National Tax Service Review Donation 2011-0053 (2011.02)

Evaluation according to supplementary evaluation methods is legitimate because there is no example of transaction that reflects objective exchange values.

No evidence exists to deem that there was a transaction example that properly reflects the objective exchange value in the evaluation of unlisted stocks, and that the market price of stocks is calculated according to the supplementary evaluation method, since there is no evidence to deem that there was a transaction example that properly reflects the value of the stocks in the evaluation of unlisted stocks, and as such, it is possible

2011Guhap6111 Revocation of Disposition of Imposition of Gift Tax

XX

Head of Suwon Tax Office

August 24, 2012

September 21, 2012

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s disposition imposing gift tax for the year 2005 and the gift tax for the year 2008 on the Plaintiff on May 12, 201 shall be revoked.

1. Details of the disposition;

A. XX Co., Ltd. (hereinafter referred to as " XX") commenced on March 1, 1991 as an extraordinary head of the Switzerland that produces crypfrat frat frat frat frat.

(b) New stocks acquired on December 26, 2005;

1) The Plaintiff, as the representative director of XX at the time of December 26, 2005, owns 160,820 shares (47.3% shares) out of 340,00 shares issued in XX.

2) XX issued new shares on December 26, 2005. The remaining shareholders, other than the Plaintiff, renounced the subscription of new shares. The Plaintiff acquired 257,312 shares as KRW 000 per share value at KRW 000.

3) Of the shareholders who waived the acceptance of new shares as above, Category B B is the Plaintiff’s wife. OrCC, DaD, and E is the Plaintiff’s child, Category F is the Plaintiff’s head, CategoryG and H are the Plaintiff’s wife, Category GG and H are the Plaintiff’s spouse, and HJ is the Plaintiff’s wife’s spouse (hereinafter collectively referred to as “Class B, etc.”).

(c) Purchasing shares on August 12, 2008;

1) As of the end of December 2007, the Plaintiff was the largest shareholder holding 3,848,000 shares (shares 48.26%) out of 7,973,120 shares issued in XX as of the end of December 12, 2007, and was working as the representative director of XX at the time of August 12, 2008.

2) On August 12, 2008, the Plaintiff purchased 5,060 shares of XX 5,060 won per share from OK, an employee of XX, and purchased 000 won per share price from members of XX as follows (hereinafter collectively referred to as “MK, etc.”). In addition, the Plaintiff purchased 37,900 shares of XX 37,90 won per share price of 000 won per share (hereinafter referred to as “the above employees”).

D. Defendant’s imposition of gift tax

1) On May 12, 201, the Defendant imposed gift tax on the Plaintiff pursuant to Article 39(1)1(b) of the Inheritance Tax and Gift Tax Act and Article 29(3)205 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax and Gift Tax Act”) on the ground that “B, etc. whose stocks forfeited due to the Plaintiff’s renunciation of the acquisition of new stocks, were assessed pursuant to Article 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Enforcement Decree”).

2) On May 12, 201, the Defendant imposed the gift tax on the Plaintiff pursuant to Article 35(1)1 of the amended Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 8863, Feb. 29, 2008; hereinafter “amended Inheritance Tax and Gift Tax Act”) on the ground that “the Plaintiff purchased shares of KRW 000 per share, the value of which is lower than that of KRW 000,000 per share of shares at the time of August 12, 2008, and received a gift equivalent to KRW 00,000,000 per share,” as the list of the gift tax reverted to the Plaintiff pursuant to Article 35(1)1 of the amended Inheritance Tax and Gift Tax Act, Article 26(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 11292, Feb. 4, 2009; hereinafter “amended Enforcement Decree”).

E. The Plaintiff appealed and filed a request for examination with the Commissioner of the National Tax Service on July 14, 201, but the Commissioner of the National Tax Service dismissed the Plaintiff’s request for examination on September 2, 2011.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 3, Eul evidence 1 to 7, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Since the Plaintiff’s acceptance price per share of new shares issued by XX on December 26, 2005 at the time of acceptance is an objective exchange price formed through normal transactions, the Defendant’s imposition of gift tax in 2005 that assessed the market price as KRW 00 per share by applying supplementary assessment method is unlawful.

2) The case holding that the Plaintiff’s purchase price per share of 000 won per share from the OK, etc. on August 12, 2008 is the objective exchange price formed through normal trade, as well as that of static selling 224,400 won per share of Hungary to ILO on October 14, 2008. Thus, the Defendant’s imposition of gift tax in 2008, which was assessed as 000 won per share by applying supplementary appraisal method, is unlawful.

3) The imposition of gift tax in 2008 on a different premise is unlawful since it is merely an employee of XX and cannot be regarded as a person having a special relationship with the Plaintiff.

