Requirements for the recognition of transaction examples of unlisted stocks as market price

Article 60(1), (2), and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 49(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 20621, Feb. 22, 2008)

Supreme Court Decision 2010Du26988 Decided April 26, 2012 (Gong2012Sang, 900)

Plaintiff (Attorney Jeong Byung-chul et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2012Nu13155 decided October 12, 2012

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. After compiling the evidence adopted, the lower court determined as follows: (a) it is reasonable to view that the Plaintiff was in the position of KRW 2,00,000 of shares issued by MPC (hereinafter “MP”) on August 9, 207 and KRW 2,000,000, and the acquisition of the right to manage shares and KRW 12,000,000, based on the fact that the Plaintiff entered into a contract with the Non-Party 4, the largest shareholder, who held 37.87% of the shares issued by MPC (hereinafter “instant contract”); (b) thereafter, it is reasonable to determine as KRW 2,00,000,000,000 under the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, based on the circumstances that the Plaintiff did not actually affect the transfer of all or part of the business, acquisition of the business, and other assets or business operations in excess of KRW 1,00,000,000,000,000 per share,000.

B. Examining the reasoning of the judgment below in light of relevant Acts and subordinate statutes and the records, the judgment of the court below is just and acceptable. Contrary to the allegations in the grounds of appeal, there is no error of law such as misunderstanding of legal principles as to “a person in a special relationship” under Articles 26(4)3, 29(1), and 19(2)3 of the former Enforcement Decree of the Inheritance and Gift Tax Act, or misunderstanding of facts due

2. Regarding ground of appeal No. 2

A. Article 60(1) and (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that the value of donated property shall be based on the value appraised by the supplementary valuation methods stipulated in Articles 61 through 65 in consideration of the type, size, transaction situation, etc. of the pertinent property in cases where it is difficult to calculate the market value based on the current market value as of the date of donation. Meanwhile, Article 60(2) of the former Inheritance Tax and Gift Tax Act provides that “The market value under the provisions of paragraph (1) shall be the value recognized as normal in cases where a transaction takes place freely between many and unspecified persons and includes the expropriation, public sale, appraisal price, etc., and Article 49(1)1 of the Enforcement Decree of the former Inheritance Tax and Gift Tax Act as delegated by the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010).

Therefore, in the case of unlisted stocks with low market value, the value of the stocks shall be assessed on the basis of the market value and the value of the stocks shall not be assessed on the basis of supplementary evaluation methods stipulated in the former Inheritance and Gift Tax Act. In this context, the market value means the objective exchange price formed by the general and normal transaction. As such, in order to be recognized as the market value, the circumstances that can be seen as properly reflecting the objective exchange value at the time of the donation should be acknowledged (see Supreme Court Decision 2010Du26988, Apr. 26, 2012).

B. Based on the circumstances indicated in its holding, the lower court determined that the Plaintiff’s transfer of KRW 75,000 shares issued by Nonparty Company to 125,000 per share to the Korea Investment Securities Co., Ltd., which is engaged in the principal business without having a special relationship with the Plaintiff on the date immediately transferring 24,000 shares issued by Nonparty Company to IM in its special relationship with it, constitutes a normal transaction that adequately reflects the objective exchange value, and determined that the market price of the shares issued by Nonparty Company at that time was KRW 10,00 per share, which is the actual transaction price.

C. Examining the reasoning of the judgment below in light of the aforementioned legal principles and records, the judgment of the court below is just and acceptable. Contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to the market price computation of unlisted stocks under the former Inheritance and Gift Tax Act

3. Conclusion

Therefore, the appeal is 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.

Justices Jo Hee-de (Presiding Justice)