Cho High Court Decision 201Do1323 ( October 28, 2011)

A related party shall be determined on the basis of a taxpayer and shall not be determined on the basis of the opposite contractual party.

A person with a special relationship subject to a wrongful calculation under the Income Tax Act shall be deemed to fall under only the person having a relationship under the provisions of the Act with the taxpayer on the basis of the taxpayer, and where a taxpayer has a legal relationship with the taxpayer on the basis of the other party, deeming the person as

Article 101 of the Income Tax Act

Article 98 of the Enforcement Decree of Income Tax Act

2011Guhap31802 Revocation of Disposition of Imposing capital gains tax, etc.

Six 2 others

Samsung Head of Samsung Tax Office and two others

February 3, 2012

March 9, 2012

1. On January 6, 2011, the imposition of capital gains tax of KRW 33,48,410 and securities transaction tax of KRW 1,746,280 shall be revoked by the head of Samsung Tax Office.

2. The plaintiff JeongB and JungCC's claims are dismissed, respectively.

3. Of the costs of lawsuit, the part arising between the Plaintiff Samsung Tax Office and the Defendant Samsung Tax Office shall be borne by the Plaintiff Samsung F&B, the Plaintiff JungB, the Plaintiff Jung PCC, and the Defendant Pyeongtaek Tax Office, and the Gangnam Tax Office, respectively.

On January 10, 2011, the disposition of imposition of gift tax of KRW 13,573,620, and the imposition of gift tax of KRW 6,786,810 on January 1, 201 by the head of Pyeongtaek-si Tax Office (hereinafter referred to as “Defendant 2”) and the head of Gangnam-gu Tax Office (hereinafter referred to as “Defendant 3”) on January 1, 201 shall be revoked.

1. Details of the disposition;

A. On November 13, 2007, the Plaintiff Company sold 4,000 shares of the non-listed corporation SP Co., Ltd. (hereinafter referred to as the “P”), and 20,000 shares of the PP (hereinafter collectively referred to as the “instant shares”) to the Plaintiff Company for 20,000 won per share (hereinafter referred to as the “instant shares”). On December 11, 2007, the Plaintiff Company reported and paid 7,821,000 capital gains tax and 60,000 capital gains tax to Defendant 1, respectively.

B. From September 1, 2010 to November 2, 2010, the director of the Seoul Regional Tax Office conducted a tax investigation on XX, and notified the Defendants of the taxation data, which assessed the value per share of the instant shares as 61,539 won, by deeming that the Plaintiff Company (a person with a special relationship) transferred the instant shares at a price lower than the market price to the Plaintiff CompanyB, and JungCC at a price lower than the market price, pursuant to Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”).

C. Based on the foregoing taxation data, on January 6, 201, Defendant LA respectively increased or decreased KRW 3,488,410 and securities transaction tax 1,746,280 (hereinafter “instant one disposition”). Defendant B imposed gift tax of KRW 13,573,620 on Plaintiff CB on January 10, 201, and Defendant C imposed gift tax of KRW 6,786,810 on Plaintiff PCC on January 1, 201 (hereinafter “instant two dispositions”).

D. On March 15, 201, the Plaintiffs were dissatisfied with each of the instant dispositions and filed a request for an inquiry with the Tax Tribunal on March 15, 201, but the said request was dismissed on June 28, 201.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1, 3, 5 through 9, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

1) Article 101(1) of the Income Tax Act is not applicable to the transfer of this case, since the Plaintiff Company is not the employee of the Plaintiff Company who is the taxpayer of the capital gains tax. Thus, there is no room for the transfer of this case, regardless of whether the transfer of this case is deemed to have unreasonably reduced the tax burden on the income.

2) Since the instant transfer was conducted at the same price as a normal transaction between the general public, the market price per share of the instant shares ought to be deemed KRW 20,000. Accordingly, each of the instant dispositions that calculated the market price of the instant shares is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) Plaintiff JeongB and Jung-CC are co-representatives of the “ XX parking lot” in Gangnam-gu Seoul Metropolitan Government, and Plaintiff Sin-A, as a parking manager of the above parking lot, is the co-representatives of XX at the same time as Plaintiff JungB and Jung-CC’s employees.

2) The largest shareholder PD on August 24, 2007 appraised and donated 34,000 shares of XX to EE, Plaintiff HabB, and Jung-CC, each of whom was her child, to KRW 20,000 per share.

3) The details of November 13, 2007 for shares are as follows:

4) 김FF는 XX의 이사, 지GG은 XX의 전 대표이사, 심HH은 원고 심AA과 남매로서 XX의 공동대표이사, 심KK은 심HH과 형제이고 정DD의 친구로서 XX의 감사, 정LL, 원고 정BB, 정CC은 정DD의 자녀, 박MM, 박OO은 정DD과 고등학교 동창이고 김PP은 정DD의 고등학교 동창 한QQ의 배우자이다.

5) In the above transaction, the transferor stated as follows in the process of determining the transfer share value at the time of investigation by the Seoul Regional Tax Office.

