Whether the ownership of title trust property varies due to the application of the provisions on deemed donation of nominal trust property under Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (negative); and in this case, the actual owner of the title trust property (=title truster)

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007)

[Plaintiff-Appellant-Appellee] Plaintiff 2004Du11220 decided Sep. 22, 2006 (Gong2006Ha, 2016)

Plaintiff 1 and one other (Law Firm LLC, Attorneys Gyeong-soo et al., Counsel for the plaintiff-appellant)

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2011Nu33282 decided May 16, 2012

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) provides, “In case where the actual owner and the nominal owner are different from any other property (excluding land and buildings; hereafter the same shall apply in this Article), the value of the property shall be deemed to have been donated to the actual owner by the actual owner on the date when the actual owner and the nominal owner are registered, etc. as the nominal owner (where the property requires a change of ownership, referring to the date following the end of the year following the year in which the date of acquisition of ownership falls), notwithstanding Article 14 of the Framework Act on National Taxes, on the date when the actual owner and the nominal owner are registered as the nominal owner: Provided, That the same shall not apply to cases falling under any of the following subparagraphs.”

In light of the circumstances indicated in its reasoning, the lower court determined that the instant disposition was lawful on the ground that it is reasonable to view that Plaintiff 2 was the title trust of the instant shares with Plaintiff 1, and that the instant title trust was made for an obvious purpose that is not inconsistent with tax avoidance, and that it is difficult to deem that there was no tax avoided through the instant title trust or that it was merely a minor reduction of tax.

Examining the record in light of the aforementioned provisions and relevant legal principles, the above determination by the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal doctrine

2. Regarding ground of appeal No. 2

The instant legal provision prevents the abuse of the title trust system as one of the exceptions to the substance over form principle, to the extent that it is intended to realize tax justice by preventing the abuse of the title trust system as a means of tax avoidance, and does not change as to whether the title trust property belongs to the title trust property. Therefore, notwithstanding the instant legal provision, the actual owner of the title trust property is the title truster (see Supreme Court Decision 2004Du1220, Sept. 22, 2006).

In the same purport, the lower court determined that it was lawful to impose tax on Plaintiff 2 as deemed donation on Plaintiff 1’s acquisition of the instant shares from the proceeds of the sale of the shares, and the transfer of ownership in the name of Plaintiff 1 was completed, even if Plaintiff 2’s other shares trusted to the Nonparty were deemed donated.

In light of the above legal principles, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on no taxation without law, tax equality, double taxation, etc. (On the other hand, Supreme Court Decision 2011Du10232 Decided February 21, 2017 is related to the case where another share is acquired with the first sale price of the nominal trust shares, which was taxable or may be taxed as deemed donation, and a transfer is changed in the name of the same person again under the name

3. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Park Poe-dae (Presiding Justice)