Whether “employee” under Article 19(2)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act includes “employee of a corporation controlled by a transferor, etc. by investment” (affirmative)

Article 35(1)1 and (2) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11130, Dec. 31, 201); Article 13(9)2 (see current Article 13(10) and (11)1 (see current Article 13(10) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22579, Dec. 30, 201); Articles 19(2) and 26(4)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act

Supreme Court Decision 2009Du1617 Decided January 27, 201 (Gong2011Sang, 473) Supreme Court Decision 2011Du6899 Decided October 11, 2012 (Gong2012Ha, 1849)

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

The Director of the sericultural Tax Office

Seoul High Court Decision 2014Nu71698 decided August 18, 2015

The part of the judgment of the court below against the defendant against the plaintiff 1 is reversed, and the judgment of the court of first instance as to this part is revoked, and this part of the lawsuit is dismissed. Of the judgment below, the appeal against the plaintiff 1 as to the part against the plaintiff 1 is dismissed, and the remaining appeal by the plaintiff 1 is dismissed. The part against the plaintiff 2 among the judgment below is reversed, and this part of the case is remanded to the Seoul High Court. The remaining appeal by the plaintiff 2 is dismissed. 3/5 of the total costs of the lawsuit between the plaintiff 1

1. As to the defendant's appeal

We examine ex officio.

According to the records, around November 30, 2015, after filing the instant final appeal, the Defendant revoked ex officio the imposition of KRW 4,086,665 (hereinafter “first disposition”) on December 31, 2008, among the part against Plaintiff 1, pursuant to the purport of the lower judgment on November 30, 2015, and the imposition of KRW 89,407,443 on December 31, 2009 on the gift tax due to the low-price acquisition of shares (hereinafter “second disposition”) and determined or corrected the reduced portion of the imposition of KRW 89,407,443 on December 31, 2009.

Therefore, regarding the portion of the first and second dispositions that was revoked ex officio as above among the lawsuits in this case, seeking revocation of a disposition that did not have been extinguished, and thus, it was unlawful as there was no benefit of lawsuit.

2. As to the plaintiffs' appeal

A. As to the appeal on the part not subject to the judgment of the court below

1) According to the records, Plaintiff 1 sought revocation only for the portion exceeding KRW 2,875,837 of the Disposition No. 2.

Therefore, the part concerning the above 2,875,837 won among the dispositions No. 2 is not subject to the judgment of the court of first instance and the court of final appeal which is a legal court, and the modification of the purport of the claim is not allowed. Therefore, Plaintiff 1’s appeal on this part is unlawful as against the part which is not subject

2) According to the records, the first instance court revoked the part exceeding KRW 78,676,279 in the claim for revocation of the imposition of gift tax of KRW 101,74,046 on December 30, 2010 due to Plaintiff 1’s low-price acquisition of shares (hereinafter “third disposition”), and revoked the part exceeding KRW 51,898,426 in the claim for revocation of the imposition of gift tax of KRW 83,58,747 in relation to the acquisition of shares on the same day by the Plaintiff 2’s low-price acquisition of shares (hereinafter “fourth disposition”). Accordingly, the Plaintiffs did not appeal against the part against which only the Defendant lost without filing an appeal.

Therefore, the part concerning the above 78,676,279 won among the disposition Nos. 3 and the above 51,898,426 won among the above 78,676,279 won is excluded from the judgment of the court below, and the judgment of the court below became final and conclusive simultaneously with the judgment of the court below. Each appeal by the plaintiffs on this part is unlawful as to the part which was already finalized (see, e.g., Supreme Court Decision 2007Da37752, Aug

B. As to the remaining grounds of appeal against Plaintiff 1’s 2

The petition of appeal of this case does not state the grounds of appeal on the part against Plaintiff 1 with respect to the second disposition of this case in the judgment below, and there is no mentioning about how this part of the appellate brief is in violation of the law and therefore, it is inevitable to view this part of the appellate brief as not being filed.

C. As to the remaining grounds of appeal against the plaintiffs' 3 and 4

The grounds of appeal are examined.

