Seoul Administrative Court 201Guhap17455 ( October 24, 2012)

Cho High Court Decision 2010Du2424 ( October 24, 2011)

Gift tax is illegal on the taxation of gift tax because it is merely allocated new shares as a previous shareholder.

(1) It is determined that the transfer procedure for the previous shares has been completed, and that the former shares is recognized as shareholders by meeting the requirements for acquisition of shares as long as the transfer of ownership for the previous shares has been completed. Therefore, the taxation disposition is unlawful on the premise that the allocation of new shares was made in the position of shareholders holding the previous shares and received a capital increase for consideration from a

2012Nu9200 Revocation of imposition of gift tax

Kim △△△

Head of Guro Tax Office

Seoul Administrative Court Decision 201Guhap17455 decided February 24, 2012

October 30, 2012

December 7, 2012

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s imposition of gift tax of KRW 000 and KRW 000 against the Plaintiff on June 8, 2010 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Imposition of gift tax;

The following facts are recognized by taking into account the overall purpose of the arguments in each entry into account the absence of dispute between the Parties, and the entry in Gap 1, 3, and 5, and 6 (including household numbers):

[1]

O on March 23, 2002, HongD and its wife tear set up GGG, Co., Ltd. with the Plaintiff’s Dong KimFF, and RedD were audited, and the directors, and KimF were the representative director (hereinafter “the above corporation”).

O The total number of outstanding stocks of the non-party company was 10,000, and 4,000 of them were red by RedD, and 3,000 of 3,000 E, and 3,000 KimF, respectively.

O) On the other hand, RedD and Maximum EE acquired HH Electronic Limited Corporation, a Chinese corporation, with KimF, and established AS Electronic Limited Corporation, a Chinese corporation (hereinafter referred to as "China corporation").

[2]

Ogly, redD and tear have 7,000 shares issued by the non-party company (i.e., 4,000 shares + 3,000 shares) and Chinese corporation. On May 2005, HongD and Maximum EE entered into a contract with the plaintiff to transfer the above 7,00 shares held by them to KRW 000 for the purchase price (hereinafter above 7,00 shares, hereinafter referred to as "the shares in this case", and hereinafter referred to as "the transfer contract in this case").

On December 13, 2007, which was about two years and six months after the date of the resolution, the board of directors of the non-party company resolved to issue new shares with 30,000 shares, assigned 21,00 shares among them to the plaintiff, and assigned the remainder 9,00 shares to the KimF.

O The Plaintiff and KimF paid the full amount of the subscription price of the above new shares on the same day (hereinafter referred to as the “instant subscription price for new shares”).

[3]

O) As to the above new shares allocation, the Defendant determined that the shareholders of the non-party company at the time of the issue of new shares offering were redD, the lowestE, and the KimF, and thus, the Plaintiff was allocated new shares as a non-shareholders.

O) Accordingly, on June 8, 2010, the Defendant imposed a gift tax of KRW 000 on the ground that the gift tax was donated from 6 RedD, and imposed a gift tax of KRW 000 on the ground that the gift tax was donated from 6 E (hereinafter referred to as the “instant disposition”).

2. The plaintiff's assertion

The Plaintiff was the shareholder of the non-party company at the time of the instant capital increase as of December 13, 2007, since HongD and Red EE entered into the instant transfer contract with the Plaintiff around May 2005, and transferred them to the Plaintiff, and the Plaintiff was the shareholder of the non-party company at the time of the instant capital increase as of December 13, 2007. Therefore, the Plaintiff’s allocation of new shares 21,000 shares at the time of the instant capital increase as a shareholder, and the allocation was not made as a shareholder, and as such, the disposition of this case imposing the gift tax on the Plaintiff on the ground that the Plaintiff was allocated the said new shares

3. Related Acts and subordinate statutes and recognition;

(a) Inheritance Tax and Gift Tax Act;

