Cho Jae-2016-west-265 (Law No. 18, 2016)

It is possible to apply the constructive requirements of title trust donation even if the list of shareholders for new shares issued with capital increase is not kept.

Where a gift tax investigation on a title truster is conducted after the investigation of capital gains tax on a title trustee, it cannot be deemed that the re-investigation of the same taxable unit; and the acquisition of new shares due to capital increase with new stocks can be applied even if the list of shareholders is not kept.

Donation of title trust property under Article 41-4 of the Inheritance Tax and Gift Tax Act prohibiting abuse of the right to tax investigation;

Seoul Administrative Court-2016-Gu Partnership-72068

○○ and 3 others

○ Head of Tax Office and 2

July 7, 2017

August 18, 2017

1. The plaintiffs' claims are dismissed.

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

Defendant ○○○ Tax Office’s disposition of imposition of KRW 805,193,30 on October 1, 2015 on gift tax of KRW 805,193,330 on gift tax of KRW 200 on the Plaintiff ○○○○, and KRW 612,374,660 on gift tax of KRW 200 on the gift tax of KRW 612,374,660 on the gift tax of October 1, 2015 by the head of △△△○ Tax Office, which was made to Plaintiff ○○○ on October 8, 2015, the head of △△△△ Tax Office’s disposition of imposition of KRW 59,902,090 on the gift tax of KRW 200 on the Plaintiff ○○○○ on October 8, 2015, respectively.

1. Facts of recognition;

A. On January 25, 1989, the largest ○○ establishes the ○○ Unemployment Co., Ltd., Ltd., a manufacturing company of fashion around January 25, 1989

Although capital was invested by 100% solely, some of the shares were trusted in title to the plaintiffs. The details of the changes in stocks confirmed by the detailed statement on the state of changes in stocks are as follows.

Establishment in 1989

1993

Paid-in capital

200

Paid-in capital

2011

Transfer

2012

Termination of Title Trust

○ ○

4,500 (45%)

18,000 (45%)

45,000 (45%)

56,500 (56.5%)

100,000 (100%)

Hu○ ○

2500 (25%)

10,000 (25%)

25,000 (25%)

13,500 (13.5%)

0 (0%)

○ Kim

200 (20%)

8,000 (20%)

20,000 (20%)

20,000 (20%)

0 (0%)

Red○ ○

500(5%)

2,000 (5%)

5,000 (5%)

5,000 (5%)

0 (0%)

friendly ○

500(5%)

2,000 (5%)

5,000 (5%)

5,000 (5%)

0 (0%)

Total Stocks

10,000 (100%)

40,000 (100%)

100,000 (100%)

100,000 (100%)

100,00 (100%)

B. At the time of capital increase by ○○○ on December 29, 200, the Defendants: (a) deemed that 15,000 shares were held in title with Plaintiff ○○○○ at the time of capital increase by December 29, 200; (b) 12,00 shares; and (c) 3,000 shares were held in title with Plaintiff ○○ and Red ○○ respectively; and (d) around December 2012, the Defendants imposed an increase in the appraised value of shares at KRW 5,00 per share pursuant to Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 200; hereinafter “former Inheritance Tax and Gift Tax and Gift Tax and Gift Tax and Gift Tax and Gift Tax and Gift Tax and Gift Tax Act (Plaintiff Hu○○○, Kim○, Red○, and Red ○○; (b) the Plaintiffs were subject to the difference between each of the instant gift tax and gift tax on ○○.

Number of Stocks

Initial Gift Tax

increased gift tax

Total amount of gift tax

Agency

Hu○ ○

15,000

6,300,000

805,193,330

817,793,330

○ Head of tax office

○ Kim

12,000

7,700,000

612,374,660

620,074,660

○ Head of tax office

Red○ ○

3,000

2,100,000

89,759,330

91,859,330

○ Head of tax office

friendly ○

3,000

31,957,240

59,902,090

91,859,330

The director of the tax office of Luxembourg

Total

3,000

48,057,240

1,567,229,410

1,621,586,650

C. The Plaintiffs were dissatisfied with each of the instant dispositions and filed a tax appeal on December 24, 2015, but the Tax Tribunal dismissed the decision on May 18, 2016.

