Plaintiff 1 and two others (Law Firm Han, Attorney Park Jong-sik, Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

Head of the District Tax Office

January 23, 2015

Seoul Administrative Court Decision 2013Guhap23683 decided June 26, 2014

1. Of the judgment of the first instance court, the part against the plaintiffs regarding the order to revoke below shall be revoked.

The part that exceeds the amount stated in the column of each “political tax amount” listed in attached Form 1.a. (a) of the Additional Tax for Unreasonable Return of Transfer Income Tax for each of the years 2007, 208, 2010, and 2011, which was imposed by the head of the regional tax office on the Plaintiffs on September 17, 2012, and the imposition of the amount stated in the column of the unfair under-reported penalty tax on global income tax for each of the years 2007 and 2008, and the imposition of the amount stated in attached Form 1.b. of the Additional Tax for Unreported Return of Transfer Income Tax for each of the years 207 and 208

2. The plaintiffs' remaining appeals and the defendants' appeals are dismissed, respectively.

3. The total costs of the lawsuit are ten percent, and nine percent are assessed against the Defendants, and the remainder is assessed against the Plaintiffs.

1. Purport of claim

A. Imposition of KRW 104,819,520 on April 17, 2007 and KRW 2,142,350,490 on the gift of June 29, 2007 on the gift of April 17, 2007 against the Plaintiffs;

B. The portion exceeding KRW 2,065,488,234 of the disposition of imposition of inheritance tax of KRW 2,423,670,365 against the Plaintiffs on September 17, 2012 by the head of the regional tax office having jurisdiction over the Defendant’s Head of the regional tax office;

C. On September 17, 2012, the head of the regional tax office stated that on the part of the Plaintiffs, the amount of the amount for which revocation of each of the above additional taxes is sought is to be revoked from the sum of the amount for each principal tax imposition and the amount for each of the above additional taxes imposed on the Plaintiffs. However, the imposition of the principal tax and the amount for imposition of the additional tax are different in the subject matter of lawsuit, and it is clear that the Plaintiffs dispute about the imposition of additional taxes only with respect to the imposition of additional taxes without filing a tax return for each transfer income tax for each of the years 2007 and 207 and 208 as stated in the separate sheet 2.C. and D. of the imposition of the amount for each of the unlawful non-reported additional taxes stated in the separate sheet 2. D. of the imposition of the additional tax for each of the following reasons. Thus, the purport of the appeal is clearly stated as follows.

Each cancellation shall be revoked.

2. Purport of appeal

A. The plaintiffs

The part against the plaintiffs in the judgment of the court of first instance is revoked. The part against the defendant of the defendant of the tax office on September 17, 2012, which was imposed by the defendant of the tax office on the plaintiffs of the year 2007, the year 2008, the year 2010, and the year 2.C. of the imposition of the amount in each unfair underreporting tax on global income tax for the year 201, and the imposition of the amount in each unfair underreporting tax on global income tax for the year 2007 and the imposition of the amount in each underreporting tax for the year 207 and 208, is revoked.

B. The Defendants

The part against the Defendants in the judgment of the first instance is revoked, and the plaintiffs' claims corresponding to that part are dismissed.

1. Details of the disposition;

This part of the judgment is the same as the entry between Chapters 2, 15, and 6, and 23, among the reasons for the judgment of the court of first instance, except for the dismissal of the following contents. Thus, this part of the judgment is accepted in accordance with Article 8(2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

(1) The interval between pages 4, 10 through 4, 13, shall be as follows:

(2) On September 17, 2012, the director of the regional tax office imposed capital gains tax of KRW 420,039,840 (including additional tax), and capital gains tax of KRW 171,296,150 (including additional tax) for the year 2008 due to the transfer of shares in the name of Nonparty 2, as shown in Table 1, on September 17, 2012. Of them, the unfair non-declaration of capital gains tax for the year 2007 is KRW 90,060,000, and the unfair non-declaration of capital gains tax for the year 2008 is KRW 39,010,738. The amount of tax for each non-declaration of capital gains tax is equivalent to 40% of the calculated tax (hereinafter referred to as “additional tax for the imposition of additional tax on the non-declaration of capital gains tax of this case”).

