Plaintiff (Law Firm LLC, Attorneys Gyeong-soo et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

October 7, 2014

Seoul Administrative Court Decision 2012Guhap5022 decided December 6, 2013

1. The plaintiff's appeal is dismissed.

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

The judgment of the court of first instance is revoked, and each disposition of imposition of additional tax as stated in the separate sheet as of August 4, 2010, which the defendant issued to the plaintiff, is revoked.

1. Quotation of judgment of the first instance;

The reasoning for the court's explanation on this case is that the "10% discount rate" under the second 10% of the judgment of the court of first instance is "30% discount rate", and the fourth 6th 6th / [based on recognition] is added "A evidence 10", and 2-A. (4) and (6) of the plaintiff's assertion related to the legitimacy of the disposition of this case, and 2-4 (d) and (6) of the part of the judgment of the court of first instance, other than the following, are the same as the part of the reasoning for the judgment of the court of first instance. Thus, this is cited in accordance with Article 8 (2) of the Administrative Litigation Act, the main sentence of Article 420 of the Civil Procedure Act, and Article 420 of the Civil Procedure Act.

2. The part to be mard;

A. 2.-A. The plaintiff's assertion in the part of paragraph (4)

(4) Allocation of shares by means of a public offering of new securities

The first capital increase was implemented as a method of securities offering under the Securities and Exchange Act; the forfeited stocks were allocated to the Plaintiff with the first capital increase; the forfeited stocks were allocated to less than 50 persons; the forfeited stocks were not solicited to subscribe for less than 50 persons; however, the deposited contract was not concluded to withdraw or not sell the forfeited stocks for one year from the date of deposit; and the forfeited stocks were listed immediately after the capital increase and could have been transferred to not less than 50 persons within one year from the date of issuance; thus, the allocation of forfeited stocks constitutes a public offering of securities under Article 2(3) of the Securities and Exchange Act, and thus, gift tax cannot be imposed pursuant to Article 39(1)1 of the Inheritance and Gift Tax Act.

B. 2-A. The plaintiff's assertion on the part of paragraph (6)

(6) unconstitutionality of Articles 39(1)1 and 39(2) of the Inheritance and Gift Tax Act

Article 39(1)1 of the Inheritance and Gift Tax Act provides that the gift tax shall be calculated on the basis of “the subscription date” when calculating the value of donated property. However, the Securities and Exchange Act provides compulsory provisions regarding the procedures for issuing new shares, such as determining the value of the shares by the board of directors based on the resolution date. Therefore, as the board of directors could not predict the value of the new shares issued in order not to impose gift tax pursuant to the Inheritance and Gift Tax Act at the time of the resolution of the board of directors on the issuance of new shares, this would violate the principle of no taxation without the law. In addition, when the new shares issued pursuant to the procedures for issuing new shares pursuant to the Securities and Exchange Act and the Securities and Exchange Act and the Enforcement Decree thereof, the gift tax shall not be levied on the new shares issued pursuant to the Securities and Exchange Act, while the new shares issued pursuant to the

Article 39(2) of the Inheritance and Gift Tax Act provides that where there are not less than two minority shareholders with respect to the calculation of the gains from donation through capital increase with consideration for the convenience of taxation, the profits shall be calculated by deeming that one of the minority shareholders has renounced or insufficient allocation. The taxpayer bears more gift tax than the case where the actual gains from donation are calculated individually by donor with taxation pursuant to such provision, and the taxpayer did not choose a method of minimizing taxpayers’ damage, such as the method of imposing gift tax by deeming that the total amount of gains from donation is divided by the number of minority shareholders, and that the gift tax is imposed by deeming that the

For this reason, Articles 39(1)1 and 39(2) of the Inheritance and Gift Tax Act are unconstitutional, and the disposition of this case based on this is unlawful.

C. 2-D. 4 Judgment on the part of paragraph (4)

(4) As to the allotment of shares by means of a public offering of new securities

(A) Non-taxation of gift tax on deemed public offering under the Securities and Exchange Act

Article 39(1)1 (a) of the Inheritance and Gift Tax Act provides that “in cases where new stocks are issued at a price lower than the market price, where a shareholder of the relevant corporation waives all or part of the right to receive allocation of new stocks, and where such renounced new stocks are allocated, the gift tax shall be imposed by deeming the benefits acquired by obtaining allocation of forfeited stocks as the value of donated property by the person who received allocation of forfeited stocks.” The comprehensive title in Article 39(1)1 (a) of the Securities and Exchange Act (hereinafter “instant comprehensive title provision”) provides that, within the scope of “distribution” under the same subparagraph, a stock-listed corporation or an Association-registered corporation under the Securities and Exchange Act (amended by Act No. 7114 of Jan. 29, 2004, the name was changed to the KOSDAQ-listed corporation; hereinafter “corporation-listed corporation” in combination with the stock-listed corporation) is excluded from the method of offering securities under Article 2(3) of the same Act, so that even if such new stocks are directly higher than the market price, gift tax shall not be imposed.

