Cho High Court Decision 2009west3654 (Law No. 28, 2010)

The disposition imposing gift tax by supplementary evaluation methods without recognizing the value of stock transaction as the market price is legitimate.

In light of the fact that it is inappropriate to view the current value of assets as the market price of stocks as the method of evaluating the value of the company by using the future profit-making ability, the cash flow discount method, which is the method of evaluating stocks by the accounting firm, is not the market price.

2010Guhap30581 Revocation of Disposition of Imposition of Gift Tax, etc.

IsaA

O Head of tax office

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of gift tax of KRW 5,838,456,00 and penalty tax of KRW 1,435,676,330 against the Plaintiff on May 6, 2009 is revoked (it seems that the Plaintiff stated the date of the disposition in the complaint as August 3, 2009 is erroneous).

1. Details of the disposition;

A. The Plaintiff established BBBB Co., Ltd. (BBB) on January 20, 203 as its main business, and held office as the representative director on November 9, 209, and the shareholders of BBB such as Plaintiff 2, KimCC, DD, EEE Investment Association (hereinafter “FF”) are 35,107 won (hereinafter “FF”), 17 billion won (hereinafter “the total value of 484, 264, 964, 264, 11, 394, 38, 48, 47, 47, 500, 47, 500, 47, 500, 47, 500, 500, 50, 506, 47, 506, 50, 506, 50, 506, 47, 506, 50, 506, 47, 28, 52, 52, 4, 52, 6

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) In light of the following facts, the instant transaction value is an objective exchange value formed in free transactions between many and unspecified persons, namely, market price, and thus, the instant disposition previously rendered is unlawful.

A) BBB assessed the value of 35,110 won per share on April 18, 2007 and offered capital increase. At the time, other than the existing shareholders participated in the said capital increase through the third party’s new shares allocation method, and HaH transferred BBB’s shares on September 28, 2007 to 35,110 won per share on April 1, 2008. In light of such case, in light of the foregoing, the share transfer contract between the Plaintiff and FF on July 18, 2008 should be deemed to constitute the market price under the Inheritance Tax and Gift Tax Act.

B) Since the value of the private teaching institute business differs depending on the non-accounting factor that is not reflected in the assets on the balance sheet, namely, whether a famous lecturer is secured, whether a student is well-known in the area where the private teaching institute is located, and the university entrance rate of the student of the private teaching institute, etc., even if the transaction value of the instant case determined by reflecting the aforementioned factors, it cannot be deemed unfair even if there is a difference between the value of the BB BB’s stocks based on the supplementary evaluation method stipulated in the relevant laws, such as

2) When BBB evaluated the value per share on April 18, 2007 as 35,110 won and conducted a premium increase, however, if BB’s shares are transferred to 35,110 won per share on September 28, 2007 by Dozz, respectively, on April 1, 2008, to 35,110 won, the Defendant did not impose gift tax in relation to the said transaction. However, the Defendant did not impose gift tax in relation to the said transaction. The instant disposition against the Plaintiff on the ground that the instant transaction similar to the said amount falls under an elevated transfer only with respect to the stock transfer transaction on July 18, 2008 based on the amount of the transaction.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) Details of the changes in BB’s shares;

A) BBB offered capital increase with the amount of KRW 35,10 on April 18, 2007 as KRW 35,110. The existing shareholders (81,310, 28.54%) participated in the said capital increase with the allocation of new shares by not only the Plaintiff (12,690, equity ratio of 12,690, equity ratio of 4.45%) DJ (190,850, equity ratio of 190, 190, 850, equity ratio of 67%) EEEE Investment Association and EGG. As a result of capital increase with new shares 484,226, the total number of shares issued by BBBB, 296,234 shares (61.18%), 3GG shares, 31, 331 shares ratio (E.48%), 38% equity ratio of the Plaintiff’s shares, 298, 2838.27.8

B) On September 28, 2007, antiG transferred 11,393 shares (2.35%) out of 31,331 shares, as described in paragraph (a) above, to KimCC, the remaining 19,938 shares (4.12%) of 35,110 shares, respectively.

