Seoul High Court Decision 2015No456 ( October 23, 2017)

The imposition of gift tax on title trust for the tax avoidance of the instant shares is legitimate.

As long as the acceptance price of each of the above shares is paid in the name of the plaintiffs and the right to such payment belongs to the above plaintiffs in appearance, regardless of whether the acquisition of new shares satisfies the taxation requirements for constructive gift of title trust under Article 45-2 (1) of the former Inheritance Tax and Gift Tax Act, the plaintiffs' above assertion is groundless

Article 45-2 of the Inheritance Tax and Gift Tax Act

The revocation of revocation of imposition of gift tax by Suwon District Court 2017Guhap65075

EOO

O Head of the tax office

2017.26

oly 31, 2017

1. The plaintiffs' claims against the defendants are all dismissed.

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

Cheong-gu Office

Defendantq director of the tax office’s aggregate of KRW 162,40,60 of the gift tax on July 31, 200 on Plaintiff Er and Ett (including additional taxes), KRW 1,849,212,230 of the gift tax on December 29, 2005 (including additional taxes), KRW 518,761,890 of the gift tax on February 14, 2006, KRW 2,530,379,720 of the Head of the tax office’s aggregate of KRW 2,530,779,720 of the gift tax on May 7, 2015, and KRW 50,86, KRW 160 of the gift tax on Plaintiff Eu and Et (including additional taxes), KRW 50,86,160, KRW 160, KRW 1685,205, KRW 1685,205, etc. of the gift tax on each of the head of the tax office’s.

1. Details of the disposition;

A. On March 6, 1996, PPST Co., Ltd. was a corporation incorporated for the purpose of solicitation with the sale of electronic parts wholesale and retail sales business as of March 6, 1996, and its trade name was changed to a AAAST Co., Ltd. (hereinafter referred to as the “instant company”). At the time of its establishment, the details such as the number of shareholders and the number of acquired shares in the shareholders’ list (Evidence A2) submitted to the tax authority at the time of its establishment are as follows. On the other hand, Eyy is the spouse of the Plaintifft and Eyy is the spouse of the Plaintifft, Plaintiff Ehr and Ehu is the wife.

B. On the other hand, the details of the change of shareholders are as follows in light of the statement on the change of stocks of the instant company.

C. On February 25, 2015 to March 26, 2015, the commissioner of the e Regional Tax Office confirmed that the shares of the company of this case (hereinafter referred to as "each shares of this case") additionally allocated through the Plaintiff Ett to receive title trust, as stated in the above paragraph (b), and notified the Defendants of Err and Eu to confirm that the shares of the company of this case (hereinafter referred to as "each shares of this case") additionally received through the Plaintiff Ett to receive title trust as of July 31, 200, Dec. 29, 2005, and February 14, 2006 (hereinafter referred to as "each shares of this case").

D. Pursuant to Article 45-2(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act"), the head of the defendantqq tax office, on June 1, 2015, designated the Plaintiff Emr totaling KRW 2,530,379,720 (=162,405,600 related to the donation as of July 31, 200 + KRW 1,849,212,230 related to the donation as of December 29, 200 + KRW 208, KRW 160, KRW 750 related to the gift as of February 14, 200, KRW 208, KRW 7506, KRW 700 related to the gift as of February 14, 2006.

E. On August 5, 2015, the Plaintiffs appealed and filed a request for review to the Board of Audit and Inspection, but the Board of Audit and Inspection was the same.

On February 28, 2017, the decision to dismiss the claim was made.

Facts without any dispute, Gap's 1 through 7, 9, Eul's 1 and 8 (including virtual numbers), the purport of the whole pleadings, and the purport of the whole pleadings.

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

A. The plaintiffs' assertion

For the following reasons, each of the dispositions against the Defendants against the Plaintiffs is unlawful.

1) The allegation of illegality of a taxation disposition based on the statement of changes in stocks

Article 45-2(3) of the former Inheritance Tax and Gift Tax Act (hereinafter referred to as the “instant legal provision”) that allows a transfer of ownership based on the detailed statement of changes in stocks, etc. on the premise that a transfer of ownership can not be made because a list of shareholders exists, which was submitted to the tax authority at the time of incorporation of the instant company.

In addition, the legal provisions of this case are applied from the portion of submitting a statement of change of stocks, etc. that is entered as the change of shareholder name after January 1, 2004, when the inheritance tax and gift tax were amended by Act No. 7010 on December 30, 2003. Thus, the legal provisions of this case cannot be applied retroactively to the first capital increase for new shares of the company of this case.

