Action to revoke a disposition rejecting capital gains tax correction;

The disposition of this case to which the 20% tax rate is applied by deeming that the transfer of key shares by the plaintiffs constitutes shares of small and medium enterprises that are transferred by large shareholders.

Article 104 of the Income Tax Act

Cheongju District Court 2018Guhap4057 Revocation of Disposition of Rejecting Transfer Income Tax

AA and five others

K Director of the Korean Tax Office

May 16, 2019

June 13, 2019

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

The defendant's rejection disposition of transfer income tax in attached Form 2016 against the plaintiffs on February 26, 2018 is issued.

Measures rejecting the correction of capital gains tax stated in the calendar shall be revoked.

1. Details of the disposition;

A. As of January 1, 2016, the Plaintiffs owned the shares issued by BB Co., Ltd. (hereinafter “instant company”), a non-standing small and medium enterprise, as follows. As of December 20, 2016, the Plaintiffs transferred a total of KRW 966,500 per share (hereinafter “instant shares”) 23,835 won per share toCC Co., Ltd. (hereinafter “instant shares”) as of December 20, 2016.

B. On February 28, 2017, the Plaintiffs reported and paid the transfer income tax for the year 2016 by applying the tax rate of 20% under Article 104(1)11(c) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter “former Income Tax Act”) on the premise that the transfer price of the instant shares falls under the “stocks of small and medium enterprises transferred by a major shareholder”.

C. On December 27, 2017, the Plaintiffs asserted that “a major shareholder who is exempted from the application of 10% of the tax rate under Article 104(1)1(b) of the former Income Tax Act” refers to “a major shareholder of a stock-listed corporation,” and that the Plaintiffs are not a major shareholder of a stock-listed corporation, and that the tax rate of 10% under Article 104(1)11(b) of the former Income Tax Act shall apply to the transfer of stocks of this case, and filed an application for rectification for refund of the following amount among the transfer income tax accrued in 2016.

D. On February 26, 2018, the Defendant rendered a disposition rejecting the correction of each transfer income tax against the Plaintiffs on the ground that “The application of Article 104(1)1(b) of the former Income Tax Act to the shares transferred by a major shareholder of a small and medium enterprise is excluded from the application of Article 104(1)11(b) of the former Income Tax Act, and the tax rate of 20% under item (c) of the same subparagraph applies.”

E. On May 17, 2018, the Plaintiffs were dissatisfied with each of the instant dispositions and filed an appeal with the Tax Tribunal on May 17, 2018, but was dismissed on August 2, 2018.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 through 6 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Determination on the legitimacy of each of the dispositions of this case

A. The plaintiffs' assertion

For the following reasons, "Large shareholder prescribed by Presidential Decree" under 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. 27793, Jan. 17, 2017; hereinafter referred to as "former Enforcement Decree of the Income Tax Act") means a shareholder who holds stocks, etc. of a stock-listed corporation under the Financial Investment Services and Capital Markets Act (hereinafter referred to as "listed corporation"). Therefore, the concept of a major shareholder cannot be applied to the shareholder of the company of this case who is a corporation that is not a listed corporation (hereinafter referred to as "unlisted corporation"). Thus, 10% of the capital gains tax rate should be applied to the plaintiffs who transfer the stocks of the non-listed corporation (hereinafter referred to as "non-listed stocks") to a non-listed corporation. In other words, the plaintiffs meet the requirements for the application of the above item (b).

1) Although 10% tax rate was applied to the transfer income of all shares of small and medium enterprises prior to the enforcement of the former Income Tax Act, the former Income Tax Act amended to apply 20% tax rate to the transfer income of shares of small and medium enterprises only to the cases where 10% tax rate is applied to the transfer income of shares of small and medium enterprises to a person who is not a major shareholder.

Meanwhile, Article 94 (1) 3 (a) of the former Income Tax Act, which delegates the scope of a major shareholder to the Presidential Decree of the Income Tax Act, provides that "major shareholder prescribed by Presidential Decree in consideration of the ratio of total stocks and the total market value of stocks of a stock-listed corporation, etc." In interpreting the above provision, since "major shareholder" is an awareness of "stocks, etc. of a stock-listed corporation", it is reasonable to see that "major shareholder" under Article 157 (4) of the former Enforcement Decree of the Income Tax Act as a matter of course refers to "major shareholder of a listed corporation", and otherwise, with respect to the scope of "major shareholder of a non-listed corporation" under Article 94 (1) 3 (a) of the former Enforcement Decree of the Income Tax Act, unless delegated by Presidential Decree, Article 157 (4) of the former Enforcement Decree

This is also true in that Article 157 (4) of the former Enforcement Decree of the Income Tax Act provides that if there was an intention to regulate the scope of the major shareholder of the unlisted corporation other than the major shareholder of the listed corporation, not only Article 94 (1) 3 (a) of the former Income Tax Act but also Article 104 (1) 11 (b) of the former Income Tax Act, the scope of the major shareholder of the unlisted corporation should have been delegated to the former Enforcement Decree of the Income Tax Act.