4) Even if the Plaintiff is a person with a special relationship, it is against the Constitution that the revised Inheritance Tax and Gift Tax Act deducts the gift tax by 30% unless the said person is a relative or a person with a special relationship. Therefore, the imposition of gift tax in 2008 should be revoked on the grounds that the said person is not a person with a special relationship.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Determination as to whether a supplementary evaluation is illegal

A) Article 60(1) of the Inheritance Tax and Gift Tax Act provides that “The value of the property on which the inheritance tax or gift tax is levied under this Act shall be based on the market value as of the date of commencing the inheritance or the date of donation.” Article 60(2) of the same Act provides that “The market value under the provisions of paragraph (1) shall be the value which is generally deemed to be established if there are free transactions between many and unspecified persons, and shall include the amount which is recognized as the market value under the conditions as prescribed by the Presidential Decree, such as the expropriation and public sale price, and the appraisal price, etc.” Articles 60(3) and 63(1)1(c) of the same Act provides that “if it is difficult to calculate the market value of non-listed stocks, it shall be appraised by the method as prescribed by the Presidential Decree, considering the corporation’s assets, profits, etc.” In full view of the provisions of the above Acts and subordinate statutes, if there is a transaction fact on the property subject to the imposition of the inheritance tax and Gift Tax Act, the value of stocks shall not be assessed by supplementary methods.

B) First, there is no evidence to deem that there was a transactional example that the Plaintiff had properly reflected the objective exchange value at the time of accepting new shares on December 26, 2005, and that there was no transactional example that adequately reflects the market price of the instant shares at the time, and in the case of non-listed shares, it is not recognized that the public nature, etc. of the relevant property may be traded among many and unspecified persons as much as it is possible to make a transaction at a certain price. Therefore, the Defendant’s calculation of the market price of the instant shares in accordance with the supplementary assessment method stipulated in Article

C) Next, according to the Plaintiff’s reasoning on August 12, 2008 as to the market price at the time of acquisition of the instant shares, the Plaintiff’s sale of 24,400 won per share to ILO on October 14, 2008, which is non-listed shares, may be acknowledged. However, in light of the purport of the entire pleadings, the Plaintiff’s sale of PE 224,400 won per share, which is non-listed shares. Meanwhile, the Plaintiff’s sale of PE 100 won per share, which is the market price at the time of acquisition of the instant shares, is too low compared to 00 won per share. ② The Plaintiff’s sale of the instant shares at the time of acquisition of the instant shares is difficult to view that there is no objective evidence that the Defendant’s sale price at the time of acquisition of the shares, which is an institutional investment at the Korea Technology Finance Corporation, Busan Bank, and the Korea Business Corporation, and the Korea Business Corporation’s offering of new shares, which is the market price at the time of PE 20008.

2) Determination as to whether a person is a specially related person

Article 35(1) and (3) of the amended Inheritance Tax and Gift Tax Act provides that "where an asset is acquired at a price lower than the market price among persons in a special relationship as prescribed by Ordinance of the Ministry of Strategy and Finance, the amount equivalent to the profits acquired by the transferee of the asset shall be deemed the value of donated property." Article 26(4)1 and Article 19(2)2 of the amended Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "any person in a special relationship who is a transferor or transferee shall be an employee." Article 13(9)2 of the same Decree provides that "an employee prescribed by Ordinance of the Ministry of Strategy and Finance shall include any employee of a corporation under control by investment." Article 4 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 223, Jul. 26, 201) provides that "an employee under control of an employee under employment relationship as prescribed by Ordinance of the Ministry of Strategy and Finance" refers to a person under control of the Plaintiff and an employee under Article XX 308.

3) Determination on the assertion of unconstitutionality

Article 35(1)1 of the former Inheritance Tax and Gift Tax Act, which is the basis provision for the disposition of this case (hereinafter referred to as the "Article 35(1)1 of the former Inheritance Tax and Gift Tax Act"), provides that the gift tax rate is very high-rate relationship, and its legitimacy is confirmed as a legal fiction system to prevent evasion by manipulating the transfer price of property by pretending to trust, debt acquisition, sale, etc., in a formal manner. The tax authorities are unlikely to prove the economic substance, i.e., it is difficult to prove the transfer of concealed economic profit without compensation, and it is difficult to prevent unfair tax evasion through such non-ordinary transaction. Thus, the Article 35(1)1 of the former Inheritance Tax and Gift Tax Act (hereinafter referred to as the "Article 35(1)1 of the former Inheritance Tax and Gift Tax Act, which is the basis provision for the disposition of this case, is an inevitable measure to achieve the legislative purpose, and thus choosing to impose gift tax on the transferee by deeming the same as a donation to achieve the legislative purpose. Thus, in light of the special relationship between relatives and related parties.

3. Conclusion

Then, the plaintiff's claim is dismissed as it is without merit, and it is so decided as per Disposition.