Seoul High Court 2012Nu8016 ( September 5, 2012)

In determining whether high-level is transferred, it is not a specially related person from the opposite contractual party.

An employee of a person with a special relationship shall be deemed to mean his/her employee on the basis of a transferor or a transferee at a low-price transfer who is a taxpayer of gift tax, and it shall not mean a person with a special relationship from the standpoint of the other party.

2012Du21604 Revocation of Disposition of Gift Tax Imposition

OO

Head of Sungnam Tax Office

Seoul High Court Decision 2012Nu8016 Decided September 5, 2012

October 11, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

Judgment ex officio is made.

1. Article 35(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the "Inheritance Tax and Gift Tax Act") provides that "When a person falling under any of the following subparagraphs acquires or transfers the relevant property, he shall be deemed to have received a donation equivalent to the difference between the price and the market price, which is the amount equivalent to the profits prescribed by the Presidential Decree." Article 35(1) provides that "the transferee of the relevant property shall be deemed to have received the property from a person in a special relationship who takes over the property at a price lower than the market price." Article 35(2) provides that "a person who has a special relationship under subparagraphs 1 and 2 of paragraph (1) provides that "the scope of a person who has a special relationship under subparagraphs 1 and 2 of paragraph (2) includes an employee under Article 26(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 1817, Dec. 30, 20003; hereinafter referred to as "an employee under Article 26(1)". 9).

As above, Article 35(1) of the Inheritance Tax and Gift Tax Act provides that a person who takes over property at a low price from a person with a special relationship under subparagraph 1, and a transferor who transfers property at a high price to a person with a special relationship under subparagraph 2, respectively, shall be liable for gift tax. In principle, Article 26(4) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is delegated by Article 35(2), provides for the scope of a person with a special relationship, based on a transferor or a person who takes over property at a high price, as

In light of the language and text, structure, etc. of the statutory provisions, it is reasonable to view that “employee who is a person in a special relationship” under Articles 26(4)1 and 19(2)2, etc. of the Enforcement Decree of the Inheritance Tax and Gift Tax Act refers to a person who is a taxpayer of gift tax based on a transferor or a transferee at a high-priced transfer, who is a taxpayer of gift tax, based on the transferee at a low-priced transfer or a transferee at a low-priced transfer. Therefore, since a transferor or a transferee at a low-priced transfer falls under an employee of the other party to the transaction, it cannot be deemed that the other party to the transaction falls

2. According to the reasoning of the judgment below, around April 25, 2003, the Plaintiff acquired the instant shares of the company from AA, the largest shareholder of the O Development Co., Ltd. (hereinafter “the instant company”) and the representative director, in the OO00,000,000,000,000,000 won. Under the premise that the Plaintiff acquired the instant shares as employees of the instant company at the time of the Plaintiff’s acquisition of the instant shares, the Defendant was subject to the imposition of the gift tax by applying Article 35(1)1 of the Inheritance Tax and Gift Tax Act, etc. to the Plaintiff by deeming that the Plaintiff acquired the instant shares at a price lower than the market price.

Examining these facts in light of the legal principles and regulations as seen earlier, insofar as the Plaintiff is not an employee of the Plaintiff, the mere fact that the Plaintiff was an employee of the instant company that had been under the control of the other party to the transaction at the time of acquisition of the instant shares does not constitute “a person having a special relationship as provided by Articles 26(4)1 and 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.” Thus, the Defendant’s disposition imposing the gift tax of this case on a different premise is unlawful.

Nevertheless, the court below held that the disposition of this case was lawful on the premise that the Plaintiff’s employee at the time of acquiring the shares of this case was an employee under Article 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, on the premise that the Plaintiff was a person with a special relationship under Article 35 of the Inheritance Tax and Gift Tax Act, and that the transfer of shares of this case constitutes a case where the Plaintiff acquired the shares at a low price between the parties with a special relationship. In so doing, the court below erred by misapprehending the legal principles on the scope of the persons

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.