Plaintiff (Law Firm Gyeong, Attorneys Park Yong-dae et al., Counsel for the plaintiff-appellant)

The director of the tax office.

May 11, 2016

Seoul Administrative Court Decision 2014Guhap67758 decided May 8, 2015

1. All appeals filed by the plaintiff and the defendant are dismissed.

2. The costs of appeal shall be borne by each party.

1. Purport of claim

The defendant's rejection disposition of correction of securities transaction tax of August 23, 2013 against the plaintiff and the rejection disposition of correction of transfer income tax of September 10, 2013 against the plaintiff shall be revoked.

2. Purport of appeal

A. The plaintiff

The part of the judgment of the court of first instance against the plaintiff shall be revoked. The defendant's rejection disposition against the plaintiff on September 10, 2013 shall be revoked.

B. Defendant

The part of the judgment of the first instance against the defendant shall be revoked, and the plaintiff's claim corresponding to the above revocation shall be dismissed.

1. Partial citement of judgment of the first instance;

The reasoning of this court's judgment is as follows, except for the dismissal of part of the judgment of the court of first instance and addition of the judgment under Paragraph 2, and therefore, it is identical to the reasoning of the judgment of the court of first instance. Thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence

At the bottom of ○ 3, 4 parallels “17.45%” to “698,028 note” to “17.45%, 698,028 note.”

From the 4th bottom to the "transfer", the "transfer" shall be changed to "transferee".

From the 6th bottom to the bottom of the 7th "Enforcement Decree of this case" to the bottom of the 5th is as follows:

【The provision of the Enforcement Decree of this case and Article 63(1)1(a) and (3) of the former Inheritance and Gift Tax Act, which is applicable mutatis mutandis thereto, cannot be deemed as a provision for invalidation of unconstitutional or unlawful because they violate the principle of actual transaction under Article 96(1) of the former Income Tax Act or violate the substance over form principle and the principle of tax equality.】

○ 8 10 pages 10, the following shall be added:

In addition, the majority shareholder, etc. holds a special value that can exercise the management right or control right of the company in addition to its value, and so-called "management right". The enforcement decree of this case and Article 63 (1) 1 (a) and (3) of the former Inheritance and Gift Tax Act, which applies mutatis mutandis thereto, are legislative intent in order to ensure fair evaluation of fair taxation to prevent transfer of the company's stocks without legitimate taxation (see, e.g., Constitutional Court en banc Decision 2003Hun-Ba65, Jan. 30, 2003). Therefore, these provisions can be deemed to have decided by taking into account the above fair tax burden, the demand for realization of tax justice through fair tax burden, the tax policy and technical demand of tax efficiency, and the legislative purpose of this case cannot be deemed to have exceeded the limit of legislative formation right as arbitrary or discretionary, in light of its legislative purpose (see, e.g., Constitutional Court en banc Decision 2002Hun-Ba65, Jan. 30, 2003).

○ From 10 pages 1 to 20:

C. As to the refusal disposition of correction of the securities transaction tax of this case

1) Relevant regulations and issues

Article 7(1) of the former Securities Transaction Tax Act (amended by Act No. 13628, Dec. 29, 2015; hereinafter “Securities Transaction Tax Act”) provides that “where a share certificate under the provisions of each item of Article 3 subparag. 1 is transferred to the tax base, the transfer price of the relevant share certificate shall be the value of transfer of the relevant share certificate.” Article 3 subparag. 1 of the Securities Transaction Tax Act provides for “where a share certificate falling under any of the following items is traded and settled by means of transfer between accounts, the person liable to pay the securities transaction tax shall be the Korea Securities Depository, and such share certificate shall be transferred to the Korea Securities Depository under item (a) and (b) as “share certificate transferred outside the securities market in the manner prescribed by Presidential Decree”.

The Defendant is aware that the instant shares fall under the “shares transferred from the securities market” under Article 3 subparag. 1 (a) of the Securities Transaction Tax Act on the grounds that the instant shares were rejected for correction of the securities transaction tax, but it is clear that the said transfer does not fall under the case of settlement by means of transfer between accounts. As such, we examine this.