[Ground for Recognition: Unsatisfy, Gap evidence 1, 4, 5 (where there is a provisional number, including such numbers; hereinafter the same shall apply), Eul evidence 1, and the purport of the whole pleadings]

1) The Plaintiff Hu○○○ shall deduct KRW 6,300,000 from the total amount of the gift tax originally notified and KRW 6,30,000 from the voluntarily paid gift tax, and the remaining Plaintiffs shall be the amount calculated by deducting the gift tax originally notified from the total amount.

2. Judgment on the assertion

A. The plaintiffs' assertion

1) Illegality of a double tax audit

From October 31, 2012 to December 7, 2012, Defendant ○○ Tax Office imposed the initial gift tax on the Plaintiffs after conducting the first tax investigation as to whether the title trust of the said shares was held or not. However, around June 2014, Defendant ○○ Tax Office received the audit and cadastral record of ○○ Regional Tax Office around December 2013, and again conducted the second tax investigation as a suspicion of advance donation of the said shares. Furthermore, according to the following audit and cadastral record of ○○ Regional Tax Office, the Defendants again conducted the third tax investigation on July 2015, issued each of the instant dispositions imposing gift tax in proportion to the increased value of shares after conducting the third tax investigation. In particular, in the third tax investigation, for the purpose of assessing the value of shares, the Defendants’ exercise the right to ask questions and inspections for a long period of three years immediately preceding three years, and thus, this constitutes unlawful dispositions based on each of the same taxation subject to the same taxation as the first tax investigation and the same double tax investigation.

2) Defects in taxation requirements following the failure to prepare the register of shareholders

In order to impose gift tax pursuant to the provision on deemed donation of title trust under Article 41-2(1) of the former Inheritance Tax and Gift Tax Act, the actual owner and the shareholders on the list of shareholders should be different. However, the ○○○ Unemployment is a shareholder’s name and address required under Article 352 of the Commercial Act, the kind and number of shares held by the shareholders, and the date of acquisition of each share. The Defendant’s list of shareholders (Evidence B) submitted pursuant to the National Tax Service’s comprehensive management regulations, which fails to meet the requirements for the register of shareholders under the Commercial Act. Meanwhile, Article 45-2(3) of the Inheritance Tax and Gift Tax Act, amended by Act No. 7010, Dec. 30, 2003, provides that where the list of shareholders is not prepared, a transfer of shareholders shall be determined based on the statement on the change of shares, etc., but the said provision may not be applied retroactively to the foregoing.

Therefore, each disposition of this case is unlawful because it does not meet the taxation requirements.

3) Non-existence of tax avoidance purpose

At the time of the establishment of ○○○ Unemployment, the title trust was conducted to satisfy seven promoters under the Commercial Act, and there was a clear reason different from that of tax avoidance. There was no other purpose of tax avoidance. Accordingly, each of the dispositions of this case, which deemed the purpose of tax avoidance, was unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the illegality of a double tax investigation

A) In a case where a tax official conducts a tax investigation over all items for a specific taxable period of a certain tax item, as well as conducting a tax investigation for only the specific items in the said taxable period, a tax investigation again for the same taxable period of the said item constitutes a reinvestigation prohibited under Article 81-4(2) of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same shall apply), and thus taxation subsequent thereto is unlawful (see, e.g., Supreme Court Decision 2014Du12062, Feb. 26, 2015). However, in order to constitute a ban, the subsequent tax investigation should be deemed as having the same taxation unit that is specified in the prior tax investigation, such as the taxpayer, tax item, and taxable period. Even if a tax official conducted an investigation on capital gains tax pursuant to a taxpayer’s return on transfer income tax, he/she has closed a disposition imposing gift tax on each item of a nominal title trust, and thus, constitutes an individual gift gift tax investigation based on title trust.

In addition, a tax investigation is a kind of administrative investigation to realize the State's right to impose taxes, and refers to all acts of inspecting, investigating, or ordering the submission of books, documents, and other things. Whether an investigation conducted by a tax official constitutes a "tax investigation" prohibited by re-audit or not shall be determined individually in specific cases by comprehensively taking into account the purpose and details of the investigation, the subject, methods, and contents of inquiries and inquiries, the data obtained through the investigation, the scale and period of the investigation, etc. (see, e.g., Supreme Court Decision 2014Du8360, Mar. 16, 2017). However, it is not likely that a tax official may abuse or interfere with the taxpayer's right to conduct a tax investigation as well as the taxpayer's right to conduct a tax investigation in order to ask a taxpayer, etc. directly contact with the taxpayer in his/her office, business place, factory, or domicile for a considerable period of time without examining or investigating books, documents, and other things for a certain period of time to properly evaluate the value of unlisted stocks subject to taxation.

