Seocho 2014Seoul Northern5792 (Law No. 27 January 2016)

It is legitimate to impose tax on the title truster in the second capital increase with the absence of the purpose of tax avoidance.

At the time of the second tax liability as an oligopolistic shareholder, there was a tax avoidance purpose, and the method of stock appraisal (Supplementary assessment) of an unlisted company is legitimate.

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

2016Guhap61303 Revocation of Disposition of Imposition of Gift Tax

○ ○

○ Head of tax office

March 2, 2018

March 23, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposing gift tax on the Plaintiff on December 5, 2013 shall be revoked in the course of a gift tax class, a commercial class, or a commercial class (including additional tax) for the year 2011.

1. Details of the disposition;

A. On May 6, 201, 201, Park○-○ entered into a stock transaction contract with 33,000 shares issued by ○○○ and ○○ Construction Co., Ltd. (hereinafter referred to as “○○ Construction”) (hereinafter referred to as “instant shares”) and completed a transfer of ownership after entering into a transfer contract (hereinafter referred to as “transfer of ownership”).

B. The director of ○○ Regional Tax Office, from September 16, 2013 to October 15, 2013, conducted an investigation into the change of stocks on ○○ Construction (hereinafter “instant investigation”), and then notified the Defendant of the taxation data assessed as KRW 31,155 per share of the instant stocks according to the supplementary assessment method of unlisted stocks under the former Inheritance Tax and Gift Tax Act (amended by Act No. 10854, Jul. 14, 201; hereinafter “former Inheritance Tax and Gift Tax Act”).

C. Accordingly, on December 5, 2013, the Defendant decided and notified on May 6, 201 to the Gab○○○ on the gift gift account, the relevant district, the relevant district, the relevant district, the relevant district, and the relevant district (including additional tax) (Service on December 10, 2013), and notified the Plaintiff of the designation and payment of joint and several taxpayers (hereinafter referred to as “instant disposition”) (Service on December 16, 2013).

D. On March 12, 2014, Park○-○ filed an objection with the director of the competent regional tax office on March 12, 2014, but the decision of dismissal was made on March 25, 2014 on the grounds of the objection period. The Plaintiff filed an objection with the director of the competent regional tax office on March 16, 2014, but was dismissed on August 7, 2014. Thereafter, Park○-○ and the Plaintiff filed an appeal with the Tax Tribunal on November 4, 2014, but the Tax Tribunal dismissed the Plaintiff’s claim on January 27, 2016 on the grounds of the objection period.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 3, Eul evidence Nos. 1, 2, and 4 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The instant shares are shares owned by ○○ Construction, and have been transferred to ○○○○, a director in charge of business, through single ○○, Park ○○, and Kim○○, and the Plaintiff did not have title trust the instant shares with ○○ as the actual owner of the instant shares.

2) Even if the Plaintiff trusted the instant shares to Park○○, it cannot be deemed as a gift, given that the Plaintiff did not have any purpose of tax avoidance.

3) Even if the Plaintiff trusted the instant shares to Park○○○, and could be deemed as a gift, the assessment of the market price of the instant shares was made based on ○○ Construction’s financial statements made by falsity as if it were black for construction receipt, even though the Plaintiff had suffered losses in the business year from 2008 to 2010.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) The annual shareholder status of ○○ Construction is as listed below. The transferee of 2004 shares of ○○ is the Plaintiff’s wife. On May 6, 201, 201, ○○○, ○○○, and west ○○, a shareholder of ○○ Construction, did not participate in ○○ Construction’s capital increase with capital increase on October 25, 201. Kim Young-sik was allocated KRW 00,000 per share of forfeited shares generated from the said capital increase with capital increase.

2) After jointly taking over ○○ Construction in 2004 and doing joint management, the Plaintiff and Jung Jong-○ became unable to participate in normal management due to damage to Cheong-○’s integrity from 2008 to 2009, and the Plaintiff made a major decision-making with other directors.

