Seocho 201JL 1310 ( December 13, 2011)

there is no ground for increase in stock value constituting the donated property, and it is unlawful.

The profit equivalent to the increase in the value of stocks is subject to gift tax, but it is illegal against the taxpayer's predictability as well as the tax equity to calculate the value of stocks by deeming that the ownership shares or the value of the shares is changed.

2011Guhap4532 Revocation of Disposition of Imposition of Gift Tax

Gangnam et al.

Head of Central Tax Office

October 16, 2012

November 15, 2012

1. The Defendant’s imposition of gift tax of KRW 000 on February 10, 201 and the imposition of KRW 000,000,000,000,000,000,000,000,000

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 October 19, 2007, the plaintiffs' assistance, donated shares 4,885,110 shares (the value assessed as of the date of donation is 00 won, 17.91% of the shares issued at the date of donation; hereinafter referred to as "the shares of this case") that they were in possession of the company XX (which was established on May 1, 1986 and runs the sales business of kitchen supplies and other timber households; hereinafter referred to as " XX") to the company that was non-listed (which was established on May 1, 1986; hereinafter referred to as "GG") and 4,885,110 shares issued by the company.

C. XX included KRW 000 in the gross income for the donation of the instant shares, and reported and paid KRW 000 in the corporate tax for the business year 2007.

D. The director of the Seoul Regional Tax Office conducted an investigation of changes in the shares XX, and notified the Defendant of taxation data that the Plaintiffs would levy gift tax on the increased shares of the Plaintiffs following the donation of the shares of this case, deeming that the Plaintiffs were donated by the GangwonCC.

E. Accordingly, on February 10, 201, the Defendant rendered the instant disposition that notified Plaintiff Gangwon-A of KRW 000 of the gift tax and KRW 000 of the gift tax to Plaintiff Gangwon-B.

F. On March 18, 2011, the Plaintiffs were dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on December 13, 201.

[Reasons for Recognition] Evidence Nos. 1, 2, and 3 (including branch numbers in case of a natural disaster; hereinafter the same shall apply), Evidence Nos. 1, 9, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The instant disposition is unlawful for the following reasons.

1) Even if the value of the instant shares increases due to the donation of the shares held by the Plaintiffs, it is only indirect and reflective interests that GangwonCC would contribute to the donation of the instant shares to XX, and there is no express provision that allows gift tax to be imposed thereon. Although Articles 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter referred to as the “Inheritance Tax and Gift Tax Act”) stipulate the taxation basis provisions, the benefits arising from the donation of the instant shares do not constitute the benefits arising from the increase or decrease of the corporation’s capital, such as the conversion of shares, acquisition, exchange, etc., as well as the benefits arising from the change in the ownership or value of the corporation’s shares through business transfer, business exchange, corporate restructuring, etc., the instant disposition made by the Defendant is unlawful.

2) Article 2(2) of the Inheritance Tax and Gift Tax Act provides that gift tax shall not be imposed in the case where the donee imposes income tax or corporate tax on the recipient of the gift tax in order to prevent double taxation. Article 2(2) of the Inheritance Tax and Gift Tax Act provides that the recipient of the gift tax is not subject to gift tax in the event that the recipient of the gift tax has already paid corporate tax on the donation of the instant shares, and later, the recipient is subject to the dividend income tax in the event that the recipient received a dividend from XX with respect to the income accruing from the receipt of the said shares, and the transfer of the shares

3) Furthermore, even though the strongCC’s donation of the instant shares to XX was aimed at improving the financial structure of XX and did not have any purpose of tax avoidance, the Defendant made the instant disposition on the premise that the purpose of tax avoidance exists. In this regard, the instant disposition is unreasonable.

B. Relevant statutes

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

C. Determination

1) Introduction and purport of the complete comprehensive gift taxation

The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter the same) borrowed the concept of donation under the Civil Act with no definition provision on the concept of donation. The concept of donation borrowing alone does not have any way to prevent the avoidance of gift tax through an irregular donation without following the form of donation under the Civil Act. Therefore, the tax authorities have several regulations on deemed donation (Articles 32 through 42 of the former Inheritance Tax and Gift Tax Act). However, the regulations on individual donation donation alone pointed out the problem that it is impossible to cope with new types of modified donation due to new financial instruments, financial techniques, and various capital transactions, etc., and the so-called comprehensive donation donation under the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act") was introduced with Article 23 of the Inheritance Tax and Gift Tax Act or Article 4 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010).3).

2) The contents of the complete comprehensive gift tax

Article 2(1) of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010 on December 30, 2003) provides that gift tax shall be imposed on another person's gift pursuant to Article 2(3) of the Inheritance Tax and Gift Tax Act ("the Inheritance Tax and Gift Tax Act") and Article 2(3) provides that "the term "donation" means a free transfer (including a transfer at a remarkably low price) of tangible or intangible property (including a transfer at a remarkably low price) in a direct or indirect manner, or an increase of the value of another person's property by which the economic value can be calculated," which is separate from the donation under the Civil Act, and the concept of donation distinct from the donation under the Civil Act was created by supplementing the contents of the previous provision in Articles 33 through 42.

