Whether the provision on deemed donation can be applied to forfeited shareholders at the time of high-priced capital increase.

It is difficult to deem that the Plaintiff renounced the allocation of new shares because it is difficult to view that the capital or the amount of investment of the non-party company is for the purpose of increasing the non-party company's capital or investment because the capital increase was merely the external form of capital and financing.

상속세밎증여세법 제39조증자에 따른 증여의제

상속세밎증여세법시행령 제19조금융재산상속공제

1. Revocation of a judgment of the first instance;

2. The Defendant’s disposition of imposition of gift tax of KRW 507,657,810 against the Plaintiff on March 16, 2006 shall be revoked.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the imposition;

A. At the time of establishment as a juristic person established for the purpose of software development, production and sale on January 28, 2001, ○○○○ was a juristic person with capital of 200 million won (40,000 shares issued in total).

B. On November 29, 2001, and February 25, 2002, 2002, ○○○○ issued each of the instant capital increase (hereinafter “instant capital increase”). On November 29, 2001, 185,102 shares (valued 9,255,100,000 won) as KRW 50,00 per share. On February 25, 2002, ○○○ issued 10,000 shares (valued 50,00 won per share) as KRW 50,00 per share, and at that time, Kim○○, the representative director, was fully acquired.

C. From September 26, 2005 to November 4, 2005, the director of the regional tax office having jurisdiction over ○○○○○○ was investigating the change of corporate tax and shares with respect to ○○○○○○○○○○○○ from September 26, 2005. As a result, the Plaintiff, who had special relation with ○○○○○○, renounced the acquisition of new shares issued at a higher price than the market price to shareholders other than ○○○○○○, thereby making a decision that 1,269,000,000 won, and 4,000,000 won, were donated to the Plaintiff on November 18, 2005 by applying Article 39 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”) and notified the Plaintiff of the result of the tax investigation to levy KRW 483,00,000,000 for gift tax on the gift on February 25, 2002.

D. Based on the results of the above tax investigation, the defendant decided and notified the plaintiff on March 16, 2006 the gift tax and additional tax 483,866,490 won and the gift tax and additional tax 23,791,320 won on the gift of February 25, 2002 (hereinafter referred to as "each of the above gift tax and additional tax and the disposition of notice" each of the above disposition of imposition).

E. The plaintiff requested a judgment with the National Tax Tribunal on June 14, 2006, but was dismissed on October 20, 2006, and the decision was served on the plaintiff on October 22, 2006.

Facts that there is no dispute over recognition, Gap evidence 1, 2, Eul evidence 1-1, 2, Eul evidence 3 and 4, the purport of the whole pleadings.

2. Whether each of the imposition dispositions in this case is legitimate

A. The plaintiff's assertion

(1) The Plaintiff did not acquire the shares of ○○○○○, and was appointed as an auditor on March 31, 2003 and became aware of the fact that the Plaintiff was registered as ○○○○○○○○○○○○○○○○○ shareholder. Thus, each of the dispositions of this case on the premise that the Plaintiff was a shareholder of ○○○○○○○○○○○○, is unlawful

(2) In order to be deemed to have received benefits from the issuance of new shares at a price higher than the market price under Article 39 of the Inheritance Tax and Gift Tax Act, the shareholders of the pertinent corporation should have given up all or part of the right to receive allocation of forfeited shares. However, ○○○○ merely borrowed the form of capital increase with a view to supporting ○○○○○○○’s funds, and does not comply with all procedures related to the issuance of new shares, such as allocation and notice of capital increase with consideration for new shares, and disposition of forfeited shares. As such, the Plaintiff was completely unaware of the fact that ○○○○○’s capital increase and the allocation of new shares were made until the

Therefore, since the Plaintiff did not waive the preemptive right to ○○○○○○’s capital increase with consideration, each of the instant dispositions is unlawful.

B. Relevant statutes

It is as shown in the attached Table related statutes.

C. Facts of recognition

(1) ○○○○ offered capital increase on March 7, 2001. According to the statement on the change of stocks, etc., the Plaintiff stated that 80,000 shares were acquired at that time, and the Plaintiff becomes a shareholder (80,000 shares) even in the statement on the change of stocks, etc. written thereafter. Meanwhile, on March 31, 2003, the Plaintiff was appointed as the auditor of ○○○○ on March 31, 2003.

