Cho High Court Decision 2007Du5226 (No. 16, 2008)

Ascertainment of the assertion that a title trustee did not pay capital gains tax

It cannot be deemed as a taxpayer of capital gains tax under the principle of substantial taxation merely because it is a taxpayer who is entrusted with the title of shares.

The contents of the decision shall be the same as attached.

1. The Defendant’s imposition of KRW 126,034,090 against the Plaintiff on March 5, 2007 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On July 18, 2005, Seoul Special Metropolitan City, a KOSDAQ-listed corporation, (hereinafter referred to as “Seoul Special Metropolitan City, Do”) entered into an all-inclusive share swap agreement with ABN Entertainment Co., Ltd. (hereinafter referred to as “ABN Entertainment”) on an assessment of 150,766 won per share of the ABN Entertainment shares and shares of the ABN Entertainment shares, thereby comprehensively exchanging the shares and shares of the ABN Entertainment with the shares of the ABN Entertainment shares, and entering into an agreement on an all-inclusive share swap with the ABN Entertainment as a complete subsidiary.

B. At the time of the above exchange contract, ABN Entertainment shares 7,140 shares (referring to 7,00 shares previously held and 140 shares additionally acquired with capital increase with capital increase on September 2, 2005; hereinafter referred to as “instant shares”) were registered in the name of the Plaintiff on the list of shareholders.

C. On October 28, 2005 according to the above share swap contract, the Do governor became the complete mother of the ABN Entertainment, and the ABN Entertainment became the complete subsidiary of the Do governor of △△△, and in the process, the shares owned by the Plaintiff were transferred to the △△△, and the Plaintiff was registered as the shareholders of the △△△△, a KOSDAQ-listed corporation, after receiving the shares of the △△△ in a considerable amount of the shares in this case.

D. On March 5, 2007, the Defendant issued the instant disposition imposing capital gains tax of KRW 126,034,090 on the Plaintiff on the ground that the Plaintiff transferred the instant shares to KRW 150,766 per share on October 28, 2005, but did not report and pay capital gains tax, following the comprehensive exchange of the instant shares.

[Reasons for Recognition] Gap evidence Nos. 1, 2, 6, Gap evidence No. 7-1, 2, Eul evidence No. 1-1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In this case, the shares were only registered in the name of the plaintiff, and the actual owner was Kim○, and the profits from the transfer were attributed to Kim○○, so the disposition of this case, which imposed capital gains tax on the transfer of the shares of this case on the plaintiff, a nominal owner, is unlawful, and even if it cannot be viewed as such, the transfer of shares was entered into a contract to invalidate the said share swap contract with Lee-A, a major shareholder of △, a corporation, △△, a major shareholder of the corporation, on September 19, 2006, in which the conditions attached at the time of the said share swap contract were not fulfilled, and thisA was a party to the said share swap contract as a major shareholder of △△, a substantial party to the said share swap contract, and thus the disposition of this case was unlawful, on the premise that

B. Determination

In a case where a title truster entrusts a third party with the ownership of shares, if the title truster transfers the shares to the third party and the income accrued from such transfer belongs to the title truster, the person liable to pay the relevant capital gains tax under the principle of substantial taxation under Article 14(1) of the Framework Act on National Taxes, etc., is not the title truster, who is the subject of the transfer (see, e.g., Supreme Court Decision 96Nu6387, Oct. 10, 197).

However, in light of the overall purport of the arguments in Gap evidence Nos. 8-1, 2, and 11, the Seoul Central District Court dismissed the plaintiff's claim on April 29, 2008 on the ground that the above shares were acquired in exchange for the shares of ABN Entertainment (this case's shares) held by Kim ○○ in trust with the plaintiff, and that the actual owner of the shares was not the plaintiff. The above judgment became final and conclusive through the Seoul High Court and the Seoul High Court, and Kim ○○○ issued a certificate to the effect that the actual owner of the shares of this case was the actual owner of the shares of this case and submitted it to this court, respectively, in the case of Sep. 19, 2006, the Seoul Central District Court 2007Gahap 87943.

Therefore, the Plaintiff is merely a person entrusted with the name of the instant shares and is not a taxpayer of capital gains tax related to the transfer of the instant shares under the substance and the three principles. Thus, the instant disposition on a different premise is unlawful without having to examine the Plaintiff’s other arguments.

3. Conclusion

Thus, the plaintiff's claim seeking the cancellation of the illegal disposition of this case is justified and acceptable.