiffs participated in the issue of capital increase by 200,00 shares issued by the third party at the time of the increase of shares, which is a listed corporation on July 8, 2008, and paid 36,980 shares; 20,980 shares for the plaintiff HongB; 36,980 shares for the plaintiff HongB; 20,980 shares for the plaintiff HongCC; 36,980 shares for 20,96,980 shares for the plaintiff HongCC; 36,980 shares for 36,980 shares for 36,980 shares for 36,980 shares for 20,00 shares for 20,000 shares for 36,980 shares for 20,000 shares for 36,000 shares for 19,000 shares for 20,0000 shares for 36,01,000 shares for 20,0000 shares for 1.3,01.

E. Based on the foregoing taxation data, the Defendants deemed that the Plaintiffs received the forfeited stocks of O alone Holdings at a low price from the existing shareholders and received a donation of the difference between KRW 000 and KRW 000 per share value, and accordingly, determined and notified the Plaintiffs of gift tax on May 14, 201.

F. On July 29, 2011, the Plaintiffs filed an appeal with the Tax Tribunal on the grounds that they were dissatisfied with the Defendants’ imposition of gift tax as stated in the aforementioned paragraph (e). On October 12, 2011, the Tax Tribunal calculated the profits earned by the Plaintiffs by classifying them by each shareholder who did not receive new stocks, and determined that the tax base and tax amount should be corrected as the value of donated property, and that no additional tax should be added, and that the remainder of the claims should be dismissed. The Defendants reduced and corrected the imposition of gift tax according to the aforementioned decision on November 1, 2011 (hereinafter the Plaintiffs’ imposition of gift tax as follows:

G. The Plaintiffs were dissatisfied with the instant disposition and filed the instant lawsuit on January 10, 2012.

[Reasons for Recognition] Facts without dispute, Gap 1 to 3 evidence, Eul 1 to 7 evidence (including numbers), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

① Even in cases where a third party received the allocation of forfeited stocks for the last five years and received the donation of profits equivalent to the difference between the appraised value per share and the acquisition value per share, gift tax was not imposed intentionally from the policy consideration of promoting the corporate investment environment, and thus, it can be deemed that the non-taxable practice has been constituted. The instant disposition is contrary to the aforementioned non-taxable practice, and thus, violates the principle of protecting trust under Article 18(3) of the Framework Act on National Taxes.

② Even in cases where new stocks are acquired at a price lower than the market price through a third party allotment method, gift tax may not be levied on the case where the new stocks are allocated by the method of public offering of new stocks under Article 2(3) of the former Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007; hereinafter referred to as the “former Securities and Exchange Act”). The Plaintiffs are not subject to gift tax as long as the stocks of this case are allocated by the method of public offering of new stocks under Article 2(3) of the former Securities and Exchange Act, so the disposition of this

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the plaintiffs' assertion ①

In order for a non-taxable practice under Article 18(3) of the Framework Act on National Taxes to be established, there must be an objective fact that has not been taxed over a considerable period of time, and a tax authority should have an intention not to impose taxes due to any special circumstance despite its knowledge that it is able to impose taxes on the said matter. Such public opinion or intent should be expressed explicitly or implicitly, but in order to establish an implied indication, there must be circumstances to deem that the tax authority expressed its intent not to impose taxes on the state of non-taxation for a considerable period of time, unlike a mere omission of taxation (see Supreme Court Decision 2001Du4849, Nov. 8, 2002).

As to this case, there is no evidence to prove that the tax authority had not imposed gift tax over a considerable period on the interest equivalent to the difference between the appraised value per share and the acceptance value per share in the capital increase by the third party allocation method (the Seoul Administrative Court 2008Guhap12146, the Seoul Administrative Court 2012Guhap6728, the case of revocation of the imposition of gift tax, the case of revocation of the imposition of gift tax, the Supreme Court 2008Guhap1424, as in this case, the tax authority imposed gift tax on the difference between the appraised value per share and the acquisition value per share on the new purchaser by the third party allocation method, and the taxpayer sought revocation of the imposition of gift tax on the amount equivalent to the difference between the acquisition value per share and the acquisition value per share. The tax authority appears to have exercised the authority to impose tax on the same issue, contrary to the plaintiffs' assertion, it is unreasonable to further examine the remaining requirements for the establishment of non-taxation practice.

