Appropriateness of the value of unlisted stocks

Since the wrongful calculation of capital gains constitutes a stock whose market price is unclear, a disposition imposed on the value assessed in accordance with the relevant statutes by deeming it as the market price is legitimate.

Article 101 of the Income Tax Act by Wrongful Calculation

The plaintiff's appeal is dismissed.

Expenses for appeal shall be borne by the plaintiff.

The judgment of the first instance shall be revoked, and the imposition of capital gains tax of KRW 31,134,580 against the plaintiff on January 10, 200 shall be revoked.

1. Details of the disposition;

The following facts are either disputed between the parties, or acknowledged in Gap evidence 1, 3, and Eul evidence 1-1 to 3, by integrating the purpose of all pleadings:

A. On September 9, 200, the Plaintiff transferred 13,500 non-listed shares of ○ Chemical Co., Ltd. (hereinafter “instant shares”) owned by ○○○○○, a husband’s husband’s head, to KRW 5,000 per share, KRW 67,50,000 per share, and reported the Defendant’s transfer margin of the instant shares to KRW 0 (transfer value 67,50,000 - acquisition value 67,50,000,000).

B. The defendant assessed the value of the shares of this case pursuant to Article 165 (6) of the former Enforcement Decree of the Income Tax Act, and calculated the transfer value of the shares of this case to the plaintiff 26,490,000 won (13,500 Won X 19,740 won) on February 5, 2004 in accordance with the provision of the rejection of unfair act and calculation under the Income Tax Act, on the ground that the plaintiff transferred the shares of this case to the ○○○○, etc. in a special relation to the plaintiff 266,490,00 won (26,490,000 won - acquisition value of 67,50,000 won - necessary expenses of 67,50,000 won - 67,500,000 won for acquisition value of the shares of this case) and imposed and notified the transfer income tax of this case to the plaintiff 1,134,580 won (including additional tax).

2. Determination on the legitimacy of the instant disposition

A. The plaintiff's assertion

If the value of the shares of this case is assessed according to the supplementary evaluation method under the former Inheritance Tax and Gift Tax Act, such amount shall be 3,978 per share, and in the light of such method, 5,000 won per share shall be transferred.

Article 165(6) of the former Enforcement Decree of the Income Tax Act provides that the transfer of the instant shares shall not be deemed a wrongful calculation, and if capital gains tax is imposed by evaluating the value of the instant shares to KRW 19,740 per share pursuant to Article 165(6) of the former Enforcement Decree of the Income Tax Act as the Defendant’s assertion, it would result in the occurrence of two prices of the same shares, 3,978 won per share, and 19,740 won per share. Therefore, Article 165(6) of the same Act provides that the transfer of the instant shares shall be deemed null and void in violation of Article 94 of the Income Tax Act, which is the mother corporation, and even if the transfer of the instant shares constitutes wrongful calculation, the instant disposition is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

The following facts may be acknowledged, either in dispute between the parties, or in the entry in Gap evidence 3 through 8, and Eul evidence 1-1 through 3, by integrating the whole purport of the pleadings:

(1) As to the unlisted stocks of ○ Chemical Company, there was no normal transaction to verify the market price before and after the transfer of the instant case, and there was no case of public sale, auction, etc., and the Plaintiff transferred the instant stocks to three persons, such as ○○, etc. by calculating the par value thereof.

(2) The net profit and loss amount for the last three years of ○ Chemical Co., Ltd. on the basis of the business year to which the transfer date of the instant shares belongs (hereinafter “base year”) shall be KRW 467,275,00 as of the end of 199, KRW 180,00 as of the end of 199, KRW 180,00 as of the end of 1998, KRW 578,719, KRW 578, KRW 1998, KRW 199, KRW 346,74, KRW 127, and KRW 46 as of the end of 199, KRW 180 as of the end of 199, KRW 100 as of the end of 198, KRW 00 as of the end of 197.

(3) If the value per share of the instant shares is calculated on the basis of the net profit and loss amount in 1999, which is the immediately preceding business year pursuant to Article 81(2)2(a) of the former Enforcement Rule of the Income Tax Act, the amount shall be 19,740 won [35,413,065 won ¡À 180,000 ± 10% (rate prescribed by the Ordinance of the Ministry of Finance and Economy)]. If the value per share of the instant shares is calculated on the basis of the net asset value at the end of 1999, which is the immediately preceding business year pursuant to Article 81(2)2(b) and (c) of the former Enforcement Rule of the Income Tax Act, the amount shall be 2,595 won (467,275,076 won ¡À180

