Cho Jae-2018-China-3584 ( November 29, 2018)

It is difficult to deem that the transfer of unlisted stocks to a remarkably low price was normal from the viewpoint of a reasonable economic person.

Inasmuch as there is no reasonable ground to believe that the transaction value of the instant case was properly reflected in the objective exchange value, it is reasonable to deem that the instant transaction is considerably low without justifiable grounds under Article 35(2) of the Inheritance Tax and Gift Tax Act.

Article 35 of the Inheritance Tax and Gift Tax Act (Donation, etc. of Profits from Transfer at Low or High Price)

2019Guhap62629 Disposition of revocation of imposition of gift tax

AA

○ Head of tax office

2019.19

November 14, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

Each disposition of imposition of gift tax of KRW 113,858,440, KRW 110,526,50, and KRW 98,745,550, which the Defendant imposed on the Plaintiff on November 13, 2017, shall be revoked.

1. Details of the disposition;

A. KK Co., Ltd. (hereinafter “instant company”) is an unlisted company established on October 26, 201 for the purpose of manufacturing and selling DNA compounds. The Plaintiff is the largest shareholder and the representative director of the instant company.

B. The changes in shares after the incorporation of the instant company are as follows:

Stockholders

“11.10.26

Establishment

"12.12.26.

Paid-in capital

‘13.05.24

Sales

‘15.05.04.

Sales

"15.11.30

Sales

Name

Relation

AA

Representative

4,000 Shares

4,000 Shares

4,200 Shares

4,850 Shares

10,000 Shares

BB

Other

-

2,000 Shares

2,000 Shares

1,350 Shares

-

CCC

Other

-

2,000 Shares

1,900 Shares

1,900 Shares

-

DD

Other

-

2,000 Shares

1,900 Shares

1,900 Shares

-

Total

4,000 Shares

10,000 Shares

10,000 Shares

10,000 Shares

10,000 Shares

The trading value per share;

5,000 won

5,000 won

5,000 won

50,000 won

50,000 won

C. On May 4, 2015, on November 30, 2015, the Plaintiff received 5,800 shares of the instant company from BB, CCC, and DD (hereinafter referred to as “the instant transferor”) for the total sum of KRW 50,000 per share of KRW 50,000 (hereinafter referred to as “the instant transaction value”) (=5,800 shares x 50,000 shares x 50,000 won) (hereinafter referred to as “the instant transaction value”), as indicated in the table, each of the following transactions is referred to as “one transaction”, and all of each transaction is referred to as “each of the instant transaction”).

No.

A transferor of shares

Details of transfer of stocks and shares;

Name

Transfer Date

Date of acquisition

Number of Stocks

1

DD

November 30, 2015

December 26, 2012

1,900

2

BB

on October 04, 2015

December 26, 2012

650

3

BB

November 30, 2015

December 26, 2012

1,350

4

CCC

November 30, 2015

December 26, 2012

1,900

guidance.

5,800

D. From June 19, 2017 to July 28, 2017, the director of the Central Regional Tax Office: (a) deemed that each of the instant transactions falls under a low-price transfer under Article 35 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”). The director of the Central District Tax Office, pursuant to the supplementary assessment method stipulated in Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act, and Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, assessed the value per share of the instant shares as at the time of each of the instant transactions as KRW 477,110, and deemed that the difference between the transfer price and the transferor was donated from the transferor, and notified the Defendant of the resolution on the imposition of gift tax, and notified the Plaintiff of the result of tax investigation that the Plaintiff would be notified of KRW 323,130,505.

E. Based on the above findings, on November 13, 2017, the Defendant notified the Plaintiff of KRW 113,858,440, each of the gift tax (No. 1,2 transaction), KRW 110,526,50 (No. 3 transaction), KRW 98,745,550 (No. 4 transaction) with respect to each of the instant transactions (hereinafter “instant disposition”).

F. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on July 31, 2018, and the Tax Tribunal dismissed the decision on November 28, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 5, 7, 8 (if any, including a serial number; hereinafter the same shall apply), Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The Plaintiff asserts that the disposition of this case is unlawful because it does not meet the requirements of Article 35(2) of the Inheritance Tax and Gift Tax Act as follows.

1) In order to secure the management right of the company of this case, the transferor of this case conducted each transaction of this case with free will by the parties, and each transaction of this case is normal transaction with proper exchange value reflected. In addition, the transferor of this case did not have any objection against the amount of the transaction of this case. Therefore, 50,000 won per share, which is the transaction value of this case, constitutes the market price of the shares of this case, and 477,110 won per share, based on the supplementary evaluation method stipulated in Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, reflects the adequate exchange value. Accordingly, the plaintiff does not constitute the acquisition of property at a price significantly lower than the market price.

