National High Court Decision 2007J 4035 (Law No. 14, 2010)

If there is no market price of the title trust shares, an assessment by supplementary assessment method is made.

Considering the fact that the title truster and the trustee were in a relationship of friendship and affinity, and there is no data to recognize that the stock price was actually paid at the time of capital increase with consideration, this value is formed through a general and normal transaction among many unspecified persons, and it cannot be deemed the general market price reflecting objective exchange value.

2010Guhap5398 Revocation of Disposition of Imposition of Gift Tax

Notes 1 et al.

O Head of tax office

June 23, 2011

July 21, 201

1. All of the plaintiffs' claims are dismissed.

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

The Defendant revoked each disposition of imposition of KRW 2,043,429,410 on the gift tax of February 3, 2004 against the Plaintiffs on June 16, 2007 (the amount of the gift tax of this case was reduced from KRW 2,043,429,410 to KRW 752,571,493, the amount of the gift tax of this case was reduced from KRW 2,043,429,410, and the amount of the gift tax of this case was reduced from KRW 752,571,493, and the Plaintiffs filed a lawsuit on

1. Details of the disposition;

A. On August 27, 2003, the plaintiffs acquired 1,000 shares of the non-indicted 1,000 shares of the LA (hereinafter referred to as the "the company of this case") respectively. On February 3, 2004, the plaintiffs acquired 9,000 shares of the above shares in the capital increase with the price of 5,000 won per share (which shall be 90,000 shares per previous shares) from the capital increase with the price of 10,000 shares, respectively.

C. Accordingly, the Defendant assessed the value per share of each of the instant shares at KRW 354,500,000 as follows, and assessed each of the following values at KRW 3.19,50,050,000 (= KRW 354,500 x9,000) for the taxable value of donated property to the Plaintiffs, and imposed KRW 2,043,429,410 on the Plaintiffs on June 16, 2007, respectively.

(A) The calculation details per share below are omitted;

D. On September 11, 2007, the plaintiffs filed a request with the Tax Tribunal for a trial on September 11, 2007. The Tax Tribunal made a disposition imposing gift tax on the plaintiffs on June 16, 2007 on the grounds that where several assets are offered as collateral on September 14, 2010, the entire amount of claims should be divided into the total amount of assets. The disposition imposing gift tax on the plaintiffs on June 16, 2007 shall be assessed as 3.5 billion won of the amount of claims secured by the pertinent donated property, but the total amount of claims shall be assessed as 3.5 billion won of the total amount of the pledged shares and the value of other assets offered as collateral (4.3 billion won of the business site, 5.3 billion won of the deposit, 5.3 billion won of the total amount, 5.3 billion won of the asset as of the base date of appraisal) and the value of the other assets offered as collateral under Article 6 of the Inheritance Tax and Gift Tax Act (amended by Act No. 73535 of January 14, 20005 of the same).

E. Accordingly, according to Articles 60 and 63 of the Act and Articles 54, 55, 56, and 63 of the Enforcement Decree of the Act (amended by Presidential Decree No. 18903, Jun. 30, 2005), the Defendant calculated a value of donated property of 1,242,828,00,00 won (=138,092 won x 9,000 won) by applying the larger of the appraised value of each share of the company of this case, which was calculated by dividing the value of lost profit and loss per share of the company of this case by the net asset value and net asset value, and 128,976 won per share of the company of this case, and 35 billion won per share of total bond of this case by applying the appraised value of 138,092,828,000 won per share of the company of this case, the amount of donated property was reduced to the Plaintiffs as of October 18, 2010.

[Reasons for Recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1, 2, 3 (including any number, if any) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) According to Article 60 of the Act, the value of the property on which gift tax is levied shall, in principle, be based on the market price as of the date of donation, and in cases where it is difficult to calculate the market price, the provisions of Articles 61 through 65 of the Act shall be applied supplemently. On February 3, 2004, the Plaintiffs paid 45,00,000 shares of each party (i.e., KRW 5,000 per share x 9,000 per share), so the said amount shall be deemed the taxable value. Accordingly, the amount of the gift tax calculated accordingly is KRW 20,808,90, and the part on which the Defendant imposed the gift tax shall be revoked.