C) On January 18, 2008, the ICJ transferred to the Plaintiff the BBB shares 296,234 shares owned by the Plaintiff (the share ratio of 61.18%) and the right to manage the shares accordingly, 4 billion won [4 billion won per share (=4 billion ±296,234 shares, less than KRW 296,234)].

D) On April 1, 2008, HH transferred 19,938 shares BB owned by the Plaintiff (i.e., 425,964 shares owned by the Plaintiff (=109,792 shares + 296,234 shares + 19,938 shares), and its shares are 87.97% J.

(ii)the business performance of BB;

BB recorded 95 billion won in the net loss of the current year in 2005, 1.22 billion won in the net loss of the current year in 2006, and 4.16 billion won in the net loss of the current year in 2007.

3) Stock assessment

FF requested the Z Accounting Corporation and PP Accounting Corporation to assess the shares of this case before receiving the transfer of the shares of this case from the Plaintiff. The assessed value of the shares of this case assessed by the above two accounting corporations based on cash flow is as listed below:

(iv) details of account transactions;

① FFF은 2008. 7. 18. 원고 명의의 QQ은행계좌(110249076152)로 60억원을 입금하였는데, 같은 날 위 60억은 원고 명의의 QQ은행계좌(110024361505)로 이체되었다가 그 중 55억원은 주식회사 RRR 명의의 QQ은행계좌(140008181469)를 거쳐 조SS 명의의 QQ은행계좌(110249133297)로 이체되었고, 5억원은 원고 명의의 위 QQ은행계좌, 주식회사 RRR의 직원인 한TT 명의의 QQ은행계좌(110249192865)를 거쳐 주식회사 RRR의 이사 조SS 명의의 위 QQ은행계좌로 이체되었다. ② FFF은 2008. 7. 22. 원고 명의의 위 QQ은행계좌로 40억원을 입금하였는데, 같은 날 위 40억 중 30억원은 김WW 명의의 VV은행계좌(1002537335986)로, 10억원은 이UU 명의의 QQ은행계좌(110219466950)로 각 이체되었다.

5) Plaintiff’s acquisition, etc. of FF shares

A) On July 18, 2008, the Plaintiff borrowed 6 billion won from SS to 3,000 won per share, 4 billion won, and acquired 3,000,000 equity shares per share on July 22, 2008, 333,3333 equity shares in the FF under his own name on July 23, 2008, and as a result, the Plaintiff was the largest shareholder of FF, and was appointed as the representative director of FF on September 23, 2008.

B) On November 3, 2008, the Plaintiff established a pledge on the FF shares (i.e., 1 million shares in the name of KimW + 2 million shares in the name of SS) acquired by lending the respective titles of KimW and SS to the creditor Domnam Job Creation Association on the BBB on November 3, 2008.

Each entry of evidence Nos. 2, 3, 4, and 3-1, 2, 4, 5, 6, and 9, as the ground for recognition, and the purport of the whole pleadings.

D. Determination

1) Determination as to the assertion of the above A.1

A) Whether the instant transaction price can be seen as pure share transfer price

(1) In a case where shares issued by a company are transferred with the right of management, the transaction price cannot be deemed as the general market price that reflects the objective exchange value when only shares are transferred (see, e.g., Supreme Court Decision 80Nu543, Feb. 23, 1982). This is because the transfer of shares that entail the right of management of a company may have a relatively high price formation compared to the transfer of shares that entail the right of management, it is difficult to view the transfer price as the general market price of the relevant shares.

(2) In the instant case, it is reasonable to view that the Plaintiff continued to hold management rights of BBB only in the form of the Plaintiff, in light of the fact that the FF acquired 3,333,333 shares of FF in the name of the Plaintiff’s name or KimW and SS, and then became the largest shareholder of BBB, and the Plaintiff, the representative director of BBB, was to transfer all shares of BB held by the Plaintiff to FF. However, the Plaintiff, who was the largest shareholder of BBB and the representative director of BB, was to transfer all shares of BBB held by the Plaintiff to FF. However, the transfer price of shares received from FF on the same day, which was the transfer price of shares, became the largest shareholder of FFF within one week from the date of sale of shares of FBBBBBBBB, and then became the largest shareholder of FBBBBBBBB. Accordingly, the transaction price of this case should be deemed to include pure share transfer price.

