early 201J 3383 ( December 28, 2011)

Gift tax is illegal if there is a legitimate reason for the practice of transaction.

In full view of the fact that the acquisition of the shares in this case by taking account of the fact that the price increase due to the merger seems to be due to the increase in stock prices, etc. by the investors, the acquisition of the shares in this case does not constitute the acquisition of the property at a price significantly lower than the market price

2012Guhap4013 Revocation of Disposition of Imposition of Gift Tax

AAA

Head of Sungnam Tax Office

September 26, 2012

October 24, 2012

1. The Defendant’s disposition of imposing gift tax of KRW 000 on the Plaintiff on August 11, 201 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. (1) On December 20, 2007, the Plaintiff acquired 750,000 shares of CCC (Co., Ltd., Ltd., and hereinafter referred to as “CCC”) from BB (hereinafter referred to as “BB”), a KOSDAQ-listed corporation, through over-the-counter trading (hereinafter referred to as “instant shares”).

(2) On December 24, 2007, the Plaintiff transferred the instant shares to KRW 000 per share ( KRW 000 per share) and reported and paid KRW 000 of the transfer income tax for the year 2007.

B. (1) CCC conducted capital increase with consideration on November 5, 2007 and December 28, 2007 on two occasions.

(2) From July 7, 2010 to September 4, 2010, the director of the Seoul Regional Tax Office assessed the market price of the instant shares at KRW 3,193 won per share, and the Plaintiff’s acquisition of the instant shares at a price significantly lower than the market price under the transactional practice, and notified the Defendant of such taxation data by deeming that the Plaintiff’s acquisition of the instant shares at a price substantially lower than the market price without justifiable cause among those who have no special relationship under Article 35(2) of the Inheritance Tax and Gift Tax Act.

C. On August 11, 201, the Defendant imposed KRW 000,000 on the Plaintiff, and KRW 000,000, and KRW 000,00,000, as a result of the Seoul Regional Tax Office’s notification of taxation data (hereinafter “instant disposition”).

D. On September 15, 201, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on September 15, 201, and the Tax Tribunal dismissed the Plaintiff’s appeal on December 28, 2011.

[Reasons for Recognition] The facts without dispute, Gap evidence 1, Eul evidence 2, Eul evidence 1, and Eul evidence 1, and Eul evidence 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Article 35(2) of the Inheritance Tax and Gift Tax Act provides that the transferee shall be deemed to have received gift tax by presuming the difference between the price and the market price thereof from the transferor due to a transfer of property, and Article 63(1)1 (a) and (b) of the Inheritance Tax and Gift Tax Act provides, on the premise that the gift tax is levied, a supplementary method for shares issued by the corporation heading on the share certificates and KOSDAQ-listed corporations, and on the premise that the gift tax is levied, the value of shares assessed by the supplementary method stipulated in Article 63(1)1 (a) and (b) of the Inheritance Tax and Gift Tax Act cannot be deemed to be the market price under Article 35(2) of the Inheritance Tax and Gift Tax Act, and Article 63(1)1 (a) and (b) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not be deemed to be the market price under Article 30(1)1 (b) of the Inheritance Tax and Gift Tax Act, and Article 35(2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be deemed to be amended to be amended to 20000.

(2) Article 26(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act excludes listed stocks from those transacted on the Korea Stock Exchange or Association brokerage market, and Article 26(9) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act excludes those stocks which are acquired or transferred by transfer between an individual and a corporation, where the price falls under the final exchange price on the trading date or is traded in an overtime market and is not subject to the provisions of Article 52 of the Corporate Tax Act, and even if the price is traded at the same price, it differs from the place of transaction, method of transaction, and amount of taxation depending on the transaction. Thus, Article 35(2) of the Inheritance Tax and Gift Tax Act

(3) The CCC CC CC CC CC CC CC (hereinafter “CC”) was the largest shareholder of the CCC, transferred 00 won per share to BB, and BB was invested in 000 won per share, and transferred 750,000 won per share among the shares of the CCC to the Plaintiff in the future, and except for the period from June 2007 to January 2008, where CCC’s share price increased by 00 won per share, the CCC’s shares were traded at less than 00 won per share, and the over-the-counter trading of the listed shares did not amount to 00 won per share, and the acquisition price of the shares at 200,000 won per share, and the acquisition price of the shares at 200,000 won per share, and the acquisition price at 20,000 won per share does not constitute the market price at 20,000 won per share under the Inheritance Tax and Gift Tax Act.

(4) Article 2(2) of the Inheritance Tax and Gift Tax Act declares the principle of income tax priority by stipulating that no gift tax shall be imposed on donated property if the income tax is imposed on the donee. The plaintiff takes over the shares of this case in lieu of satisfaction of investment or loan repayment obligations or investment obligations of BB in violation of the agreement with BB by investing KRW 00 in the amount of KRW 00, and if the value of the property received by payment in kind exceeds the principal, the excess portion is subject to income tax, and it cannot be subject to gift tax.

B. Relevant statutes

It is as shown in the attached Form.

