No issue price calculated by applying discount rates pursuant to the Securities Issuance Regulations shall be deemed the market price.

The provisions of Article 29 (3) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be applied to the calculation of the appraised value per share due to the increase of capital under Article 39 (1) of the Inheritance Tax and Gift Tax Act, taking into account the changes in the appraised value per share due to the increase of capital, and in applying Article 39 (1), the market price shall be calculated pursuant to the above provisions, and the issue price calculated by applying the discount rate pursuant to the

2013Guhap57181 Revocation of Disposition of Imposition of Gift Tax

KimA

Head of Seocho Tax Office

December 6, 2013

December 20, 2013

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The imposition of gift tax for the year 2010 on August 1, 2012 by the Defendant against the Plaintiff is revoked.

1. Details of the disposition;

A. On January 7, 2010, BB (hereinafter “BB”) and CCC (hereinafter “CCC”) drafted the following agreements with respect to capital increase with respect to capital increase in the method of third party allocation.

1) New shares acquisition: BB shall acquire 2 million new shares of CCC until February 5, 2010 after the board of directors of CCC resolved to issue new shares with a third party allotment method. To this end, CCC shall hold a board of directors meeting on January 7, 2010.

2) Acquisition price: The acquisition price per share of new stocks shall be the amount equivalent to OO0 won per share, which is the price discounted by 10% from the base price calculated in accordance with Article 5-18 of the Regulations on Issuance and Public Notice of Securities (hereinafter referred to as the "Regulations on Issuance of Securities").

3) Payment of shares: BB will pay in full the subscription price of shares on February 5, 2010.

B. On January 7, 2010, the CCC publicly announced the following decision to issue new shares upon the resolution of the board of directors. In this case, CCC set the issue price of new shares as the OOO per share by applying the lower rate of 9.9% of the average stock price per month increased, the average stock price per week increased, the average stock price per week increased, and the average stock price per day increased, as the date preceding the date of the resolution of the board of directors in accordance with the Securities Issuance Regulations.

General Shares: 2,000,000 Shares

The actual face value per share: OOO members.

The actual capital increase method: A third party allocation certificate;

The actual value of issuance of new shares: OOO

The actual tax rate or premium rate for the standard share price: 9.9%

The actual payment date: February 5, 2010

Those subject to the third party allocation: BB, and each year, safe deposits.

C. On January 26, 2010, the Plaintiff entered into a contract with BB to purchase CCC’s shares as follows:

1) Stocks subject to sale: CCC’s 1 million shares out of 2 million shares issued on February 5, 2010 (hereinafter “instant shares”)

2. Trading price: OOO cost per share (OOO cost per share).

3) Payment of shares: Payment of the total amount of cash by February 3, 2010 of the acquisition price of shares of OO (1 million shares x OO).

4) Delivery of shares: On February 5, 2010, the new shares allocated on February 5, 2010 shall be transferred in kind immediately after the completion of deposits by the Korea Securities Depository for one year.

D. On January 29, 2010, the Plaintiff transferred the sales price OOO to BB.

E. On February 3, 2010, CCC reported the following correction on the ground of a change in the third party allocation.

A third party allotment: BB, the Plaintiff

The details of selection

-B: The final selection by the Board of Governors, taking into account the intent of investors and the timing of payment, etc., for the purposes of achieving the business objectives of the Company and raising funds promptly;

- The plaintiff: the board of directors will make a final selection, taking into account the expansion of semiconductors for motor vehicles to be promoted by us as Vice-Presidents of DD Motor Vehicles, growth into global enterprises in this field, etc.

The actual number of shares allocated;

-B: 1,000,000

- Plaintiff: 1,000,000

F. BB deposited OOOO in the name of the Plaintiff on February 5, 2010 to CCC.

G. Accordingly, on February 5, 2010, the Plaintiff prepared a share subscription form with the following contents and delivered it to CCC via E, an actual manager of BB. Around that time, the Plaintiff directly acquired new shares from CCC pursuant to the share subscription form.

Classification

Details of the application

Trade Name

CCC

Type and number of shares to be underwritten;

Common Shares 1,000,000 Common Shares

Total amount

OOOE

Par value per share

OOOE

Issuance price of each share;

OOOE

H. Pursuant to Articles 39(1) and 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter the same shall apply), and Article 29(3)1 of the Enforcement Decree of the same Act, the Defendant assessed the price per share of the instant shares as an OOO in accordance with the following market price calculation formula; the Plaintiff acquired new shares of CCC from eight shareholders of CCC and acquired profits from the increase of the market price under Article 39(1) of the Act, on August 1, 2012, deeming that the Plaintiff determined and notified OOO on February 5, 2010 as follows:

Market Price Calculation Form

Issuance price (A)

The value per share before the capital increase;

The value per share after the capital increase (B)

Benefits per share (B-A)

Number of issued shares (1)

2-month average amount (B)

theoretical share(III)

2 Monthly Average Amount (No.4)

MIN(III, 4) of the assessment value per share

3,945

24,396,176

OOO

OOO

OOO

OOO

OOO

* The number of shares issued with capital increase = 2,000,000 shares (Plaintiff 1,000,000 + BB 1,000,00 shares)

* OOO by theoretical owner *

0

0

Disposition - 5 see Decision 5

I. The Plaintiff was dissatisfied with the instant disposition on October 19, 2012, but the Tax Tribunal dismissed the Plaintiff’s appeal on May 27, 2013.

