Provisions on the scope of large shareholders under the Income Tax Act do not violate the principle of excessive prohibition, equality, and tax equality under the Constitution.

Unless the provisions regarding major shareholders set the scope of major shareholders in light of the financial policy, the national economy, social policy, and tax and technical factors, the discrimination cannot be deemed arbitrary or unfair on the ground that such discrimination may not be deemed arbitrary or unfair on the ground that it may arise due to minor differences in stock ratio or total market value. Therefore, this disposition is justifiable.

Article 94 of the Income Tax Act: Scope of Transfer Income

Article 157 (Scope of Large Stockholders)

2012Gudan16070 Revocation of Disposition of Imposing capital gains tax

1.A 2.B

The director of the tax office.

November 6, 2013

November 27, 2013

1. The plaintiffs' claims are dismissed.

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

Cheong-gu Office

The imposition of capital gains tax on July 7, 201 by the Defendant against Plaintiff ChoA on July 7, 201 and the imposition of capital gains tax on Plaintiff ChoB shall be revoked.

1. Details of the disposition;

A. At the time of December 31, 2009, the Plaintiffs, both couples, owned the amount equivalent to KRW 58,813 of the CCC shares, a stock-listed corporation, and KRW OO in total.

B. On December 30, 2010, the Plaintiffs transferred 27,820 shares of the above CCC (Plaintiff 25,820 shares, Plaintiff 2B 2,00 shares) (hereinafter “instant transfer”).

C. As to the transfer of this case, based on Article 94 (1) 3 (a) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; Act No. 10408, Dec. 27, 2010; hereinafter referred to as "the legal provision of this case") and Article 157 (4) 2 (hereinafter referred to as "Enforcement Decree of this case") of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21301, Feb. 4, 2009; hereinafter referred to as "the Enforcement Decree of this case") on the basis of Article 94 (1) 3 (a) of the former Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 201; hereinafter referred to as "the disposition of this case"), the defendant imposed capital gains taxO and the head of the Plaintiff on July 7, 2011.

D. The Plaintiffs underwent the pre-trial procedure.

[Grounds for Recognition] Unsatisfy, A 1-1 to 2, B 1-1,1-2

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

(1) According to the enforcement decree of this case, where one shareholder as of the end of the immediately preceding business year immediately preceding the business year to which the transfer date of stocks belongs, his relatives under Article 20 of the Enforcement Decree of the Framework Act on National Taxes, or other specially related persons (hereinafter referred to as “other shareholders”) possess the total market value of the stocks of the pertinent corporation is at least 10 billion won, capital gains tax shall be imposed on the transfer of stocks by one shareholder and other shareholders (hereinafter referred to as “integrative shareholders”), which is contrary to the Constitution for the following reasons.

○ It is against the principle of equality (Article 11(1) of the Constitution of the Republic of Korea) by discriminating against a major shareholder who is subject to capital gains tax and its non-taxable shareholder (hereinafter referred to as "non-taxable shareholder") without any reasonable reason.

○ It is difficult to understand whether a stock transferor is subject to capital gains tax because there is no institutional device to verify the stock ownership status of other shareholders, so it is against the principle of no taxation without law (Article 59 of the Constitution).

In determining the scope of large shareholders, the purpose of legislation is to include relatives or other specially related persons under Article 20 of the Enforcement Decree of the Framework Act on National Taxes, which is contrary to the principle of systematic legitimacy under the Constitution.

○ In determining the scope of major shareholders, it is against the principle of prohibition of relationship (Article 13(3) of the Constitution).

○ Method is against the principle of excessive prohibition (Article 37(2) of the Constitution) because it does not meet the adequacy of the method, minimum of infringement, and balance of legal interests.

(2) In light of the principle of constitutional interpretation, the legal provision of this case and the enforcement decree of this case should be interpreted to mean that "the transfer income tax shall be imposed only on the transfer of shares equivalent to the portion exceeding 10 billion won of the market price among shares transferred by a major shareholder."