(2) The process of issuing new shares in this case

(A) While ○○○○, a representative director of the Plaintiff’s Nam-dong, was a domestic corporation that developed fingerprint-type software and registered on KOSDAQ, ○○○○, a U.S. corporation, a corporation that ○○○○○○ (a company that sells fingerprint-type program developed by ○○○, operated by ○○○, a company that sells fingerprint-type program; hereinafter referred to as “○○○○”) with an amount of KRW 9.24 million and acquired ○○○○ (a company that sells fingerprint-type program developed by ○○○; hereinafter referred to as “○○○”) was undermining the registration of ○○○○’s KOSDAQ due to its poor management, and received a claim from investors. In order to register ○○○ on the KOSDAQ, ○○○ requested an exchange of shares owned by ○○○○○ and the shares owned by ○○○○○○○.

(B) At the time, Kim○ concluded a sales contract on October 19, 2001 with the Internet ○○○○○○ and the above ○○○○○○○○○○○○○○○○○○○○, selling ○○○○○○○○○, which was owned by ○○○○○○○, to exchange ○○○○○○○’s shares with ○○○○○○○○○○○○○○○○○○○ by means of buying ○○○○○○○○’s shares, and selling 10,306,77,50 shares for KRW 10,300.

(C) Under the foreign exchange transaction regulations at the time, an individual could not make a direct investment in a foreign company with an amount exceeding USD 3 million, and ○○○○ was unable to acquire ○○○’s shares from ○○○○ in his own name because ○○ was not an indirect investment as an unlisted foreign corporation, and thus, ○○○ was unable to acquire ○○○’s shares under one’s own name. ○○○ paid KRW 9,240,427,00 (the amount of money obtained by deducting transfer income tax) to ○○○○ in the form of capital increase with a capital increase and indirectly acquired ○○○ shares through ○○○○.

(D) Around November 12, 2001, ○○○○ concluded a sales contract to purchase ○○○’s 2,733,333 shares owned by ○○○○○○’s ○○○ 9,240,427,450 shares and to acquire 185,10 shares and to acquire ○○ ○○ ○ ○○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

(E) At the time of the above capital increase, ○○○○○ and the Plaintiff, as well as Kim○○ and the Plaintiff, had the shareholders, but the ○○○○○ and the Plaintiff did not hold a board of directors. However, on November 12, 2001, the 10:0 on the 10:00 on November 12, 2001, the ○○○ attended by the representative director Kim○, directors Kim○, Kim○, Kim○○, and Lee○, and the auditor, who held the board of directors, decided to hold a board of directors and allocate new shares in an exceptional manner according to the number of shares owned by the shareholders listed in the register of shareholders, only prepared the minutes of the board of directors’ meeting with a view to making a resolution to allocate new shares in proportion to the number of shares owned by the shareholders listed in the register of shareholders on the same day, without entirely notifying the shareholders, including the Plaintiff of the allocation and subscription date of new shares, designation of subscription date, forfeited

(F) The purpose of this case’s capital increase is to dispose of the ○○○○ shares held by ○○○○○○○, and thus, the ○○○○○○○, an employee of ○○○○○○○○○ and the auditor and the head of the management support team of ○○○○○○○○○○, as an investor, directly deal with the opening of a separate deposit needed for the employee’s reason-based employee of the U.S.-based limited-liability investment company, and deposit, withdrawal, and remittance of the purchase price of new shares. Kim○○ paid a tax amount of KRW 1 billion on the passbook deposited for tax and public charges, such as capital gains tax due to the sale of ○○○○○ shares, and without having been given an opportunity to dispose of the remaining purchase price, he deposited the remaining purchase price into the deposit account of ○○○○○○.

(G) The ○○○○○ acquired the shares of ○○○○ and appropriated them as investment securities. However, the ○○○ applied for legal management in the U.S. court since the deficit was accumulated due to continuous management depression, and the ○○○○○ dealt with the said ○○○○○ by reducing the total value on the account books of the said ○○○○○○ shares at the time of settlement of accounts for the business year 20

(h) As ○○○○○ decided to increase the capital as of February 27, 2002 in order to raise the liquidation cost, ○○○○, a shareholder of ○○○○, again issued capital increase of KRW 500 million as of February 25, 2002 to pay the said capital increase, and 10,000 of the said new shares also acquired the entire shares by Kim○○. At this time, the board of directors’ minutes were not prepared and the procedures required under the Commercial Act following the issuance of new shares were not entirely met.

(3) Current status of ○○○○○’s shares before and after capital increase increase, and shareholder relationship.

(A) Status of stockholding before and after capital increase increase

for each shareholder.