1) Article 35(1)1 and (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201); in cases where property is acquired from a “person having a special relationship prescribed by Presidential Decree” at a price significantly lower than the market price, the profits prescribed by Presidential Decree shall be presumed to be donated to the transferee as the donated value. Article 26(4)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22579, Dec. 30, 201; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) stipulates that the transferor or transferee (hereinafter “transferor, etc.”) and the “employee, etc.” under Article 19(2)1 through 4 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be deemed to have invested more than 0 in a relationship with the transferee under Article 19(2)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 6(4)1 through 6 subparag. 10, etc.

Meanwhile, Article 13(9)2 of the Enforcement Decree of the Inheritance and Gift Tax Act provides that “an employee prescribed by Ordinance of the Ministry of Strategy and Finance as one of the persons having a special relationship with a contributor in determining the scope of non-taxation in the taxable value of the donated property of a public-service corporation, etc. shall include an employee of a corporation controlled by investment.” Article 13(11)1 provides that “a corporation controlled by investment” as one of the “corporation controlled by investment” under Article 19(2)6.

In full view of the language and structure of the above provisions and the circumstances leading up to the amendment of Article 13(9)2 of the Enforcement Decree of the Inheritance and Gift Tax Act, “employee” under Article 19(2)2 of the Enforcement Decree of the Inheritance and Gift Tax Act includes “employee” as the same concept as “employee” under Article 13(9)2, and includes “employee of a corporation under control of the transferor, etc. by contribution” (see Supreme Court Decision 2011Du6899, Oct. 11, 2012). It does not constitute “transfer, etc. controlled by the transferor, etc. by contribution” under Article 19(2)1 through 5 of the Enforcement Decree of the Inheritance and Gift Tax Act, one of “corporation under control of the transferor, etc. by contribution, etc.” under Article 19(2)1 through 5 of the Enforcement Decree of the Inheritance and Gift Tax Act with an investment of 10/100 or more of the total number of issued and outstanding stocks, etc. by a transferor, etc. or a corporation with investment of 20/10% or more.

2) According to the reasoning of the lower judgment and the evidence duly admitted by the lower court, ① on December 30, 2010, Plaintiff 1 acquired 9,600 shares of the said company from Nonparty 1, the vice president of the instant company, and Plaintiff 2 acquired 8,080 shares of the said company from Nonparty 2, the director of the said company on the same day, and ② at that time, Plaintiff 1 held 21,280 shares of the said company out of 20,000 shares issued by the said company ( approximately 10.6%) and Nonparty 3, Nonparty 4, and Nonparty 5 held 132,480 shares ( approximately 6.2%) in aggregate with the Plaintiffs and Nonparty 2, but Plaintiff 2 was not a shareholder of the said company.

Examining these facts in light of the aforementioned provisions and legal principles, Nonparty 1’s executive officers of the instant company, at least 30/100 of the total number of outstanding stocks, etc., invested by Plaintiff 1 and his/her relatives, and on the other hand, Nonparty 2 did not constitute the specially related party of Plaintiff 2 as long as Plaintiff 2 is not a shareholder of the instant company.

In the same purport, the court below is just in holding that Nonparty 1 is a person with a special relationship of Plaintiff 1, and there is no error of law by misapprehending the legal principles as alleged in the ground of appeal by Plaintiff

However, in so determining, the lower court erred by misapprehending the legal doctrine on Article 19(2)6 of the Enforcement Decree of the Inheritance and Gift Tax Act, etc., thereby adversely affecting the conclusion of the judgment. The Plaintiff 2’s ground of appeal assigning this error is with merit.

3. Conclusion

Therefore, the part of the judgment of the court below against the defendant against the plaintiff 1 shall be reversed, and this part of the judgment of the court of first instance shall be revoked, and this part of the lawsuit shall be dismissed, and the remaining appeal against the plaintiff 1 among the judgment of the court below regarding the part against the plaintiff 1 shall be dismissed, and the part against the plaintiff 2 among the judgment of the court below against the plaintiff 1 shall be reversed, and this part of the judgment of the court below shall be remanded, and the remaining appeal against the plaintiff 2 shall be remanded to the court below for a new trial and determination, and the remaining appeal against the plaintiff 1 and the defendant shall be dismissed, and the total costs of the lawsuit between the plaintiff 1 and the defendant shall be borne by the plaintiff 1 and the defendant, and the remaining

Justices Lee Ki-taik (Presiding Justice)