(4)On the other hand, if the value per share is calculated on the basis of the weighted average amount of net profit and loss for the last three years pursuant to Article 54, Section 1 of the former Inheritance Tax and Gift Tax Act, such amount shall be 3,978 won if the amount is added to 30/100 pursuant to Article 63, Section 3 of the former Inheritance Tax and Gift Tax Act as the shares of the largest shareholder and the shareholders in a special relationship with him, which are 3,978 won. At the time of the transfer of the shares, the shares held by 0/100 of the total number of shares issued by ○○ Chemical Co., Ltd. and related parties such as the Plaintiff, etc

D. Determination

As above, the market price of ○ Chemical Co., Ltd. has not been verified over the period before and after the transfer. Since the transfer of this case was conducted in a general and normal manner, there are no circumstances to deem that the objective exchange value is reflected in the appropriate market price. Thus, Article 167(5) of the former Enforcement Decree of the Income Tax Act provides that the market price of wrongful calculation shall be assessed by applying mutatis mutandis the provisions of Articles 60 through 64 of the former Inheritance Tax and Gift Tax Act and the provisions of Articles 49 through 59 of the Enforcement Decree of the same Act. However, Article 167(6) of the former Enforcement Decree of the Income Tax Act provides that where the market price of non-listed stocks is unclear as above, Article 167(5) of the former Enforcement Decree of the Income Tax Act provides that the value assessed by applying mutatis mutandis Article 165(1)2 of the Enforcement Decree of the same Act to the market price of the non-listed stocks shall be excluded from the application of Article 167(5) of the former Enforcement Decree of the Income Tax Act.

Meanwhile, Article 63(3) of the former Inheritance Tax and Gift Tax Act and Article 54(1) and (2) of the Enforcement Decree of the same Act shall apply to the value per share calculated on the basis of net asset value for the last three years as long as the value per share does not reach the net asset value, and shall be added to 30/100 where the shares held by the largest shareholder and his specially related persons exceed 50/100 of the total number of issued and outstanding shares. Thus, in accordance with the above provisions, the assessment value per share of this case shall be 3,060 won calculated on the basis of net profit and loss for the last three years. The Plaintiff’s assertion that the transfer value per share of this case shall be recognized as market value on the basis of the difference between the values appraised on the basis of the former Enforcement Decree of the Income Tax and Gift Tax Act and the value appraised on the basis of the former Enforcement Decree of the Income Tax and Gift Tax Act for the last three years, or that the amount calculated on the basis of the above net profit and loss per share shall not be reflected in the market value per share.

3. Conclusion

Therefore, the judgment of the court of first instance is just in its conclusion, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Related statutes

former Income Tax Act (amended by Act No. 6292 of Dec. 29, 2000)

Article 94 Scope of Transfer Income

The transfer income shall be the following incomes generated in the current year:

4. Income accruing from the transfer of stocks or investment shares not listed on the Korea Stock Exchange, as prescribed by the Presidential Decree;

§ 101. Wrongful calculation of capital gains

(1) If it is deemed that any act or computation of a resident having any transfer income has reduced unreasonably the tax burden on such income through any transaction with the resident concerned, the superintendent of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment may calculate the income amount in the current year regardless of

(4) The scope of the persons in special relationship under paragraph (1) and other necessary matters concerning the wrongful calculation shall be determined by the Presidential Decree.

The former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 17032 of Dec. 29, 2000)

Article 167 (Calculation of Unfair Act of Transfer Income)

(3) The term “if it is deemed that any act makes the burden of tax reduced unreasonably” in Article 101 (1) of the Act means the occasion falling under each subparagraph of Article 98 (2).

(4) In case of transactions with related parties under each subparagraph of Article 98 (1), if it is deemed that any tax burden has been unjustly reduced due to the acquisition of land, etc. in excess of the market price or the transfer of land below the market price, such acquisition value or transfer value shall

(5) In applying the provisions of paragraphs (3) and (4), the market price shall be the value assessed by applying mutatis mutandis the provisions of Articles 60 through 64 of the Inheritance Tax and Gift Tax Act and Articles 49 through 59 of the Enforcement Decree of the same Act. In this case, the term “period not exceeding 6 months (3 months in case of donated property) before or after the evaluation base date” in the main sentence of Article 49 (1) of the Inheritance Tax and Gift Tax

(6) In the application of the provisions of paragraph (5), where the market price of stocks, etc. is unclear, notwithstanding the provisions of the same paragraph, the value assessed by applying mutatis mutandisArticle 165 (1) 2 and 3 (a) shall be followed.