3) In the process of acquiring the instant shares, both of ○○○○, ○○○○○, and ○○○○○○○○ and ○○○○○○ were employed as an internal director in charge of the business of ○○ Construction, and the transfer of the instant shares was made in succession. In particular, ○○ was the age of ○○○ at the time of the transfer of the instant shares, and there was no ability or financial transaction details to prepare KRW 00 million, which is the acquisition price of the instant shares.

4) The instant shares constitute unlisted shares for which no market price exists. As a result of the instant investigation, the Defendant assessed the market price per share as KRW 00,000 on May 6, 201 based on the financial statements of 2008-201 to 2010-201, based on the supplementary evaluation methods for unlisted shares under the former Inheritance Tax and Gift Tax Act, based on the determination that the instant shares were held in title by the Plaintiff ○○○.

5) Meanwhile, on March 13, 2012, the head of the ○○ Tax Office: (a) acquired the instant shares from ○○○○ on the ground that the market price per share falls under the low-price acquisition of the instant shares, based on the supplementary evaluation method on unlisted stocks under the Inheritance Tax and Gift Tax Act; (b) on the ground that the acquisition of the instant shares by 00,000 won per share constitutes the low-price acquisition of the instant shares. Accordingly, on February 16, 2015, ○○○ filed an appeal with the Tax Tribunal on February 16, 2015; (c) on the financial statements of ○○ Construction for the business year 201, on June 30, 2011, the ○○○ Tax Tribunal revoked the assessment of the instant shares by reflecting this as a result of the assessment of the net value per share as KRW 00,000,000 per share on the grounds that the amount of losses was reduced to KRW 00,000 per share.

6) At the time of the instant investigation, the Plaintiff written a written confirmation (Evidence No. 3-1) submitted to the ○○○○ in charge of the investigation (Evidence No. 3-1) stating, “I confirm that 00,000 shares of ○○ Construction that ○○○○ acquired on May 6, 201 was the actual owner and ○○○○ was the title trust of the said shares.” In the written confirmation (Evidence No. 3-2) drawn up and submitted by ○○○ in his own pen (Evidence No. 3-2) that read, “I confirm that I was entrusted with the said shares by lending ○○○ Construction in possession of ○○○○○○○, which was acquired by ○○○ on May 6, 201 with a certificate of personal seal impression and a certificate

7) Unclaimed surplus funds of ○ Construction amounting to KRW 000,000 in the business year 2010, and KRW 000,000 in the business year 2011, and KRW 000,000 in the instant shares were transferred to ○○○○○ on May 6, 2011, when the instant shares were transferred to 10,000,000,000, and the tax authorities did not designate the secondary taxpayer for KRW 0 billion including additional dues KRW 000,000,000,000,000.

[Ground of recognition] Facts acknowledged earlier, Gap evidence Nos. 2 through 6, Eul evidence Nos. 1, 3, and 5 (including various numbers) (including the plaintiff's personal information and signature with respect to Eul evidence No. 3-1 (written confirmation), but other contents are not self-written. Although other contents are alleged to be not self-written, the personal information and signature, as well as other contents are deemed to be the same, and the plaintiff's objection or trial procedure does not appear to have asserted as above in the objection or trial procedure, it is difficult to believe the above assertion as it is difficult to believe)'s written statement No. 7, part of Gap evidence No. 7, testimony by the witness ○, testimony by the witness ○, part of the plaintiff's personal information and signature, and the purport of whole

D. Determination

1) Whether to recognize title trust

In full view of the following circumstances acknowledged earlier, it is reasonable to view that the Plaintiff, as the actual owner of the instant shares, title trust of the instant shares to Park○-○, by taking account of the witness testimony, the testimony of ○○○○, and the Plaintiff’s personal examination result, and the following circumstances revealed by the purport of the entire pleadings. On the other hand, the evidence submitted by the Plaintiff and the remainder of the Plaintiff’s personal examination result are difficult

A) If a tax authority received a confirmation from a taxpayer in the course of a tax investigation, barring special circumstances, such as where the confirmation was drafted compulsorily against the intent of the originator, or it is difficult to take the confirmation as evidence of specific facts due to lack of the content thereof, etc. (see, e.g., Supreme Court Decision 2001Du2560, Dec. 6, 2002). However, at the time of the investigation of the instant case, the Plaintiff and Park ○○, as seen earlier, was the Plaintiff, and the Plaintiff was the actual owner of the instant shares, and prepared a confirmation document to the effect that the Plaintiff trusted the instant shares to Park○○.