B) The following facts can be acknowledged in light of the purport of the entire pleadings in Gap evidence Nos. 2, 3, 8, Eul evidence Nos. 2, 3, 4, and 5.

① Plaintiff ○○ filed a transfer income tax report with the head of ○○○ Tax Office on the ground that he/she transferred 11,500 shares out of the shares of ○○ Unemployment, a stock company, which was acquired as of December 29, 200 on August 18, 201, to the last ○○○○○○○○○○○○○. Defendant ○○ Tax Office reported the transfer income tax to the head of ○○○ Tax Office on the ground that he/she acquired as of December 29, 200, and Defendant ○○○○○○○ Tax Office: (i) an actual inspection of transfer income tax: (ii) an under-assessment of unlisted shares; (iii) an under-assessment of unlisted shares; (iv) an alleged gift between related parties; and (iv) an investigation period: (iv) an first tax investigation conducted on December 31, 2012; and (v) determined that ○○○ transferred shares following the termination of a title trust from Plaintiff ○○○○○.

② On November 20, 2012, 2012, ○○○ transferred 13,50 shares out of the shares of ○○ Unemployment Co., Ltd. on the ground that the title trust was terminated by Plaintiff ○○○○○○○○, Defendant ○○ Tax Office, subject to investigation: the highest ○○○, the investigation period: from April 28, 2014 to June 11, 2014: A second tax investigation was conducted on whether a prior gift by taking advantage of the title trust was made, and the investigation was conducted on the charge of gift tax evasion, on the ground that all shareholders other than the highest ○○○○○○○ constitutes a second shareholder, including that the largest ○○○○○ uses the total dividend amount of Plaintiff ○○○○○○○, and thus, the title trust was not subject to prior donation of inherited property, and thus, the investigation was completed without suspicion of gift tax evasion

③ On July 2015, 2015, the director of the regional tax office ○○ Tax Office audited the business of Defendant ○○ Tax Office.

On December 29, 200, the value of new shares issued on December 29, 200 should be calculated as the value appraised on the basis of the transfer date of the transfer date. However, there is a defect in pointed out that it is wrong to calculate the value of the shares. Defendant ○○ Tax Office requested a certified tax accountant who has been acting for the captain of ○○ Unemployment Co., Ltd. to submit financial statements and materials related to property assessment after 1997 and received at will. Based on such request, each of the instant dispositions

C) Examining these facts in light of the legal principles as seen earlier, the second tax investigation is identical to the first tax investigation as gift tax, and even if the investigation partially overlaps with the Plaintiff Hu○○, which is the largest ○○ or the transactional relationship with the Plaintiff, it cannot be said that the taxable amount is identical to the taxation unit. Therefore, it cannot be said that the second tax investigation constitutes a reinvestigation prohibited under Article 81-4(2) of the former Framework Act on National Taxes.

In addition, the value of unlisted stocks under the Inheritance Tax and Gift Tax Act shall be calculated by averaging the net value of profit and loss and the net asset value (Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). The net profit and loss amount per share for the latest three years to calculate the net profit and loss value is calculated by adding or adding a certain amount to the income amount for each business year under the Corporate Tax Act (Article 56(1) and (4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). The net asset value for calculating the net asset value is calculated by subtracting the liabilities from the appraised value of the corporation’s assets or book value (Article 55 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). In principle, it can be calculated based on the financial statements such as balance sheet at the time of filing a corporate tax return and income statement. Even if the head of ○○○ Tax Office received financial statements and property appraisal-related data from the captain of ○○ Unemployment’s agent on July 2015, this is merely a request for the submission of the data, etc.

Therefore, this part of the plaintiffs' assertion is without merit.

2) As to the deficiency in taxation requirements due to the failure to prepare the register of shareholders

A) The transfer of registered shares cannot be asserted against the company unless the acquisitor’s name and address are entered in the register of shareholders. Thus, insofar as a transfer is not made in the name of another person who is not an actual owner of shares in the register of shareholders, it cannot be deemed that, in principle, the actual owner and the nominal owner are different in the property requiring a transfer of ownership or exercise of rights as stipulated in Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (see, e.g., Supreme Court Decision 2003Du13762, Feb. 27, 200

However, in cases where a transfer of ownership is required pursuant to Article 337(1) of the Commercial Act, and in cases of subscription for new shares on a monthly basis, a shareholder’s rights and obligations arise from the date following the due date of payment, if an underwriter of new shares pays the subscription price on or before the due date pursuant to Article 423(1) of the Commercial Act. Therefore, even if the subscription price has not been issued and the shareholder’s list has not been kept within the company and the subscription price for new shares has not been stated therein, there is no difficulty in exercising the shareholder’s rights as to the new shares, and thus, this constitutes “where the actual owner and the nominal owner are different in cases of property requiring a transfer of ownership or transfer of ownership, etc., which is the requirement for deemed donation under Article 41-2(1) of the Commercial Act.”