Article 98 Denial of Evaluation of Wrongful Acts

(1) The term “a person having a special relation” under Articles 41 and 101 of the Act means one of the following persons:

1. Relatives of the relevant resident;

(2) The term “if it is deemed that any act makes the burden of tax reduced unreasonably” in Article 41 of the Act means the occasion falling under any of the following subparagraphs:

1. When a person purchases assets from a related party at a price higher than the market price or transfers assets to a related party at a price lower than the market price;

Article 165. Calculation of Standard Market Price of Assets Other Than Land and Buildings

(1) The term “value appraised by such method as prescribed by the Presidential Decree” in Article 99 (1) 2 of the Act means the value under each of the following subparagraphs:

2. Stocks, etc. under subparagraph 4 of Article 94 of the Act: The amount appraised by applying mutatis mutandis the provisions of Article 63 (1) 1 (b) (referring to "two months before and after the evaluation base date, respectively" under the provisions of item (a) of the same Article applicable mutatis mutandis): The evaluation base date or the evaluation value shall be determined by the Ordinance of the Ministry of Finance and Economy. In this case, the evaluation base date or the evaluation value shall be exempted; hereinafter

Enforcement Rule of the former Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 202 on April 30, 2001)

Article 81. Calculation of Standard Market Price of Assets Other Than Land and Buildings

(2) The evaluation criteria period or evaluation amount under the provisions of Article 165 (1) 2 of the Decree shall be as follows:

1. In the case of stocks, etc. of an Association-registered corporation under subparagraph 2 of Article 22 of the Decree: Article 53 (2) of the Inheritance Tax and Gift Tax Act shall apply mutatis mutandis, but "six months (three months in the case of stocks or investment shares subject to gift tax)" in the proviso to the same paragraph

2. For stocks other than those referred to in subparagraph 1: The following shall apply:

(a) Appraisal of the value per share;

Value per share = Net profit and loss per share ¡À Rate under Article 17 (1) of the Enforcement Rule of the Inheritance Tax and Gift Tax Act.

(b) Where the value of unlisted stocks appraised under item (a) falls short of the value appraised by the following formula, the value shall be the value appraised by the following formula:

Value per stock = Net asset value of the corporation concerned ¡À Total number of stocks issued.

(c) The net profit and loss per share stipulated in the formula of item (a) shall be the value assessed by the net profit and loss amount in the business year immediately preceding the business year whereto belongs the date of transfer or acquisition (hereafter in this paragraph, referred to as the "transfer date, etc."), and the net asset value stipulated in the formula of item (b) shall be the book value (the standard market price in case of land) of

former Inheritance Tax and Gift Tax Act (amended by Act No. 6301 of Dec. 29, 2000)

Article 63 (Appraisal of Securities)

(1) The appraisal of securities, etc. shall be made according to the following methods:

1. Appraisal of stocks and investment shares:

(c) Stocks and equity shares not listed on the Korea Stock Exchange other than those under item (b) shall be appraised by the method as prescribed by the Presidential Decree in consideration of corporate assets and revenues

(3) In the application of the provisions of paragraphs (1) 1 and (2), with respect to the stocks and equity shares (excluding the stocks and equity shares of a corporation that has losses under Article 14 (2) of the Corporate Tax Act continuously from a business year within three years before the evaluation base date) of the largest stockholder, the largest investor, and the stockholders or investors in a special relationship with him (hereafter in this paragraph, referred to as the “large stockholder, etc.”) as prescribed by the Presidential Decree, 20/100 of the value appraised under the provisions of paragraphs (1) 1 and (2) shall be added, but where the largest stockholder, etc. holds in excess of 50/100 of the total number of outstanding stocks, etc. of the relevant corporation, 30/100 shall be added.

The Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002)

Article 54 Evaluation of Unlisted Stocks

(1) Stocks and contribution shares not listed on the Korea Stock Exchange (hereafter in this Article, referred to as “nonlisted stocks”) under Article 63 (1) 1 (c) of the Act shall be the value assessed by the following formula:

The value per share = The weighted average amount of net profits and losses for the latest three years per share ± the rate prescribed by the Ordinance of the Ministry of Finance and Economy in consideration of the average interest rate formed in the financial market (hereinafter referred to as the “net value of profits and losses”).

(2) Where the value of unlisted stocks appraised under paragraph (1) falls short of the value appraised by the following formula, the value shall be the value appraised by the following formula:

The value per share = the net asset value of the corporation ± (hereinafter referred to as the “net asset value”).

(4) In applying the provisions of paragraph (2), “total number of issued stocks” shall be determined by the total number of issued stocks as of the evaluation base date.