Where forfeited stocks, etc. are allocated to persons who are not stockholders by deemed recruitment, gift tax shall be levied on them, but it shall not be null and void per year.

In light of the purpose of the introduction of the deemed public offering system, it is not clear from the perspective of whether the method of public offering of securities, which is a reason for exception to the imposition of gift tax, is included in the method of public offering of securities, and it is clear that the defect is apparent from the Supreme Court decision on February 27, 2014.

Inheritance Tax and Gift Tax Act Article 39 (Donation of Benefits)

2015 Ghana 5134439 Undue gains

KimAA et al.

Korea

August 10, 2016

September 21, 2016

1. The plaintiffs' claims are dismissed.

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

Cheong-gu Office

The defendant shall pay the following money to the plaintiffs:

A. From January 7, 2012 to the delivery date of a copy of the complaint of this case to Plaintiff KimA, the amount calculated by each of 20% per annum from the next day to the day of complete payment.

B. As to KRW 25,91,720 and KRW 10,816,090 among them, 5% per annum from June 1, 2011 to the service date of a duplicate of the instant complaint; 20% per annum from the next day to the day of complete payment; as to KRW 15,175,630 from January 7, 201 to the service date of a duplicate of the instant complaint, 5% per annum from the next day to the day of complete payment; and 20% per annum from the next day to the day of complete payment.

C. From June 1, 2011 to the delivery date of a copy of the complaint of this case, 5% per annum from the day after the day of complete payment to the day of complete payment to the plaintiff 20% per annum.

D. Amount calculated by the ratio of 5% per annum from July 30, 2011 to the service date of a copy of the complaint of this case to the service date of the plaintiff KimD and 20% per annum from the next day to the day of complete payment.

1. Basic facts

A. The plaintiffs' subscription to new shares

1) OOO investment company

As to the fractional shares (1,291 shares) and forfeited shares (6,713,869 shares), which occurred while issuing 18 million new shares, which are listed corporations in the KOSDAQ, the board of directors decided on June 23, 2008 to allocate 25 members including Plaintiff KimA (425,531 shares) and HB (212,765 shares) to third parties. Plaintiff KimA and HB paid each share price on June 25, 2008, and accepted 940 won per share.

2) OOO Korea Co., Ltd.

On February 16, 2007, OOO Korea Co., Ltd., a corporation listed on KOSDAQ (hereinafter “OOOO Korea”) passed a resolution on 96,851 shares a common share at the board of directors, with a third party allocation to 17 members, including the Plaintiff headCC (69,060 shares), and HB (69,060 shares). The Plaintiff headCC and HBB paid each share on March 12, 2007, and acquired new shares in KRW 7,240 per share.

3) OOOCop.

On December 8, 2008, the board of directors adopted a resolution on 14,833,321 shares, including the Plaintiff KimD (83,333 shares), to provide capital increase by a third party allotment method. Plaintiff KimD paid the stock price on December 16, 2008, and accepted 600 won per share.

B. Disposition of this case

As follows, the head of the tax office, etc.: (a) deemed that the Plaintiffs received each forfeited share or new shares at a price lower than the market price and received the benefits equivalent to the difference as a donation; and (b) imposed each gift tax on the Plaintiffs based on Article 39(1)1(a) or (c) of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax and Gift Tax Act”).

C. The Supreme Court, on February 27, 2014, determined that deemed recruitment constitutes an exception to Article 39(1)1(a) or (c) of the former Inheritance Tax and Gift Tax Act on the ground that there is no difference from the general public offering under Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 20551, Jan. 18, 2008; hereinafter referred to as the “former Enforcement Decree of the Securities and Exchange Act”) in that the term “inter-party offering” under Article 2-4(4) of the former Enforcement Decree of the Securities and Exchange Act is also subject to various regulations on the procedure and issue value

[Reasons for Recognition] Evidence Nos. 1 through 15, Evidence Nos. 1 through 6, the purport of the whole pleadings

2. The plaintiffs' claims

Each new shares allocated to the plaintiffs by OOO investment, OOO Korea, and OOOOCop were submitted a securities registration statement under the former Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007, Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007, hereinafter referred to as the "former Securities and Exchange Act"). The submission of a securities registration statement constitutes a public offering or deemed public offering by means of securities with possibility of resale, for which gift tax is exempted

Therefore, gift tax cannot be levied pursuant to the provision on deemed donation as an exception to Article 39(1)1(a) and (c) of the former Inheritance Tax and Gift Tax Act. Each of the instant dispositions is in violation of the relevant statutes, and its defect is grave and clear and void as it is reasonable, so the return of unjust enrichment is sought.

