Cho High Court Decision 201Do4764 ( December 29, 2011)

title trust with no other purpose than the purpose of tax avoidance

In light of the fact that the remaining purchase fund, except for the portion borrowed from the bond company, was primarily procured from the person who was the largest shareholder, and that there was no assertion that the capital gains tax imposed on him/her and the securities transaction tax were not shares upon him/her at the time of a request for a trial on the transfer of

2012Guhap1065 Revocation of Disposition of Imposition of Gift Tax

XX

Head of Eastern Tax Office

October 5, 2012

November 16, 2012

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposing gift tax of KRW 000 against the Plaintiff on July 8, 2011 is revoked.

1. Details of the disposition;

A. On May 28, 2007, the Plaintiff purchased 3,500,000 shares (hereinafter “the shares of this case”) of the Co., Ltd., a listed company (hereinafter “Nonindicted Co., Ltd.”) from Nonparty A for KRW 000 from Nonparty A.

B. From April 4, 2011 to May 9, 2011, the director of the Seoul Regional Tax Office: (a) conducted an investigation into the source of funds against the Plaintiff; and (b) deemed KimB entrusted the name of the instant shares to the Plaintiff; and (c) notified the Defendant, the head of the competent district tax office, who is the Defendant. On July 8, 201, the Defendant decided and notified the Plaintiff of KRW 000 of the gift tax pursuant to Article 45-2 of the Inheritance Tax and Gift Tax Act (hereinafter “the Inheritance Tax and Gift Tax Act”) and corrected the market price appraisal of the relevant shares on September 16, 201, and corrected and decided that the said disposition of gift tax was 00 won reduced by 00 won (hereinafter “instant disposition”).

C. On October 4, 2011, the Plaintiff appealed to the Tax Tribunal. However, the Tax Tribunal dismissed the Plaintiff’s claim on December 29, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1, Eul evidence 1 (hereinafter referred to as "number 1") and Eul evidence 2, each entry, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The instant shares are purchased by the Plaintiff as a party to the contract in the process of acquiring by transfer or taking over the management rights of the non-party company upon the request of KimB. KimB did not have sufficient means to acquire the instant shares, but merely did not intervene in the process of the Plaintiff’s financing of the purchase fund from the bond company. Thus, the instant shares do not constitute a title trust by KimB to the Plaintiff.

2) Even if family KimB held title trust with the Plaintiff, KimB was the largest shareholder of the OO industry corporation (hereinafter referred to as "OO") and YY corporation (hereinafter referred to as "YY") and it was physically difficult to take over the management right of the non-party company because it was the representative director of Y. If it is recognized as a mutual-related corporation, it is apprehended that the non-party company would be subject to sanctions from the Financial Supervisory Service. In addition, since the title trust of the shares of this case was not a tax avoided in terms of dividend income tax or capital gains tax, there is no tax avoidance purpose in the title trust of the shares of this case.

(b) Related statutes;

▣ 상속세 및 증여세법

Article 45-2 (Legal Fiction as Donation of Title Trust Property)

(1) Where the actual owner or title holder of any property (excluding land and buildings; hereafter the same shall apply in this Article) which requires registration, etc. for the transfer or exercise of rights is different, the value of such property shall be deemed donated to the actual owner by the title holder on the date when registration, etc. is made to the title holder (where such property is subject to the change of title, referring to the date following the end of the year following the year in which the date of acquisition of ownership falls), notwithstanding Article 14 of the Framework Act on National Taxes: Provided,

1. Where he/she registers his/her property in another person's name without any purpose of tax evasion, or fails to change the title in the name of the actual owner who acquired the ownership;

(c) Fact of recognition;

1) Trading of the instant shares and financing

A) On May 15, 2007, Nonparty D entered into a share purchase contract with Nonparty A, the former owner of the instant shares, and the right to manage the instant shares and the Nonparty Company, as the Plaintiff’s agent. The instant shares were transferred to the Plaintiff’s name on May 28, 2007.

B) Of the funds for acquiring the shares of this case, 000 won from Y, 000 won from O, 000 won from O, and 000 won from CC, etc., a bond company, and the remaining 00 won cannot be identified as its source.

C) On July 5, 2007, the Plaintiff entered into a share sales contract with RR and the instant shares and non-party company to sell management rights for KRW 000.

2) Details of statements by persons related to the stock transaction of the instant case

A) The Plaintiff’s explanatory note dated January 24, 201

Y On May 207, 2007, the name of the president of KimB, who was the president of the Y, was the contracting party, acquired the shares of this case and sold them around June 2007.

B) The Plaintiff’s answer on April 4, 201

- At the time when the Plaintiff was in office as a nominal representative director in the name of YDD, the Plaintiff lent its name upon the request of KimB, the real representative of the company. The Plaintiff’s shares are not naturally but the actual shareholder is KimB.

- the purchase of the opinion that there was no awareness of the acquisition value of shares or the transfer value of shares, and that the funds for stock acquisition were raised from bond holders later.

- Although having affixed the seal on the transfer agreement of the instant shares, there is no doubt about the details of the transfer and the receipt of the funds. The RB did not want to bring an action against the RB on the claim for the transfer of shares and the counterclaim raised by the RB against the principal at the cost of the attorney-at-law, and not on the proceeding.

- There is no case fee in which a company has lent its name in addition to the amount paid while working in YD for three months.