2) Even if according to the Defendant’s calculation of KRW 138.092, the assessed value of the shares owned by the Plaintiffs prior to the increase of the capital on February 3, 2004 is KRW 735,283,00 (=the assessed value per share assessed by the Defendant on August 27, 2003). The assessed value of shares owned by the Plaintiffs subsequent to the increase of the capital is KRW 1,380,920 (=10,000 + KRW 138,092). Accordingly, the assessed value of shares owned by the Defendant should be deemed to be the taxable value of the shares increased by the increase of the capital on February 3, 2004. Accordingly, the part against which the Defendant imposed gift tax exceeding KRW 368,140,370 should be revoked.

B. Relevant statutes

The entries in the attached Table-related statutes shall be as follows.

C. Facts of recognition

1) The Plaintiff’s StateB is the wife of the DamageA. The Plaintiff’s State is the buyer of the DamageA. The Plaintiff’s DamageA is the buyer of the DamageA. The Plaintiffs’ share 1,000 shares of the instant company from the DamageA to August 27, 2003, and on February 3, 2004, there is no dispute between the Plaintiffs and the Defendant as to the fact that each of the instant shares was nominal in trust.

2) On August 27, 2003, the mutual benefit prior to the shareholders of the instant company entered into a contract with the Plaintiffs to transfer 1,000 shares of the instant company to each of 500 million won, and paid 1 billion won in total. In this regard, the mutual benefit prior to the shareholders of the instant company was paid 470,282,500 won for the transfer of management rights of the instant company from DoD which was the representative director of the instant company at the time.

3) On June 15, 2007, the Defendant imposed gift tax amounting to KRW 97,939,060, respectively, on the Plaintiffs as to the acquisition of shares on August 27, 2003 (= KRW 500,000 + KRW 470,565,000 per share value + KRW 735,282).

4) On February 3, 2004, the details of changes in the shares of the instant company before and after the subscription for new shares on February 3, 2004 are as follows:

(The following table omitted):

[Reasons for Recognition] In the absence of dispute, Gap evidence Nos. 1.2, Eul evidence Nos. 2, 4, and 5, the purport of the whole pleadings

D. Determination

1) As to the claim 1

In the case of unlisted stocks not listed on the Stock Exchange, if there is an example of the transaction that appears to properly reflect the objective exchange value, such price shall be deemed the market price. However, if there is no such example or it is difficult to calculate the market price by any other means, the market price shall be assessed according to the complementary evaluation methods under the Act. Here, the market price refers to the objective exchange price formed through normal transactions in principle. In order to constitute the market price at the time of donation, there must be circumstances to view that the transaction price objectively reflects the general and normal exchange value (see Supreme Court Decision 9Du2505, Feb. 11, 200).

In the instant case, when considering the fact that all the shareholders of the instant company at the time of issuing new shares on February 3, 2004 were in the relationship of friendship and affinity with the representative director, there was no evidence to acknowledge that the Plaintiffs actually paid the shares at the time of issuing new shares, and that the value of the shares of the instant company assessed as of August 27, 2003 was KRW 735,282, it is difficult to view that the market price reflects the objective exchange value as it was formed by the general and normal transaction between many and unspecified persons, since each of the instant shares was difficult to calculate the market price, it is legitimate to calculate the market price of each of the instant shares by the supplementary assessment method pursuant to Article 63 of the Inheritance and Gift Tax Act. The Plaintiffs’ assertion contrary to this is without merit.

2) As to the claim 2

Although according to the Defendant’s capital increase on February 3, 2004, the Plaintiffs asserted that the value of the shares held by the Plaintiffs after the capital increase on February 3, 2004 (i.e., KRW 1,380,920) should be the taxable value of KRW 735,283,00 (i.e., KRW 1,000 plus KRW 138,092) calculated by deducting the assessed value of shares held by the Plaintiffs prior to the capital increase from the assessed value of shares held by the Plaintiffs on August 27, 2003 (i.e., KRW 735,283). However, the Plaintiffs asserted that the assessed value of shares held in title on February 3, 2004 should be the taxable value of KRW 645,637,00 per share assessed by the Defendant on August 27, 200. As seen earlier, the Plaintiffs’ assertion that it should be evaluated as a gift as of February 3, 2004 is not accepted.

3. Conclusion

Thus, the plaintiffs' claim of this case is dismissed as it is without merit.