Paid-in capital increase as of November 29, 2001

Paid-in capital increase as of February 25, 2002

Before capital increase

After Capital increase

Before capital increase

After Capital increase

Total

Number of shares

Ratio of Shares

Number of shares

Ratio of Shares

Number of shares

Ratio of Shares

Number of shares

Ratio of Shares

340,000 Shares

100%

525,102 note

100%

525,102 note

100%

535,102 Shares

100%

○ Kim

200,000

58.82%

385,102 Shares

73.34%

385,102 Shares

73.34%

395,102 Shares

73.84%

80,000 Shares

23.53%

80,000 Shares

15.24%

80,000 Shares

15.24%

80,000 Shares

14.95%

Other

60,000 Shares

17.65%

60,000 Shares

1.42%

60,000 Shares

1.42%

60,000 Shares

1.21% by mass

(B) Of the shareholders of ○○○○ at the time of issuing the instant capital increase, ○○ was the former director of ○○○○, ○○ was the head of ○○’s strategic planning office (management director), and ○○ was the head of ○○○○’s team, and the Plaintiff was the head of ○○○○○’s team.

(C) In addition, as of November 12, 2001, ○○○○, who is a director of ○○○○○○, worked as an executive officer at ○○○○○○○○○○○○○○○○○○○○○○○, and served as the head of the team at ○○○○○○○○○○○○○○○○○○○○○○○○○, and was instructed by the head of the group to handle the capital increase with respect to the capital increase of the ○○○○○○○○○○○○○○○○, and the head of

(D) There was no objection from the directors and shareholders of ○○○○ in relation to the issue of capital increase with respect to the issue of capital increase and the issue of capital increase.

(E) The Plaintiff asserted that ○○○ acquired KRW 80,000 shares out of paid-in capital increase offered on March 7, 2001, in each of the demands filed by the Plaintiff while filing a pre-assessment review request and a request for a national tax trial on each of the instant dispositions.

[Reasons for Recognition] A without dispute, Gap evidence Nos. 3 through 14, Eul evidence Nos. 3, 4, Eul evidence No. 5-1 through 4, and witness No. 1 to 5-4, part of the testimony of Lee ○○ of the first instance court, and the prosecution of the whole pleadings

D. Determination

(1) Whether the Plaintiff is not a shareholder of ○○○○○

(A) The fact of ownership of shares is to be proved by the tax authority’s data, such as the list of shareholders, statement of stock transfer, or certified transcript of register, etc. However, even if it appears to be a single shareholder in light of the above data, in the event there are circumstances, such as where the name of the shareholder was stolen or registered in a name other than the name of the de facto ownership, it cannot be deemed to be a shareholder solely based on that name, but the nominal owner claiming that it

(B) We examine the instant case. As seen earlier, the Plaintiff’s ownership of ○○○○○’s 80,000 shares from the year 201 to the specifications on the change of stocks, etc., and the Plaintiff’s assertion that ○○○○○○’s major shareholder was the wife of ○○○○○○, who is the representative director, and that 80,000 shares were acquired at the time of filing a pre-assessment review and a request for national tax trial. In full view of the above, the Plaintiff’s assertion that ○○○○○ shareholder was a shareholder of ○○○○○○○○.

Therefore, the plaintiff's burden of proving that the plaintiff is not the shareholder of ○○○○○, is the plaintiff, and there is not sufficient evidence to acknowledge it only with the entries of 2 through 14 and the testimony of ○○○○○○○, and there is no other evidence to acknowledge it. Thus, the plaintiff's assertion about it

(2) Whether waiver of the preemptive right to new shares issued at the time of issuing new shares and acceptance of forfeited shares by Kim○○

However, Article 39 of the Inheritance Tax and Gift Tax Act provides that when new shares are issued at a price higher than the market price and the existing shareholders are deemed to have donated the benefits to be obtained by waiver of the subscription, the issuance of new shares is for the increase of capital or amount of investment, and at least for this recognition, the forfeited stocks were generated by waiver of the preemptive rights and the forfeited stocks were cultivated, and as a result, the forfeited stocks were cultivated, there should be a person to whom new shares are cultivated in excess of their own shares, and in light of the nature of the deemed donation, more strict determination as to whether the requirements are met

Therefore, examining whether the Plaintiff renounced the acquisition of the instant new shares and acquired them in the future, the following facts established based on the facts found earlier: (i) disposal of ○○○○○○’s shares whose substantial purpose of the offering of new shares was to ○○○○○ for the purpose of transferring ○○○’s stocks with poor asset value and obtaining investment in funds from ○○○○○○○; (ii) accordingly, the executives and investors of ○○○○○○○○’s shares were in charge of receiving and executing the funds without actually receiving the proceeds from the sale of ○○○○ shares sold ○○○○○○○○’s shares; (iii) in the case of the offering of new shares on November 29, 201, the number of executives and investors of ○○○○○○○○○’s shares was deemed to have been ordinarily issued and allocated through the meeting minutes of the board of directors, but it was difficult to find that there was no objective evidence to acknowledge the Plaintiff’s waiver of the offering of new shares and the offering of forfeited shares for the purpose of ○○○.

