Busan District Court Decision 2013Guhap21602 ( October 18, 2014)

Whether the market price of unlisted stocks under the Corporate Tax Act is recognized as a transaction price continuously traded with many unspecified persons other than persons with a special relationship.

The result of the assessment of the subject matter of transfer by a supplementary method prescribed in the Inheritance Tax and Gift Tax Act is insufficient to deem the subject matter of transfer as the low-price transfer, and there is no other evidence to acknowledge that the subject matter of transfer falls under the grounds for denial of wrongful calculation.

Supreme Court Decision 2005Du3066 Delivered on June 23, 2005

2014Nu20841 Revocation of Disposition of Imposing Corporate Tax, etc.

AA

O Head of tax office

Busan District Court Decision 2013Guhap21602 Decided April 18, 2014

November 7, 2014

December 5, 2014

1. Of the judgment of the first instance court, the part against the plaintiff ordering the revocation below shall be revoked.

The Defendant’s corporate tax for the business year 2008 of BB as of November 12, 2012 to the Plaintiffs.

Each disposition of imposition of KRW 14,67,690 shall be revoked.

2. The plaintiffs' remaining appeals are dismissed.

3. One-fourth of the total costs of litigation shall be borne by the Plaintiffs, and the remainder by the Defendant, respectively.

The decision of the court of first instance is revoked. Each disposition of the second taxpayer designation of BB corporation (hereinafter referred to as BB) that the Defendant had made against the Plaintiffs on November 1, 2012 (hereinafter referred to as “B”) was revoked, and each disposition of the tax of KRW 14,667,690 of BB for the business year 2008, Nov. 12, 2012, shall be revoked.

1. Scope of the judgment of this court;

In the first instance trial, the Plaintiffs sought the revocation of each of the above dispositions stated in the purport of the claim (hereinafter referred to as the "disposition related to the corporate tax of 2008 in this case") against the Defendant, on November 12, 2012, on the second taxpayer designation disposition for the corporate tax belonging to the business year of 2009, and on the second taxpayer registration disposition for the corporate tax belonging to BB in the business year of 2009 (hereinafter referred to as "the disposition related to corporate tax of 209 in this case") and on the second taxpayer designation disposition for the income tax belonging to the business year of 2009 and on the second taxpayer registration disposition for the income tax belonging to BB in the business year of 209 and on the other income tax belonging to BB in the business year of 209 (hereinafter referred to as "other disposition related to income tax of 209 in this case").

The court of first instance shall dismiss the claim for revocation of the designation of each of the secondary taxpayers, and each of them.

1) On February 21, 2013, the date of each disposition was the date of the correction of reduction or exemption pursuant to the plaintiffs' objection, the plaintiffs stated that "the defendant's second taxpayer designation disposition against the plaintiffs on February 21, 2013 regarding the delinquent amount of BB corporation that was made against the plaintiffs on February 21, 2013 and revocation of each disposition of KRW 14,667,690, respectively, corporate tax belonging to the business year 2008." However, in cases where the tax authority made a correction of reduction or exemption, the subject of appeal is not yet revoked by the correction among the initial dispositions, and the subject of appeal is concerned in light of the purport of the Supreme Court Decision 2006Du16403 Decided May 28, 2009 and the background of the disposition.

The remaining claims were dismissed.

The Plaintiffs appealed in full against this, but at the trial of the first instance, the Plaintiffs amended their respective claims to seek revocation of the instant corporate tax-related disposition in 2008 and other income tax-related disposition in 2009 (the application for amendment of claims on May 26, 2014). The Defendant revoked ex officio other income tax-related disposition in 2009 of the instant case on October 28, 2014 (Evidence B No. 13), and changed the purport of the appeal to only seek revocation of the instant disposition related to corporate tax in 2008 (the application for amendment of the purport of appeal in November 5, 2014, and its meaning shall be deemed to be withdrawal of the claim for revocation of other income tax-related disposition in 209).

Therefore, the object of this Court's adjudication is as stated in the above purport of the claim and appeal. 208

The revocation of the disposition related to corporate tax shall be limited to the claim.

2. Details of the disposition;

A. The plaintiffs, who are married couple, are all shareholders of the BB on December 1, 2008,CC (10,000 shares) and D

(9,000 shares) from BB to 10,00 shares (20,000 shares) are transferred to each of the 10,000 shares, and from December 2, 2008 to September 27, 2010, Plaintiff EE was registered as director of BB, and Plaintiff Kim Jong-soo as representative director of BB.

(b) The Director of the OOO chief shall be FF Co., Ltd. (hereinafter referred to as the "F").

