It is reasonable to impose gift tax on the contribution of stocks exceeding 5% because the special relationship between the contributor and domestic corporation is recognized.

It is reasonable to impose gift tax on the contribution of more than 5% of the total issued shares of domestic corporations because the contributor and the domestic corporation are recognized as a special relationship by meeting the requirement of shareholder and the largest shareholder of domestic corporation.

Article 16 of the Inheritance Tax and Gift Tax Act

revocation of revocation of disposition imposing gift tax, etc. in Suwon District Court 2017Guhap6961

AAAAA Foundation, a foundation

BB Director of the Tax Office

February 27, 2018

March 22, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 00,000,000, which was made on November 7, 2016 against the Plaintiff, shall be revoked.

1. Details of the disposition;

A. The Plaintiff received a contribution of 00,000,000 shares equivalent to the total appraised value of 00,000,000 (hereinafter “instant shares”) from KimD (hereinafter “Contributor KimD”) who is the representative director of the CCC Co., Ltd. (hereinafter “the instant domestic corporation”), and completed the establishment registration on September 30, 2009, pursuant to the Act on the Establishment and Operation of Public Interest Corporations, the Plaintiff obtained the establishment permission and completed the establishment registration on October 22, 2009.

B. On October 22, 2009, the Defendant: (a) deemed that a public-service corporation provided for in the proviso of Article 48(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Act”) with respect to the Plaintiff’s contribution of stocks of the instant domestic corporation constituted a case where stocks were contributed in excess of 5/100 of the total number of issued voting stocks of a domestic corporation; and (b) decided and notified the Plaintiff corporation of the disposition of imposition of gift tax of KRW 00,000,000 (including additional tax of KRW 00,000,000) with respect to the excess portion (hereinafter “instant disposition”).

C. After doing so, the Defendant issued a decision to correct the amount of more than KRW 00,000,000 upon ex officio revocation of the instant disposition. The instant disposition became more than KRW 00,000,000.

1) The Plaintiff stated in the instant claim as of November 10, 2016 as the disposal date. However, according to the evidence No. 2-2, it is recognized that the date when the Plaintiff receives a notice of gift tax at the seat of its principal office on November 7, 2016, the date when the Plaintiff received the notice of gift tax at the seat of its principal office is deemed to have been written in writing. The entry of the purport of the claim

D. On February 5, 2017, the Plaintiff corporation, who was dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on February 5, 2017, but the appeal was dismissed on August 21, 2017.

Facts that there is no dispute for recognition, described in Gap's evidence 1 through 4 (including branch numbers), and the purport of the whole pleadings.

2. Relevant statutes;

It is as shown in the attached Form.

3. Whether the instant disposition is lawful

A. The parties' assertion

The defendant asserts that the disposition of this case is lawful on the grounds of the disposition and the relevant statutes. The plaintiff asserts that the disposition of this case is unlawful as follows.

1) Since the equity ratio of the contributor KimD’s share to the instant domestic corporation upon the instant share contribution does not meet the largest shareholder requirement as the share ratio has been reduced to 20 percent, the special relationship between the contributor KimD and the instant domestic corporation is not recognized (hereinafter “the first share”), and the relationship between the plaintiff corporation and the contributor KimD is not recognized (hereinafter “the second share”).

2) After its establishment, the Plaintiff was engaged in the public business in good faith, which is the purpose of its establishment.

On September 28, 2017, a resolution was made to restrict voting rights to the shares of this case that the plaintiff owned at the general meeting of shareholders of the domestic corporation of this case and to provide preferential dividends to the shares of this case. The contributor KimD does not contribute to the shares of this case for the purpose of abusing it as a means of control over the domestic corporation (hereinafter referred to as "third share").

B. Whether the instant disposition is lawful

1) Relevant legal principles

In full view of the provisions of Article 48(1) and the proviso of Article 16(2) of the Act, even if the shares of a domestic corporation contributed to a public-service corporation exceed 5/100 of the total number of shares issued by the domestic corporation, in order to impose gift tax on the shares contributed, ‘special relationship between the contributor and the domestic corporation

In this regard, Article 13(7) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter referred to as the "Enforcement Decree") provides that "domestic corporations that do not have a special relationship with the contributor of the relevant public-service corporation" under the proviso of Article 16(2) of the Act refers to domestic corporations that do not fall under any of the following subparagraphs, and subparagraph 1 of the same Article provides that "the contributor or a person in a special relationship with the contributor (referring to a person in a relationship under any of the subparagraphs of paragraph (9) with the contributor, excluding the relevant public service corporation, etc.), or a stockholder, etc. (referring to a person in a special relationship with the contributor, etc.) who is in a special relationship with the contributor (referring to a person in a relationship falling under any of each subparagraph of paragraph (9) of the same Article) which meet all the requirements for the largest shareholder of the relevant public-service corporation:

Therefore, it can be seen that there is a special relationship between a contributor and a domestic corporation meeting all the above requirements for shareholders, and only in such a case, gift tax can be imposed on the shares of a domestic corporation contributed to a public-service corporation.

