In order to recognize the constructive gift for title trust, there should be an agreement on title trust between the actual owner and the nominal owner.

In order to recognize the constructive gift for title trust, there is an agreement between the actual owner and the nominal owner on the nominal trust, which bears the burden of proof to the tax authority.

Donation of title trust property under Article 45-2 of the Inheritance Tax and Gift Tax Act

2017Guhap59642 Revocation of Disposition of Imposition of Gift Tax

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@@세무서장

October 13, 2017

December 1, 2017

1. The Defendant’s disposition of imposition of KRW 188,416,170 (including additional tax 110,821,179) on July 6, 2004 against the Plaintiff on January 4, 2016 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

1. Details of the disposition;

A. From July 12, 1997, the Plaintiff is the representative director of ○○ Construction Industry Co., Ltd. (hereinafter “instant company”).

B. Around August 1995, the Plaintiff: (a) held title trust with 17,500 shares (25% shares) out of 70,000 shares issued by one of the promoters; (b) around November 27, 2001, the instant company allocated 7,500 shares out of 30,000 shares of new shares (25% shares) to BB while offering capital increase around November 27, 2001; (c) the Plaintiff paid the capital increase around that time, and thereafter, (d) held title trust with BB of the said 7,50 shares (hereinafter referred to as “instant shares”).

C. Around that time, as BB died on July 6, 2004, a change of entry was made in the name of CCC (○○ prior to the title of the company) as the heir of the deceased BB (hereinafter “the deceased”). Around December 28, 2004, the instant company offered new shares with capital increase again on and around December 28, 2004, allocated 5,000 shares out of 20,000 shares of new shares (25% shares) to CCC. The Plaintiff paid the capital increase around that time, and thereafter, registered the title of 5,00 shares with CCC.

D. CCC returned the name of the instant shares to the Plaintiff on December 10, 2014, and on November 27, 2001, on or around December 28, 2004, reported and paid gift tax on the shares issued under title trust with respect to 7,500 shares issued under title trust to the Deceased, and 5,000 shares issued under title trust with CCC on or around December 28, 2004.

E. Based on Article 45-2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter referred to as the “former Inheritance Tax and Gift Tax Act”), the Defendant, on July 6, 2004, deemed that a new title trust was made with respect to the instant shares between the Plaintiff and CCC on July 6, 2004, and on January 4, 2016, determined and notified the CCC of the gift tax of 18,416,170 (including additional tax of 110,821,179) on July 6, 2004, and on the same day, designated and notified the Plaintiff as a joint obligor (hereinafter referred to as the “instant disposition”).

F. Accordingly, the Plaintiff filed an objection with the Tax Tribunal on August 26, 2016, but was dismissed on December 26, 2016.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence No. 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The instant disposition that designated the Plaintiff as a joint and several tax obligor by applying the deemed donation provision for the following reasons is unlawful.

1) At the time of the establishment of the instant company, the Plaintiff trusted the instant shares to satisfy the requirements as promoters under the former Commercial Act, and there was no fact of evading the income tax from transfer, dividend, and secondary tax liability or deemed acquisition tax as oligopolistic shareholders through the above title trust, and thus, there was no purpose of tax avoidance.

2) The title trust relation with the instant shares between the Plaintiff and the Deceased is merely a general succession to CCC, the deceased’s heir, due to the death of the deceased, and cannot be deemed to have reached a new title trust agreement with the Plaintiff and CCC on the instant shares at the commencement of inheritance.

3) Even if the provision on deemed donation is applied, the provision on deemed donation is applied in cases where a title trust relationship is comprehensively held due to the death of a title trustee. As such, there is a conflict of view in interpretation as to whether the provision on deemed donation is applied, so that CCC or the Plaintiff was not able to report

(b) Related statutes;

Article 45-2 (Presumption of Donation of Title Trust Property) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

C. Whether the purpose of tax avoidance is recognized

1) In case where the actual owner and the nominal owner are different from the property (excluding land and buildings; hereafter the same shall apply in this Article) which requires a registration, etc. for the transfer or exercise of the right, notwithstanding the provisions of Article 14 of the Framework Act on National Taxes, the value of the property shall be deemed to have been donated to the actual owner by the actual owner on the day (if the property requires a transfer of the right, it refers to the day following the end of the year following the year in which the date of acquisition of ownership falls) on which the actual owner registers, etc. as the nominal owner: Provided, That the same shall not apply to cases falling under any of the following subparagraphs."

The legislative intent of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to effectively prevent the act of tax avoidance using the title trust system, thereby realizing the tax justice. Thus, if the title trust was recognized to have been made for any reason other than the purpose of tax avoidance, and only a minor reduction of tax incidental to the said title trust takes place, it cannot be readily concluded that there was such purpose of tax avoidance. However, in light of the above legislative purpose, only if the purpose of the title trust is not included in the purpose of tax avoidance, it is impossible to determine that there was an intention of tax avoidance by applying the proviso of the above provision. Thus, if it is deemed that there was an intention of tax avoidance, it cannot be said that there was no other purpose of tax avoidance. The burden of proving that there was no purpose of tax avoidance, not the purpose of tax avoidance, can be proven by the method of proving that there was no other purpose of tax avoidance, not the purpose of tax avoidance, but it is obvious that there was no objective and objective purpose of tax avoidance in the title trust or in the future (see Supreme Court Decision 20007Du197.