(1) On December 13, 2007, Article 39(1) of the Inheritance Tax and Gift Tax Act, which was enforced at the time of the offering of new stocks, provides that "the donation of profits from the capital increase" shall be defined as "the donation of profits from the capital increase", and where the corporation issues new stocks to increase its capital, the amount equivalent to the corresponding profits shall be deemed as the value of the property donated to the person who has obtained the profits from the capital increase. Of the above subparagraphs, subparagraph 1 of the same Article provides for the cases where new stocks are issued at a price lower than the market price, and item (c) thereof provides for the profits acquired by a

(2) When a corporation issues new shares, the above provision is imposed as a donation on the transfer of profits from the existing shareholders to the purchaser of new shares, and the transfer time provided for in the Income Tax Act is related to the calculation of transfer margin of transfer, so whether a corporation constitutes "a person who is not a shareholder of the corporation concerned" under the Inheritance Tax and Gift Tax Act shall be determined in accordance with the contents of the contract transferring stocks and the Commercial Act, and it shall not be determined in accordance with the transfer time provided for in the Income Tax Act.

(b) Fact of recognition;

The following facts are recognized in full consideration of each of the Parties' arguments between the Parties, and between Gap, Gap, Eul, Eul, Eul, Eul, Eul, Eul, Eul, and Eul, Eul, Eul, and Eul, and Eul, and the testimony at new III of the first instance court witness.

[1]

O The non-party company entered into the instant transfer agreement with the Plaintiff on March 23, 2002, to transfer 7,000 shares owned by it and 000 won shares in China corporation to the Plaintiff on May 2005.

O The contents stated in the contract (Evidence A No. 6-1) prepared at the time of entering into the instant transfer contract are as follows:

(Omission of Contents)

O) The transfer contract of this case concluded around May 2005 is signed and sealed on the contract between △△ transferor and both parties, as seen above, and the contract takes effect on the date when the transferor pays the down payment to the transferor; and 000 won out of the transfer price of △△ 000 won is signed and sealed on the contract.

At the end of May, 2005, the Plaintiff paid KRW 000 to the HongD and the largest E, the transferor, and the transferee.

[2]

O In the instant transfer contract concluded around May 2005, as seen earlier, the Plaintiff paid 00 won, excluding 000 won among 000 won of the transfer price, in monthly installments for three years, and paid 000 won out of 000 won to △△△△ for the first year. By January 2006, the Plaintiff paid 00 won to the red ties and the highest E.

O) After that, on February 27, 2006, RedD and Maximum EE entered into an additional arrangement regarding the instant transfer agreement with the Plaintiff (hereinafter referred to as the “instant additional arrangement”).

O The contents stated in the letter of agreement (Evidence A No. 21) prepared at the time of the conclusion of the instant additional agreement are as follows.

(Omission of Contents)

O) Under the instant additional arrangement concluded on February 27, 2006, as seen above, the Plaintiff paid KRW 000 in installments each month from January 7, 2006 to KRW 000, and the Plaintiff paid KRW 000 in the aggregate of KRW 000 per month from April 2, 2006 to August 15, 2006 without delay at any time, on or after September 1, 2006, a record was made that the Plaintiff may transfer to the Plaintiff for KRW 7,000 for the shares of this case, and the Plaintiff paid KRW 00 in the sum of KRW 00 and KRW 000 for May 2, 2006 and KRW 00 for June 15, 2006.

O The Plaintiff thereafter paid KRW 000 to the RedD and Maximum E on February 1, 2007, and paid KRW 100 million in total for ten months from March 5, 2007 to December 3, 2007.

O Accordingly, until December 3, 2007, the Plaintiff paid 000 won out of the transfer price of 000 won to HongD and MaE.

[3]

O thereafter, on December 13, 2007, the shareholders' meeting of the non-party company was held, and at the time, the list of shareholders of the non-party company was stated that the plaintiff 7,000 shares among the total number of shares issued 10,000 shares and that the KimF shall hold 3,00 shares.

O At the above provisional shareholders' meeting, the plaintiff was appointed as a director of the non-party company, and this society was held on the same day.

O. On December 13, 2007, the board of directors adopted a resolution to allocate new shares 30,000 shares in this case, with respect to the subscription for new shares, and assigned 21,00 shares [=30,000 sharesx (7,000 shares/10,00 shares)] by the Plaintiff, and KimF 9,00 shares [30,000 shares = 30,000 sharesx (3,000 shares/100 shares)] by the board of directors.

