Whether a gift received by the company can be deemed as a gift subject to taxation due to a rise in the appraised value of the Plaintiff’s shares owned by the company;

The instant disposition imposing gift tax on the Plaintiff by applying Articles 2(3) and 42(1)3 of the Inheritance Tax and Gift Tax Act to the Plaintiff is a disposition that goes beyond the limit of the imposition of gift tax, and there is no evidence to deem that the instant stock transfer company became final and conclusive to receive the gift, and that the disposition imposing gift tax is legitimate, on the grounds that there is no evidence to deem that there is no yet concrete or un

Gift tax under Article 2 of the Inheritance or Gift Tax Act, donation of other profits, etc. under Article 35 of the Inheritance or Gift Tax Act, such as Inheritance or Gift Tax Act, donation of low price or high price transfer

Suwon District Court 2014Guhap58113 Revocation of Disposition of Imposing Gift Tax

KimA

00. Head of tax office

August 25, 2015

November 10, 2015

1. On July 6, 2011, the imposition of each gift tax stated in the “tax amount after reduction or correction” column, which the Defendant made to the Plaintiff on July 6, 201, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. One-third of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Paragraph 1 of Paragraph 1 of the Gu Office and the defendant's imposition of gift tax of KRW 54,302,760 and KRW 32,452,930 on July 5, 201 shall be revoked in entirety.

1. Details of the disposition;

A. BB (hereinafter referred to as “BB”) is a company engaged in software development and service business, and the CCC and DD hold substantial management rights, EEFF and GG are children of CCC, and HH are children of DD.

B. On December 5, 2007, the CCC, EE, FF, GG, DD, HH and JJ (hereinafter referred to as “CCC, etc.”) donated 303,800 shares (which are equivalent to KRW 19,747,00,00) issued by KK (hereinafter referred to as “K”) held by it to BB, and the details are as follows:

C. In addition, on August 19, 2009 and December 31, 2009, CCC and DD donated the total of KRW 57,780,94,959 as follows, and the total of KRW 10,700,000,000,00 in each of the above KK shares, deposit and loan claims (hereinafter referred to as “instant donation”).

D. On November 23, 2007, the Plaintiff acquired 200 shares out of 10,000 shares issued by BB, but on September 15, 2009, transferred 75 shares out of the Plaintiff’s shares to 1,076,500,000 shares in the LLL Co., Ltd. (hereinafter “LL”) which are other shareholders of BB, and transferred 65 shares out of the remaining shares in BB’s shares to MP Co., Ltd. (hereinafter “MM”) which are other shareholders of BB (hereinafter “instant shares transfer”).

E. The Defendant: (a) applied Article 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax and Gift Tax Act”) and Article 31-9(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter the same) on the ground that the capital of BB, which is a corporation, was increased due to the instant donation, and its business contents and organization was changed by BB’s new business on the basis of the said donation; and (b) imposed a gift tax on the Plaintiff on July 6, 2011, stating “the first notice of taxation amount per attached Form” (including additional taxes, hereinafter the same shall apply).

F. In addition, the Defendant: (a) deemed that it is difficult to calculate the ordinary market price of shares subject to transfer in connection with the transfer of shares, and assessed the value per share of the relevant shares as KRW 7,306,724 according to the supplementary assessment method prescribed in Article 63(1)1 (c) of the former Inheritance Tax and Gift Tax Act and Article 54 of the Enforcement Decree thereof; and (b) applied Article 35 of the former Inheritance Tax and Gift Tax Act and Article 26 of the Enforcement Decree thereof on July 5, 201, on the ground that the Plaintiff’s paid amount as consideration for the transfer of shares falls under the case where a donation of high-value shares is made due to a significant increase in the value of shares based on the above valuation amount; and (c) imposed the Plaintiff with gift tax of KRW 54,302,760 (LL) and KRW 32,452,930 (MMM donation) on December 8, 201; (c) the Plaintiff filed a request for a tax adjudication on imposition of additional tax on each of the Plaintiff’s tax return.

H. On July 24, 2014, the Defendant revised the Plaintiff’s gift tax amount related to the instant gift on July 24, 2014 as indicated in the separate sheet of “the details of the Plaintiff’s gift tax after the reduction or correction of the tax amount” (hereinafter the Defendant’s imposition of gift tax as of July 6, 201, reduced the Defendant’s imposition of gift tax as of July 6, 201, and the Defendant’s imposition of gift tax as of July 5, 201, based on the high-value transfer of stocks, was referred to as “the second taxable disposition”).

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, Eul evidence 1 to 4, 12 to 14 (including paper numbers) and the purport of the whole pleadings

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

A. The plaintiff's assertion

1) With respect to the first taxation disposition, although the assets of BB were increased due to the instant donation, but it cannot be deemed that the capital or organization of BB was changed. Thus, the Defendant calculated the value of donated property to the Plaintiff by applying Article 42(1)3 of the former Inheritance Tax and Gift Tax Act by deeming that the capital and organization of BB was changed due to the instant donation, and thus, it is unlawful for the Defendant to impose the first taxation on the Plaintiff.

2) With respect to the second taxable disposition, the value of the shares issued by BB was continuously increased due to the increase in net assets at the time of the transfer of the shares, and such trend is anticipated to continue in the future. This is the case where the price of the shares subject to transfer was determined based on the ordinary market price, comprehensively considering the impact of the transfer of shares on the management right. Thus, the Defendant’s second taxable disposition regarding the transfer of shares at the time of the transfer of the shares was unlawful.