The plaintiff asserted that the above confirmation document is false because it merely accepts the public official in charge to promptly conclude a tax investigation by gathering the specific contents and legal meaning of the document without any knowledge about the title trust, but it is insufficient to acknowledge the above assertion by only some of the entries in Gap evidence 12 and the results of the plaintiff's personal questioning. There is no evidence to find that the public official in charge of Gangnam ○ et al. was fright or fright at the time of the investigation. Rather, according to the testimony of the witness lecture ○○ and the remainder of the results of the plaintiff's personal questioning, the plaintiff recognized the title trust by telephone even before the preparation of the above confirmation document, and the plaintiff was supported by this disease, the director of the tax accountant office at the time of the preparation of the above confirmation document, and it is recognized that the fact that he requested the defendant's prior notice without denying the fact of title trust after the preparation of the above confirmation document, and therefore, it seems that there is considerable credibility in the contents of the above confirmation document.

B) The Plaintiff is one of the co-managers who acquired ○○ Construction, and in particular, from around 2008 to 2009, the management of ○○ Construction was led independently, and as seen thereafter, it was necessary to title trust the instant shares to deviate from the status of oligopolistic shareholders. In short, ○○, Park ○, and Kim ○○, all of the instant shares were transferred consecutively during the period of holding office as a director in charge of ○○ Construction’s business as an intra-corporate director. In the process of acquiring the instant shares, the Plaintiff did not exchange for consideration in the process of acquiring the shares, and in particular, ○○ appears to have not been capable of taking over the instant shares as seen earlier.

C) As to this, the Plaintiff asserted to the effect that the instant shares were a kind of treasury shares held by ○○ Construction from the time when ○○○○ was jointly acquired ○○ Construction, and thus, the actual owner of the instant shares is the ○○ Construction. However, some of the Plaintiff’s results of the Plaintiff’s personal examination alone is insufficient to acknowledge the said assertion, and there is no other evidence to acknowledge it, and there is no assertion or proof to accept the Plaintiff’s assertion on the developments leading up to ○○ Construction’s holding of the instant shares as treasury shares of 00% of the total issued shares.

2) Whether the purpose of tax avoidance is recognized

The burden of proving that there was no purpose of tax avoidance under Article 45-2 (1) 1 of the former Inheritance Tax and Gift Tax Act shall be proved by proving that there was no purpose of tax avoidance, not by the purpose of tax avoidance. However, as the title holder bearing the burden of proof, there was a clear purpose of tax avoidance to the extent that it is recognized that there was no purpose of tax avoidance in the title trust, and that there was no tax avoidance in the future at the time of the title trust or in the future, and that there was no tax avoidance in the ordinary course by objective and conclusive evidence, the burden of proving that there was no purpose of tax avoidance should be proved to the extent that it would not be doubtful (see, e.g., Supreme Court Decisions 2013Du9779, Oct. 17, 2013; 2004Du1120, Sept. 22, 206). Meanwhile, whether there was a purpose of tax avoidance should be determined at the time of the title trust, and then whether it was actually evaded after the determination (see, Supreme Court Decision 2005Du3734, Apr. 27, 2007.

In light of the aforementioned legal principles, in full view of the following circumstances revealed through the facts acknowledged earlier and the purport of the entire pleadings, it is difficult to view that the evidence submitted by the Plaintiff alone proves that the Plaintiff had a clear purpose other than the purpose of tax avoidance, or there was no tax to be avoided in the future, at the time of title trust of the instant shares. Therefore, the Plaintiff’s assertion that the Plaintiff trusted the title of the instant shares without the purpose of tax avoidance is rejected.