2) Prior to the former Income Tax Act, capital gains tax was not imposed on the transfer of listed stocks. However, Article 94(1)3(a) of the former Income Tax Act was introduced in order to impose capital gains tax on cases where listed stocks are traded in order to prevent any modified donation using listed stocks and transfer real estate and other assets, such as real estate. In light of such legislative history, it is natural to view Article 94(1)3(a) of the former Income Tax Act as a provision for only a large shareholder of a listed corporation.

In this regard, since Article 94 (1) 3 (b) of the former Income Tax Act stipulates that non-listed stocks shall be included in the scope of capital gains, it is not necessary to calculate capital gains tax by distinguishing between major shareholders and minority shareholders with respect to non-listed stocks.

3) Article 104(1)11(a) of the former Income Tax Act was amended by Act No. 14389, Dec. 20, 2016; Article 104(1)11(a) of the former Income Tax Act separately defines the concept of “large stockholder”; accordingly, Article 167-8(1) of the Enforcement Decree of the Income Tax Act as amended by Presidential Decree No. 27829, which separates the major stockholder from “large stockholder of a listed corporation” and “large stockholder of a non-listed corporation.” In light of the above legislative process, it can be seen that the provision of a listed corporation is included in the scope of a non-listed corporation only by the amendment of the Income Tax Act and the former Enforcement Decree of the Income Tax Act, notwithstanding the absence of the concept of a major stockholder as to a non-listed corporation, the extension of the provision of a listed corporation to a major stockholder does not accord with the principle of no taxation without law and the principle of clear taxation requirements.

4) Article 157(5) of the former Enforcement Decree of the Income Tax Act provides for the basis of calculating the total market value of stocks other than listed stocks in Article 157(6)2 of the former Enforcement Decree of the Income Tax Act, but Article 157(4)2 of the former Enforcement Decree of the Income Tax Act provides for the basis of calculating the total market value of stocks other than listed stocks, and thus, Article 157(4)2 of the former Enforcement Decree of the Income Tax Act provides that the scope of the large shareholder shall be determined on January 1, 2017, as amended by Act No. 14389, Dec. 20, 2016.

5) The defendant, on the ground that the "large stockholder" under Article 94 (1) 3 (a) of the former Income Tax Act may include a major stockholder with respect to an unlisted corporation in the "large stockholder", 2004HunBa32, 2005HunBa63, 02, 04, and 05 (merged) on February 23, 2006. The above decision of the Constitutional Court only ruled that the scope of transfer income of a listed corporation's stocks is against the prohibition of comprehensive delegation, and it does not deal with whether the above provision defines the concept of a major stockholder of the unlisted corporation. Therefore, the legality of each disposition of this case cannot be asserted based on the above decision of the Constitutional Court.

Furthermore, the above decision of the Constitutional Court and the Supreme Court Decision 2006Du18041 Decided November 29, 2007, which was invoked by the defendant on the grounds of each of the dispositions of this case, cannot be used as the grounds for each of the dispositions of this case under the former Income Tax Act (amended by Act No. 5580 of Dec. 28, 1998, which was amended by Act No. 6292 of Dec. 29, 2000) and the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 17032 of Dec. 29, 2000) where Article 94(1)3 of the former Income Tax Act provides the scope of the major shareholders of the unlisted corporation prior to the introduction of Article 94(3) of the former Income Tax Act.

B. Relevant statutes

It is as shown in the attached Form.

C. The lawfulness of each disposition of the instant case

1) Under the principle of no taxation without law, the elements of taxation, non-taxation, or tax reduction or exemption shall be avoided, and the interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, barring any special circumstance, barring any special circumstance, and it shall not be permitted to expand or analogically interpret without reasonable grounds (see, e.g., Supreme Court Decision 2012Du3972, Jul.