C. Judgment on the Plaintiff’s first argument

(1) Details of the statute

Article 35 (2) of the Inheritance Tax and Gift Tax Act provides that "where assets are acquired between unrelated persons, without any justifiable reasons, the amount equivalent to the difference between the consideration and the market price shall be presumed to be donated to the person who has acquired such profits as the value of donated property," and Article 26 (1) and (5) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "not less than the remarkably low value" under Article 35 (3) of the Inheritance Tax and Gift Tax Act shall be the average market price (referring to the value appraised under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act) of the transferred assets for a period prescribed by Presidential Decree which includes not less than 30 percent of the current market price, and Article 60 (1) of the Inheritance Tax and Gift Tax Act provides that "the average market price of stocks shall be deemed to be the market price before and after the latest market price, and the value of stocks subject to gift tax shall be deemed to be the market price under the provisions of paragraph (1) 2 (b) of the same Article 6) of the Inheritance Tax and Gift Tax Act.

(2) The Inheritance Tax and Gift Tax Act does not separately stipulate the market price and Article 26 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

Article 63(1)1 of the Inheritance Tax and Gift Tax Act provides for the following conditions as to whether the Inheritance Tax and Gift Tax Act is in violation of the no taxation without law, and Article 63(1)1 of the same Act provides for a direct contact with respect to the method of evaluation of the market price of stocks of any KOSDAQ-listed corporation without restriction, and Article 60(2) of the Inheritance Tax and Gift Tax Act provides that, in general, "the value which is normally established if a transaction is made freely between many and unspecified persons" under Article 60(2) of the same Act, and the latter part of Article 60(1)1 (a) of the same Act provides for separate provision for the method of evaluation under Article 63(1)1 (b) of the Inheritance Tax and Gift Tax Act, and Article 63(1)1 of the same Act provides for the method of evaluation under Article 63(1)1 of the same Act and Article 63(2)6(1)1 of the same Act that provides for the method of evaluation under Article 63(1)6(b)1)1) of the Inheritance Tax and Gift Tax Act.

(3) Whether the instant disposition violates the principle of substantial taxation

Article 60(1) of the Inheritance Tax and Gift Tax Act was newly established on December 30, 1996 under the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996). The legislative intent of Article 60(1) of the Inheritance Tax and Gift Tax Act is to assess shares of a KOSDAQ-listed corporation in principle, but there is a possibility that the fluctuation in price may be affected by the fluctuation in price depending on the situation of the trading date, and so if the price on the day of a specific transaction is considered to be the market price, it is difficult to exclude the self-defluence in the evaluation and to secure objectivity. Therefore, in determining whether the transfer of shares issued by a KOSDAQ-listed corporation constitutes a transfer, the market price of such shares should be based on the values appraised by the method of assessment provided for in Article 63(1)1(a) and (b) of the Inheritance Tax and Gift Tax Act, not on the specified trading date. Therefore, this part of the Plaintiff’s assertion on other premise is without merit.

(4) Sub-determination

In the end, the plaintiff's first argument is without merit.

D. Judgment on the second argument by the Plaintiff

Article 26 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The low value of shares transferred” under the main sentence of Article 35 (3) of the Inheritance Tax and Gift Tax Act shall be the value calculated by subtracting such value from the market value of the transferred property (referring to the value evaluated under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act) by 30/100 or more of the market value, and the difference shall be 00 won or more, and that “the provisions of Article 26 (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not apply to the cases where shares and equity shares of the corporation listed on the Korea Stock Exchange or registered with the Korea Securities Dealers Association under the Securities and Exchange Act are traded on the Korea Stock Exchange or the Association brokerage market (excluding those traded at the outside time market under Article 33 (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act), and Article 26 (9) of the Enforcement Decree of the Inheritance Tax Act provides that “The provisions of Article 26 (1) of the Corporate Tax Act provides that the same shall not apply to the transfer or sale of shares under Article 9 (2).

E. Judgment on the third argument by the plaintiff

(1) Facts of recognition

(A) On November 28, 2006, CCC issued new shares increase of 12,500, and 000 shares (in liquid face value of 12,500,000 shares) to CCC cement by a third party allocation method, and the above shares were protected by Korea Securities Depository until December 11, 2007.

(B) On June 5, 2007, CCC cement entered into a contract with BB for acquisition of stocks and management rights (hereinafter referred to as the “first contract”) with the content that it transfers BB of 17,000,000 shares owned by CCC cement (i.e., general share 4,500,500,000 + 12,500,000,000 shares for protected trees) to BB with the total amount of 21,290,000,000 common shares issued by CCC. At the time of the first contract, CCC and BB agreed to sell and purchase stocks with the Korea Securities Depository under the condition that the period of protection expires in accordance with the related laws and regulations with the stocks as pre-contracted stocks.

(C) The KimE, a de facto private owner of BB, requested the Plaintiff to participate in the Plaintiff as a financial investor in order to raise the acquisition price under the instant contract No. 1, and the Plaintiff received the request of KimE. On June 14, 2007, the Plaintiff entered into a investment agreement with BB with the following contents (hereinafter “instant investment agreement”), and KimE shall enter into the instant investment agreement:

Pursuant to BB's obligations, joint and several guarantees were made for BB's obligations.