3. Whether a defect exists;

A. Relevant provisions

annex. see relevant provisions.

Article 39(1)1 (a) and (c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 39(1)1), where a person who is not a shareholder of the corporation obtains profits by obtaining forfeited stocks or new stocks from the relevant corporation, the gift tax shall be levied on the said corporation as the value of the property donated: Provided, That the same shall not apply to the case where new stocks are allocated by 'securities offering method' under the former Securities and Exchange Act. The 'securities offering method' under the former Securities and Exchange Act should be solicited for 50 or more persons

However, even if less than 50 persons are invited to make an offer, the same kind of stock certificates or preemptive rights certificates may be transferred to not less than 50 persons within one year, if they are listed on the KOSDAQ market, publicly offered, or sold, and they shall not be deemed to be a public offering of securities. However, if a deposit contract is concluded with the Depository with the content that they will deposit the securities without delay after the issuance of the securities, and will not withdraw or sell the securities for one year from the date of deposit, it shall not be deemed to constitute a public offering of securities without possibility of resale.In short, even if less than 50 persons were recommended to make an offer, but if they may be transferred to not less than 50 persons within one year, they shall be deemed to be a public offering of securities.

(b) Forfeiture of forfeited stocks of OO investment;

If the purport of the entire argument is added to the evidence Nos. 1-1, 2, and 10 of the evidence No. 1-2, it can be acknowledged that the OOO investment is a capital increase by the method of the shareholders allocation, but the 'the forfeited owner issued as a result of the shareholders allocation' is subject to the separate resolution of the board of directors. The board of directors of the OOO investment, the board of directors of the OOO investment, the resolution to distribute fractional shares and forfeited shares to the 25 shareholders other than the shareholders, including the plaintiff KimA, HB on June 23, 2008, and the fact that the OOOO investment is subject to the submission of the report of 'securities' by the resolution of the board of directors on April 29, 2008.

There is no evidence to acknowledge that Plaintiff KimA or HB was allocated forfeited stocks through solicitation for subscription for at least 50 persons, namely, the method of public offering of forfeited stocks in principle. Moreover, there is no evidence to acknowledge that there is possibility of resale that Plaintiff KimA or HB could be transferred to at least 50 persons within one year, including whether forfeited stocks allocated to the Plaintiff KimA or HB are subject to the period of public offering of forfeited stocks for less than one year.

Article 8 of the former Securities and Exchange Act provides that the public offering price or sale price of securities exceeds a certain amount, and all cases of deemed public offering and deemed public offering are subject to the submission of a securities registration statement. It is also the case that public offering by the resolution of the board of directors made on April 29, 2008 of the OOO investment is subject to the submission of a securities registration statement. However, the report on correction of rights offering provides that the forfeited stocks shall be subject to separate resolution by the board of directors, and the forfeited stocks are not clear.

Since it cannot be recognized that the allocation of forfeited stocks by the OOOO investment is made through the public offering of securities, the relevant disposition against Plaintiffs KimA, and HB cannot be deemed unlawful (the fact that there is no provision on protection less than one year, and thus, it is possible to resell the relevant disposition, even if it falls under deemed public offering, it cannot be deemed that the relevant disposition is null and void as seen below).

C. Paid-in capital increase by OOO Korea

If the purport of Gap's evidence Nos. 11 and 12 is added to the whole argument, it can be acknowledged that the OOO Korea did not publicly announce the subscription and did not make a third party allocation in accordance with the board's decision on February 16, 2007, and that the 17th party offering to a third party was made, and that the above OOO Korea is "those subject to submission of a registration statement". Meanwhile, it can be acknowledged that the above OO Korea is "those subject to submission of a registration statement."

New shares allocated to the plaintiff CC and HB are not new shares by way of general securities offering. However, since the possibility of resale is not limited by the health class, particularly protected deposits, etc., it seems to be subject to the submission of a securities registration statement.