B) According to the statement in Eul evidence No. 8, the register of shareholders prepared at the time of incorporation of ○○○ Unemployment Co., Ltd. on January 25, 1989 can be acknowledged as holding ○○○ 3,500, Plaintiff Hu○○ 2,500, Kim○ 1,500, Plaintiff Ma○○ 500, Ma○ 500, Ma○ 500, Ma○ 500, Ma○ 500, Ma○ 500, Ma○ 500, Ma○○ 500, 10,000, and 10,000 shares of shares issued at the time of capital increase for new shares as of December 29, 200.

However, in light of the aforementioned legal principles, even if the acquisition of new shares, such as capital increase with consideration, was not recorded in the register of shareholders, and the acquisition of new shares, it satisfies the requirements for deemed donation under Article 41-2(1) of the former Inheritance Tax and Gift Tax Act, and thus, it can be deemed that the taxation requirements under the deemed donation

Therefore, this part of the plaintiffs' assertion is without merit.

3) As to the absence of the purpose of tax avoidance

A) The legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “Inheritance Tax and Gift Tax Act”) is to recognize an exception to the substance over form principle with the intent of effectively preventing the act of tax avoidance using the title trust system and realizing the tax justice. Thus, if the title trust was recognized as having been made for any reason other than the purpose of tax avoidance and it is merely a minor reduction incidental to the said title trust, it cannot be readily concluded that there was a “tax avoidance purpose” in such title trust (see, e.g., Supreme Court Decision 2014Du786, May 16, 2014). However, in light of the legislative intent as seen earlier, it cannot be deemed that there was no other objective of tax avoidance, such as tax evasion, which was the first place to prove that there was no other objective of tax avoidance in the name of the title holder (see, e.g., Supreme Court Decision 2000Du3634, etc.).

B) We examine taxes that may be avoided due to title trust.

① Article 105(6) of the former Local Tax Act (amended by Act No. 6312, Dec. 29, 2000; hereinafter the same) deeming that an oligopolistic shareholder becomes an oligopolistic shareholder by acquiring a corporation’s stocks shall be deemed to have acquired the corporation’s assets, and imposing acquisition tax on such oligopolistic shareholder is because the oligopolistic shareholder is deemed to have a tax-bearing force in that he/she actually disposes of or is in a position to manage and operate the relevant corporation’s assets when he/she becomes an oligopolistic shareholder, and does not substantially own the relevant assets directly. Therefore, whether a person liable to pay acquisition tax pursuant to the said provision constitutes an oligopolistic shareholder, not a shareholder’s name, but a shareholder in the shareholder’s list, and whether it actually controls the operation of the corporation by exercising a shareholder’s right with respect to such stocks (see Supreme Court Decision 2011Du26046, Mar. 10, 2016). Therefore, even if a person who actually holds 100% of stocks at the time of establishment of a corporation again acquires stocks after title trust.

In light of the above facts, even if ○○ is a person who actually holds 100% of the shares at the time of establishment of ○○ Unemployment Co., Ltd. and subsequently acquires a title trust with the Plaintiffs on certain shares, it does not bear the liability to pay deemed acquisition tax, so there is no possibility to avoid the deemed acquisition tax.

② Next, even if Plaintiff ○○○ constitutes the mother of ○○○ and a specially related person, if the number of shares held is more than 50%, and ○○○ entrusted the title of shares, it does not affect the establishment of an oligopolistic shareholder under the former Framework Act on National Taxes. The secondary tax liability of oligopolistic shareholders is limited to the amount calculated in proportion to the shareholding ratio (Article 39 of the former Framework Act on National Taxes). Therefore, reducing the liability limit for secondary tax liability by reducing the ownership ratio of oligopolistic shareholders through title trust may constitute tax avoidance. However, according to the evidence Nos. 2, 3, and 9, it can be acknowledged that the private company “○○○○” established a corporation by rapidly growing the shares of oligopolistic shareholders and continuously raising the revenue amount each year, and there is no data to acknowledge that ○○○○○○ was delinquent in national taxes, etc. after the title trust was made, so it cannot be deemed that the secondary tax liability of title trust could be established in the future.