2) Based on the above legal doctrine, comprehensively taking account of the following circumstances revealed through the language, structure, legislative intent, amendment history, etc., it is reasonable to view that each of the instant dispositions taken on the premise of such premise is legitimate, even if the transfer of unlisted stocks meets the requirement of “large stockholder” under Article 157(4) of the former Enforcement Decree of the Income Tax Act, the said item (b) cannot be applied as it constitutes “large stockholder who is excluded from the application of the tax rate of 10% under Article 104(1)1(b) of the former Enforcement Decree of the Income Tax Act, and is subject to 20% transfer income tax rate under Article 104(1)1(c)

A) Article 94(1)3(a) of the former Income Tax Act provides that income generated from the transfer of stocks, etc. of stock listed corporations by major shareholders prescribed by Presidential Decree in consideration of the ratio of stocks owned, total market value, etc. and transfer of stocks not through transactions on the securities market under the same Act shall be subject to taxation.

However, in light of the above principle of no taxation without law, interpreting that the phrase “transfer of shares, etc. of a stock-listed corporation” in the above provision and the phrase “as prescribed by the Presidential Decree considering the ratio of shares, total market value, etc.” in the above provision can each be interpreted as a major shareholder.

In other words, Article 94 (1) 3(a) of the former Income Tax Act provides that the subject of transfer, considering the ratio of owned stocks, total market value, etc., and Article 94 (1) 3(a) of the same Act provides that the subject of transfer shall be subject to transfer, and that the major shareholders of the unlisted corporation shall be included in the "major shareholders" as provided by Presidential Decree, unless the major shareholders of the listed corporation are specifically restricted by only the major shareholders of the listed corporation, and that the term "stocks, etc. of the listed corporation" can be subject to not only the stocks of the listed corporation but also the stocks of the unlisted corporation, without undue interpretation of the above provision.

B) The past Income Tax Act, in principle, included in taxable income in the transfer of unlisted stocks, while (2) in the transfer of listed stocks, even if gains on transfer accrue in order to promote the activation of the stock market, this does not apply to taxable income under the Income Tax Act.

A. Since Article 94 subparagraph 3 of the Income Tax Act (amended by Act No. 5580, Dec. 28, 1998) of the first time prescribed "income accruing from the transfer of stocks or investment shares listed on the Korea Stock Exchange, which are prescribed by the Presidential Decree, as capital gains, considering the tax equity on capital gains, it takes a method of imposing taxation on the transfer gains in cases where the stockholders and persons in a special relationship with them own stocks of a certain size or own stocks of more than a certain size, or the total market value of stocks is more than a certain size.

In other words, Article 94 (1) 3(a) of the former Income Tax Act imposes capital gains tax on cases where listed stocks are traded in order to prevent any modified donation using listed stocks and transfer other assets, such as real estate, in order to ensure the equity in taxation, but rather than for all listed stocks, it is subject to taxation by a person who owns more than a certain size of stocks in order to alleviate the shock of capital markets and to protect the interests of small investors to a certain extent.

A. Where the capital market is developed in a sound manner, the provision on "the scope of taxation, which reflects the legislative intent that intends to gradually expand its scope," is a provision on "the scope of taxation (see, e.g., Constitutional Court Order 2004HunBa32, Feb. 23, 2006; 2005HunBa63,02,04 and 05 (Joint))."

In full view of the above language and legislative intent of Article 94 (1) 3 (a) of the former Income Tax Act, as long as it does not correspond to a certain exception, in principle, it is interpreted that the transfer of listed stocks is subject to capital gains tax, unlike the transfer of unlisted stocks subject to capital gains tax, (i) transfer of listed stocks by large shareholders prescribed by Presidential Decree in consideration of the ratio of owned stocks, total market value, etc., and (ii) transfer of listed stocks not through transactions in the securities market, and (iii) transfer of stocks not through transactions in the securities market, it cannot be interpreted as a provision to recognize the concept of large shareholders

C) Therefore, regardless of whether a listed corporation is a listed corporation, the term “large shareholder” under Article 157(4) of the former Enforcement Decree of the Income Tax Act, which provides for the requirements of the major shareholder, such as the ratio of stocks owned and the total market value, should be construed as falling under “large shareholder”. The term “large shareholder” under Article 94(1)11(b) of the former Income Tax Act and Article 104(1

In this regard, as long as Article 157 of the former Enforcement Decree of the Income Tax Act provides for the scope of a major shareholder pursuant to delegation of Article 94(1)3(a) of the former Income Tax Act, it is not necessary to separately delegate the scope of a major shareholder to the Presidential Decree under Article 104(1)11(b) of the former Income Tax Act on unlisted stocks. Rather, Article 94(1)3(a)(b) of the former Income Tax Act provides that the concept of a major shareholder shall be used uniformly in the same chapter by adding the provision that "major shareholder prescribed by Presidential Decree" (hereafter referred to as "major shareholder" in this Chapter)". Since Articles 94 and 104 of the former Income Tax Act all belong to Chapter 3, it cannot be deemed that the former Income Tax Act delegates the scope to the Presidential Decree only to a major shareholder of a stock-listed corporation.