Furthermore, in case where the shares contributed to a public-service corporation are the shares of a domestic corporation whose aggregate amount of shares held by the contributor and a person having a special relationship with the contributor (hereinafter referred to as the "Contributor, etc.") is the largest amount of shares, such shares can be affected by the public-service corporation through the influence of dividends, etc. based on the control over the domestic corporation, and thus, the inheritance tax or gift tax can be avoided by the means of stock contribution to the domestic corporation. Therefore, it is understood that this provision has been established to prevent such harm. Therefore, whether the shares fall under the largest shareholder requirement should be determined at the time after the contribution was made, rather than at the time of the contribution. Although shares were made before the contribution, if the contributor lost his status as the largest shareholder due to the contribution, it cannot affect the public-service corporation based on the control over the domestic corporation, and it cannot be used as the means of control over the domestic corporation.

As can be seen, the proviso of Article 16(2) of the Act, which is a non-taxable requirement for excluding the application thereof, should also be deemed to be determined at the time of contribution. Therefore, the “large shareholder requirement” as a basis for determining whether a contributor and a domestic corporation have a special relationship, ought to be determined at the time of contribution, rather than at the time of contribution (see Supreme Court Decision 2011Du21447, Apr. 20, 201).

2) Determination as to the first proposal

According to the proviso to Article 16(2) of the Act, Article 13(7)1 and (9)1 of the Enforcement Decree of the Act, and Article 20 subparag. 5 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 22038, Feb. 18, 2010), since the spouse MF of the contributor KimD is a related person of KimD, it should be determined whether the shares of the instant domestic corporation held by the MF are met by aggregating the shares held by the Contributor KimD.

In this case, 35 percent of the shares of the domestic corporation of this case in 2010 were owned by 35 percent of the shares of the domestic corporation of this case in the statement of the changes in stocks, etc. of this case, the shares of this case equivalent to 15 percent of the shares of the domestic corporation of this case were contributed to the domestic corporation of this case on October 22, 2009, and the shares ratio became 20 percent. The sum of 14 percent of the shares ratio of the domestic corporation of this case held after October 22, 2009 as above is 20 percent of the shares ratio of the domestic corporation of this case and 34 percent if the sum of 14 percent of the shares ratio of the 20 percent of the 20 percent capital ratio of the domestic corporation of this case (20 percent + 14%) as the largest shareholder is not in dispute between the parties, and thus, the requirements for shareholders and the largest shareholder for the recognition of special relation between KimD and the contributor of this case are all satisfied.

3) Determination on the second proposal

Considering whether a public-service corporation is a person with a special relationship with a contributor, it is necessary to judge the requirements for the largest shareholder of the pins contributor, etc. prior to the determination of whether the public-service corporation is the person with a special relationship (where the special relationship is acknowledged between the person with the contributor and the public-service corporation, the shares of the domestic corporation contributed by the public-service corporation should be determined by summing up those shares when determining the requirements for the largest shareholder). As above, the Plaintiff’s assertion on this part is without merit, since the sum of shares of the spouse FF invested KimD

4) Determination as to the third proposal

In light of the principle of no taxation without law, or the requirements for non-taxation or tax reduction and exemption, the interpretation of tax laws and regulations shall be interpreted as the text of the law, barring special circumstances, and it shall not be allowed to expand or analogically interpret without reasonable grounds (see Supreme Court Decision 2012Du3972, Jul. 5, 2012).

As seen earlier, the instant disposition on the instant case satisfies the taxation requirements under the relevant laws and regulations. The mere fact that there was no intention to use it as a means of control over the instant domestic corporation at the time of contribution to the instant shares, or there was no abuse as a means of control ex post facto, cannot be deemed as satisfying the non-taxation requirements prescribed in the relevant laws and regulations.

4. Conclusion

Thus, the plaintiff's claim seeking revocation of the disposition of this case is dismissed as it is without merit.