Since there was no purpose to avoid taxes, taxation on the trustee is illegal.

It is reasonable to deem that it was for the guarantor to secure the financial resources in the course of receiving a loan from a financial institution to secure company liquidity, and since it appears that there was no other purpose to avoid tax, prior disposition on the premise contrary thereto is illegal.

Legal fiction of donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2014Guhap1677 Revocation of Disposition of Imposition of Gift Tax

KimA

The director of the Nam Incheon District Tax Office and the director of the Western District Tax Office

April 16, 2015

April 30, 2015

1. On January 2, 2013, the imposition of each gift tax (including each additional tax) by the director of the Namcheon Tax Office on the aggregate on the designated parties KimA on January 2, 2013, the imposition of each gift tax (including each additional tax) by the defendant Seocheon Tax Office on January 3, 2013, and the imposition of each gift tax (including each additional tax) by each of the gift tax (including each additional tax) by the defendant Namcheon Tax Office to the plaintiff (appointed party) on January 2, 2013, and the imposition of each gift tax (including each additional tax) by the defendant Seocheon Tax Office to the plaintiff (appointed party) on January 3, 2013, each of the imposition of each gift tax (including each additional tax) by the defendant Seocheon Tax Office on January 3, 2013.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On July 1, 1993, the Plaintiff (Appointed) established an O Steel Co., Ltd. (hereinafter “the instant company”) and since its incorporation, the Plaintiff (Appointed) operated the instant company as the representative director of the instant company.

B. At the time of the incorporation of the instant company, the Plaintiff (Appointed) held the OO shares out of the total issued shares, and the Appointed KimA held 50 shares. On the other hand, the instant company received 15,000 shares as capital increase (the shareholder’s share ratio) in 1996, and 80,000 shares as capital increase in 201. At the time of 2001, KimB acquired 10,00 shares of the instant company’s shares as 10,00 shares of the instant company, and the Appointed KimB (the Appointed (the Appointed Party) acquired 25,00 shares of the instant company.

C. The instant company issued new shares with 50,000 shares in 2005, 20,000 shares in 206, and 15,000 shares in 207, respectively. At the time of each of the new shares offering, the existing shareholders acquired new shares in proportion to the shares at the time of each of the new shares offering. The AppointA’s 23,460 shares in the instant company, and the Appointed KimB held 57,50 shares in the instant company’s shares.

D. On July 30, 2008, the Plaintiff (Appointed Party) purchased 57,500 shares of the instant company from the Appointed KimB in KRW 1,784,800,000, and on March 2, 2009, the Plaintiff purchased 23,460 shares of the instant company from the Appointed KimB in KRW 728,198,40.

E. The Defendants determined that the Plaintiff (Appointed Party) held that each of the shares was held in title trust to the designated parties through capital increase issued in April, 2001, 2005, 2006, and 2007. The Defendants determined and notified each of the gift taxes and additional taxes to the designated parties as described in Paragraph 1, by applying the deemed donation under title trust agreement, and determined and notified each of the gift taxes and additional taxes to the Plaintiff (Appointed Party) on the ground that they are jointly and severally liable for tax payment.

F. On February 21, 2014, the Plaintiff (Appointed) and the designated parties were dissatisfied with the request for a trial by the Tax Tribunal, but they were dismissed.

[Ground of recognition] Facts without dispute, Gap evidence 2, 6 (including branch numbers in the case of additional number), Eul evidence 1, 2, and 7 (including branch numbers in the case of additional number), the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The parties' assertion

1) In operating the instant company, the Plaintiff (Appointed) offered capital increase with a view to lowering the debt ratio to obtain a loan from a financial institution. The Plaintiff asserted that, upon the request of the Credit Guarantee Fund that was a guarantor, the Plaintiff merely accepted the instant company’s shares in the name of the designated parties during the process of capital increase with a view to maintaining the ratio of stock ownership by the designated parties who were the guarantor.

2) The Defendants asserted that the Plaintiff (Appointed Party) acquired shares in the name of the designated party in order to reduce the secondary tax liability limit under Article 39 of the Framework Act on National Taxes. Furthermore, the Defendants asserted that the Plaintiff (Appointed Party) trusted the shares in the name of the designated party for the purpose of tax evasion, considering the fact that the Plaintiff (Appointed Party) avoided 469,350 won deemed acquisition tax despite the increase of 1% by the oligopolistic shareholder’s shares in 2005, and that there is a possibility of evading inheritance due to omission from inherited property if the shares are held in title trust, and that there is a possibility of evading inheritance tax such as global income tax on future dividend income.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) The legislative purport of Article 45-2(1) of the Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle in the purport that the act of tax avoidance using the title trust system is effectively prevented, thereby realizing the tax justice. Thus, if it is recognized that the title trust was made for any reason other than the purpose of tax avoidance, and it is merely a minor reduction of tax incidental to the said title trust, it cannot be deemed that there was a "tax avoidance purpose" under the proviso of the same Article in the said title trust (see, e.g., Supreme Court Decision 2004Du13936, May 25, 2006).

2) The following facts can be acknowledged in full view of Gap evidence Nos. 1 through 28 (including branch numbers), Eul evidence Nos. 1 through 6 (including branch numbers), and the fact inquiry into the Credit Guarantee Fund of this Court into the purport of the whole arguments.

① The details of changes in the shares of the instant company are as follows.

② At the time of the establishment of the instant company, the Selection KimA owned 50 shares as promoters, but acquired 10,000 shares at the time of capital increase for 201. The Selection KimB acquired 25,00 shares at the time of the above capital increase for 25,00 shares, and the Selection guaranteed the obligation of the instant company to the Korea Credit Guarantee Fund.

