If a person who has transferred non-listed stocks of small and medium enterprises falls under Article 157 (4) of the former Enforcement Decree of the Income Tax Act, the transfer income tax rate shall be 20%.

In the case of unlisted stocks, it is reasonable to see that it is 'large stockholder' if Article 157 (4) of the former Enforcement Decree of the Income Tax Act is 'large stockholder'. If such large stockholder transfers stocks, etc. of small and medium enterprises, it is reasonable to apply 20% of capital gains tax rate in accordance with Article 104

Article 104 of the Income Tax Act shall apply to transfer income tax rates.

Article 157 (7) Scope of Large Stockholders of the Enforcement Decree of the Income Tax Act

2017Guhap23415 Disposition rejecting a request for rectification of capital gains tax

0AA. BB

○○ Head of tax office

December 15, 2017

January 19, 2018

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

The defendant's refusal to rectify the transfer income tax for the year 2016 against the plaintiffs on November 21, 2016 shall be revoked.

1. Details of the disposition;

가. 원고들은 비상장 주식회사인 ■■■■ 주식회사(이하 '이 사건 회사'라 한다)의총 발행주식수 440,000주 중 각 20,000주(4.55%, 이하 '이 사건 각 주식'이라 한다)를 보유하였던 주주들이다.

B. On May 20, 2016, the Plaintiffs transferred each of the instant shares to △△△△△△△ Co., Ltd. at KRW 583,260,000, respectively. On July 20, 2016, the Plaintiffs reported each of the transfer income amount of each of the instant shares at KRW 477,346,40 (i.e., acquisition price of KRW 583,260,000 - acquisition price of KRW 100,000 - necessary expenses of KRW 5,916,300).

C. On September 19, 2016, the Plaintiffs filed a request for rectification to the effect that “each of the instant shares is unlisted stocks, and there is no major shareholder in the unlisted stocks, and thus, the Plaintiffs shall be subject to the application of the capital gains tax rate of 10% pursuant to Article 104(1)11(b) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same shall apply).” Of the capital gains tax amount of 94,969,280 won, the Plaintiffs filed a request for rectification to reduce the amount of 47,484,640 won.

D. The Defendant rendered a disposition rejecting the Plaintiffs’ request for correction (hereinafter “instant disposition”) to the effect that the concept of a major shareholder applies to both listed and unlisted stocks, and that the Plaintiffs are major shareholders holding 4.55% of the shares of the instant company, and thus it is reasonable to apply 20% of the capital gains tax rate, since it constitutes a major shareholder holding 4.5% of the shares of the instant company.

E. On May 16, 2017, the Plaintiffs filed a petition for review with the Commissioner of the National Tax Service on May 16, 2017, but was dismissed on July 24, 2017.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 5, Eul evidence 1 to 4 (each number is included; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Article 94(1)3(a) of the former Income Tax Act and Article 157(4) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27617, Nov. 29, 2016; hereinafter the same) “major shareholder prescribed by Presidential Decree” (hereinafter “major shareholder”) shall be construed as a shareholder who holds at least a certain percentage of shares of a stock-listed corporation under the Financial Investment Services and Capital Markets Act (hereinafter “stock-listed corporation”). Therefore, the concept of major shareholder cannot be applied to a corporation which is not a stock-listed corporation (hereinafter “stock-listed corporation”) and the shareholders of the company of this case, which are small and medium enterprises, as such, the capital gains tax rate of 10% should be applied pursuant to Article 104(1)11(b) of the former Income Tax Act.

2) Even if the concept of large shareholder applies to unlisted stocks, the Plaintiffs, who held 4.55% of the total shares issued by the instant company, cannot be deemed to constitute the large shareholder of the instant company.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

In full view of the following circumstances, it is reasonable to see that the shareholders of the company of this case, which is a stock-listed corporation, are 20% of the transfer income tax rate under Article 104 (1) 11 (c) of the former Enforcement Decree of the Income Tax Act, considering whether the concept of 'large shareholders' under Article 94 (1) 3 (a) of the former Income Tax Act is applied to the shareholders of the company of this case, which is a stock-listed corporation. Accordingly, the plaintiff's above assertion is without merit.