Therefore, each of the instant dispositions based on the Plaintiff’s renunciation of new shares and the Plaintiff’s acceptance of forfeited shares is unlawful.

3.In conclusion

Therefore, the defendant's each disposition of this case shall be revoked in an unlawful manner, and since the judgment of the court of first instance is unfair with different conclusions, the plaintiff's appeal shall be accepted, and the judgment of the court of first instance shall be revoked, and it is so decided as per Disposition with the decision to revoke each disposition of this case.

Related Acts and subordinate statutes

former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003)

Article 39 (Presumption of Donation by Capital Increase)

(1) Where a corporation issues new stocks or equity shares (hereafter in this Article, referred to as "new stocks") for the purpose of increasing its capital (including the amount of investment; hereafter in this Article and Article 39-2, the same shall apply), a person who obtains benefits falling under any of the following subparagraphs shall be deemed to have received a donation of the amount equivalent to such benefits

2. In case where new stocks are issued at a price higher than the market price, the benefits falling under any of the following items:

(a) In case where the stockholders of the relevant corporation have renounced wholly or partially the right to receive new stocks, and where the forfeited stocks are allocated, the benefits acquired by the person who received such allocation, by accepting it, from the person who renounced the new stocks in a special relationship;

(3) Persons with a special relationship, scope of minority shareholders, method of calculating profits and other necessary matters under paragraphs (1) and (2) shall be determined by the Presidential Decree.

former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17828, Dec. 30, 2002)

Article 19 (Inheritance Deductions of Financial Property)

(2) For the purpose of Article 22 (2) of the Act, the term “major shareholder or largest investor as prescribed by the Presidential Decree” means the relevant stockholder, etc. in case where the total number of stocks held by one shareholder or one investor (hereinafter referred to as the “shareholders, etc.”) and a person with a relationship falling under any of the following subparagraphs is the largest

1. Relatives;

2. Persons other than employees and employees, who maintain their livelihood with the property of such stockholders, etc.;

3. A person who is in the relationship falling under any of the following items with an enterprise group as determined by the Ordinance of the Ministry of Finance and Economy (including persons who are officers of the enterprise concerned), or who is deemed to exercise de facto influence on the management through exercising the right to appoint and dismiss officers of the enterprise, and determining business policies:

(a) Other companies belonging to an enterprise group;

(b) A person who substantially controls an enterprise group;

(c) Relatives of the persons under item (b);

4. Non-profit corporations established by one shareholder, etc. and persons under subparagraphs 1 through 3 who occupy the majority of directors or contribute assets;

5. Nonprofit corporations in which an officer of an enterprise under the main sentence of subparagraph 3 or (a) is the president.

6. A corporation in which one stockholder, etc. and persons under subparagraphs 1 through 5 own 30/100 or more of the total number of stocks issued;

7. A corporation in which one stockholder, etc. and persons under subparagraphs 1 through 6 own 50/100 or more of the total number of stocks issued;

8. Non-profit corporations established by one shareholder, etc. and persons under subparagraphs 1 through 7 who occupy the majority of directors or contribute assets;

Article 29 (Calculation Method, etc. of Value Deemed Donation at Time of Capital Increase)

(1) The term "person in a special relationship" and "person who has accepted or renounced new stocks or forfeited stocks which are in a special relationship" in Article 39 (1) of the Act means the person who has a relationship falling under any subparagraph of Article 19 (2) with the person who has not accepted or forfeited stocks.

(3) The benefits deemed to have been donated pursuant to Article 39 (1) of the Act shall be the benefits calculated according to the following classification:

3. Profits referred to in Article 39 (1) 2 (a) of the Act: An amount calculated by multiplying the amount obtained by subtracting the amount referred to in item (b) from the amount referred to in item (a) by the forfeited number

(a) The value of subscribed stocks per stock;

(b) Value per stock calculated by the following formula: Provided, That in case of a corporation falling under any subparagraph of Article 22 of the Enforcement Decree of the Income Tax Act, where the appraised value per stock after the capital increase is larger than the value per stock calculated by the following formula, the relevant value

[The total number of outstanding stocks before the increase in X capital] = (the number of stocks increased by the increase in X capital per new stocks) ¡À(the total number of outstanding stocks before the increase in capital + the number of stocks increased by the increase in capital)

(c) X (the total number of forfeited stocks / the total number of forfeited stocks/ the total number of forfeited stocks/the total number of forfeited stocks acquired by a person with a special relationship with the stockholder who has renounced the acquisition of new stocks