Cho High Court Decision 2015No504 (2016.03)

Of the requirements for major shareholders of capital gains tax, the market price of at least 10 billion won does not distinguish between common shares and preferential shares.

There is no express provision that restricts the stocks subject to taxation from the large shareholder of listed stocks to ordinary shares, and there is no reason to exclude preferential shares for the purpose of legislation.

Article 92 (Scope of Transfer Income Tax)

Enforcement Decree of the Income Tax Act Article 94 (Scope of Securities Prepaid Securities and Large Stockholders)

2016Gudan5976 Revocation of Disposition of Imposing capital gains tax

leAA

The head of Yangcheon Tax Office

March 22, 2017

April 12, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

Defendant on August 1, 2015, OO, OO, OO, and 201 for the transfer income tax belonging to the year 2010 for the Plaintiff.

Imposition of transfer income tax belonging to OO,OO,OO, andOO on each disposition of transfer income tax belonging to year 2012;

all of each subparagraph shall be revoked.

1. Details of the disposition;

A. The Plaintiff owned common shares and preferential shares of a stock-listed corporation BBB (hereinafter “instant company”) under the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”). However, the total market price of the instant company’s shares was at least ten billion won, including the Plaintiff’s husband, two children, and two common shares and preferential shares owned by the Plaintiff as of the end of each business year of 2009, 201, and 201, and the Plaintiff’s common shares and preferential shares owned by the Plaintiff and its specially related parties under Article 1-2(1) of the Framework Act on National Taxes (hereinafter “specially related parties”).

B. On August 1, 2015, the Defendant disposed of each of the shares of the instant company in 2010, 201, and 2012, and disposed of each of the shares of the instant company in 2010, and determined that each of the shares of the major shareholders, as stipulated by Article 94(1)3(a) of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014); Article 157(4)2 of the Enforcement Decree of the former Income Tax Act (amended by the former Income Tax Act and the Enforcement Decree of the same Act (hereinafter “the former Income Tax Act and the same Enforcement Decree”) was “income accruing from the transfer of shares of the major shareholder who owns shares of at least ten billion won in total at the market price; and on August 1, 2015, the Defendant rendered a decision and disposition of the capital gains tax for the Plaintiff in 2010,O,OO,O, 2012,O(hereinafter “instant”).

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on November 6, 2015, but the Tax Tribunal dismissed the Plaintiff’s appeal on June 3, 2016.

[Reasons for Recognition] No. 1-3, Gap evidence No. 2-2, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

Of the “income from the transfer of shares by a major shareholder who owns shares of at least 10 billion won in total,” the “stocks” as stipulated in the instant provision means only common shares, and even if not, whether a shareholder is a major shareholder shall be determined by dividing into common shares and preferential shares, and shall not be determined by aggregating common shares and preferential shares. However, as of the end of each business year of 209, 2010, and 201, the total market value of common shares and preferential shares owned by both the Plaintiff and related parties as of the end of each business year of 2009, 201, did not reach KRW 10 billion. Accordingly, the Plaintiff’s disposal of the instant shares on a different premise is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

In full view of the following circumstances, the Plaintiff’s above assertion cannot be accepted, and the instant disposition is lawful.

1) The instant provision does not explicitly state a provision that limits “stocks” to common shares.

Article 94 (1) 3 (a) of the former Income Tax Act provides that a major shareholder shall be transferred in consideration of the ratio of stocks owned and the total market value of stocks owned by a stock-listed corporation under the former Capital Markets Act as a taxable object of capital gains tax, and Article 94 (1) 3 (a) of the former Income Tax Act provides that a stock-listed corporation and a major shareholder shall be determined only on the basis of common shares. As such, Article 9 of the Capital Markets Act provides that a stock-listed corporation shall be determined on the basis of common shares, the provision of this case shall be deemed to limit shares to common shares. Thus, Article 94 (1) 3 (a) of the former Income Tax Act provides that the scope of a major shareholder shall be delegated to the Presidential Decree. If the "Capital Markets Act" defines a major shareholder as a taxable object of capital gains tax, it is clear that there is no room to apply Article 157 (4) of the former Enforcement Decree of the Income Tax Act, which stipulates the scope of a major shareholder under the delegation of the former Income Tax Act.

2) Even if considering the legislative intent of the instant provision, there is no reason to interpret “stocks” only as ordinary shares and exclude preferential shares.

The legislative intent of the instant provision is to promote the equity in taxation in cases where other assets, such as the prevention of modified donation using listed stocks and real estate, are transferred (the Constitutional Court en banc Decision 2012Hun-Ba355 Decided February 26, 2015). Although there is no voting right in the first place, it is impossible to control a corporation through the first place of residence because of the absence of voting right, 'an modified donation using listed stocks' does not necessarily have any reason to regard only before the change of management right of the corporation (e.g., it is difficult to deem that a person holding 10 billion won common stocks of the 10 trillion won total market value, but it is also difficult to deem that he/she has a management right of the relevant corporation when he/she appears to have only the share ownership ratio, and as long as the first place of residence has property value, it shall be deemed that there is no reason to discriminate between the first place of residence and other assets, such as real estate, and the first place of common shares.

3) In addition, there is no express provision that whether the provision of this case is "large shareholder" or "large shareholder" or "large shareholder" or not, and even in light of the legislative intent of the provision of this case, there is no reason to interpret it.

The Plaintiff, for instance, issued a common share of KRW 20 billion and KRW 20 billion with a 6.3 billion common share, and the shareholder Gap owned a common share of KRW 6.15% (=63/2,000 x 100) of the total market value of the listed company A’s stocks when determining solely based on common share, the shareholder Gap owned 3.15% of the total market value of the listed company A’s stocks (i.e., 63/2,00 x 100). Thus, it constitutes a shareholder under Article 94(1)3(a) of the former Income Tax Act and Article 157(4)1 of the Enforcement Decree of the same Act. However, when determining based on the aggregate of common share and priority share, the shareholder Gap did not necessarily constitute a major shareholder under the control of the company A’s total market value, and thus, the Plaintiff’s assertion to the effect that the above provision was not inconsistent with the legislative intent of the Plaintiff’s provision to minimize the transfer of the listed stocks.

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.