B) Article 60(1) of the Inheritance Tax and Gift Tax Act provides that "whether the transaction price in this case can be recognized as "the market price"; Article 60(2) provides that "the price of the property on which gift tax is levied shall be determined as of the date of donation;" Article 61(3) provides that "if it is difficult to calculate the market price, the price shall be determined by the methods prescribed in Articles 61 through 65 in consideration of the relevant property, size, transaction circumstances, etc.; and accordingly, Article 63(1)1(c) of the Inheritance Tax and Gift Tax Act; Article 54(1) and (2) provides that "the price of the non-listed stocks shall be determined by the weighted average value of the net asset value of the stocks of the corporation which have been continuously traded from three years before the base date of appraisal to the date of donation; Article 60(4)3 provides that "the price of the above stocks shall be determined by the inheritance tax and Gift Tax Act," Article 63(1)1(3) of the Enforcement Decree of the Inheritance Tax Act provides that the above stocks shall be determined by the net asset value of the company.

O) The cash flow method, which is the method of assessing the shares of this case, by which the Z accounting corporation and the PP accounting corporation requested by the FF, can create a lot of future cash flow with tangible and intangible assets owned by the company in the future. It is inappropriate to view BBB as the market price of the shares of this case as of July 18, 2008, which is the date of entering into the contract of this case. Furthermore, BBB is inappropriate in light of Article 16(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the net asset value of the company as of July 18, 2008, which is the date of entering into the contract of this case, and the net asset value of the company in the year 2005, the net loss in the year 2006, the net loss in the year 2002, the net loss in the year 2006, the net loss in the year 2007, and the net asset value in the year 2007, the net asset value in the shares increases.

C. On January 18, 2008, the ICJ, the largest shareholder of BB, prior to the conclusion of the instant contract, transferred 296,234 shares and management rights of BB owned by the Plaintiff to KRW 13,502 per share. In light of the fact that, in general, in cases where shares and management rights are transferred together, the shares are transferred at a higher price than when only the shares are transferred, it is reasonable to deem that the assessed value of shares of BB as of January 18, 2008 is below KRW 13,502. The Plaintiff asserted that the ICJ would dispose of shares owned by the Plaintiff at a lower price for other investment sources even when the ICJ was under the burden of damages. However, the Plaintiff’s assertion that, on the other hand of the Plaintiff, if the transaction value of the instant shares is justified in consideration of the growth potential of BBBB, the ICJ, the investment expert, is not easily 21,605,250 won or less (B).50

OBB’s capital increase with respect to new shares as of April 18, 2007, and the shares transfer transaction as of September 28, 2007 and April 1, 2008 of HaH from September 28, 2007, at considerable interval from the time of the contract of this case as of April 1, 2008.

O There is no evidence to prove that HaH transferred BBB shares owned by the Plaintiff on April 1, 2008 to KRW 35,110 per share.

Therefore, the plaintiff's above A.1's argument is without merit.

2) Determination as to the assertion of the above A. 2

A) In order to apply the principle of the protection of trust in administrative legal relations, (1) an administrative agency must express its public opinion that is subject to trust to an individual; (2) an administrative agency’s statement of opinion that is justifiable and trusted to an individual is not attributable to the individual; and (3) should have trusted the individual’s statement of opinion; and (4) an administrative agency’s disposition against the statement of opinion that is contrary to the individual’s statement of opinion, thereby infringing the individual’s interest.

B) As to the instant case, even if the Defendant did not impose gift tax with respect to the issue of capital increase issued by BBB on April 18, 2007 and the transfer transaction of shares on September 28, 2007 and April 1, 2008, it cannot be deemed as an expression of public opinion. The Plaintiff’s allegation in paragraph (1) 2 above is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so ordered as per Disposition.

shall be ruled.