The Appointed KimB resigned on March 31, 2008. On July 30, 2008, the shares he held were transferred to the Plaintiff (Appointed Party). On December 2008, 2008, the Appointed KimB transferred the shares he held to the Plaintiff (Appointed Party) on March 2, 2009, and retired from the company of this case on March 31, 2009, and was excluded from the joint and several sureties around April 2009.

Meanwhile, since the designated parties participated in the management of the company as a shareholder (director) of the company of this case, the Korea Credit Guarantee Fund sent a reply to the effect that it could be excluded from the joint and several sureties because they retired from the company of this case and transferred stocks.

③ The Selection KimB is the birth of KimCC, a form of the Plaintiff (Appointed Party), and KimD is the birth of KimCC. The strong FID is the birth of KimCC. The birth of the Plaintiff (Appointed Party) is the birth of AH, the spouse of the Plaintiff (Appointed Party). The birth of AG is all the birth of AH, the spouse of the Plaintiff (Appointed Party), and they are the special relations provided in Article 20 of the Enforcement Decree of the Framework Act on National Taxes

Nevertheless, the certified tax accountant who was in charge of the tax agent business of the company of this case prepared a detailed statement of stock change from 2000 to 2010, and classified the relationship with the controlling shareholder as follows.H was classified into "other" in 200, 2001, and 2003, and was classified as "spouse" during the remaining period, and classified as "the sibling from 2000 to 2002," and was classified as "other" from 2003 to 2003, and was classified as "the Selection KimB, AnsanG, and Gangwon FF during the above period."

④ The loan amounting to KRW 3.4 billion was increased in comparison with the previous year in 2001, which was the first capital increase in the instant case.

⑤ Around March 2009, the Plaintiff (Appointed Party) reported and paid KRW 60,915,610 of the deemed acquisition tax on the acquisition of 10.2% of the shares of the instant company by the Selection KimA, and both the transfer income tax and the securities transaction tax on the acquisition of shares from the Selection.

④ The surplus earnings surplus of the instant company was KRW 908,707,041 annually increased to KRW 2003, and the amount was KRW 4,136,137,260 on September 23, 201. However, rehabilitation proceedings were commenced for the instant company on the grounds of the prohibition of transaction partners from September 23, 201, the increase of interest expenses on the borrowing of funds, capital erosion, etc. As a result, the inspection committee conducted rehabilitation proceedings on the appropriateness of assets and liabilities as a result of a review of the appropriateness of total assets and liabilities, and the total amount of assets was KRW 26 billion, and the total amount of liabilities was KRW 40 billion, and the total amount of liabilities was at least KRW 40 billion, and the capital erosion was fully impaired.

7. The instant company did not pay taxes or pay dividends to the present time after its establishment.

3) In light of the fact that the Plaintiff (Appointed Party) reported and paid 60,915,610 won to the Appointed in 2009 as to the acquisition by transfer from the Appointed KimA for the purpose of evading KRW 469,350 as at the time of 2005, it does not constitute a title trust of the instant shares for the purpose of evading the deemed acquisition tax. Moreover, just because there is a possibility of future reduction of tax, it cannot be deemed that there was a purpose of tax avoidance solely on the ground that there was a possibility that there was a possibility of future reduction of tax, the Plaintiff (Appointed Party) could not be deemed to have been a nominal trust of the instant shares. However, even though the Plaintiff (Appointed Party) managed the instant shares as if the distributable’s profits were accumulated to a considerable degree until around 208 and around 2009, as a result of the investigation of the financial status following the commencement of the rehabilitation procedure, there was no possibility to deem that the instant shares were distributed to the Plaintiff (Appointed Party) for the purpose of evading the total income from loans until the Plaintiff’s financial rights until the date.

Next, examining whether there was an investor’s primary purpose of evading the secondary tax liability, the investor’s secondary tax liability is the primary duty to prepare for the failure to pay taxes. Since its establishment, the company in this case did not have any tax arrears up to the date of its establishment; even according to the statement on the state of stock fluctuation prepared differently from the fact, the company’s shares of this case owned by the Plaintiff (Appointed Party) and specially related parties are stated as falling under the oligopolistic shareholder with the secondary tax liability exceeding 50% of the total issued and outstanding shares; if the Plaintiff (Appointed Party) intended to avoid the secondary tax liability, the company held shares in the name of the Plaintiff (Appointed Party) by lowering the secondary tax liability if it was intended by the Plaintiff (Appointed Party) to avoid the secondary tax liability. In light of the fact that it appears that the Plaintiff did not return shares in its name even after retirement of the Appointed Party, it would not have been necessary to recognize the secondary corporate tax liability of this case for the purpose of evading the Plaintiff’s secondary tax liability (the Plaintiff’s primary corporate tax liability would not have been increased even if it was necessary for the Plaintiff’s 2.

Therefore, even though there is no reason to suspect that the Plaintiff (Appointed Party) had the purpose of tax evasion, such as having prepared a detailed statement of stock fluctuation differently from the facts while operating the instant company, and having the designated parties acquire shares in proportion to the shares held by the shareholders, etc., taking account of the aforementioned circumstances, it is reasonable to view that the Plaintiff (Appointed Party)’s title trust of the shares of the instant company to the designated parties was aimed at securing the financial institution’s capabilities in the course of receiving loans from the financial institution to secure liquidity of the instant company, and thus, it is deemed that there was no other purpose of tax evasion. Accordingly, each of the instant dispositions on the premise contrary thereto was unlawful.

3. Conclusion

Therefore, the claim of this case by the plaintiff (appointed party) and the designated parties is justified, and it is so decided as per Disposition by the assent of all participating parties.