Meanwhile, Article 2 (3) of the Securities and Exchange Act provides that "the public offering of new securities shall be made pursuant to the Presidential Decree." Article 2-4 (1) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20551, Jan. 18, 2008; hereinafter "Enforcement Decree of the Securities and Exchange Act") provides that "the number of persons who are solicited to subscribe to new securities shall be not less than 50 persons in the public offering of new securities in accordance with Article 2 (3) of the Act." Paragraph (4) of the same Article provides that " even if the number of persons who are solicited to subscribe as a result of the calculation under paragraph (3) of this Article is less than 50 and who are 50 persons or more, do not constitute the public offering of new securities, the securities concerned may be transferred to not less than 50 persons within 1 year from the date of issuance, and it shall be deemed that the securities concerned meet the standards for public offering of new securities under Article 20-4 (1) of the former Securities and Exchange Act (amended by the Financial Supervisory Commission).

In light of the above provisions, where a listed corporation issues new shares in accordance with the method of public offering of new shares under the Securities and Exchange Act, the overall provision of this case requires the public announcement of the matters regarding the issuance thereof, and in principle, requires the issuance price close to the price formed on the securities market, etc. (Articles 53 and 57 of the Securities and Exchange Regulations). In addition, considering the fact that it is inevitable for the listed corporation to raise funds through public offering of new shares in the securities market, etc., the issuance price of new shares shall be reduced to a certain degree under the method of public offering of new shares prescribed by the Securities and Exchange Act, the provision of Article 2-4 (4) of the Enforcement Decree of the Securities and Exchange Act provides that no gift tax shall be imposed even if an underwriter gains profits by determining the issue price of new shares at a lower level than the market price. In light of Article 2-2 (3) of the Enforcement Decree of the Securities and Exchange Act and Article 2-4 (4) of the Securities and Exchange Act, it is reasonable to interpret the above provision as one of the legislative provisions of Article 4 of the Securities and Exchange Act.

(b) In the case of a third party allocation award, the requirements for deemed solicitation under the Securities and Exchange Act and the Decree.

As seen earlier, even if the number of persons who are solicited to subscribe is less than 50 persons, if there is a possibility of resale to not less than 50 persons within one year (Article 2-4(4) of the Enforcement Decree of the Securities and Exchange Act), it constitutes deemed public offering if there is a possibility of deemed public offering (Article 2-4(4) of the Enforcement Decree of the Securities and Exchange Act), stock certificates or preemptive rights certificates of the same kind, and stock certificates or preemptive rights certificates of the same kind are listed, listed on the securities market, the relevant securities may be transferred to not less than 50 persons within one year from the date of issuance pursuant to Article 2-4(4) of the Enforcement Decree of the Securities and Exchange Act. However, if the securities are immediately deposited in the Korea Securities Depository after the issuance of the securities, and the deposit contract with the Korea Securities Depository to not withdraw or sell the relevant securities for one year from the date of deposit, it

On the other hand, where a stock-listed corporation, etc. issues new shares through market price issuance, the issue price shall be calculated by applying the discount rate set by the stock-listed corporation, etc. to the theoretical right holders or the base price. In this case, the issue price for new shares issued through the third party allotment method shall be set within 10/100 of the discount rate (Article 57(2) of the Securities Issuance Regulation

(C) Whether the Plaintiff’s acquisition of forfeited shares related to the primary capital increase with consideration is exempt from gift tax

As seen earlier, the Plaintiff did not enter into a deposit contract with the intent to withdraw or not sell the forfeited stocks due to the first capital increase for a certain period from the date of deposit. According to the evidence No. 11, it is acknowledged that the first capital increase shares related to the first capital increase was listed on June 19, 2007. Thus, it may be acknowledged that the Plaintiff’s acquisition of the first capital increase from the new capital increase is likely to resell to at least 50 persons within one year from the date of the issuance of the new stocks. However, as seen earlier, the first capital increase was set at 30% in the case of the first capital increase, and the Plaintiff acquired the forfeited stocks after being allocated at 10% in the case of the third party capital increase, and thus, it is contrary to Article 57(2) of the Securities and Exchange Act that limits the discount rate to 10% in the case of the third party capital increase, it cannot be deemed that the Plaintiff acquired the forfeited stocks by being allocated by a third party capital increase in the process of the first capital increase cannot be deemed to constitute the forfeited stocks under the Securities and Exchange Act.

Therefore, the first-party plaintiff's assertion on a different premise is without merit.

D. 2-D. Judgment on the part of paragraph (6)

(6) As to the unconstitutionality of Articles 39(1)1 and 39(2) of the Inheritance and Gift Tax Act

(A) Whether Article 39(1)1 of the Inheritance and Gift Tax Act is unconstitutional

Article 39 (1) 1 of the Inheritance and Gift Tax Act provides that in case where a corporation issues new stocks or equity shares at a price lower than the market price (the price assessed by Articles 60 and 63 of the Inheritance and Gift Tax Act) in order to increase its capital, a shareholder or a third party does not allocate the profits or forfeited stocks to be acquired by obtaining the allocation of forfeited stocks, the gift tax shall be imposed on the profits that a person having a special relationship with a person who has renounced preemptive rights does not acquire by acquiring new stocks as the value of donated property.