C) The 11. April 201, 201 of thisA’s answer

- The stock sales contract was prepared with YM consulting, the representative director of the YM consulting, while holding the shares in this case.

- The plaintiff is not aware of the source of financing for the stock transaction of this case, and KimB is aware that he participated considerably in the preparation of the contract and payment of the price.

D) A written reply from April 4, 2011 to Edddd's written response

- The KimB is the president of theY Group as the YB representative, and he performed the business relating to the sales and purchase of the shares of this case in accordance with the direction of KimB at the time he works for the YB.

- The acquisition price of the instant shares was paid through KimB, not the Plaintiff.

E) The questionnaire dated 9 May 201, 201 of the PartiesCC

- Around May 2007, while operating a credit business in the name of Dong, AD was only lent to 00 won on the security of the shares of this case.

- The share price of the instant shares secured by the security has decreased so that it could not recover 000 won out of the loans, on the wind where the opposing trade takes place.

(iii) taxation and criminal charge against KimB;

A) KimB is subject to a disposition of deficit due to the default of national taxes as follows:

B) Of the above delinquent tax amount on July 31, 201, the transfer income tax of 000 won and securities transaction tax of 000 won, which is the payment period, are determined by the tax authority to be KimB by the actual owner of the instant shares, and on July 5, 2007, the tax authority imposed the transfer income tax and securities transaction tax on KimB on July 12, 201 as to the conclusion that the Plaintiff entered into a stock transfer contract with RR interest to sell the instant shares for 00 won.

C) On October 4, 201, KimB, dissatisfied with this case, filed an appeal with the Tax Tribunal on October 4, 201. Under the premise that the instant shares were owned by it, KimB asserted that the instant shares were not transferred to RB because the secured right holder with respect to the instant shares was voluntarily sold due to the decline in the share price after the purchase and sale contract of the instant shares was made on the premise that the instant shares were owned by himself. The Tax Tribunal accepted KimB’s claim and rendered a decision to revoke the imposition of capital gains tax and securities transaction tax imposed on KimB on the ground that there is sufficient evidence to prove that the instant shares were transferred to RB.

D) Meanwhile, on October 1, 2007, KimB filed a charge of occupational breach of trust, fabrication of securities, fraud, and violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Fraud), but suspended indictment.

4) At the time of the purchase of the instant shares, the Plaintiff was unemployed while Kwikset Service. The Plaintiff’s wife and the Plaintiff’s wife did not have business power or income reported to the tax authorities and did not possess real estate and other assets.

[Ground of recognition] Facts without dispute, Gap evidence 3-17, Gap evidence 4, 5, Eul evidence 3-19, the purport of the whole pleadings

D. Determination

1) Whether the instant shares were held in title trust

A) In light of the following circumstances: (a) the Plaintiff did not know the entirety purport of the pleadings; (b) the Plaintiff did not have any motive or motive for acquiring the instant shares (the Plaintiff asserted that, upon the request of KimB, the Plaintiff purchased the instant shares in the process of acquiring the management right of the Nonparty Company; (c) the Plaintiff was the representative director of the nominal company operated by KimB at the time of the investigation by the Defendant’s request; (d) the Plaintiff was the actual shareholder, who lent the name to KimB upon the request of KimB; (c) the process of acquiring and selling the instant shares and the flow of funds incidental thereto; and (d) DoD, which was in charge of the business affairs at the time of the purchase of the instant shares, was involved in KimB’s sale and purchase of the instant shares, and KimB was also involved in the Defendant’s purchase of the instant shares; and (e) the Plaintiff did not appear to have claimed that the Plaintiff purchased the instant shares in the name of the Plaintiff and the Plaintiff’s purchase of the instant shares through the loan and the Plaintiff’s loan.

2) Whether there exists an intention of tax avoidance

A) The legislative purport of Article 41-2 of the Gift Tax Act is to recognize an exception to the substance over form principle with the purport of effectively preventing the act of tax avoidance using the title trust system and realizing the tax justice. Thus, the proviso of the same Article is applicable only where the purpose of the title trust is not included in the purpose of the tax avoidance. In such a case, the burden of proving that the purpose of the tax avoidance was not included in the purpose of the title trust lies in the person claiming it (see, e.g., Supreme Court Decisions 2003Du13649, Dec. 23, 2004; 2004Du1223, Jan. 28, 2005). Therefore, with respect to the absence of the purpose of the tax avoidance, it may be proven by the method of proving that there was another purpose of the tax avoidance, other than the purpose of the tax avoidance (see, e.g., Supreme Court Decisions 2004Du7733, May 12, 2006; 2004Du136, etc.).

B) In light of the following circumstances, i.e., (i) KimB, at the time of the purchase of the instant shares, was likely to receive the comprehensive income tax by receiving the disposition of income from the OO that was the shareholder or representative director, and (ii) after the purchase of the instant shares, he was subject to the disposition of income in arrears, and (iii) if KimB did not indicate that it was the actual owner of the instant shares, he would have received the disposition of delinquent tax, such as seizure and sale, etc., (iv) if he did not impose capital gains tax and securities transaction tax, he would have been able to avoid the said tax, and (iv) if KimB was physically difficult to take over the management right of the non-party company as the representative director of another company, or if the non-party company becomes a non-party company, he could not be aware of any disadvantage in the Plaintiff’s transfer of the instant shares in the name of title trust or any other unnecessary sanctions, due to the lack of the purpose of acquiring the instant shares in the name of the Financial Supervisory Service.

3. Conclusion

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