D) Article 94 (1) 3(b) of the former Income Tax Act provides that the scope of capital gains shall be "stocks, etc. of a corporation which is not a stock-listed corporation" for the scope of capital gains. It can be seen through this, only the fact that the stocks of an unlisted corporation are subject to capital gains without distinguishing between a large shareholder and a shareholder who is not a large shareholder. It is not also derived from the conclusion that Article 94 (1) 3(b) of the former Income Tax Act provides that the same

E) Meanwhile, with regard to whether Article 157(4) of the former Enforcement Decree of the Income Tax Act separates a listed corporation and an unlisted corporation from the scope of the major shareholder, it can be clearly known that the scope of the “major shareholder” is determined without distinguishing between a listed corporation and a non-listed corporation as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. owned by a person (hereinafter “other shareholders”) as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. belongs, in cases where the total amount of stocks, etc. owned by the relevant corporation 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.

F) Article 157 (4) and (5) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988 of Aug. 5, 2005) provides that the requirements for falling under a major shareholder shall be different from those of a KOSDAQ-listed corporation, 'stocks of a KOSDAQ-listed corporation', 'ONEX-listed corporation', 'stocks of a venture business', and 'stocks of other corporations' from the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18988 of the Income Tax Act to the former Enforcement Decree of the Income Tax Act. Such provision

G) Article 157 (4) 2 of the former Enforcement Decree of the Income Tax Act provides for the concept of "large stockholder" in accordance with the total market price of stocks held by a listed corporation; Article 157 (6) 1 of the former Enforcement Decree of the Income Tax Act provides for the standards for calculating the total market price of "stocks, etc. of a listed corporation"; and Article 157 (2) 2 of the former Enforcement Decree provides for the standards for calculating the total market price of all other stocks, etc.; it is reasonable to deem that Article 157 (4) 2 and Article 157 (6) 2 of the former Enforcement Decree of the Income Tax Act provides for the determination of "large stockholder" based on the total market price

H) Article 94 (1) 3 (a) of the Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) provides that "large shareholders of stock-listed corporations prescribed by Presidential Decree" shall be defined as "large shareholders of stock-listed corporations" (limited to "large shareholders prescribed by Presidential Decree" in the former Income Tax Act). However, the purport of "in the bill of amendment of the Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) newly introducing the criteria for non-listed stocks" cannot be found to be that it is reasonable to distinguish the meaning of "large shareholders from those of non-listed corporations" under the amended by Presidential Decree No. 27829, Feb. 3, 2017, since the amended Act No. 167-8 (1) of the Income Tax Act (amended by Act No. 14389, Feb. 1, 2017).

I) Article 157 (4) and (5) of the Enforcement Decree of the Income Tax Act prior to the amendment by Presidential Decree No. 17032 of Dec. 29, 2000 separates the transfer of the 'stocks of a corporation (listed corporation) which issued the stock certificates listed on the securities market and the 'stocks not listed on the Korea Stock Exchange', and stipulates the scope only for the major shareholders of the listed corporation. However, even under the Enforcement Decree of the Income Tax Act, the concept of the 'listed corporation' should be equally applied to the major shareholders of the unlisted corporation (see Supreme Court Decision 2006Du18041, Nov. 29, 200), and thereafter, Article 157 (4) of the Enforcement Decree of the Income Tax Act as amended by Presidential Decree No. 17032, Dec. 29, 200 provides that the concept of the 'listed corporation' and the 'listed corporation' should be equally applied to the 'listed corporation'.

(j) In the case of the Constitutional Court Decision 2004HunBa32 delivered on February 23, 2006, 2005HunBa63,02,04,0105 (merger) and the Supreme Court Decision 2006Du18041 Decided November 29, 2007, the defendant used each of the dispositions of this case as reference materials to interpret the former provisions of the Income Tax Act, such as the purpose of legislation of the former Income Tax Act, and the case of interpretation in accordance with the previous provisions, etc. as stated in each of the dispositions of this case. Further, the decision of the above Constitutional Court and the judgment of the Supreme Court are not directly based on the decision of the above Supreme Court and the judgment of the Supreme Court. Furthermore, even if the above decision and judgment were at the time of the enforcement of the former Income Tax Act prior to the amendment, they can be fully used as reference

3. Conclusion

If so, the plaintiffs' claims are without merit, they are dismissed in entirety. It is so ordered as per Disposition.

shall be ruled.