① Article 94(1)3 of the former Income Tax Act provides that “The transfer of stocks, etc. of a stock listed corporation by a large shareholder prescribed by Presidential Decree in consideration of the ratio of stocks owned and the total market value thereof shall be made” means the imposition of capital gains tax even in cases where listed stocks are traded in order to prevent abnormal donation using listed stocks and to ensure the equity of taxation in cases where other assets, such as real estate, are transferred. However, rather than for all listed stocks, it reflects the legislative intent to gradually expand the scope when the capital market is developed in a sound manner (see, e.g., Constitutional Court Decision 2004Hun-Ba32, 2005Hun-Ba63, 102, 104, 105, 105, etc.) and only in cases of a stock listed corporation.”

② Article 94(1)3(b) of the former Income Tax Act defines the scope of capital gains as "stocks of a corporation which is not a stock-listed corporation"; in the case of unlisted stocks, the scope of capital gains seems to be included in the scope of capital gains without distinguishing major shareholders and shareholders who are not major shareholders (hereinafter referred to as "major shareholders").

③ According to delegation under Article 94(1)3(a) of the former Enforcement Decree of the Income Tax Act, Article 157(4) of the former Enforcement Decree of the Income Tax Act provides that, as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. owned by a corporation is included, where the total amount of stocks, etc. owned by a person (hereinafter referred to as "other stockholders") as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. belongs is 1/100 or more of the total amount of stocks, etc. of the relevant corporation, etc. in cases where the total amount of stocks, etc. owned by a stockholder and other stockholders as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. belongs is 2.5 billion won or more as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. owned by a corporation is defined as a "large stockholder", the relevant stockholder and other stockholders (title

④ Furthermore, Article 157(4) and (5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 29, 2000) separates the transfer of the stock certificates listed on the securities market and the stock certificates not listed on the Korea Stock Exchange. Article 157(4) and (5) of the former Enforcement Decree of the Income Tax Act provides for only major shareholders of a stock-listed corporation. However, even if the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 29, 2000), the concept of major shareholders of a stock-listed corporation should be equally applied even though the concept of a stock-listed corporation is defined as a major shareholder of a stock-listed corporation (see Supreme Court Decision 2006Du18041, Nov. 29, 200); the amended Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17032, Dec. 29, 2000).

⑤ Furthermore, the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988, Aug. 5, 2005) provides that the requirements to be considered as a 'large stockholder' to be ‘large stockholder' shall be different from 'large stockholder's shares of KON-listed corporations, 'NON-listed stocks of KON-listed corporations', 'stocks of venture businesses' and 'stocks of other corporations' from 'large stockholder' to 'large stockholder's shares of other corporations. Such provision should also be regarded as a provision on the premise that there is a 'large stockholder'

6. Article 157 (4) 2 of the former Enforcement Decree of the Income Tax Act provides the concept of 'large stockholder' in accordance with the total market value of the stocks held by 'large stockholder'. Article 157 (6) 1 of the former Enforcement Decree of the Income Tax Act provides the basis for calculating the total market value of 'stocks of stock-listed corporation' and 'all other stocks, etc.' under Article 157 (6) 2 of the former Enforcement Decree of the Income Tax Act. It is reasonable to view that the provision is to determine 'large stockholder'

7) According to Article 94(1)3 of the former Income Tax Act and Article 157(4)1 of the former Enforcement Decree of the Income Tax Act, the Plaintiffs holding 4.5% of the total issued stocks of the instant company fall under the “large stockholder” of the instant company, and thus, fall under the “large stockholder” of the instant company.

3. Conclusion

Therefore, the plaintiffs' claims of this case are without merit, and they are dismissed. It is so decided as per Disposition.