(ii) the facts of recognition

① On October 18, 2011, the Plaintiff entered 103,00 shares in the shipbuilding market owned by the Plaintiff into the Plaintiff’s account opened in ○○ Securities Co., Ltd. (hereinafter “○○ Securities”). The balance totaled by 13,02 shares in the previous shipbuilding market in the Plaintiff’s account opened in ○ Securities became 116,02 shares in total.

② On October 18, 201, 201, ○○ Securities deposited KRW 103,000 of the shares in shipbuilding which were received from the Plaintiff with the Korea Securities Depository (hereinafter “Korea Securities Depository”). Accordingly, on October 18, 201, ○ Securities deposited in the Korea Securities Depository as of October 18, 201, the remaining amount of the shares in shipbuilding deposited in the Korea Securities Depository was 553,443 shares, including the said KRW 103,00 shares.

(3) The sales volume of ○○ Securities traded through the head office and branch offices, and settled on October 20, 201, is 116,032 shares [The sales volume of ○○ Securities Depository + 116,032 shares + 116,02 shares (in general)]; the sales volume of 116,024 shares [=2 shares + 116,02 shares (in general) + 116,02 shares]; the sales volume of 8 shares was reflected in the deposit quantity of the Securities Depository, and eight shares were settled (in the transaction of a depositor, the settlement was made by means of transfer between accounts) and eight shares were reduced to 8 shares and 553,435 shares of ○ Securities Depository deposited in the Korea Securities Depository.

(4) The amount of shares of a depositor deposited in the Securities Depository is the result that only the net increase and the amount of settlement due to the net decrease is reflected in a transaction between the depositors. Therefore, there is no change in the quantity of shares held in the ship between investors (consumers) of ○○ Securities, and the amount of settlement by the Securities Depository is eight weeks from the Plaintiff’s sale to another depositor.

(5) A customer (investors) shall open his/her account in a securities company and engage in stock transaction. If a customer has trading orders through a securities company, the Korea Exchange is the place where such trading is made, and if securities transaction has been made through the Korea Exchange, the settlement shall be made by means of transfer through an account opened by each securities company in the Securities Depository, reflecting the result thereof.

[Ground of recognition] The entry of Gap evidence No. 11, the Korea Securities Depository of this Court, and the fact-finding results on ○○ Securities Co., Ltd., the purport of the entire pleadings

3) Determination

According to the above facts, the Plaintiff deposited 103,00 shares in the Plaintiff’s account opened at ○ Securities on October 18, 201, and deposited this shares in the Securities Depository, thereby becoming 116,022 shares including 13,022 shares of the previous shares deposited in the Securities Depository through ○○ Securities, and the said 116,02 shares were traded within the securities market via ○○ Securities through an overtime trading method on October 20, 201, and the securities market was settled by means of a transfer between accounts from the Securities Depository.

Therefore, since the shares of this case are shares transferred on the securities market under Article 3 subparag. 1 (a) of the Securities Transaction Tax Act and the transfer to the non-party against the non-party is settled by means of transfer between accounts, the rejection of a request for correction of the securities transaction tax of this case applied under different premise is unlawful.

○ 15 pages 15, the Securities Transaction Tax Act is amended by the former Securities Transaction Tax Act (amended by Act No. 13628, Dec. 29, 2015).

○○ 16 pages 16, the former Securities Transaction Tax Act is applied to the Enforcement Decree of the former Securities Transaction Tax Act.

○ 16 pages 10, the following shall be added:

【Financial Investment Services and Capital Markets Act】

Article 310 (Investor's Deposit of Securities in Depositor, etc.)

(1) The depositor who deposits securities, etc. deposited by investors in the Securities Depository shall prepare and keep an account book of investors by stating the following matters:

1. Names and addresses of investors;

2. Type and number of deposited securities, etc. and names of issuers;

3. Others prescribed by Ordinance of the Prime Minister.

(2) A depositor shall, when it states securities, etc. under paragraph (1), deposit them to the Securities Depository without delay by stating that the relevant securities, etc. are deposited by investors.

(3) Where the depositor has entered securities, etc. pursuant to paragraph (1), he/she shall keep them separately from his/her own until he/she deposits such securities, etc. in the Securities Depository pursuant to paragraph (2).