2) The transferor of this case is an officer or employee of HHHHH (hereinafter “HHH”) or his spouse, who is the largest selling place of the company of this case. The Plaintiff engaged in each of the instant transactions in order to secure management rights for the company of this case and maintain stable customers, and the transferor of this case engaged in each of the instant transactions in consideration of the pertinent company’s management status and future anticipated performance. Accordingly, each of the instant transactions constitutes “justifiable cause” under Article 35(2) of the Inheritance Tax and Gift Tax Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the transaction value of the instant case can be seen as the market price

A) Relevant laws and legal principles

Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter the same shall apply) and the main sentence of Article 60(1) provides that “The value of an asset on which inheritance tax or gift tax is levied under this Act shall be based on the market price as of the date on which the inheritance date commences or the donation date (hereinafter referred to as “date of appraisal”).” Paragraph (2) of the same Article provides that “The market price under paragraph (1) shall be the value generally recognized as established if transactions are made freely between many and unspecified persons and shall include those recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public sale price, and appraisal price.” Article 49(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter the same shall apply) provides that “the value of the asset recognized as the market price shall be excluded from the trading price under Article 60(1).

According to each of the above provisions, even in cases of unlisted stocks with low market value, where there is a transaction fact, the transaction value shall be deemed the market value and the stock value shall not be evaluated by the supplementary assessment methods stipulated in the Inheritance Tax and Gift Tax Act. However, in order to recognize the transaction example as the market value, the market value means the objective exchange value formed by the general and normal transaction. As such, the circumstances that can be seen as properly reflecting the objective exchange value at the time of the transfer date by means of the general and normal transaction should be acknowledged (see, e.g., Supreme Court Decision 2010Du26988, Apr. 26, 2012).

B) Specific determination

In light of the above facts, the Plaintiff’s assertion that the acquisition of the shares of this case was conducted through a series of processes related to securing management rights of the instant company, namely, the Plaintiff’s acquisition of the shares by taking account of the following facts: (a) CCC and BB’s employees, the maximum sales place of the instant company; and (b) DD’s denial of directors, based on consultation with the tax accounting corporation in the process of taking over the shares of this case; and (c) the Plaintiff did not submit any supporting document calculated at all; (d) the Plaintiff’s acquisition of the shares of this case by taking account of the fact that it was difficult for the Plaintiff to receive an objective assessment method of the gift tax return and the Plaintiff’s acquisition of the shares of this case as KRW 50,00 per share; and (e) the Plaintiff’s acquisition of the shares of this case by taking account of the fact that it was difficult for the Plaintiff to receive an assessment of the market value of non-listed shares of this case by taking account of the fact that there was an objective assessment method of the Plaintiff’s tax return and the gift tax base return.

(ii) the existence of justifiable reasons for transaction practice;

A) Relevant laws and legal principles

The legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Act”) is to cope with and promote fairness in taxation by imposing gift tax on the profits acquired by the counterparty in a case where profits equivalent to the difference between the price and the market price are de facto gratuitously transferred by means of manipulating the transaction price for the benefit of the counterparty. However, since the difference between the price and the market price is general in the trades between unrelated parties, it is difficult to deem that the difference was donated to the counterparty solely on the ground that there is a difference between the price and the market price, it is difficult to view that there is no justifiable reason to view that the transaction between unrelated parties would have been 30,000 if there is no justifiable reason to view that there is no reasonable reason to believe that there is no reasonable reason to believe that there is no legitimate reason to believe that there is no legitimate reason to believe that there is no legitimate reason to believe that there is an objective reason to exclude the transaction value at the time of the transaction between the parties.

In an administrative litigation seeking revocation of a taxation disposition on the grounds of illegality, the tax authority bears the burden of proving the legality of the taxation disposition and the existence of the taxation requirement fact. As such, in the transaction between unrelated parties, the burden of proving that there is no justifiable reason as prescribed by Article 35(2) of the Act in light of the transaction practice between unrelated parties is also the principle that the tax authority bears the burden of proving that there is no justifiable reason. However, if the tax authority is a reasonable economy, it can prove that there is no justifiable reason for the transaction practice by submitting the data on objective circumstances, etc. that the transaction would not have been traded under such transaction conditions under the circumstances at the time of the transaction. If such circumstance is proved to a considerable extent, it is necessary to prove that there is a special circumstance that the taxpayer is easy to submit specific data on the transaction circumstance, the reason for determining the transaction conditions, etc. in light of the difficulty of proof and the concept of fairness (see Supreme Court Decision 2013Du2495, Feb. 1

B) Specific determination

In this case, there is no dispute that the Plaintiff and the transferor of this case did not have a special relationship. Furthermore, considering the following circumstances revealed by adding up the respective descriptions in the evidence Nos. 4, 5, and 7 and the purport of the entire pleadings as seen earlier, the transaction value of this case is merely about 11% of the appraised value of 477,110 won per share calculated according to the supplementary evaluation methods. As of the end of 2014 of the company of this case, the surplus of non-dispositionable profits was reached in KRW 1,724,08,424. Nevertheless, the transferor of this case renounced the right to receive dividends and transferred the shares of this case. The Plaintiff asserted that the transferor of this case transferred the shares of this case under a reasonable judgment following the reduction of sales sales in 2015, but it is difficult to view that the occurrence of net losses was predicted only by the reduction of sales sales, it is not sufficient to accept the Plaintiff’s assertion that there was any other special circumstance that the Plaintiff had not been a trade in this case.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.