Article 32-2(1) of the former Inheritance Tax Act and Article 41-2(1) proviso of the former Inheritance Tax and Gift Tax Act with the burden of proving that there was no purpose of tax avoidance (i.e., the nominal holder), the degree of proof, and whether the actual owner may avoid the application of the provision on presumption of gift solely on the fact that there was no purpose of tax avoidance (negative)

Article 32-2(1) of the former Inheritance Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996; see current Article 45-2(1) of the Inheritance Tax and Gift Tax Act); Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 6780, Dec. 18, 2002; see current Article 45-2(1))

Supreme Court Decision 99Du2192 Decided July 23, 199 (Gong199Ha, 1818) Supreme Court Decision 2004Du1421 Decided June 11, 2004 (Gong2005Sang, 211) Supreme Court Decision 2004Du7733 Decided May 12, 2006 (Gong2006Sang, 106Ha, 2016) Supreme Court Decision 2004Du11220 Decided September 222, 2006 (Gong206Ha, 2016)

Plaintiff 1 and two others (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

Head of the distribution tax office and two others (Government Law Firm Corporation, Attorneys Gu Chungcheong-gu et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2010Nu4591 decided October 8, 2010

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Based on the reasoning of the judgment of the court of first instance, the court below acknowledged the fact that the non-party, who is a substantial founder of a new business company (hereinafter "new business"), participated in each of the shares issued by new business in the name of the plaintiffs and paid the subscription price under the name of the plaintiffs while holding 27,480 shares in total among the shares issued by new business, and held that each of the shares issued by new business was trusted by the non-party to the plaintiffs, and thus, each of the shares issued by new business issued by new business in this case constitutes a trust with the plaintiffs. Thus, the court below held that the shares issued by new business issued by new business in this case constitutes a deemed donation under Article 32-2 (1) of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193 of Dec. 30, 1996) or Article 41-2 (1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002

In light of relevant regulations, legal principles, and records, the judgment of the court below is just and it is not erroneous in the misapprehension of legal principles as to the constructive gift of title trust property, which affected the conclusion of the judgment, as otherwise alleged in the ground of appeal.

2. As to the grounds of appeal Nos. 2 and 3

The legislative purport of Article 32-2(1) of the former Inheritance Tax Act and Article 41-2(1) of the former Inheritance Tax Act is to recognize exceptions to the principle of substantial taxation to the purport that effectively prevent tax avoidance by using the title trust system and realize tax justice. Thus, the proviso of the same Article can only be applied unless the purpose of tax avoidance is not included in the purpose of title trust. In this case, the burden of proving that no purpose of tax avoidance exists (see, e.g., Supreme Court Decisions 9Du2192, Jul. 23, 199; 2003Du13649, Dec. 23, 2004). Accordingly, with respect to the absence of the purpose of tax avoidance, it may be proven by means of proving that there was another purpose of tax avoidance, not by the purpose of tax avoidance, but by means of proving that there was no objective and objective purpose of tax avoidance in the future (see, e.g., Supreme Court Decision 200Du733, May 12, 2006).

In the same purport, the court below is just in holding that the purpose of the title trust and the corporate disclosure preparation, etc. conducted before the establishment of the new management company prior to the title trust in this case, is not directly related to the title trust in this case, and there is no proof by the plaintiffs as to the fact that the title trust in this case was conducted for a clear purpose other than the purpose of tax avoidance, and thus, it cannot be said that there is no purpose of tax avoidance in this case. There is no error of law by misapprehending the legal principles as to the degree of proof of the purpose of tax avoidance or the principle of determination, which affected the conclusion

3. As to the fourth ground for appeal

The plaintiffs asserted to the effect that the tax amount does not exceed the scope of profit based on the actual transaction price, and thus, the part of the constructive value or the amount of gift tax on each of the shares issued with new stocks exceeds the amount paid by the non-party as the acquisition price of new stocks is unlawful. However, this cannot be a legitimate ground of appeal since the non-party first asserted in the final appeal. Further, as seen above, since the non-party trusted the shares issued with new stocks to the plaintiffs, it is reasonable to evaluate the gift value as the value of each of the shares issued with new stocks (see Supreme Court Decision 2004Du1120, Sept. 22, 2006). The above assertion is contrary to the premise that the gift value under the title trust of this case should be deemed the amount paid as the acquisition price of new stocks, and thus, it cannot be accepted.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)