(4) Securities, etc. entered in an account book of investors or investors under paragraph (1) shall be deemed deposited in the Securities Depository at the time such securities are entered.

2. Additional determination

A. Whether Article 101(1) of the former Income Tax Act is applied

(1) Summary of the Plaintiff’s assertion

The transfer transaction of this case is "one-day closing price," and the closing price on the day falls under the market price, and even if not, it cannot be said that the Plaintiff unfairly reduced tax burden solely on the ground that the Plaintiff transferred stocks to a specially related person at a price lower than the market price. Thus, the provision on the denial of wrongful calculation under Article 101 (1) of the Income Tax Act does not apply.

(2) Determination

Even if the transaction price was determined as “one-day closing price,” the instant shares constitute 16,022 shares, which are owned by the largest shareholder, etc., and constitute 4,000,000 per share of 60.17% of the total shares, and thus, they are associated with management rights. Since the instant shares transaction is not a transaction between many and unspecified persons, but a transaction between both parties, the transaction price is determined as “one-day closing price,” the said shares cannot be deemed as a normal transaction based on the market price solely on the circumstance that the transaction price was determined as “one-day closing price.” Furthermore, according to the provisions of the Enforcement Decree of the instant case, where shares held by the largest shareholder, etc. exceed 50 percent of the total number of shares issued and outstanding as the Plaintiff, the assessed value of said shares shall be added to 30% of the total amount of shares assessed as the largest shareholder.

In addition, the circumstances that the tax authority unfairly reduced the tax burden should prove that there is a difference between the transfer price and the market price, and the special circumstances that the transfer price should be deemed the market price should be attested by the taxpayer. However, the Plaintiff did not prove the situation that the transfer price should be the market price. Rather, the Plaintiff did not prove the situation that the transfer price should be the market price. Rather, the Plaintiff is not 2.9% of the total shares, but is in connection with the company's control, and the transaction of this case is not a transaction between many and unspecified persons, but a transaction agreed upon by both parties by means of overtime trade. In light of the fact that the transaction of this case is not a transaction between many and unspecified persons, it is reasonable to deny the application of the unfair calculation method under Article 101 (1) of the Income Tax Act. Therefore, it is reasonable to deny the application of the unfair calculation method under Article 101 (1) of the Income Tax Act to the instant transaction.

B. Whether the latter part of Article 167 (3) 1 of the former Enforcement Decree of the Income Tax Act is invalid

(1) Summary of the Plaintiff’s assertion

The latter part of Article 101 (1) of the former Income Tax Act stipulates that if an asset is transferred to a related party at a price lower than the market price, it shall be deemed an unconditional act. Therefore, the above provision is null and void in excess of the limit of delegated legislation.

(2) Determination

As seen earlier, Article 101(5) of the former Income Tax Act provides that “The purpose of this Act is to realize fair taxation by embodying the substance over form principle as a system that denies tax burden and makes it more objective and reasonable for the person having a special relationship under paragraph (1) and to realize fair taxation in cases where it is deemed that the tax burden has been unjustly avoided or reduced as a transaction between related parties.” Article 101(5) of the former Income Tax Act provides that “The scope of persons having a special relationship under paragraph (1) and other matters necessary for wrongful calculation shall be prescribed by Presidential Decree.”

It can be sufficiently predicted that matters necessary to be prescribed by Presidential Decree with respect to the calculation of “other unfair acts” pursuant to delegation may include “where it is deemed that the tax burden on the income has been reduced unfairly due to the transaction”, etc. In such a case, Article 101(1) of the former Income Tax Act provides that “where the transaction is transferred to a person in a special relationship at a price lower than the market price, taking into account the relevance that the transaction would affect the management right of the company within the scope of delegation,” the said provision provides that “when the transaction is transferred to a person in a special relationship at a price lower than the market price” is unreasonably reduced. This is merely embodying

3. Conclusion

All appeals filed by both the plaintiff and the defendant are dismissed.

Judges Kim Yong-open (Presiding Justice)

1) According to Article 310 of the Financial Investment Services and Capital Markets Act, securities, etc. recorded in an account book of investors of a securities company are deemed deposited in the Korea Securities Depository when they are recorded.