On November 25, 2008, BB revealed that the transfer of FF’s shares 2,380 shares (amount of KRW 10,000 per share) owned by BB to GG, who is a lineal ascendant of D, to KRW 5,00,00 (hereinafter referred to as “transfer of this case”, and 2,380 shares of the above shares are subject to transfer) and that BB transferred the above shares at a low price to GG, who is a person with a special relationship, the calculation method was denied by deeming that BB transferred the above shares at a low price, and accordingly, it was notified the Defendant of the disposal of the disposition of the income by adding the amount of KRW 615,54,160 at the market price of the above shares (=2,380 x 2,58,632 won per share) and the amount of KRW 5,500,000 per share to gross income.

C. On August 1, 2012, the Defendant notified BB of the rectification of KRW 171,521,490 of the corporate tax attributed to the business year 2008, but BB failed to pay it due to the reasons such as non-property. On November 12, 2012, the Defendant, on the ground that BB’s oligopolistic shareholder was the second taxpayer, notified the Plaintiffs to pay the amount of KRW 90,391,80 (corporate tax attributed to the business year 2008) equivalent to 50% of their respective shares (hereinafter “instant disposition”).

D. Accordingly, on January 25, 2013, the plaintiffs filed an objection, and on February 21, 2013, the director of the Busan Regional Tax Office assessed the value per share of FF shares 2,380 won transferred to GG by BB to KRW 84,246, and the corporate tax was corrected by applying the unfair calculation denial rule to the difference between the transfer price of KRW 5 million. Based on this determination, the second notified tax amount against the plaintiffs was corrected. The defendant around that time corrected the notified tax amount to the plaintiffs as KRW 14,667,690 for corporate tax belonging to the business year 2008 (hereinafter "instant corrective disposition").

E. On May 15, 2013, the Plaintiffs appealed to the Tax Tribunal, but dismissed on November 29, 2013, the Plaintiffs filed the instant administrative litigation.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 6, Eul evidence 1 to 7 (including each number), the purport of the whole pleadings

3. It is ex officio to determine whether the part concerning the revocation of the designation and disposition of the secondary taxpayer among the lawsuit in this case is legitimate or not, in view of the legitimacy of the part concerning the revocation of the designation and disposition of the secondary taxpayer in this case.

The secondary tax liability pursuant to Article 39 of the Framework Act on National Taxes is abstractly established by the occurrence of a fact that meets the requirements such as the main taxpayer’s default, and specific confirmation is made by a notice of payment. Since the secondary tax liability is not determined by itself, the designation disposition of the secondary taxpayer is not yet finalized, such designation disposition cannot be deemed an administrative disposition that is subject to appeal litigation (see, e.g., Supreme Court Decision 95Nu6632, Sept. 15, 1995).

Therefore, the second tax payment among the disposition related to corporate tax in 2008 among the plaintiffs' lawsuits of this case

The part seeking the revocation of the designation of the obligor is unlawful.

4. Judgment on the merits

A. The plaintiffs' assertion

The instant disposition shall be revoked on the grounds that it is unlawful for the following reasons.

1) The actual transaction value per share of F on or around June 2008, the transfer of this case, 500

The transfer price in this case is based on objective market price, and the transfer price in this case is not subject to the avoidance of wrongful calculation, in view of the fact that the F is merely the source, and the F is the time of the occurrence of the enemy.

2) The instant transfer has already been made byCC, DD, etc. to the Plaintiffs in entirety.

After entering into an agreement to transfer the subject matter of this case to GG, who is a lineal ascendant at the low price at the 5th day before the transfer date, the transfer date is ① infringing the interest of BB and thus cannot be deemed as the act of BB, and ② GG, which is only a lineal ascendant such asCC and D, which already decided to transfer the entire shares of BB to the Plaintiffs, does not constitute a specially related person of BB, and thus, it is not subject to the avoidance of wrongful calculation.

3) Even if the instant transfer is subject to the avoidance of wrongful calculation, other company arising therefrom.

Although the amount disposed of as outflow or other income should be included in the calculation of losses, it constitutes double taxation and violates the substance over form principle.

4) A disposition imposing corporate tax on BB due to the denial of wrongful calculation is legitimate, even if it is legitimate:

The transfer date of this case was not an oligopolistic shareholder of BB at the time of November 25, 2008, and it is unreasonable to designate the plaintiffs who did not participate in the transfer of this case as the secondary taxpayer and impose corporate tax, etc. in arrears by BB as the secondary taxpayer.

(b) Related statutes;

The entry in the attached Form is as specified in the relevant statutes.

C. Facts of recognition

1) The person holding F’s shares shall be as to the garage of 0.1 square meter per share.

BB acquired the subject matter of the instant transfer from H on April 30, 2007 to KRW 5,000 per share (the face value of KRW 10,000), the total value of KRW 11,90,000 per share (=5,000 x 2,380).

2) FF decided on December 1998, 1998, and enforced June 2004, 1999, commencing business in 1990.