2) Determination as to the plaintiffs' assertion

A) Article 39(1)1 (a) and (c) of the former Inheritance Tax and Gift Tax Act provides that where a corporation issues new stocks at a price lower than their market price in order to increase its capital, a person allocated such stocks shall be deemed to have obtained profits equivalent to the difference between the market price and be subject to gift tax by including the amount equivalent to the value of the donated stocks. In the case of the allotment of new stocks by means of securities offering under the Securities and Exchange Act, even if a person gains profits from the issuance of discount, gift tax shall be exempted in the case of public offering. This is reasonable to deem that the value of new stocks is determined by the fair competitive trading process in the securities market or KOSDAQ market even if the new stocks are issued by a stock-listed corporation or KOSDAQ-listed corporation under the Securities and Exchange Act and other related Acts and subordinate statutes. In addition, considering the fact that the issuance of discount within a certain limit is a permit to facilitate the financing of a stock-listed corporation or KOSDAQ-listed corporation, even if the market price is lower than the market price, the purport of the offering of stocks is to be excluded from the gift tax.

On the other hand, Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20947 of July 29, 2008) provides that the provision of deemed solicitation is newly introduced at the time of partial amendment of February 24, 1998 to prevent the avoidance of regulation on publication for investor protection, not included in the concept of public offering, in cases where the issuer issued a single new shares against less than 50 minoritys, and where the issuer resells it again to more than 50 persons.

Therefore, in interpreting the "distribution by the method of public offering of securities, which is an exception that does not include the benefit arising from the issue of low-price under Article 39 (1) 1 (a) and (c) of the former Inheritance Tax and Gift Tax Act in the value of donated property," it shall not be interpreted that the purpose of legislation is completely different from that of the above Article 2-4 (4) of the former Securities and Exchange Act, and it shall not be interpreted that the allocation by the method of public offering of securities under Article 39 (1) 1 (a) and (c) of the former Inheritance Tax and Gift Tax Act is included in the "distribution by the method of public offering of securities" under Article 2-4 (1) 1 (a) and (c) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. It is limited to the case where the number of persons who are solicited to acquire securities newly issued is 50 or more

B) In order to constitute “distribution by means of a public offering of securities, which does not include the benefit arising from a low-price issue under Article 39(1)1(a) and (c) of the former Inheritance Tax and Gift Tax Act in the value of donated property,” the procedures for soliciting subscription under Article 2-4(5) of the former Enforcement Decree of the Securities and Exchange Act, i.e., advertisements through newspapers, broadcasting, magazines, etc., distribution of printed matters, such as notice and promotion leaflets, holding an explanatory meeting for investment, or electronic communications, etc., but there should be activities of notifying that securities will be issued or sold or providing information on the acquisition of securities by at least equivalent or similar means (see, e.g., Supreme Court Decision 2003Do7554, Feb. 13, 2004).

In light of the above legal principles, it is difficult to believe that the statement Nos. 4 (Statement) as shown in the plaintiffs' assertion on this case was not submitted objective data to prove that the OO alone issued new stocks prior to the issuance of new stocks through a third party allotment method, or that it held an investment explanation meeting to provide information on the acquisition procedure. Gap's certificate No. 3 was issued to 37 persons on June 2, 2008 by a third party allotment method and reported and publicly announced to the Financial Services Commission pursuant to Article 186 of the Securities and Exchange Act. Thus, the above evidence alone is insufficient to acknowledge that the plaintiffs received new stocks from 50 persons or more of the securities through a third party allotment method, such as newspapers, broadcasting, publicity, etc., distribution of printed materials, holding of an investment explanation meeting, and electronic communications, etc., or that the plaintiffs received new stocks from 50 persons or more who received new stocks through a solicitation for acquisition procedure, and there is no evidence to acknowledge that the plaintiffs received stocks from 50 persons or more under the former Enforcement Decree of the Securities and Exchange Act.

Therefore, the plaintiffs' above assertion is without merit.

3. Conclusion

Since the plaintiffs' claims are without merit, all of them are dismissed.