(2) The interval between pages 4, 19 through 5, shall be as follows:

(3) On September 17, 2012, the director of the regional tax office issued a notice of correction and notification of each of the global income tax (including additional tax) of KRW 75,771,01 and KRW 75,903,00 for each of the above global income tax (including additional tax) in 2007 with respect to interest income and dividend income from the nominal shares (BS 2) to the Plaintiffs, the inheritor of the deceased. The amount of global income tax for the year 2007 is KRW 11,376,00, KRW 240, KRW 655,771,010, KRW 578, and KRW 55,317,578, and KRW 75,903 in 201 and KRW 408 in global income tax for the year 208, KRW 796,000 in total income tax for each underreporting and KRW 4081,208 in total income tax for each underreporting.

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

(1) Imposition of gift tax of this case

According to the capital transfer of surplus, it cannot be deemed that the stocks allocated without compensation in proportion to the shares held by the title trustee are newly nominal trust, and the provisions on deemed donation of title trust property under the main sentence of Article 45-2(1) of the Inheritance Tax and Gift Tax Act cannot be applied. Therefore, the imposition of gift tax in

(2) The imposition of unjust non-reported tax on the transfer income tax of this case, the imposition of tax on global income tax, and the imposition of inheritance tax

The deceased merely committed an act to maintain title trust, such as filing a tax return under the name of the title trustee, after title trust with Nonparty 2, etc. on the career effect and effects of the transfer of shares, and did not actively commit an act to evade taxes. It is unlawful to impose an unfair and unfair under-reported penalty tax, not an ordinary and under-reported tax return, on the ground that the title trust shares were reported in the name of the trustee.

B. Relevant statutes

Attached Form 3. The entry in the relevant statutes is as follows.

C. Imposition of gift tax of this case

(1) The main text of Article 45-2(1) of the Inheritance and Gift Tax Act is one of the exceptions to the substance over form principle under Article 14 of the Framework Act on National Taxes, and is limited to the extent of realizing tax justice by preventing title trust from abusing it as a means of tax avoidance. Even if the actual owner and the nominal owner transfer earned surplus to the nominal owner as the corporation issuing the nominal owner transfers it to the capital, there is no change in the net assets or profits of the issuing corporation, and the actual shareholder’s equity ratio; thus, it cannot be said that there is an additional purpose of tax avoidance other than the purpose of tax avoidance through the title trust of existing stocks, on the ground that the actual shareholder did not transfer a title to the nominal owner under his/her own name. In view of the fact that there is no change in the net assets or profits of the issuing corporation, and thus, it is not subject to the provision on deemed donation under the main sentence of Article 45-2(1) of the former Inheritance and Gift Tax Act (see Supreme Court Decision 2009Du21352, Jul. 14, 2019).

(2) In light of the aforementioned legal principles, the issue is the shares gratuitously allocated to Nonparty 2, a title trustee of the existing shares, according to the company’s distribution of shares out of the earned surplus to shareholders after the deceased trusted the shares of the career-effective effect to Nonparty 2, and capitalizing other capital surplus and capital increase without compensation. Nonparty 2 is merely the shares allocated to Nonparty 2, a title trustee of the existing shares in proportion to their ownership ratio. The issue is that the existing shares are substantially divided, and thus, it cannot be deemed that Nonparty 2 received a title trust separately from the existing shares of the deceased. Accordingly, the disposition imposing gift tax of this case imposed on the shares other than the existing shares pursuant to the main sentence of Article 45-2(1) of the Inheritance Tax and Gift Tax Act is unlawful.

D. Imposition of unjust non-declaration of transfer income tax of this case, imposition of unjust non-declaration of transfer income tax of global income tax and imposition of inheritance tax

(1) Facts of recognition

(A) The career launch effect was listed on the KOSDAQ market on December 26, 1993. The deceased was the largest shareholder of the career launch effect. In order to have the company listed on the KOSDAQ market by division into department and separation, there was a need to diversify shares in accordance with the requirements prescribed by the relevant laws and regulations, such as Monopoly Regulation and Fair Trade Act and subordinate statutes. Accordingly, the deceased, around 192, held the title trust of the career launch effective shares to Nonparty 2 and five persons, listed the career launch effective shares, and publicly announced that his share was 61.54%.