3) Whether the taxation can be made by applying Article 2(3) of the Inheritance Tax and Gift Tax Act

As seen earlier, it is difficult to simply interpret Article 2(3) of the Inheritance Tax and Gift Tax Act as a confirmatory and declared provision in light of the system with other provisions, such as the introduction of the concept of donation based on the complete comprehensive principle under Article 2(3) of the Inheritance Tax and Gift Tax Act in order to impose gift tax on the transfer of property in a variety of unpredicted forms or increase in the value of property, and in light of the background of the introduction under Article 2(3) of the Inheritance Tax and Gift Tax Act, legislative purport, and the system of other provisions, etc., it is reasonable to deem that the taxation of gift tax based on Article 2(3) of the Inheritance Tax and Gift Tax and Gift Tax Act is possible (see Supreme Court Decision 2008Du17882, Apr. 28, 2011).

With respect to the instant case, the Health Board and the Gangwon-CC, as a person with a special relationship with the Plaintiffs, transferred without compensation the benefits equivalent to the difference between the value of the instant shares and the value of the instant shares within the scope of the Plaintiffs’ share ratio through the method of donation of the instant shares to XX, or increased the value of the instant shares by contribution. Therefore, the Plaintiffs’ assertion on a different premise falls under “donation” under Article 2(3) of the Inheritance Tax and Gift Tax Act, which is subject to gift tax. The Plaintiffs’ assertion on the other premise is without merit.

4) Whether the calculation of the value of the donated property by applying Article 42(1)3 of the Inheritance Tax and Gift Tax Act is unlawful

The defendant donated the profits equivalent to the increase in the value of the shares held by the plaintiffs to the plaintiffs through the method of donating the shares in XX (hereinafter referred to as "the gift in this case"). Such transactional activities constitute "the type of transaction, in particular, the acquisition of the shares in the business, the business exchange, or the restructuring of the corporation, or the change in the value thereof" under Article 42 (1) 3 of the Inheritance Tax and Gift Tax Act, and calculated the value of the donated property by applying the above provision. When comprehensively considering the following circumstances, Article 42 (1) 3 of the Inheritance Tax and Gift Tax Act cannot be applied directly or by analogy in calculating the profits (the value of donated property) from the gift in this case, and thus, the disposition in this case by applying the above provision is unlawful without examining the remaining arguments of the plaintiffs.

A) Article 42(1)3 of the Inheritance Tax and Gift Tax Act provides that the value of the profits gained by the former part of Article 42(1)3 shall be the transaction that increases or decreases the corporation’s capital by means of investment, reduction of capital, merger, division, conversion bonds, etc., such as conversion, acquisition, exchange, etc. of shares. The transaction that donated the shares of this case in XX is not the transaction of capital increase or decrease, but the transaction of profits and losses generated the increase or decrease of the amount of capital in XX, and thus does not fall under the type of transaction as provided

B) The latter part of Article 42(1)3 of the Inheritance Tax and Gift Tax Act provides that the gains acquired by the transfer of business is the value of donated property due to the change in the shares owned or the value of the corporation's business due to the "business exchange, business exchange, organizational change, etc." In full view of the above facts and the purport of the entire pleadings and the following facts and circumstances comprehensively, the gift of this case cannot be deemed as the "business transfer" under the latter part of Article 42(1)3 of the Inheritance Tax and Gift Tax Act, and the "business exchange and the organizational change of the corporation" or similar transaction and type of act.

Article 42(1)3 of the Inheritance Tax and Gift Tax Act provides that no change in the number of shares owned by the Plaintiffs or its value should be made to the largest shareholder of the 7 per cent of the 7 per cent of the 7 per cent of the 7 per cent of the 7 per cent of the 7 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 5 per cent of the 1 per cent of the 6 per cent of the 3 per se shares.

(The following table omitted):

C) On the other hand, Article 41(1) of the Inheritance Tax and Gift Tax Act provides that where a person who has a special relationship with a shareholder of a corporation with which a loss exists or whose business has been suspended or closed (hereinafter referred to as a "specified corporation") obtains profits from the shareholder of the pertinent specified corporation through a transaction such as donation of property to the pertinent specified corporation, the amount equivalent to such profits shall be free of the value of the pertinent specified corporation's donated property, such as the shareholder of the pertinent specified corporation. The donation of this case is similar to the type of transaction provided in Article 41 of the Inheritance Tax and Gift Tax Act, except that where the shareholder of the relevant corporation (GCC) obtains profits (the shares of this case) through the transaction of donation of property (the shares of this case) to the pertinent corporation by a person with a special relationship with the shareholder of the pertinent corporation (SCC).

However, as seen earlier, with respect to whether a gift tax may be imposed under the complete comprehensive taxation of the gift tax in cases where a taxpayer donated property to a black corporation (a corporation without losses) other than a specific corporation, the tax authority authoritative interpretation that the shareholder would be exempt from gift tax in cases where a corporate tax under the Corporate Tax Act is imposed on the property donated by a person with a special relationship (see, e.g., Supreme Court Decision 4 team-85, Jun. 17, 2004; 4 team-409, Mar. 22, 2005; 4 team-539, Apr. 11, 2005). Such authoritative interpretation appears to be unreasonable in light of the following: (a) whether a shareholder may be imposed on the above case from around 207, based on the determination of the facts that fall under Articles 2 and 42 of the Inheritance Tax and Gift Tax Act; and (b) whether the gift tax may be imposed on the shareholder without any specific corporation; and (c) the previous National Tax Service’s interpretation without any specific interpretation by applying the aforementioned provision to the gift tax type and the gift tax type, etc.

3. Conclusion

The plaintiffs' claims are justified, and they are accepted.