The burden of proving that the nominal owner of the relevant property is different from the actual owner due to the existence of an agreement on the establishment of title trust, in cases where the provisions on deemed donation of trust property under the name of the nominal owner under Article 45-2 (1) of the former Inheritance Tax and Gift Tax

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) provides that “The provisions on deemed donation of trust property under the name of an actual owner and the nominal owner are different in cases of property requiring registration, etc. for the transfer or exercise of rights.” In such cases, the tax authority should prove that the nominal owner of the relevant property is different from the actual owner due to the existence of an agreement on the establishment

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

Plaintiff (Law Firm Jinjin, Attorneys Gangnam-gu et al., Counsel for the plaintiff-appellant)

head of Dongjak-gu Tax Office

Seoul High Court Decision 2016Nu35894 decided November 23, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The provisions on deemed donation of trust property under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) apply to cases where the actual owner and the nominal owner are different in property that requires registration, etc. for the transfer or exercise of rights. In such cases, the tax authority should prove that the nominal owner of the relevant property differs from the actual owner due to the existence of an agreement on the creation of title trust between the parties

2. According to the reasoning of the lower judgment and the record, ① the Plaintiff acquired 3,516,971 shares issued by a social gathering electronics Co., Ltd. (hereinafter “former Social Support”) on March 28, 2008 (hereinafter “former Social Support”); ② on December 30, 2009, India acquired 4,984,436 shares of registered ordinary shares issued by the Nonparty (hereinafter “instant shares”) from the Nonparty’s largest shareholder (16.35%) of the financial holding ratio of the Plaintiff’s major shareholder; ③ on December 30, 2009, India used 9.3 billion shares issued by the Plaintiff’s financial holding company to borrow KRW 9.35 billion from the Plaintiff’s financial holding company as collateral, and calculated the remaining shares out of 208 shares issued by the Defendant as short-term securities holding company as collateral, ④ 208 shares issued in the name of the Defendant’s financial holding company and counted 18.4 shares in the instant shares out of 208 shares.

3. Examining these factual relations in light of the legal principles as seen earlier, as long as Postech was able to participate in the management as the largest shareholder of a nasium electronic event upon borrowing the Plaintiff’s funds to acquire the instant shares, and actually offered the instant shares as collateral or sold them to use them for its own business purposes, such as repayment of principal and interest of loans, it is reasonable to deem that the actual owner of the instant shares is not the Plaintiff.

Nevertheless, the lower court determined otherwise on the grounds stated in its reasoning that the Plaintiff was in title trust with the shares of this case. In so doing, the lower court erred by misapprehending the legal doctrine on the requirements for applying the provision on constructive gift for title trust, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-dae (Presiding Justice)