(D) However, BB failed to deliver to the Plaintiff the common share of 750,000,000 shares of CCC within the investment period stipulated in the instant investment arrangement, and the Plaintiff urged BB to deliver the shares, and received a written notice of performance three times from E, a joint and several surety.

(e) BB was granted 4,500,000 common shares of CCC cement, but it was not possible to deliver the said shares to the Plaintiff by offering them as security for other loan obligations.

(F) Accordingly, the Plaintiff and BB and KimE agreed that BB shall deliver to the Plaintiff 750,000 shares out of the protected stocks whose period of safeguard expires, instead of common shares of CCC as stipulated in the instant investment agreement, and according to such agreement, the Plaintiff entered into a stock transfer contract (hereinafter referred to as “instant contract”) with BB on November 5, 2007.

(G) On February 14, 2007, the Seoul Central District Court deposited 10,044,000 shares out of the protected CCC shares in violation of Article 8(2) of the 1st Contract of this case where CCC was delivered by the Korea Securities Depository, but the two contracts of this case were prohibited from transferring rights pursuant to the reservation to purchase during the duration of deposit.

(h) Meanwhile, until May 10, 2007, the stocks of the CCC were traded at less than KRW 00 per share, and thereafter, the stocks were traded at more than KRW 00 per share, and from June 5, 2007, the date of the execution of the instant LCC, the trading was made at least KRW 00 per share, and the stocks were disposed of at least KRW 00 per share on June 14, 2007, and at least KRW 00 per share on August 13, 2007, the date of the execution of the instant investment agreement, were traded at KRW 00 per share. The stocks were disposed of at least KRW 00 per share on November 1, 2007, the date of the instant two contract, and at least KRW 200 per share on December 20, 2007, the Plaintiff was disposed of at least KRW 00 per share on December 20, 2007.

(i) The Korea Stock Exchange determined that the CCC’s stock price increase is an exceptional, and requested CCC to make a public announcement of the reasons why CCC’s stock price rise on May 16, 2007, and June 5, 2007, on two occasions, the stock price rise on the two occasions. The CCC respondeds to the effect that CCC cement, the largest shareholder, disposes of its equity shares.

[Ground of Recognition] The facts without dispute, Gap evidence 2, evidence 1, 2, evidence 3 through 6, evidence 7, evidence 8 through 10, evidence 11-1, and evidence 12-2, evidence 13, and evidence 3, and the purport of the whole pleadings

(2) Whether the acquisition of the instant shares constitutes the acquisition of the instant shares at a price significantly lower than the market price without justifiable grounds in light of the transaction practice

(A) Relevant legal principles

In general, in a lawsuit seeking revocation of a tax disposition, the burden of proof on the facts of taxation is the tax authority and the content and form of Article 35(2) of the Inheritance Tax and Gift Tax Act is to be lawful, the transferee took over the property at a significantly lower price than the market price from a person without a special relationship, as well as the tax authority must prove that there is no justifiable reason under the transaction practice (see Supreme Court Decision 201Du22075, Dec. 22, 201). “Justifiable reason for the transaction practice” under Article 35(2) of the Inheritance Tax and Gift Tax Act is to be determined by comprehensively considering the relevant transaction circumstances, the relationship between the parties to the transaction, and the process of determining the transaction price. On the other hand, if the parties to the transaction who are in an equal relationship pursuing their economic interests under the legal order based on the private autonomy and freedom of contract have conducted a free transaction with reasonable knowledge, if the transaction is conducted without any justifiable reason, then the transaction should be determined objectively, and there is no reasonable difference between the market price and the transaction price agreed between the parties.

(B) Determination

The following circumstances recognized in the above facts, and ① BB, instead of the Plaintiff’s payment to BB, were 00 won per share, and the Plaintiff entered into the instant investment agreement with CB to deliver 750 common shares and 00 shares, and subsequent BB entered into the instant two agreement with the Plaintiff to protect the shares, and there is no essential difference between the Plaintiff and BB in determining the legal relationship between the Plaintiff with respect to the transfer and acquisition of the shares. ② The Plaintiff did not have any special relationship between the instant investment agreement or the two contracts, while the Plaintiff would not have any other transactional relationship between BB and B0, and the Plaintiff would have decided to acquire 0 shares free on an equal basis with BB, and the Plaintiff would have agreed to acquire 1B shares from 0 to 00 if it did not have any other transactional relationship between BB and 10, and the Plaintiff would have no other transactional relationship between BB and 1, and the Plaintiff would have agreed to acquire the shares or profits of the Plaintiff during the instant cement agreement.

(3) Sub-determination

Therefore, the third argument by the plaintiff is without merit as to whether the plaintiff's act of acquiring the shares of this case at a price of 000 won per share constitutes "the case of acquiring assets at a price significantly lower than the market price". The third argument by the plaintiff is without merit.

F. Sub-committee

Ultimately, the Defendant’s disposition of this case is unlawful without examining the Plaintiff’s fourth argument.

3. Conclusion

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