(B) For the management of title trust shares, the deceased opened an account under the name of the title trustee, received shares sales proceeds, dividends, etc. through the account, and paid taxes, such as global income tax, from the said account under the name of the title trustee. The shares held in the name of the title trustee were transferred pursuant to the common stock transaction method in the KOSDAQ market, and the remaining amount after deducting transaction commission and securities transaction tax, etc. was automatically deposited into the securities account under the name of the title trustee. Furthermore, when there was any income such as dividends, etc. on the shares held in the name of the title trustee, the settlement amount calculated by deducting income tax and resident tax under the name of the title trustee

(C) In relation to the shares held in title trust, the deceased did not report the transfer income tax when transferring shares held in the name of Nonparty 3 and Nonparty 4, and reported the transfer income tax only in 2005 when transferring shares held in the name of Nonparty 2. The details of the report made in the name of the title trustee and the amount of the transfer income tax reverted to

The tax amount of income calculated on the basis of the calculated income tax on the income of non-resident 2 (Report only in 2005) non-party 3 (Unreported Report) non-party 4 (Unreported Report), 2005 3,291 339 6,576 667 3,285 328 - 307- 984 - 717 717 - 717- 717- - - 717- - 2006 2007 - 202,254 2252,254 254-2,254-2,254- - 208 - 978 - 9788 - - 978

(D) The Deceased reported interest and dividend income related to the title trust shares as global income of the title trustee, and the difference between the Deceased and the title trustee is as follows.

The tax amount calculated on the income calculated on the income amount calculated on the income amount calculated on the income amount to be reported, - - - 2008- - 2008- 445,080 1,346 - 3,6241, 350 350 343 105 18 2018 - 3523339 117 132- 1132- 20117 - 2011 - 27348 - 2448 - 2592 - 8289 - 139 - 139 - 14439 10 - 35239 1239 - 201 - 2011 - 27348 - 348 - 25289 - 13

(E) On December 29, 201, at the time of filing an inheritance tax as of December 29, 201, the Plaintiffs filed a report including both the balance remaining in the financial account in Nonparty 2 and Nonparty 3, and the check, etc. issued in the said account in the inherited property.

(F) After the deceased’s death, Nonparty 5 and Nonparty 6, a vice-chairperson and a representative director of career-effective effect, managed the above financial account. Nonparty 6, etc. discussed with the inheritor, and subsequently deposited and sold the claim in the account in the name of Nonparty 2 and Nonparty 3 with the maturity after the deceased’s death. The Plaintiffs withdrawn the amount of money sold as a check, and reported the inherited property including the check.

(G) The Plaintiffs requested an early tax investigation after filing an inheritance tax return and subsequently the director of the Seoul Regional Tax Office had the deceased conduct an inheritance tax investigation. The Plaintiffs became aware from the director of the Seoul Regional Tax Office that the title trustee was more in relation to the title trust shares.

[Ground of recognition] Gap evidence Nos. 5, 6, 9, Eul evidence Nos. 1 and 3, non-party 6's testimony and the purport of the whole pleadings

(2) Relevant legal principles

Article 47-2(1) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; Act No. 9911, Jan. 1, 2010; Act No. 10405, Oct. 27, 2010; Act No. 11124, Dec. 31, 2011; hereinafter referred to as the “Framework Act on National Taxes”) provides that the amount of global income tax and capital gains tax for the year 2008 shall be either the amount of taxes on which a taxpayer files a return of tax base under the tax-related Acts or the amount of taxes without filing a return of tax base by the statutory deadline for filing a return of tax base; hereinafter referred to as “amount of global income tax and capital gains tax for the year 2007”) shall be either the amount of taxes without filing a return of tax base under the tax-related Acts or the amount without filing a return of tax base, which is either the amount of national tax to be refunded or refunded;

Article 47-3(1) of the former Framework Act on National Taxes provides that "additional tax for under-reported return" equivalent to 10/100 of the amount calculated by multiplying the calculated tax by the ratio of the amount equivalent to the under-reported tax base to the tax base, if the reported tax base falls short of the tax base that should be reported under the tax-related Acts, shall be added to the payable tax amount or deducted from the refundable tax amount. Paragraph 2(1)1 of the same Article provides that "additional tax for under-reported return" equivalent to 40/100 of the amount calculated by multiplying the calculated tax amount by the ratio of the amount equivalent to the under-reported tax base to the under-reported tax base to