2) Non-existence of the purpose of tax avoidance

In order to satisfy the number of promoters under the Commercial Act at the time of the incorporation of the instant company, the title trust was made to satisfy the number of promoters under the Commercial Act, and the existing next shareholders acquired each of the instant shares due to the issuance of preemptive rights according to the previous shares held, and the first and second capital increase was made to raise funds related to the construction of a factory (No. 10, 11). The third capital increase was made pursuant to the requirement that the instant company should make capital more than 900,000,000, when concluding a supply contract with the Japanesezzzzz agent on February 14, 2006. The amount of additional tax on global income pursuant to the tax rate by separate taxation on financial income was due to the calculation method of financial income unrelated to the progressive tax evasion, and the amount of additional tax on global income pursuant to the tax rate was not predicted at the time of the title trust, and it cannot be deemed that the Plaintiffs were merely the oligopolistic shareholders to evade the secondary tax payment liability due to the oligopolistic shareholders at the time of the establishment of the instant company.

B. Relevant statutes

[Attachment] The entry in the relevant statutes is as follows.

(c) Fact of recognition;

1) The instant company paid cash dividends to Plaintiffs Er and Eu according to the shareholding ratio as follows. From 2004 to 2008, the exclusion period for imposition of dividend income to Plaintiff Er and Er, the total amount of KRW 13,300,000,000 from 2004 to 2008, was omitted when calculating the global income tax by adding the dividend income of Plaintiff Et to the dividend income of Plaintiff Et.

2) From 2010 to 2012, Plaintifft immediately recovered the total amount of KRW 2,92,00,000,000 from the instant company’s dividend income (i) received by Plaintiff Er and Euu from 2010 to 2012. In the event that the said dividend income is added to Plaintiff Et’s dividend income, the amount of KRW 146,201,270,00 global income tax (i.e., KRW 35,773,540, + KRW 31,119,160 + KRW 79,308,570 in 201) is calculated to increase in the amount of KRW 31,119,160 in + KRW 79,308,570 in 2012, following the instant investigation

3) The earned surplus from 2002 to 2015 of the instant company is as follows. The instant company appears to have no record of delinquency in national taxes, etc. as of June 17, 2017.

4) Meanwhile, on December 27, 2012, Plaintiff Pu reported KRW 51,540,320 of the capital gains tax on January 24, 2013, on which Plaintiff Pu deemed that 2,160 of the shares he/she owned were transferred to Plaintiff Pt (son). However, the Defendant deemed this as a bypass donation and notified the Defendant of KRW 170,872,840 of the gift tax on May 11, 2015.

Facts that there is no dispute with recognition, Gap evidence 12, Eul evidence 3 through 8 (including paper numbers), the purport of the whole pleadings, and the purport of the whole pleadings.

D. Determination

1) Determination on the first argument

A) The transfer of registered shares cannot be asserted against the company unless the acquisitor’s name and address are entered in the register of shareholders. Thus, insofar as a transfer is not made in the name of another person who is not an actual owner of shares in the register of shareholders, it cannot be deemed that, in principle, the actual owner and the nominal owner are different in the property requiring a transfer of ownership or exercise of rights, etc. (see, e.g., Supreme Court Decision 2003Du13762, Feb. 27, 2004).

However, unlike Article 337(1) of the former Commercial Act (amended by Act No. 12591, May 20, 2014), in cases of subscription to new shares, the rights and obligations of shareholders are created from the date following the due date of payment when the underwriter of new shares pays the subscription price on the due date under Article 423(1) of the Commercial Act. Therefore, even if the subscription price has not been issued and the shareholder registry has not been kept in the company, and the acquisition of new shares is not stated on the issue of the new shares, there is no difficulty in exercising the rights as a shareholder against the new shares, and thus, this constitutes “where the actual owner and the nominal owner are different in the property requiring a change of ownership in the transfer or exercise of the right” (see Supreme Court Decision 9Du3843, Sept. 3, 199).

B) In the instant case, the fact that the shareholder registry was prepared at the time of the establishment of the instant company and submitted to the tax authority, and the fact that the Plaintiff Err, Err, and Eu did not register each of the instant shares acquired through each of the instant subscription shares as a shareholder in the shareholder registry was not stated in the shareholder registry.