In full view of the following reasons, Article 39(1)1 of the Inheritance and Gift Tax Act cannot be deemed as a violation of the principle of no taxation without the law to guarantee the legal stability and predictability in the economic life of the people, and it cannot be deemed as a violation of the principle of no taxation without the law.

① Under the principle of substantial taxation that the Inheritance Tax and Gift Tax Act adopts the complete comprehensive taxation of the gift tax by Act No. 7010 on December 30, 2003 to the effect that in order to ensure the fairness of tax burden, the gift tax is imposed by deeming the transfer of tangible and intangible property, regardless of the name, form, purpose, etc. of such act or transaction, without compensation, to a third party in a direct or indirect manner (Article 2(3) of the Inheritance Tax and Gift Tax Act). In the same purport, if the transfer of tangible and intangible property is made without compensation depending on whether forfeited stocks are allocated in the process of capital increase with consideration, it is necessary to levy the gift tax corresponding thereto.

② Article 423(1) of the Commercial Act provides that a person who has subscribed to new shares shall have the right and duty of a shareholder from the date following the due date when he/she has paid the subscription price or paid the contribution in kind, and Article 60(1) of the Inheritance Tax and Gift Tax Act provides that the value of the property subject to gift tax shall be based on the market price as of the date of donation. The date of donation related to the increase in the capital means the date of payment of the subscription price. The Securities and Exchange Act provides that the discount rate of up to 30% shall apply to the market price when the board of directors determines the amount of issuance of new shares (Article 57(2) of the Securities and Exchange Act). A person who has forfeited the forfeited share who pays the subscription price at the time of the resolution of the board of directors may fully recognize that the other shareholders who have waived

③ Since there exists time interval to some extent between the resolution date of resolution by the board of directors and the date of payment for shares, where the share price sharply rise between the resolution date of resolution by the board of directors and the date of payment for share price, there may be cases where the gift tax, which was unexpected by the person to whom new shares are allocated, is to be borne. However, in cases of the property whose market price changes from time to time due to its characteristics, it is rather difficult to calculate the amount of gift tax before the date of donation, and in such cases, there

(4) Article 39 (1) 1 (a) of the Inheritance and Gift Tax Act provides that, with respect to the allocation of forfeited stocks, in cases of allocating forfeited stocks pursuant to the procedures for public offering under the Securities and Exchange Act and subordinate statutes, the allocation of forfeited stocks shall not be subject to gift tax, so that no unexpected burden of gift tax shall accrue with respect to the increase in capital where compliance with the Securities

⑤ Such special cases of non-taxation differ from the case where the subscription procedure under the Securities and Exchange Act does not go through the subscription procedure and the case where gift tax is levied. However, the issuance of new stocks according to the subscription procedure under the Securities and Exchange Act and the case where a large number of unspecified people participate in the process of fair competition in the Korea Stock Exchange or Association brokerage market, and thus, there is a risk of free transfer of stocks, and thus, it is difficult

Therefore, this part of the Plaintiff’s assertion on a different premise is without merit.

(B) Whether Article 39(2) of the Inheritance and Gift Tax Act is unconstitutional

Article 39(2) of the Inheritance and Gift Tax Act provides that when there are not less than 2 minor shareholders who renounced the right to receive new shares in calculating the donation profits by applying Article 39(1)1 of the Inheritance and Gift Tax Act, if there are not less than 2 minor shareholders who obtained the allocation under equal conditions in proportion to the number of their shares, one minor shareholder shall be deemed to have renounced or obtained the allocation insufficiently.

In full view of the reasons to be seen below, Article 39(2) of the Inheritance and Gift Tax Act is difficult to see that the method to minimize the taxpayer’s damage is against the excessive prohibition principle without considering the method to minimize the taxpayer’s damage, and it is also difficult to see that it is against the principle of tax equality.

① As seen earlier, if there is transfer of property without consideration depending on whether forfeited stocks were allocated in the process of capital increase with consideration, it is necessary to levy gift tax corresponding thereto.

② The purport of Article 39(2) of the Inheritance Tax and Gift Tax Act is that where minority shareholders renounce their subscription to new shares, it is practically difficult to calculate the donation amount for each donor, unlike the case where those who are not minority shareholders renounce their preemptive rights, and it is practically difficult to calculate the donation amount by each donor.

③ Article 39(3) of the Inheritance and Gift Tax Act provides that the scope of a minor shareholder shall be determined by the Presidential Decree to a reasonable extent so as not to cause excessive consequences by restricting the scope of application. Accordingly, Article 29(2) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that the scope of application shall be limited to “a shareholder who holds less than 1/100 of the total number of outstanding stocks, etc. of the relevant corporation and whose total amount of face value of stocks, etc. is less than 300 million won,”

Therefore, this part of the prior plaintiff's assertion is without merit on different premises.

3. Conclusion

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

[Attachment]

Judges Lee Jong-hun (Presiding Judge) (Presiding Judge)