[Ground of recognition] Facts without dispute, Gap 2 through 8 evidence, Eul 1, 2 and 3 evidence (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. The plaintiff's assertion

A. The Plaintiff did not directly acquire new stocks from CCC for one week, but paid the acquisition price by acquiring them from BB to OCO for one week.

B. Even if the Plaintiff directly accepted the instant shares from CCC, CCC calculated the market price per stock as OOO in accordance with the Securities Issuance Regulations and issued new shares, so CCC’s new shares fall under the market price under the tax law. Therefore, the instant disposition was unlawful on the premise that the new shares issue price is lower than the market price.

C. Since the Plaintiff acquired the instant shares from BB to OO, Article 35 of the Inheritance Tax and Gift Tax Act, which is not Article 39, should be applied. Since CCC calculated the issue price under the Securities Issuance Regulations and issued the instant shares, there are justifiable grounds under Article 35(2) of the Inheritance Tax and Gift Tax Act.

3. Relevant statutes;

Attached Form 2 shall be as stated in the relevant statutes.

4. Determination

A. Whether the Plaintiff purchased the instant shares from BB

1) As alleged by the Plaintiff, the Plaintiff decided to purchase KRW 1 million out of 2 million new shares allocated by BB from BB on January 26, 2010. However, in light of the following circumstances, it is reasonable to deem that the Plaintiff decided to directly acquire 1 million shares from CCC by amending the initial contract entered into with BB through an implied agreement with BB and CCC, and the testimony of the witness and witness EE by partly Party 9 and the testimony of the witness are contrary thereto, and there is no other counter-proof.

A) The Plaintiff was in office as the representative director of DDR and DFF corporation, and retired on December 31, 2009. CCC was expected to have a positive impact on CCC’s stock increase in cases where the Plaintiff, who was in office as the representative director of DCC, was publicly announced as a shareholder of CCC as a manufacturer of semiconductors, etc. for automobiles.

B) On February 3, 2010, the CCC decided to hold a board of directors and distribute to BB one million shares to the Plaintiff out of 2 million shares, and publicly announced the resolution to change the third party’s eligibility for the capital increase by allocating one million shares to the Plaintiff. In relation to the selection process of the person eligible for the capital increase, the CCC decided to include “the Plaintiff’s final selection at the board of directors taking into account the expansion of semiconductor localization for automobiles promoted by CCC as the president of the DD Motor Vehicles, growth into global specialized companies, etc.” as to the details of the selection of the person eligible for the capital increase by the time when the Plaintiff took part in the CCC’s management.

C) On February 5, 2010, the Plaintiff had affixed his seal on the share subscription form with the content that 1 million BB shares were accepted by CCC. However, the share subscription form was merely a simple content, and was stated as “CCC ear” at the bottom, so it could easily be seen from a single eye in light of the Plaintiff’s career.

D) On March 19, 2010, immediately after the purchase of the instant shares, the Plaintiff was appointed as the representative director of the CCC.

E) After the Plaintiff purchased the instant shares, the average share price of the instant shares increased rapidly as OO members for two months.

F) The Plaintiff, based on the witness evidence and evidence No. 9, based on (1) the Plaintiff agreed with CCC to allocate the instant shares directly from CCC without the Plaintiff’s consent; (2) the Plaintiff directly allocated CCC shares based on the subscription form signed and sealed by CCC without confirmation; and (3) the Plaintiff did not raise any objection against CCC’s receipt of the instant shares from CCC if CCC’s direct receipt of the instant shares, which is the difference between CCC’s acquisition price and the OOO’s acquisition price. However, considering the Plaintiff’s status as the Plaintiff and its influence on CCC, it is difficult to accept that CCC and 2OB’s receipt of the instant shares were made without the Plaintiff’s consent and without the Plaintiff’s consent, and thus, it is difficult to accept that the Plaintiff, in light of the Plaintiff’s career, was aware of the fact that CCC’s acquisition of the instant shares from CCC’s 1 and 2OB’s receipt of the shares, were made out of the Plaintiff’s new shares.

2) Therefore, the Defendant’s disposition of this case based on the premise that the Plaintiff directly acquired the instant shares from BB is lawful.