A) At the time of May 6, 201, the Plaintiff: (a) was a de facto owner of the instant shares 00,000 shares issued by ○○ Construction (0.00%) and a relative of 00,000 shares (0.00%) as a shareholder of ○○○○ (0.00%) from among the total shares issued by 00,000 shares of ○○ Construction; and (b) constitutes an oligopolistic shareholder under the title trust of the instant shares under Article 39(2) of the former Framework Act on National Taxes (amended by Act No. 111124, Dec. 31, 201; hereinafter “former Framework Act on National Taxes”); (c) was a oligopolistic shareholder under the title trust of the instant shares; (d) the Plaintiff could avoid secondary tax liability as an oligopolistic shareholder under the proviso to Article 39(1)2 of the former Framework Act on National Taxes; and (e) the Plaintiff could not designate the Plaintiff as a person liable for tax payment even if the amount of ○ Construction was actually in arrears.

B) The un disposed earned surplus of ○○ Construction reaches KRW 000,000,000 in the business year 2010, and KRW 000,000 in the business year 201. The Plaintiff may avoid the application of the cumulative tax rate in global income tax on dividends in the future by title trust with the instant shares.

C) The Plaintiff asserted that the instant shares were in title trust because it was required to hold the shares of ○○ Construction in order to give trust to the other party in the process of taking out construction works by Park○, an internal director in charge of business, but there is no specific basis for which Park○’s possession of the instant shares was of help in the construction contract. Therefore, it is difficult to recognize this as a clear purpose of title trust for the instant shares.

3) Whether the market price assessment of the instant shares is unlawful

In full view of the following circumstances, the Defendant’s evaluation of the market price per share of the instant shares at KRW 00,000 at the time of May 6, 201, which is the evaluation base date, is lawful in accordance with the relevant statutes, and thus, the Plaintiff’s assertion on this part is rejected.

A) The tax authority bears the burden of proving the legality of the disposition and the existence of the taxation requirement fact in a lawsuit seeking revocation on the grounds of illegality of taxation, so in the process of assessing the market value of unlisted stocks due to the constructive gift of title trust of unlisted stocks under the Inheritance Tax and Gift Tax Act, the tax authority has the burden of proving the net profit and loss, which serves as the basis for determining the market value of the gift tax, in principle. However, the fact that there are losses not included in the financial statements of the relevant corporation as of the base date of appraisal falls under exceptional causes in determining the market value of unlisted stocks, and the burden of proving such special

However, according to the supplementary assessment method for unlisted stocks as stipulated in Articles 60(3) and 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Article 54(1), 56(1)1, and 56(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 23040, Jul. 25, 201; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), the Defendant calculated the net profit per share based on the financial statements for ○○ Construction for the immediately preceding three business years from May 6, 201, which was 208 to 2010 business years before the base date, and assessed the market price of KRW 00,000 per share based on the same as seen earlier. On the other hand, there is no evidence to acknowledge the shortage of operating expenses of KRW 4,55, 6-1, and 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act as losses of KRW 200 billion for each business year.

B) Meanwhile, the Plaintiff asserts to the effect that the market price can be calculated through the appraisal of the instant shares. However, Article 49(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “where there exist the appraisal values appraised by two or more reliable appraisal institutions with respect to the relevant property, the average value of such appraisal values shall be deemed the market price, the same shall not be included in the property subject to the calculation of the appraisal value.” In the case of unlisted shares, it can be calculated by the appraisal method because the market price is not ordinarily traded among many and unspecified persons and the method of evaluating the market price is not established. Therefore, in light of the fact that the appraisal value of unlisted shares does not constitute the market price under Article 60(2) of the former Inheritance Tax and Gift Tax Act, barring any special circumstance, the Plaintiff’s assertion is rejected (see, e.g., Supreme Court Decision 2008Du1849, May 31, 201).

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.