As long as OOOO Korea’s capital increase in accordance with the resolution of the board of directors made on February 16, 2007, and so long as OCC and HaB acquired new shares at a price lower than the market price, it shall be excluded from the subject of gift tax. Relevant dispositions against the Plaintiff headCC and HB are defective in violation of Article 39(1)1 of the former Inheritance Tax and Gift Tax Act.

(d) Paid-in capital increase with the stocks of OOEF;

1) If the purport of the entire pleadings is added to the statements in Gap evidence Nos. 3 and 13 through 15, the board of directors of the board of directors on December 8, 2008; the board of directors of the board of directors on December 8, 2008; the third party including the plaintiff KimD; the shares issued are allocated 100% to the third party determined by the board of directors; the new shares issued through the capital increase with new stocks are subject to submission of a securities registration statement (the corrective report of December 17, 2008).

OOEF does not invite 50 or more persons to subscribe for the acquisition of securities and does not correspond to the method of securities offering in principle. However, since it is subject to the submission of a securities registration statement because it is not protected, it constitutes deemed public offering under Article 2-4 (4) of the former Enforcement Decree of the Securities and Exchange Act.

The subject of gift tax is excluded even if the Plaintiff Kim DD acquired new shares at a price lower than the market price as long as the capital increase based on the decision of the board of directors made on December 8, 2008 by the OOOO coD’s board of directors as of December 8, 2008, and so long as it was allocated through deemed recruitment. The disposition on Plaintiff Kim DD’s disposition is defective in violation of Article 39(1)

4. Whether it is too void;

A. In order for a taxation disposition to be null and void as a matter of course, the mere fact that there is an illegality in the disposition is insufficient to be the sole reason that there is an obvious and objective reason for the defect. In determining whether the defect is significant and apparent, it is required to examine the purpose, meaning, function, etc. of the relevant tax disposition from a teleological perspective in the relevant laws and regulations, which serve as the basis for the pertinent taxation, and to reasonably consider the specificity of the specific case itself at the same time. In addition, a taxation disposition against a person who does not have any legal relation or factual relations (income or act) must be deemed to have a significant and obvious defect, but in a case where there are objective circumstances that make it possible to understand that it is subject to taxation as a matter of course with regard to any legal relation or factual relations which is not subject to taxation, if it can only be identified after a thorough investigation of the facts, it cannot be deemed to have been apparent even if the defect is serious, and thus it cannot be deemed to have been null and void as a matter of course (see, e.g., Supreme Court Decision 90Meu10862

B. Considering the following circumstances that can be revealed in the above basic facts, etc., even if there is a defect in the dispositions against Plaintiff CC, its subordinateB, and its disposition against Plaintiff KimD with respect to capital increase issued by OOOO Korea on February 16, 2007, it cannot be said that the defect is apparent in appearance.

① According to Article 39(1) of the former Inheritance Tax and Gift Tax Act, where a corporation distributes new shares at a price lower than the market price to a third party, gift tax shall be imposed on the profits accrued therefrom on the third party. The Plaintiff headCC and its subordinateB are third parties, not shareholders, and the 17 members were offered capital increase by a third party, and there were objective circumstances that may mislead the tax authority as taxable objects. In the case of Plaintiff KimD, the capital increase with new shares was made to a third party, not shareholders, and to a third party and 35 members, and there were objective circumstances that could mislead the tax authority as taxable objects.

② The provision on deemed public offering is a newly introduced new company on February 24, 1998, which was amended by the Enforcement Decree of the Securities and Exchange Act on February 24, 1998 in order to prevent investors from being included in the concept of public offering in the case of issuing a single new stock for less than 50 minority members, and re-purchasing it again for more than 50 persons. In light of the purpose of introducing the Securities and Exchange Act, whether the benefit accrued from low-price issuance is included in the value of donated property, which is an exception to the inclusion in the value of donated property.

③ It was clear by the Supreme Court of Korea on February 27, 2014, and there was no clear interpretation on this before it, and there was a situation in which the lower court precedents are divided.

5. Conclusion

Therefore, the plaintiffs' claim is dismissed as it is without merit, and it is so decided as per Disposition.