However, even if each of the shares of this case was not transferred under the name of Plaintiff Er and Eu in the register of shareholders, since the acceptance price of each of the above shares was paid under the name of the above plaintiffs and the rights related thereto were reverted to the above plaintiffs in appearance, it satisfies the taxation requirements for constructive gift of title trust under Article 45-2 (1) of the former Inheritance Tax and Gift Tax Act regardless of whether new shares were subject to the application of the legal provisions of this case

2) Judgment on the second argument

A) The legislative purport of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act is to recognize an exception to the substance over form principle to realize tax justice by effectively preventing the act of tax avoidance using the title trust system. Thus, if it is recognized that the title trust was made for any reason other than the tax avoidance purpose, and it is merely a minor reduction of tax incidental to the said title trust, it cannot be readily concluded that there was "the purpose of tax avoidance" in such title trust (see, e.g., Supreme Court Decisions 2014Du786, May 16, 2014). However, in light of the legislative purpose above, inasmuch as the purpose of the title trust is not included in the purpose of tax avoidance, it cannot be deemed that there was a deemed that there was no other purpose of tax avoidance (see, e.g., Supreme Court Decisions 97Nu1532, Jun. 26, 1998; 9Nu1532, Dec. 36, 2004).

In addition, whether there was an objective of tax avoidance or not should be determined at the time of title trust or at the time of the subsequent determination as to whether the said tax was evaded (see, e.g., Supreme Court Decision 2003Du4300, Jan. 27, 2005). Meanwhile, the burden of proving that there was no objective of tax avoidance may be proven by means of proving that there was no objective of tax avoidance, other than the purpose of tax avoidance. However, as to the fact that there was no objective of tax avoidance, the nominal owner who bears the burden of proof has a clear purpose irrelevant to the tax avoidance to the extent that it is recognized that there was no objective of tax avoidance in the title trust, and the fact that there was no tax to be evaded at the time of the title trust or in the future has to be proved to the extent that it would not have any doubt if there was an ordinary person by objective and supporting evidence (see, e.g., Supreme Court Decision 2012Du546, Nov. 28, 2013).

B) According to the above facts and each of the above evidence, in light of the following circumstances, it is insufficient to recognize that the entries in Gap evidence Nos. 10, 11, and 12 submitted by the plaintiffs are clearly aimed at evading tax and not having any tax evasion in the title trust of each of the shares of this case at the time of the title trust or at the time of the title trust, and there is no other evidence to acknowledge otherwise. Accordingly, the plaintiffs' above assertion is without merit.

① In order to satisfy the number of promoters under the Commercial Act, the Plaintiffs asserted that each of the instant shares was acquired by Plaintiff Err and Eu in accordance with the shares previously held in title by offering new shares for the purpose of raising funds and concluding a contract. However, since July 24, 2001, there was no restriction on the number of promoters required for the establishment of a stock company under the Commercial Act, and even before that, there was no restriction on the number of promoters required for the establishment of a stock company under the Commercial Act, and even before that, the number of promoters was limited. Since each of the instant shares was possible to be returned to the name of Plaintiff Ett, the Plaintiffs maintained for a considerable period of time. Furthermore, each of the instant shares issued for new shares was made for separate purposes from the time of the incorporation of the instant company, and therefore, it seems that Plaintiff Er and Euu did not necessarily have to acquire new shares.

② The Plaintifft omitted the total amount of KRW 133 million from the Plaintifft’s income to 2008 as the title trust of each of the instant shares, which amounting to 35% of the total number of outstanding shares of the instant company, from 2004 to 2008, from the income of the Plaintifft, thereby evading the total amount of KRW 6.2 million from the global income tax to be imposed, and the total amount of KRW 6.2 million was deducted due to the lapse of the exclusion period of imposition.

③ In addition, even though Plaintiff Err and Euu from 2010 to 2012 immediately recovered the total amount of 2,92 million won of the dividend income received from the instant company, the said dividend income was not reported as global income by adding the said dividend income to the dividend income of Plaintiff Et’s global income. As such, KRW 146,201,270 of the global income tax evaded was collected through the instant investigation.

④ From 2002 to 2015, the instant company had a considerable amount of unclaimed retained earnings, and the Plaintifft held all the remaining shares excluding 25% of the shares of the instant company owned by his spouse, and thus, it was possible to distribute cash at any time on the basis of his/her intention.

⑤ On December 27, 2012, Plaintifft donated 2,160 shares, among the shares held by Plaintiff Pu, in the form of transfer to Plaintiff Pu, to Plaintiff Put, thereby evading gift tax to be imposed on thisii.

3. Conclusion

Therefore, all of the plaintiffs' claims against the defendants are dismissed. It is so decided as per Disposition.