Meanwhile, Article 47-2(2) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 22038, Feb. 18, 2010; Presidential Decree No. 23592, Feb. 2, 2012; hereinafter “Enforcement Decree of the Framework Act on National Taxes”) provides that “any global income tax and transfer income tax for the year 2007 and 2008 shall be the same prior to the amendment by Presidential Decree No. 22038, Feb. 18, 2010; hereinafter the same shall apply)” under each subparagraph of Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes under the delegation of Article 47-2(2) of the former Framework Act on National Taxes provides that “any false entry of books, such as writing of books, false evidence or false documents (a false certificate or false document), destruction of books and records, concealment of income, profits, act of trading, or other fraudulent or other unlawful methods to evade or deduct national taxes.”

In full view of the legislative structure of Articles 47-2 and 47-3 of the former Framework Act on National Taxes, the language and text of each subparagraph of Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes, penalty taxes without filing a report, and the legal nature of penalty taxes underreporting, the reason why penalty taxes are imposed for unlawful non-declaration and underreporting under Articles 47-2(2) and 47-3(2) of the former Framework Act on National Taxes is that: (a) where the whole or part of the facts constituting the basis for calculating the tax base or amount of national taxes are concealed or pretended, the imposition and collection of penalty taxes are impossible or considerably difficult; (b) imposing penalty taxes much higher than those without filing a tax return or underreporting than those without filing a tax return with the taxpayer in good faith; and (c) Article 27(2) of the former Enforcement Decree of the Framework Act on National Taxes provides that the purpose of imposing penalty taxes without filing a false return or underreporting underreporting under Article 27(1)5 of the former Enforcement Decree of the Framework Act is to the effect that it is necessary for the purpose of “unfair and under filing of tax base taxes without filing a false return”.

(3) Imposition of tax for improper filing of transfer income tax of this case and tax for unlawful underreporting of global income tax

Considering the following circumstances: (a) the background leading up to the above disposition, the facts leading up to the recognition of the above disposition, and other circumstances revealed through (i) the deceased’s shares, and (b) the receipt of the transfer proceeds, interest, and dividend from the account under the name of the title trustee after the title trust; and (c) the filing of the comprehensive income tax under the name of the title trustee constitutes an unlawful act attributable to the purpose of tax evasion. Therefore, it is difficult to deem that

① In the need for separation of affiliation and corporate disclosure of the career-effective effect, the deceased partially trusted out the part of the career-effective shares to non-party 2 and non-party 5 and maintained the title trust status even after the corporate disclosure of the career-effective effect, it appears that the fact that the title trust was made for corporate disclosure mainly was likely to have a negative impact on sanctions against the breach of the duty to disclose stocks, or on corporate management, which may be subject to the case where the fact that the title trust was made for corporate disclosure was externally known, and there is no circumstance to deem that the title trust was made or maintained for the purpose of tax evasion, such as the avoidance

② In addition, it appears that the deceased’s opening of a securities account under the name of the title trustee traded stocks listed on the KOSDAQ or is necessary for the management of interest, dividend income, etc., and is an ordinary incidental act accompanying the stock title trust.

③ The reason why the deceased disposed of the shares held in title trust and received the transfer income tax under the name of the title trustee, and did not report the transfer income tax under the name of the deceased is the result of disposing of the shares in accordance with the common method of stock transfer on the KOSDAQ market, under the circumstances where the title trust relationship was not resolved. In other words, at the time when the transfer income tax was not paid at the time of Nonparty 2’s transfer of shares in the name of the title trustee in 2007 and 2008, it was due to the fact that the shares held in Nonparty 2 were less than 5% and was not subject to capital gains tax. Therefore, the fact that the transfer income tax was not reported does not constitute an affirmative act arising from the purpose

④ In cases where the deceased reported global income tax in the name of the title trustee and the title trustee’s title trust relationship was not resolved, it is difficult to deem that the interest and dividend income was deposited in the securities account of the title trustee and income tax was automatically deducted under the name of the title trustee. Therefore, it is also difficult to view it as an unlawful act attributable to the purpose of tax evasion, separate from the title trust act. Rather, the fact that the deceased reported and paid the global income tax in the name of the title trustee does not result from the purpose of tax evasion.

