National Tax Service Review and Transfer 2010-0311 ( October 21, 2011)

Dispositions imposed by the denial of wrongful calculation by deeming the low-price transfer of shares as unlawful.

Since the weighted average amount of the profits from the disposal of tangible assets exceeds 50% of the weighted average amount of 81.55% of the profits and losses prior to the deduction of corporate tax, the weighted average amount of net profits and losses during the last three years shall not be applied under Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, but dispositions that the Defendant deemed as a low-price transfer and imposed by denying the wrongful calculation.

2011Guhap703 Revocation of Disposition of Imposing capital gains tax

Kim XX et al.

O Head of tax office

June 23, 2011

July 14, 2011

1. The Defendant’s disposition of imposing securities transaction tax, capital gains tax, and gift tax shall be revoked two as follows.

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

The same shall apply to the order.

1. Details of the disposition;

A. On July 24, 2007, Plaintiff KimB sold KRW 1,000 per share of the company XX industry-based 10,000 per share to Plaintiff KimB. On the same day, Plaintiff WCC sold 250 shares of the above company to Plaintiff KimD (hereinafter referred to as the “instant shares”) in the face value per share of KRW 10,00 per share.

B. On September 28, 2010, the Defendant deemed that the sales price of the instant shares constitutes a gift of profits from a low-price transfer as prescribed in Article 35 of the Inheritance Tax and Gift Tax Act, and assessed the market price of the instant shares as KRW 1,022,519 per share by the method of complementary assessment, and imposed KRW 36,854,860 on Plaintiff KimD on September 28, 2010, by deeming that the difference between the value purchased by Plaintiff KimD was donated to Plaintiff KimD.

C. As above, the Defendant assessed the market price of the instant shares as KRW 1,022,519 per share, and applied the provision regarding the denial of unfair act and calculation according to the low price transfer to Plaintiff KimA, applying the provision regarding the difference between the market price of the instant shares sold by Plaintiff KimA, thereby imposing KRW 7,282,830 on Plaintiff KimA on September 16, 2010, and KRW 136,43,360, capital gains tax on September 28, 2010.

D. As above, the Defendant assessed the market price of the instant shares as KRW 1,022,519 per share, and imposed KRW 1,821,150 on Plaintiff LCC on September 16, 2010 and KRW 33,85,060 of the transfer income tax on September 28, 2010 (hereinafter “the instant disposition” by adding both the disposition imposing gift tax, securities transaction tax, and transfer income tax to the Plaintiffs, as described in paragraphs (b) through (d)).

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 3 (including branch numbers in the case of additional number), Eul evidence 6, the purport of the whole pleadings as stated in Gap evidence 6

2. Determination

A. The plaintiffs' assertion

The disposition of this case is calculated pursuant to Articles 54(1) and (2) and 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and where it is unreasonable to apply Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act as it falls under Article 17-3(1)6 of the Enforcement Decree of the same Act, the disposition of this case is unlawful since Article 56(1)1 of the Enforcement Decree of the same Act is not applicable.

B. Defendant’s assertion

In order to apply Article 56 (1) 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act when calculating the market price of the instant stocks, the instant stocks fall under Article 17-3 (1) 6 of the Enforcement Decree of the same Act, and the requirements stipulated in Article 56 (1) 2 of the Enforcement Decree of the same Act, i.e., where the date on which the assessment base report is made within the deadline for filing the tax base of gift tax, and the date on which the assessment report is made belongs within the deadline for filing the tax base, and the date on which the assessment is based and the date on which the assessment is based falls within the same year, shall also be satisfied. However, the Plaintiffs failed to perform the requirements of the foregoing overall title, such as filing a gift tax return within the deadline for filing the assessment base of gift tax or submitting a calculation report on the estimated profits per share, and thus, the instant disposition to which Article 56 (1)

C. Relevant statutes

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

D. Determination

The value of property on which gift tax is levied shall be based on the company as of the date of donation, and in cases where it is difficult to calculate the market price, it shall be calculated by the supplementary assessment method (Article 60(1) and (3), and Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act), and in cases of unlisted stocks, the net profit or loss (the weighted average amount of net profit or loss per share for the last three years ± net profit exchange rate per share ± net profit or loss per share) and net asset value by the weighted average rate of 3 and 2, respectively (Article 54(1) and (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act). In addition, in cases of calculating the unfair act of capital gains, the method of valuation of the above property shall be applied mutatis mutandis (Article 101 of the Income Tax Act, Article 167(5) of the Enforcement Decree of the Income Tax Act), and in cases where the tax base of securities transaction tax or the tax base of capital gains tax shall be calculated by the valuation method.

In addition, the weighted average amount of net profit and loss between the three years recently in accordance with Article 54 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be the value under subparagraph 1 (the weighted average amount of net profit and loss for the three years recently in each week), but in cases where the corporation concerned is unreasonable to be based on the value under subparagraph 1 due to a temporary contingent case such as an abnormal increase in the amount of net profit and loss for the three years recently in the last three years, the value under subparagraph 2 (the average value of estimated profit and loss per share) may be deemed (Article 56 (1) 1 and 2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act), and in cases where the weighted average amount of net profit and loss for the last three years in the last three years in the last three years prior to the deduction of corporate tax exceeds 50 percent of the weighted average amount of net profit and loss for the last three years in each week, it is unreasonable to evaluate the weighted average amount of net profit and loss under subparagraph 1 of the above Enforcement Rule (Article 17-3 (1)6).

According to the purport of the evidence No. 4-1 to No. 5 of this case’s evidence No. 756,69,89,890 won, without deducting KRW 58,30,890 per share of the 2006 tangible asset disposal loss in 2006, it is difficult to accept the weighted average amount for the last three years prior to the date of the purchase and sale of the shares of this case, for 727,504,237 won, [5,51,59,220 won - 58,330,890 won] / 6. However, according to the above facts, the above weighted average amount for 3 years prior to the deduction of corporate tax for the 3 years preceding the date of the purchase and sale of the shares of this case, the above weighted average amount for 15% of the 105% net amount of the 5% net amount of the 105% net amount of the 5% net amount of the above tangible asset disposal profit.

In this regard, the defendant asserts that Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act should apply since the plaintiffs failed to meet the requirements of the overall subparagraph 2 of Article 56 (1) of the same Act. However, as seen earlier, if it is deemed unreasonable to apply the value under Article 17-3 (1) 6 of the Enforcement Decree of the same Act because they fall under Article 17-3 (1) 6 of the same Act, the above value under Article 56 (1) 1 of the Enforcement Decree of the same Act should not be recognized as the market price of unlisted stocks, and the above unreasonable value cannot be recognized as the market price on the ground that it does not meet the requirements under Article

Therefore, even though Article 56 (1) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act cannot be applied to the calculation of the value of the instant shares, the instant disposition that the Defendant applied to this case is unlawful, and thus, the disposition of this case must be revoked (the entire disposition of this case is revoked because the data submitted in this

3. Conclusion

Therefore, the plaintiffs' claim is reasonable, and it is so decided as per Disposition by admitting it.