2) In light of the aforementioned legal principles, it is difficult to recognize that the Plaintiff has a clear purpose other than the purpose of tax evasion at the time of title trust, and it is difficult to deem that the Plaintiff has proved that there was no tax evasion in the future by objective and objective evidence that there was no tax evasion in the future. Therefore, it is difficult to find the Plaintiff to have held the title trust of the instant shares without the purpose of tax evasion, and thus, it is difficult to accept this part of the Plaintiff’s assertion.

A) Article 288 of the former Commercial Act (amended by Act No. 5053, Dec. 29, 1995) which was enforced at the time of the establishment of the instant company (amended by Act No. 5053, Dec. 29, 1995); however, in accordance with Article 288 of the former Commercial Act which was amended by Act No. 5053, Oct. 1, 1996; at least three promoters requirements are three; again, under Article 288 of the former Commercial Act which was amended by Act No. 6488, Jul. 24, 2001, the requirements of promoters were mitigated to one or more persons. However, since at the time of the establishment of the instant company, promoters were 9 (the Plaintiff, the Deceased, ○○○, ○○.) and thus, it is difficult to readily conclude that the Plaintiff continued to engage in title trust with the view of satisfying the requirements of the Plaintiff’s establishment of the instant company, even after the establishment of the company.

B) At the time of the establishment of the instant company, the Plaintiff respectively held a title trust with ○○○, ○○, and ○○○○○, as well as the deceased, and Kim○ is the Plaintiff’s her her her her her her her her her her her her her her her her Kim○, and Kim○. The Plaintiff is a 45,500 shares out of 70,000 shares initially issued by the instant company (Plaintiff 10,500 + 17,500 shares in title trust with the first deceased out of the instant shares + 17,500 shares in title trust with the first deceased + ○○○○○ 2,100 shares + 14,00 shares in title trust with her her her her her her her her her her her her her her her her her her her her her her her her her her her her her her her her her hers her her her her her.

C) In addition, insofar as there is no evidence to prove that there is no economic value of the instant shares or there is no possibility of dividend due to the lack of earned surplus in the instant company, it is reasonable to deem that the Plaintiff could have avoided a considerable portion of the global income tax to which the progressive tax rate applies through the title trust of the instant shares. In light of the aforementioned legal principles, it is reasonable to deem that the purpose of tax avoidance is recognized even if there was no actual

D) Since the Plaintiff appears to have been de facto controlling the instant company as an oligopolistic shareholder and the representative director of the instant company, it appears that the return of the shares held in title trust and the transfer of the title to the instant company could have been made at any time, it cannot be deemed that the Plaintiff maintained the title trust relationship in order to avoid spreading in the process of corporate business management.

D. Whether a title trust agreement exists

1) In order to recognize a deemed donation of title trust pursuant to Article 45-2(1) of the former Inheritance Tax and Gift Tax Act, an agreement on title trust between the actual owner and the nominal owner should exist, and this constitutes a taxation requirement, and thus, the tax authority bears the burden of proof. Furthermore, deeming title trust as a donation under the foregoing provision as a gift is consistent with the substance and name of the property holding and imposing gift tax in order to achieve a policy objective, such as preventing tax avoidance, and imposing gift tax without the substance of the gift. This is a taxation without the existence of an act or fact, which is the inherent basis for imposing tax, and thus, interpretation or expansion of the relevant statutes ought to be strictly avoided when interpreting and applying the relevant statutes (see Supreme Court Decision 2014Du43653, Jan. 12, 2017).

2) In full view of the facts acknowledged earlier in light of the aforementioned legal principles, as seen earlier, and the following circumstances revealed by the respective descriptions of evidence Nos. 2, 3, and 4 and the purport of the entire pleadings, it is difficult to recognize that there was a title trust agreement between the Plaintiff and CCC, the heir of the deceased, around the time of the deceased’s death. Accordingly, the Plaintiff’s assertion pointing this out has merit

A) On the death of a title trustee, the title trust relationship remains in existence between the property heir. As such, CCC naturally succeeds to the title trust relationship, which existed between the Plaintiff and CCC, even though there was no agreement on the title trust on the instant shares between the Plaintiff and the deceased on the death of the deceased. Therefore, even if the Plaintiff had an intention to maintain the title trust relationship on the instant shares after the death of the deceased, it appears that there was no reason to conclude a separate agreement on the title trust agreement with CCC, and the provision on the No. 2 No. 2 of the No.

B) On December 28, 2004, at the time of capital increase with consideration, CCC received the title trust agreement with the Plaintiff on December 28, 2004, since 5,000 shares and the instant shares were separate from each other, it cannot be deemed that there was an agreement on title trust with respect to the instant shares as above 5,00 shares.

C) Following the death of the deceased, transfer of title to the CCC for the instant shares is intended to publicly announce the relation of title trust which was automatically succeeded due to inheritance. It is merely a payment of the inheritance tax on the portion of the instant shares held in title trust, and it is difficult to find that there was a new title trust agreement on the instant shares solely based on the foregoing circumstances.

D) If the provision on deemed donation of the instant shares is applied by deeming that there was a new title trust agreement on the commencement date of the inheritance, the effect of the deemed donation of the original title trust may result in contradictions, and in fact, gift tax is imposed on the same property (in the instant shares, 17,500 shares, which were title trust with the deceased around August 1995, for which the exclusion period for imposition of gift tax expires, and thus, it was not imposed double gift tax, but it is only the result of the system for exclusion period of imposition).

E. Sub-committee

Therefore, as long as the instant disposition is unlawful and the Plaintiff’s claim is accepted, the remainder of the Plaintiff’s assertion regarding the disposition imposing additional tax is not further determined.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.