(3) The Plaintiffs did not know the fact that the instant transfer falls under the taxation requirement of capital gains tax because there was no institutional device to grasp the current status of shares held by their spouses. Therefore, there was justifiable reason for the Plaintiffs to neglect to report and pay capital gains tax, and thus, no additional tax shall be imposed.

(4) Ultimately, the instant disposition is unlawful and thus ought to be revoked.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

(1) Whether the enforcement decree of this case violates the Constitution

(A) Whether it violates the principle of equality

There has been a long-term discussion on whether to impose capital gains tax on the transfer of listed stocks. However, the legal provision of this case also decided that capital gains tax should be imposed on the case where listed stocks are traded in order to prevent modified donation using listed stocks and transfer other assets, such as real estate, in order to ensure the balance of taxation. Thus, even if listed stocks are included in taxable objects, it is deemed that the legislative intent of the legislator to gradually expand the scope of the transfer income tax is reflected in the case where the capital market is developed in a sound manner by easing the shock of the capital market rather than for all stocks at once and protecting the interests of small investors (see, e.g., Supreme Court Order 2004HunBa32, Feb. 23, 2006; Decision 2005HunBa63, Jun. 102, 104; Decision 2005HunBa105, Feb. 23, 2006).

Therefore, even if the provision of this case and the provision of the Enforcement Decree stipulate that capital gains tax shall be imposed only on the trading of listed stocks of a major shareholder who owns more than a certain size of stocks and non-taxable shareholders, such discrimination is reasonable and reasonable, and as long as the provision of this case sets the scope of a major shareholder in consideration of the financial policy, national economy, social policy, and tax and technical factors, the discrimination cannot be deemed arbitrary or unfair on the ground that it can be determined even if the provision of this case sets the scope of a major shareholder, due to a minor difference in the share ratio or total market value.

Ultimately, the enforcement decree of this case does not contravene the principle of equality under the Constitution (see, e.g., Supreme Court Decision 2006Du4394, Nov. 10, 2006).

(B) Whether it violates the principle of no taxation without law

The ideology of the principle of no taxation without law, which is the core content of the legal principle of taxation requirements and the clearness of taxation requirements, is to guarantee the people's property rights and at the same time to ensure the people's legal stability and predictability in economic life (see, e.g., Constitutional Court Decision 2004HunBa32, Feb. 23, 2006; 2004HunBa63, 102, 104, 105(combined)).

However, the enforcement decree of this case according to the delegation of the legal provisions of this case is clear and conclusive, and thus it is not likely to undermine legal stability and predictability in interpreting and applying the provisions of this case. Thus, it cannot be said that the taxation requirement of this case is not clearly stipulated solely on the ground that it is not easy for a stock transferor to grasp the current status of shares owned by other shareholders.

Ultimately, the instant enforcement decree provision does not contravene the principle of no taxation without law (see, e.g., Supreme Court Decision 2006Du4394, Nov. 10, 2006).

(C) Whether it goes against the principle of systematic legitimacy under the Constitution

Although the violation of systematic legitimacy in the Constitution suggests a certain unconstitutionality, such as the principle of proportionality, the violation of the principle of equality, or the prohibition of legislators, it should eventually violate certain provisions or principles of the Constitution, such as the principle of proportionality or the principle of equality (see, e.g., Supreme Court Decision 2002Hun-Ba6, Nov. 25, 2004).

On the other hand, Article 20 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 23592, Feb. 2, 2012) lists those who are in a position to exercise influence over a corporation through economic and substantive mutual relation in determining the 'point shareholder liable for secondary tax liability'. The imposition of capital gains tax on the transfer of shares by those in such position is in line with the legislative intent of the legal provision of this case. Thus, in determining the scope of major shareholders, it would be externally systematic to make the provision of this case to follow Article 20 of the Enforcement Decree of the Framework Act on National Taxes.

Ultimately, the enforcement decree of this case does not conflict with the principle of systematic legitimacy under the Constitution.

(D) Whether it is against the principle of prohibition of any chain of interest

Article 13(3) of the Constitution of the Republic of Korea applies only to cases where a person takes unfavorable treatment solely on the ground that he/she is a relative, despite the fact that he/she does not have any substantial relation between the act of the relative and the principal (see, e.g., Constitutional Court Order 2005Hun-Ma19, Dec. 12, 2005).