③ Also, according to Articles 94(1)3(c) and 104(1)4, etc. of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009), a single tax rate of 10% or 20% shall apply to the transfer income tax on the stocks of ○○ Unemployment Co., Ltd., regardless of who is the transferor, as a matter of principle, depending on whether or not a small or medium enterprise is a small or medium enterprise. According to Article 104(1)11 of the Income Tax Act as amended by Act No. 1358, Dec. 15, 2015, even if a small or medium enterprise is a transfer by a person who is not a large shareholder, the single tax rate of 10% shall be applied to the transfer by a person who is not a large shareholder. However, it is difficult to view that ○○ was a title trust in view of the above amendment of the Income Tax Act at the time of initial title trust or December 29, 2000.

④ However, comprehensively taking account of the overall purport of the arguments in Gap evidence Nos. 5 and Eul evidence Nos. 9, when distributing the revenue amount of 1,054,000,000 earned surplus for 200 years after the establishment of ○○ Unemployment and earned surplus of 1,054,000,000 won, the tax details that could be avoided are as follows. The plaintiff Hu○○ received dividends of 434,00,000 won from ○○ Unemployment on November 24, 201, and this was ultimately reverted to ○○○○○, which was finally subject to the maximum global income tax rate from 1992 to 199 and 2003, and the plaintiffs did not have any comprehensive income tax return since 2003.

Income amount after the incorporation of a corporation ○○ Unemployment

Business year

Revenue amount

Business year

Revenue amount

1990

no data

203

13,604,00,000

1991

None of data

204

13,047,000,000

1992

3,966,00,000

205

12,564,00,000

193

5,990,000,000

206

11,800,000,000

1994

6,549,000,000

2007

1,176,00,000

1995

7,377,00,000

208

10,317,00,000

1996

7,099,000,000

209

10,152,00,000

1997

7,488,000,000

2010

11,874,00,000

1998

6,782,00,000

2011

10,992,00,000

199

9,926,00,000

2012

10,434,00,000

200

10,483,00,000

2013

10,525,000,000

201

13,430,000,000

2014

4,326,00,000

202

14,852,000,000

Tax details (unit: KRW 00,000) that could be avoided in case of allocating the earned surplus reverted to year 200.

December 31, 200

possible dividends (Tax Rates)

Report on global income, 200

Jinay

Actual

External appearance

Actual

External appearance

Tax Base

Tax Rate

○ ○

100%

45%

1,054

(40%)

474.3

(40%)

-

-

-

Hu○ ○

-

25%

0

263.5

(40%)

-

-

income-free

○ Kim

-

20%

0

2108.8

(40%)

-

-

Red○ ○

-

5%

0

52.7

(14%)

-

-

friendly ○

-

5%

0

52.7

(14%)

-

-

According to the above facts, by distributing dividend income from title trust to the plaintiffs who had no income equivalent to 5% of the shares in the instant title trust, the largest ○○ was able to avoid the application of the global income tax rate or avoid the tax burden pursuant to the progressive tax rate. In fact, the ○○ Unemployment Co., Ltd. was able to distribute dividends in 201, and thereby, the amount equivalent to the amount that may be avoided may be determined based on the intention of the largest ○○○○, holding 10% of the shares in the instant title trust. Thus, it cannot be readily concluded that there was no tax avoidance purpose at the time of the title trust solely on the ground that there was a lack of dividend payment.

C) Therefore, even if there exists a circumstance in which ○○○○ was in title trust in order to meet the number of promoters at the time of the incorporation of a corporation, such title trust was maintained for a considerable long period of time, and the possibility of tax avoidance was high, or that there was an actual result, with respect to global income tax on dividend income, and thus, the intent of tax avoidance was deemed to have been intended. The data submitted by the Plaintiffs alone had a clear purpose of tax avoidance to the extent that it is recognized that there was no purpose of tax avoidance in the title trust in the instant case, and it is difficult to deem that there was no tax avoidance or tax avoidance was minor at the time of the title trust or at the time of the instant title trust.

3. Conclusion

Therefore, the plaintiffs' claims of this case are all dismissed without any justifiable reasons. It is so decided as per Disposition.