B. Whether the instant shares were issued at a price lower than the market price

Article 38 of the Inheritance Tax and Gift Tax Act provides for "the donation of profits from capital increase" and Paragraph (1) provides that in case where a corporation obtains any profits falling under any of the following subparagraphs as a result of issuing new stocks in order to increase its capital, the amount equivalent to the relevant profits shall be deemed the value of property donated to the person who has acquired such profits, and in case where new stocks are issued at a price lower than their market price (referring to the price assessed under Articles 60 and 63; hereafter the same shall apply in this paragraph), the profits falling under any of the following items shall be defined as "the profits that a person who is not a shareholder of the relevant corporation has obtained by directly receiving new stocks from the relevant corporation." Meanwhile, the provision provides that "the profits that a person who is not a shareholder of the relevant corporation has obtained by receiving new stocks from the relevant corporation" shall be defined as "the profits that a stock-listed corporation may obtain by issuing new stocks at the market price, and the issue price shall be calculated by applying the discount rate set by the relevant stock-listed corporation

In light of the following circumstances, the Plaintiff’s assertion to the effect that CCC did not issue a new issue price at a price lower than the market price is without merit, inasmuch as the new issue price calculated in accordance with the Securities Issuance Regulations is the market price.

1) The provision of Article 39(1) of the Inheritance Tax and Gift Tax Act imposes tax on a person who receives profits equivalent to the difference between the actual value and the issue value by issuing new shares at a low price when the corporation issues new shares. The calculation of donation profits is calculated by dividing the total value of shares before and after the increase in the capital and the increase in the capital due to the increase in the capital. Meanwhile, the provision on the issuance of new shares was enacted to impose certain restrictions on the standards, etc. for the issuance of new shares in order to ensure fairness and transparency in the issue terms and procedures of the issuance of new shares. The above provision stipulates that the issuance price of new shares shall be calculated at a market price, but the issuance price shall be calculated by applying the discount rate. However, when the company issues new shares, it takes into account that the share price is lower according to the increase in the capital on a certain date (in this case, the acquisition of rights over shares that exceed the base date), and that the issue price calculated by applying the discount rate pursuant to the relevant provisions related to the Inheritance Tax and Gift Tax Act is higher than the issue price imposed on economic profits.

2) Article 39(1) of the Inheritance Tax and Gift Tax Act explicitly provides that the market price shall be the basis for the value assessed under Articles 60 and 63 of the Act in cases of the donation of profits arising from the increase of capital. Article 60(1) of the same Act provides that “The value of the property subject to inheritance tax or gift tax under this Act shall be the market price as of the date of commencing the inheritance or donation (hereinafter referred to as “date of appraisal”). In such cases, the value assessed under Article 63(1)1(a) and (b) (excluding cases falling under Article 63(2)) shall be deemed the market price.” Article 63(1)1(a) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The average value of the market price of the Korea Stock Exchange, which is publicly announced for two months before and after the base date of appraisal, shall be deemed to be the market price assessed under Article 63(1)1(a) of the same Act.” Article 60(1) of the same Act provides that “The above provision shall be deemed to be the market price calculated on the basis of the latest.

3) Although the difference between the market price (OOO) calculated under Articles 39 and 63 of the Inheritance Tax and Gift Tax Act, and Article 29(3)1(a) of the Enforcement Decree of the same Act and the issue price of new shares (OOO) is reasonable, there is no evidence that reasonably explains the difference between the market price and the issue price of new shares.

C. Whether Article 35(2) of the Inheritance Tax and Gift Tax Act is applicable

In addition, Article 35(2) of the Inheritance Tax and Gift Tax Act provides that where a person who is not a shareholder of the relevant corporation issues new stocks from the relevant corporation at a price lower than the market price as the donated value to the person who acquired such profits by deeming the amount equivalent to the difference between the price and the market price in a transactional practice where the person acquires or transfers the property between persons who are not a specially related person, without any justifiable reason. Article 39(2) of the Inheritance Tax and Gift Tax Act provides that where the corporation issues new stocks to increase its capital at a price lower than the market price as a result of issuing new stocks to the corporation, the corporation’s profits that the person who is not a shareholder of the relevant corporation directly obtains from the relevant corporation or by directly obtaining new stocks in excess of the number of stocks that can be allocated under equal conditions in proportion to the number of stocks owned by the corporation is more than the value of the donated value. As such, Article 39 of the same Act is not a special provision on donation of profits from the corporation’s capital increase, but the Plaintiff’s assertion to the effect that “the Plaintiff’s practice of trading” was without justifiable reasons.

4. Conclusion

The plaintiff's claim is dismissed as it is without merit, and the costs of lawsuit are fully borne by the plaintiff who has lost. It is so decided as per Disposition.