In the case of a spouse, it is reasonable to see that the said spouse has dealt with a single economic unit while sharing daily life with the taxpayer himself/herself. The instant provision is based on such substantial and economic relationship between the principal and his/her spouse, and is not disadvantageous treatment solely on the ground that he/she is a spouse, even though his/her actual and meaningful relationship cannot be recognized (see, e.g., Constitutional Court Order 2010Hun-Ga65, Aug. 23, 2012).

Ultimately, the enforcement decree provision of this case does not conflict with the principle of prohibition of the annual system.

(E) Whether it is against the principle of excessive prohibition

○ This case’s enforcement decree provides that the purpose of this case’s enforcement decree is to induce the sound development of the capital market by imposing tax on capital income generated from stock transfer and by imposing tax on only major shareholders. Therefore, the legitimacy of this case’s enforcement decree is recognized.

In order to achieve the above legislative purpose, it may be considered that the scope of shareholders is divided in detail according to the ratio of shares or the total market value and the method of imposing discriminatory taxation at each stage, except for the method of dividing the shares into shares and non-taxable shareholders subject to taxation on the basis of a certain ratio of shares or the total market value, as prescribed by the Enforcement Decree of this case, as well as the method of dividing the scope of shareholders according to the ratio of shares or the total market value. However, no more reasonable method can be said to be more reasonable. Thus, the Enforcement Decree of this case

As seen earlier, the legislative intent of the legal provision of this case and the enforcement decree of this case is rather than to impose sanctions on the transfer of shares by a major shareholder within a certain scope, but rather to protect exceptional and provisional minority shareholders and promote the sound development of the capital market, it is reasonable to view that the tax exemption on the transfer of shares by shareholders who do not fall under a major shareholder was declared in order to protect the major shareholder and promote the sound development of the capital market. Therefore, as long as the tax provisions on the transfer income of the major shareholder are established in accordance with the ordinary taxation standards on the capital income, the minimum nature of the infringement and the balance of the legal interests should be satisfied. On the contrary, the capital gains tax standard for the major shareholder should be determined by comparing the case of non-taxable shareholders, or the balance of the legal interests should be discussed by referring to the "prevention of improper donation or the strengthening of taxation on non-taxable income."

Ultimately, the enforcement decree provision of this case does not go against the principle of excessive prohibition.

(2) Whether a constitutional interpretation of the legal provision of this case and the Enforcement Decree provision is required

The legal provisions of this case and the Enforcement Decree provisions of this case do not only clarify their meaning in itself, but also violate the Constitution even if they are interpreted faithfully. Therefore, there is no reason to interpret them as alleged by the plaintiffs on the ground of constitutional interpretation of the law.

(3) Whether there are justifiable grounds for the Plaintiffs’ failure to report and pay capital gains tax

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is an administrative sanction imposed as prescribed by the individual tax law, and the taxpayer’s intent and negligence are not considered. On the other hand, such a sanction is imposed for nonperformance of obligations under the tax law, unless there are justifiable grounds that it is impossible for the taxpayer to be aware of his/her duty, such as where there is a circumstance that the taxpayer could reasonably present his/her duty, or where it is unreasonable for the taxpayer to expect the fulfillment of his/her duty (see, e.g., Supreme Court Decision 2010Du1622, Apr. 28, 2011).

However, solely on the ground that there is no provision such as disclosing the current status of property held by both spouses under the Income Tax Act, it is unreasonable to expect the Plaintiffs, who are married couple, to report and pay the transfer income tax by ascertaining the mutual stockholding situation, and otherwise, there is no assertion or proof as to the fact that the Plaintiffs were in a special situation where it is impossible to confirm the current status of stocks held by each other. Therefore, there is no justifiable reason for the Plaintiffs to refuse to report and pay the transfer income tax on the transfer of this case.

(d) Conclusion

The instant disposition taken on the same premise is lawful.

3. Conclusion

The plaintiffs' claims are dismissed on the ground that they are without merit.