B. Relevant statutes

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

C. Determination

1) Article 42(1)3 of the former Inheritance Tax and Gift Tax Act provides, with respect to the method of calculating the value of donated property, which serves as the basis for calculating the amount of gift tax with respect to the claim for revocation of the first taxation, that where profits are accrued from the transactions that increase or decrease the capital (including the amount of investment) of a corporation, such as investment, reduction of capital, merger and division, conversion, acceptance, exchange of convertible bonds, etc. (hereinafter “stock conversion, etc.”) or gains from the change of ownership shares or the value of the corporation due to the change of organization, etc., the relevant profits shall be the value of donated property of the person who has acquired such profits. In this case, the relevant profits shall be the value calculated by subtracting the value of the stock conversion, etc. from the value of the stock at the time of stock conversion, etc. in the case of the conversion of stocks, etc., and in other cases, the appraised value of the relevant property shall be the value before or after the change of shares, etc., or in the case that the amount is above the value of shares before or after the conversion.

In light of the above provisions of the above Acts and subordinate statutes, the following circumstances, which can be known through the overall purport of statement as to this case's health class, Eul evidence Nos. 2, 3, 5 through 14 and the entire pleadings, i.e., (i) the donation of this case by CCC et al., (ii) the donation of financial assets such as deposit and stocks to BB, and does not fall under the capital transaction that causes assets increase or decrease in BB's capital; and (ii) the earned surplus of BB through the donation of this case can not be deemed as the result of the capital transaction in itself, as it is generated from the profit and loss transaction. However, although the earned surplus can be converted into capital in the future, it is entirely separate from the original profit and loss transaction; (iii) there is no fact that BB transferred profits acquired from the donation of this case's capital; and (iv) there is no change in the business or exchange of corporation's business to the extent that Article 42 (1) 3 of the former Inheritance Tax and Gift Tax Act provides for change in the value of the corporation, and it can not be deemed as the change in the company's.

It is reasonable to see that the gift of this case is caused by Dong, and 4. However, the gift of this case is merely a mere donation of stocks or bonds by CCC, etc., and as a result, it is difficult to deem that the transfer of business, business exchange, any change in business contents to the extent corresponding to the organizational change of the corporation, or any change in the corporate form, etc. is caused by the change in the corporate form, etc. in addition to the increase in the asset value of BB, the gift of this case cannot be deemed to have increased or decreased BB's capital or changed its business organization. Thus, Article 42 (1) 3 of the former Inheritance Tax and Gift Tax Act shall not apply in calculating the value of donated property to the plaintiff. Accordingly, the first taxation disposition by the defendant

2) As to the claim for revocation of the second taxation disposition

A) Article 35(2) of the former Inheritance Tax and Gift Tax Act provides that "in case where a property is transferred between a person without a special relationship at a remarkably higher price than the market price without any justifiable reason, the amount equivalent to the difference between the price and the market price shall be presumed to be a donation and the amount equivalent to the profits prescribed by the Presidential Decree shall be deemed to be the value of the property donated to the person who has obtained such profits." Article 26(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "in case where the market price is 30/10 or more of the market price of the transferred property, the value calculated by subtracting the market price from the price of the transferred asset is 30/100 or more of the market price," and Article 35(7) of the same Act provides that "the profits prescribed by the Presidential Decree" shall mean the value calculated by subtracting 300 million won from the market price.

On the other hand, the first sentence of Article 60 (1) of the former Inheritance Tax and Gift Tax Act provides that "the value of the property on which gift tax is levied shall be based on the market price as of the date of donation," and Paragraph (2) of the same Article provides that "the market price under paragraph (1) shall be the value which is generally deemed to be established in the case of free transaction between many and unspecified persons, and

In the application of the provision of Paragraph 1, "if it is difficult to calculate the market price in the application of the provision of Paragraph 1, it shall be based on the value assessed by the method prescribed in Articles 61 through 65 in consideration of the type, size, transaction situation, etc. of the property in question."

Article 60(2) of the former Inheritance Tax and Gift Tax Act provides that “The value assessed by the methods prescribed in Articles 61 through 65 of the former Inheritance Tax and Gift Tax Act shall be the market value, which is the basis for calculating the value of the property on which the gift tax is levied, and the value assessed by the methods prescribed in Article 61 through 65 of the former Inheritance Tax and Gift Tax Act shall be deemed as the basis for determining whether the gift tax is imposed pursuant to Article 35(2) of the former Inheritance Tax and Gift Tax Act, in full view of the following: (a) there is no other provision as to the definition of the market value under the latter Inheritance Tax and Gift Tax Act, as an alternative to the case where it is difficult to calculate the market value under Article 60(3) of the latter Inheritance Tax and Gift Tax Act; and (b) and (c) the former Inheritance Tax and Gift Tax Act provides the method of reasonably estimating the market value (see, e.g., Supreme Court Decision 2012Du3200, Jun. 14, 2012).

B) In light of the above legal principles and the provisions of the laws, it is reasonable to view that the Plaintiff’s transfer price of shares was 70 billion won or 70 billion won as the transfer price of shares under Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Article 54 of the Enforcement Decree of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (including the serial number) as the whole, and the following circumstances, i.e., the shareholder of BB at the time of the transfer of shares was 30 billion won or less, and the shares issued by BB at the time of the transfer of shares were non-listed shares, and thus, it cannot be deemed that the transfer price of shares was 50 billion won or less, and thus, it is reasonable to view that the Plaintiff had no reasonable exchange value as to the shares issued by BB at the time of the transfer of shares, and thus, it is reasonable to view that the transfer price of shares was 50 billion won or more than the market price of shares at the time of the transfer of shares.

3. Conclusion

Therefore, the plaintiff's claim is justified within the scope of the above recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.