Plaintiff (Law Firm Gyeong & Yang, Attorneys Han-ho et al., Counsel for the plaintiff-appellant)

Head of Eastern Tax Office

December 29, 2008

1. The Defendant’s imposition of capital gains tax of KRW 143,94,040 against the Plaintiff on June 10, 2006 shall be revoked.

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 January 25, 1994, the Plaintiff and Nonparty 1 completed the registration of ownership transfer with respect to one-half of each of the lands listed in the separate sheet Nos. 1 and 2. Around 1995, the Plaintiff and Nonparty 1 newly constructed the third building listed in the separate sheet on each of the above lands and completed the registration of ownership transfer with respect to each of the 1/2 shares on May 16, 1995.

B. On June 7, 2001, the Plaintiff obtained the establishment of the right to collateral security (the maximum amount of claim 600 million won) as to the portion of Nonparty 1’s share in the building Nos. 1, 2, and 3 (hereinafter “the instant real estate”), and filed an application for voluntary auction based on the said right to collateral security. As a result, on April 19, 2002, the Plaintiff voluntarily rendered a decision to commence the auction as Seoul District Court 2002 other,859. The Plaintiff acquired the Plaintiff’s share on November 29, 2002, as the purchase price was determined as the purchaser during the voluntary auction procedure and the decision to permit the sale became final and conclusive.

C. On December 4, 2002, the Plaintiff completed the registration of transfer of ownership on the instant real estate to Nonparty 2 and 3 on September 6, 2002.

D. On December 11, 2002, the Plaintiff: (a) transferred the instant real estate to Nonparty 2 and 3 with the purchase price of 2.2 billion won; (b) there was no transfer margin as a result of calculating the transfer margin by using the transfer value and the acquisition value as the standard market price for the portion of the Plaintiff’s shares of the instant real estate; and (c) the transfer value and the acquisition value as the actual transaction value (725 million won for the transfer value; 713 million won for the acquisition value; 41,354,00 won for necessary expenses) were deemed to have no transfer margin; and (d) did not pay the transfer income tax for the transfer of the instant real estate on the ground that there was no transfer margin.

E. On June 10, 2006, the Defendant deemed that the Plaintiff acquired Nonparty 1’s share in the instant real estate at KRW 713 billion and transferred it to KRW 1.1 billion, and determined and notified the transfer income tax of KRW 143,94,040.

[Ground of recognition] Facts without dispute, Gap 1, 3, 11 evidence, Eul 1 evidence, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

In a situation where Nonparty 1 was unable to repay a large amount of debt, and Nonparty 1’s share was provisionally seized. Accordingly, the Plaintiff filed an application for voluntary auction with Nonparty 1 on the basis of the right to collateral security set up for Nonparty 1’s share, and subsequently, at the auction procedure, sold the instant real estate to Nonparty 1 and agreed to sell the instant real estate to the third party and divide the purchase price into one half. According to such agreement, the Plaintiff was awarded a successful bid in the auction procedure, while selling the instant real estate to Nonparty 2 and 3 along with Nonparty 1 and received the purchase price. Accordingly, the Plaintiff still sold the instant real estate to Nonparty 2 and 2.2 billion won. Accordingly, the instant disposition against the Plaintiff, the title trustee under the substance over form principle, was unlawful.

(b) Related statutes;

【National Tax Basic Act

Article 14 (Real Taxation)

(1) If the ownership of the income, profit, property, act or transaction subject to taxation is merely nominal, and there is another person to whom it actually belongs, the tax-related Acts shall apply to such person to whom it actually belongs as a taxpayer.

C. Determination

(1) Facts of recognition

(A) On March 6, 1995, upon Nonparty 1’s request, the Plaintiff: (a) granted to Nonparty 4 Co., Ltd. the right to collateral security of KRW 260 million with respect to the entire real estate of this case including the Plaintiff’s share; (b) on June 23, 1999, the right to collateral security of KRW 360 million with respect to the non-party 5 bank; and (c) on June 23, 1999, the Plaintiff created the right to collateral security of KRW 360 million with respect to the non-party 1’s share with respect to the claim for reimbursement, etc.

(B) Around January 18, 2002, the share of Nonparty 1 was provisionally seized based on the claim claim amounting to Nonparty 6 Co. 1 against Nonparty 1. Accordingly, the Plaintiff and Nonparty 1 agreed with the following contents: ① selling the instant real estate and dividing the purchase price by 1/2. ② In order to cancel the right to collateral security, etc. established on the instant real estate, the right to collateral security in the Plaintiff’s name shall be exercised, but the Plaintiff is awarded a successful bid in the auction procedure.”

(C) As a result of the Plaintiff’s voluntary auction of Nonparty 1’s share based on the right to collateral security under his name, the decision of voluntary auction was made on April 19, 2002, and the voluntary auction procedure was in progress. On September 6, 2002, the Plaintiff and Nonparty 1 concluded a sales contract with Nonparty 2 and 3 on the price for the instant real estate as 2.2 billion won. Meanwhile, on November 29, 2002, the Plaintiff was determined as the purchaser in the voluntary auction procedure and was decided to permit the sale of the real estate, and the sale price was paid on November 29, 2002 (the sales price was paid by Nonparty 1, 60 million won less the amount to be distributed to Nonparty 1, a mortgagee, out of KRW 713 billion). On November 30, 2002, the Plaintiff completed the ownership transfer registration for Nonparty 1’s share on December 30, 2002, and completed the ownership transfer registration for the entire real estate on December 23, 2006.

(D) On September 6, 2002, Nonparty 2 and 3 paid the down payment of KRW 150 million on October 7, 2002, the intermediate payment of KRW 300 million on November 30, 2002, and the remainder of KRW 1.75 billion on November 30, 2002, and paid the purchase price of KRW 2.2 billion. However, the Plaintiff received KRW 1.12 billion out of the down payment and the remainder of KRW 75 billion, and received KRW 1.12 billion in total, and Nonparty 1 received KRW 75 million out of the down payment and KRW 713 billion in the intermediate payment and KRW 1.2 million in the remainder.

[Reasons for Recognition] Each entry of Gap 3 through 18 (including a paper number), the testimony of the witness non-party 1, the purport of the whole pleadings

(2) The following facts are acknowledged based on the above facts. In other words, in light of the fact that the Plaintiff was awarded shares in Nonparty 1 during the voluntary auction procedure and completed the registration of ownership transfer, but the sales price was paid by Nonparty 1, and that the Plaintiff and Nonparty 1 divided the sales price paid to Nonparty 2 and Nonparty 3 by approximately 1/2, it is reasonable to deem that the actual owner of the capital gains from the portion of the instant real estate, which was Nonparty 1, is Nonparty 1, and the Plaintiff was merely the person who became the registration of ownership transfer in form. As such, in light of the principle of substantial taxation under Article 14(1) of the Framework Act on National Taxes, the capital gains tax following the transfer of the portion of the instant real estate, which was Nonparty 1’s shares, is not the Plaintiff, but Nonparty 1.

3. Conclusion

Therefore, the plaintiff's claim seeking the cancellation of the disposition of this case is accepted for reasons.

[Attachment List omitted]

Judges Park Jong-chul