⑤ Ultimately, even if the deceased’s stock title trust act was not subject to capital gains tax, and there was a difference in the calculated tax amount depending on the difference between tax rates in relation to global income tax, the act of title trust and the maintenance of title trust relationship does not seem to have arisen from the purpose of tax evasion, and the act of opening a securities account under the name of the title trustee to receive the transfer price, interest or dividend income and filing a global income tax return under the name of the title trustee is ordinarily accompanied by the stock title trust, and it is difficult to view it as an illegal act arising from

(4) Disposition of imposing inheritance tax of this case

In full view of the following circumstances: (a) the details of the above disposition and the facts leading up to the recognition of the above disposition were revealed; (b) the Plaintiffs reported the instant money as included in the inherited property in the inherited property; and (c) the instant money was merely simply omitted and cannot be said to have underreported the tax base in an unjust manner. Therefore, the portion exceeding KRW 119,394,04,044 of the inheritance tax and inheritance tax on the instant money, which exceeds the amount of KRW 477,576,175, should be revoked.

① On June 19, 2011, the Plaintiffs reported inheritance tax on December 29, 201 after the deceased’s death on June 19, 201, and reported the title trust, including Nonparty 2 and Nonparty 3’s account in relation to the title trust.

② The remaining career-effective shares, excluding Nonparty 2’s shares, among the nominal trust shares, were sold until 2005, and the remaining shares were sold by 2008, and it was difficult for the heir to grasp all of the income related to the nominal trust shares from the heir’s standpoint. The fact that the deceased managed the nominal trust shares, and that the Plaintiffs, the heir, did not have managed the shares before the deceased’s death, should not be determined in the same way as the heir’s management.

③ Upon the request of the Plaintiffs for an early tax investigation, the director of Seoul Regional Tax Office conducted a tax investigation, and as a result, the Plaintiffs became specifically aware that they held title trust with career-effective shares, etc. The Plaintiffs appears to have reported to the maximum extent including the details of title trust known at the time of reporting.

④ The Plaintiffs did not conceal or separately commit any other act without reporting the relevant account relating to the amount of money borrowed from the borrowed name account during two years before the deceased’s death.

⑤ The director of the Seocho District Tax Office imposed penalty taxes for underreporting on the deceased’s account withdrawals within two years before the date of commencing the inheritance. From the inheritor’s standpoint, the instant money is merely an omission in the filing of the return, as in the same manner as in the foregoing money.

E. Sub-committee

(1) The instant gift tax imposition disposition should be revoked in entirety as it is unlawful.

(2) The portion exceeding each legitimate tax amount of the instant global income tax (the amount obtained by subtracting the amount equivalent to the amount of the general under-reported or the amount of the general under-reported penalty tax from the amount of the individual under-reported penalty tax or the amount of the tax under-reported general under-reported penalty tax) shall be revoked as it is unlawful and thus, should be revoked.

(3) Of the disposition of imposition of KRW 2,065,48,234 [2,06,48,234] of the instant inheritance tax amounting to KRW 2,065,48,234 [1,95,403,152 (principal tax) + + 131,962,131 (additional tax for unfaithful payment) + 18,728,907 (general underreporting amounting to KRW 772,00,000] + 119,394,044,044 (general underreporting of the instant amount)]; and thus, should be revoked.

3. Conclusion

Therefore, the claim for revocation of the imposition of gift tax, inheritance tax, and global income tax, among the plaintiffs' claims in this case, is justified. The claim for revocation of the imposition of unjust non-reported additional tax on the transfer income tax of this case is justified within the scope of recognition, and the remainder is without merit. The first instance court, which is the part against the plaintiffs, partially unfair conclusion as to the part of the claim for revocation of the imposition of unjust non-reported additional tax on the global income tax of this case, and the part concerning the claim for revocation of the imposition of unjust non-reported additional tax on the transfer income tax of this case, and the part concerning the claim for revocation of the imposition of unjust non-reported additional tax on the transfer income tax of this case among the judgment of the first instance which partially accepted the appeal by the plaintiffs, and the part concerning the claim for revocation of the imposition of unjust non-reported additional tax on the transfer income tax of this case among the part concerning the claim for revocation of the imposition of non-reported additional tax on the transfer income tax of this case and the part concerning the imposition of unjust non-reported additional tax on September 17, 2012.

[Attachment]

Judges Cho Jong-tae (Presiding Judge)