After the decision of approval, losses were continuously occurred until 2006 as shown in the table 1 below.As a result of the receipt of loans of KRW 24,623,543,407 (income from debt exemption) and subsidies of KRW 1,500,000 (income from debt increase) from the KJ for the loan of KRW 24,623,543,407 (income from debt exemption), which is the principal creditor of the KJ in 2007, 22,128,000,000 prior to the corporate tax deduction, but the losses were incurred again in 208 and 2009, and the profits accrued after 2010.

(E) Before deducting the F’s corporate tax, etc.

(unit: million won)

year of classification 2005 2006 2007 2008 2009 2010 2011

Sales 3,250 3,405 2,886 1,744 1,957 2,155 2,311

-1,530 -1,480 22,128-76 -285 73151

Profit rate (%) - 766 - - 3.3 6.5

3) The status of FF’s acquisition of shares from 2007 to 2014 shall be as shown in [Attachment Notes].

This is the same as the table of the current status of food acquisition.

[Ground of recognition] Facts without dispute, Eul's statements Nos. 3 and 12, fact inquiry results against FFFFFF corporation in the party's trial, the purport of the whole pleadings

D. Determination

1) The rejection of wrongful calculation under Article 52 of the former Corporate Tax Act is in a special relationship with the corporation.

In cases where tax burden is deemed to have been unjustly avoided or reduced by abusing the various forms of transactions listed in each subparagraph of Article 88(1) of the former Enforcement Decree of the Corporate Tax Act without using a reasonable method with a person having a special relationship, the taxation authority is deemed to deny it and have income objectively and reasonably deemed reasonable by the method prescribed by statutes. In light of the economic person’s perspective, it shall apply only to cases where it is deemed that the economic rationality has been undermined by calculating an unnatural and unreasonable act. Determination of economic rationality shall be based on whether the transaction lacks economic rationality in light of sound social norms and commercial practice (see, e.g., Supreme Court Decisions 2005Du14257, Dec. 13, 2007; 2008Du1541, Oct. 28, 2010). Meanwhile, the former Enforcement Decree of the Corporate Tax Act provides for the relevant transaction with a person having a special relationship with a person with a special relationship, who is not a party with a special relationship with the former, for the purpose of unfair calculation.

2) In light of the above legal principles, the health team, the above-mentioned facts, and the above-mentioned facts

Comprehensively taking account of the following circumstances revealed in full view of the purport of the entire pleadings, it is insufficient to view that the transfer of this case constitutes the ground for denial of wrongful calculation solely on the basis of the result of the assessment of the subject matter of transfer by a supplementary method as prescribed by the Inheritance Tax and Gift Tax Act, that the value corresponds to KRW 84,246 per share, and that the transfer of this case constitutes the ground for rejection of wrongful calculation.

Therefore, the disposition of this case is unlawful (as long as the disposition of this case is illegal, the rest of the plaintiffs

No determination shall be made on the assertion.

(1) FF shall be entitled to exemption from liability in 2007 and to any gains accruing from the receipt of assets on financial statements.

Although there was a benefit of the Si before 2010, the company's situation was not good even in 2008 where the transfer of this case was made.

(2) The acquisition price per FF's per stock even in 2007, for which sericultural profits have accrued.

It was traded in KRW 500-10,000, and around 5 months prior to the transfer of this case in 2008, it was traded in KRW 500 per share in the KK KK KK KK LA and in KRW 500 per share (the defendant did not prove that the above transaction was not "the price generally traded among third parties who are not related parties") and most of the profits were traded in KRW 1,00-10,000 after 2010.

③ BB acquires the subject matter of this case at KRW 5,000 per share on April 30, 2007;

On November 25, 2008, KRW 2,101 per share was transferred to 2,101 per share, and around June 2014, the number of shares (2,380 shares) deemed to be subject to the transfer of this case was sold at KRW 15,295 per share in the auction procedure. In any case, the difference between KRW 84,246 per share assessed by the Defendant according to the supplementary method of the Inheritance Tax and Gift Tax Act and KRW 84,246 per share is significant.

(4) A person who owns FF’s stocks shall load the F’s stocks on a garage of 0.1 square meter per share.

It is possible to enter into a contract for such use, which is, even if the value of shares is increased, all the transaction details of the attached Form 84,264, which are calculated by the defendant, are larger than that of the defendant.

5. Conclusion

Therefore, the part of the lawsuit of this case which seeks the revocation of the designation of the secondary taxpayer among the dispositions related to corporate tax in 2008 is unlawful, and thus the remaining claims shall be accepted with merit. Since the judgment of the court of first instance is partially unfair with different conclusions, it is so decided as per Disposition by accepting part of the plaintiff's appeal and cancelling part of the judgment of the court of first instance.