6) On the other hand, on November 26, 2007, the details of the transfer of Y shares to the O Industry Co., Ltd. are as follows.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 2, 4 through 8, Eul evidence Nos. 1, 2, and 4, the purport of the whole pleadings

D. Determination

1) Whether the instant one disposition is lawful

Article 101 (1) of the Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008; hereinafter the same shall apply) provides that "if it is deemed that any act or computation of a resident having any transfer income has reduced unreasonably the tax burden on such income due to any transaction with the resident and the related party, the head of the district tax office having jurisdiction over the place of tax payment or the director of the regional tax office having jurisdiction over the place of tax payment may calculate the income amount in the current year regardless of the resident's act or calculation. Article 98 (1) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034 of Feb. 18, 2010; hereinafter the same shall apply) lists the related parties, and Article 7 (1) 2 (a) of the Securities Transaction Tax Act (amended by Act No. 8838 of Jan. 9, 2008; hereinafter the same shall apply) provides that "if it is deemed that the share certificates, etc. under Article 101 of the Income Tax Act are transferred at a lower

As above, Article 101(1) of the Income Tax Act provides that the calculation of income amount shall be made subject to the avoidance of wrongful calculation if it is deemed that the tax burden on the pertinent income has been unjustly reduced due to a transaction with the specially related person, and Article 101(4) of the same Act delegates the scope of the specially related person to the Presidential Decree, and Article 98(1) of the Enforcement Decree of the Income Tax Act provides that the person in a relationship under any of the subparagraphs of Article 101(1) of the Income Tax Act is the specially related person. As such, the person in a relationship under any of the above subparagraphs shall be deemed the specially related person based on the person liable for tax payment under Article 101(1) of the Income Tax Act. On the contrary, deeming that the said person is the specially related person in a relationship under any of the above subparagraphs with the person liable for tax payment cannot be permitted against the language and text of Article 101(1) of the Income Tax Act. In addition, since the legislative policy is to determine the scope of the specially related person, the relevant provisions should not be widened by interpretation or analogical interpretation (see, 20182.

In light of the above legal principles, although the health team, Plaintiff JB, and Party A is in the position of employees of Plaintiff PB and Party A, Plaintiff PB, and Party B, based on Plaintiff PA, do not constitute a person with a special relationship under Article 98(1) of the Enforcement Decree of the Income Tax Act. As such, Plaintiff PA cannot be applied to the transfer of this case to Plaintiff PA, Article 101(1) of the Income Tax Act and Article 7(1)2(a) of the Securities Transaction Tax Act. Accordingly, the first disposition of this case on a different premise is unlawful without further review.

2) Whether the instant two dispositions are lawful

A) Article 35(1)1 of the Inheritance Tax and Gift Tax Act (amended by Act No. 8852, Feb. 29, 2008; hereinafter "the Inheritance Tax and Gift Tax Act") provides that "for a person who acquires any property from another person at a price lower than the market price, the amount equivalent to the difference between the price and the market price and the amount equivalent to the profits prescribed by the Presidential Decree shall be deemed as the value of donated property." Article 49(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "Where there is a transaction of the relevant property during the period of three months before or after the base date, the transaction price shall be deemed as the market price, but the same shall not apply where it is deemed that the transaction price is objectively unfair, such as the transaction price with the person with a special relationship." Article 60(3) of the Inheritance Tax and Gift Tax Act provides that "if it is difficult to calculate the market price, the market price shall be calculated based on the method under Articles 61 through 65, and Article 63(1(1)4 of the Enforcement Decree of the Inheritance Tax Act.

In addition, Article 60 (2) of the Inheritance Tax and Gift Tax Act provides that "the market price shall be the value that is generally accepted when a transaction is made freely between many and unspecified persons." The market price shall be an objective objective that excludes subjective elements, and (2) the transaction shall be formed through a transaction, and (3) the transaction shall be general and normal, and (4) the exchange value assessed according to the specific situation of the property at the base point of time shall be properly reflected.

B) In light of the above provisions and legal principles, the following circumstances can be acknowledged by comprehensively taking into account the purport of the entire pleadings as to the instant case, namely, (1) the value per share of the instant transfer is the same as the value applied at the time of donation of shares between the major shareholders of XX 80 days prior to the date of the purchase of shares; (2) the parties to the instant transaction on November 13, 2007 to the instant shares cannot be viewed as a transaction between unspecified and unspecified persons; (3) since the said transaction cannot be seen as a transaction between unspecified and unspecified persons; (4) the Plaintiff’s disposal of the instant shares by taking into account the details of the transferor’s statement on November 13, 2007; (4) the shares transaction was conducted on November 13, 2007; and (3) the Plaintiff’s disposal of the instant shares by taking into account the objective market value applied to the Plaintiff’s sale price per share between the Plaintiff and 13 days after the exchange of shares; and (5) the Plaintiff’s sale price per share.

3. Conclusion

If so, the plaintiff's claim is accepted on the ground of the reasons, and the plaintiff's claim of the plaintiff JungB and JungCC is dismissed on the ground of the reasons. It is so decided as per Disposition.