C. On December 14, 2007, the registration was completed when the Plaintiff and KimF paid the above subscription price in full, and on December 14, 2007, the number of non-party company’s total outstanding shares was changed from 10,000 shares to 40,000 shares following the instant subscription price (= 10,000 shares + 30,000 shares).

4. Determination

Based on the above facts and evidence, we examine whether the Plaintiff was the shareholder of the non-party company at the time of capital increase.

A. The instant transfer contract and the instant additional agreement

(1) The instant transfer contract is to transfer the instant shares of 7,00 shares, which correspond to 70% of the total number of shares issued by the non-party company 6, and red Does and Maximum EE, which hold shares in the instant shares of 7,000 shares and Chinese corporations, to the Plaintiff at KRW 000, and the contract takes effect on the date △△△ and Maximum E, and to transfer all the assets and contractual relations related to the business of the non-party company and Chinese corporations to the Plaintiff, and to the Plaintiff, both the assets and contractual relations related to the business of the non-party company and Chinese corporation and the transaction name and effect related to the business belongs to the Plaintiff, while the claims, debts and employment relationships related to the business are also taken by the Plaintiff, and the profits accruing from the business of the non-party company and Chinese corporation are to be used preferentially for the payment of shares of 7,000 shares in the instant case and for the

(2) Thus, the transfer contract of this case is a contract that allows △△ to use the above profits in the business of the non-party company and Chinese corporation as a shareholder holding the above 7,000 shares and shares in the non-party company 70% of the total number of shares issued by △△△ on the date on which the plaintiff pays 00 won to HongD and MF, and that is a contract that allows △△ to use the above profits in the business by exercising the right to manage the non-party company and Chinese corporation, while allowing △△ to preferentially pay the transfer proceeds of the shares of this case to 7,000 shares and the shares of Chinese corporation. According to this contract, the transfer contract of this case can be cancelled on the ground of the plaintiff's default, but unless this cancellation is made, and as long as shares of this case 7,000 shares and shares were transferred to the plaintiff, only the plaintiff's obligation to pay damages and the effects of the transfer proceeds are maintained.

(3) As seen earlier in the instant transfer agreement, the non-party company and Chinese corporation’s business income was required to be used preferentially for the payment of the transfer price of shares 7,000 shares and shares in China, and the instant additional agreement did not make a separate agreement on this point. On the other hand, the instant additional agreement concluded between April 2006 and August 2006 provided that the Plaintiff may transfer the ownership of 7,000 shares after September 1, 206 to the Plaintiff without delay, and that the transfer and disposal of shares in China could not be carried out before the payment of the transfer price was made.

(4) As seen earlier, since the Plaintiff’s shares 7,00 shares and shares in China were transferred to the Plaintiff on the payment date of KRW 000, the Plaintiff’s exercise of management rights in the non-party company and China corporation from the same date, and the Plaintiff’s exercise of management rights in the non-party company and China corporation from the same date, and there is no change after the conclusion of the instant additional agreement. On the other hand, in the instant additional agreement, the Plaintiff made it impossible to transfer or dispose of the shares 7,00 shares and shares in China to a third party, due to the Plaintiff’s transfer of shares 7,00 shares and shares in China to a third party, and the non-party company or Chinese corporation did not operate the non-party company or Chinese corporation, it would be difficult for HongD and MF to prevent the transfer of shares in this case from being paid for the Plaintiff, and RedD and E were not refunded to the Plaintiff for the reason of the Plaintiff’s transfer price 7,000 shares and to prevent the transfer of shares in this case from being refunded to the Plaintiff.

(5) 앞서 든 증거들에 의하면， 원고가 2005. 5.경 이 사건 양도계약 체결하고 2005. 5. 말경 홍DD 및 최EE에게 000 원을 지급한 이후， 원고가 2005년과 2006년에 소외회사의 PP은행에 대한 대출금채무 합계 000 원을 연대보증하고 또한 2006. 11경과 2007. 7경 소외회사의 거래처에 대한 외상대금채무 000원과 QQ은행에 대한 대출금채무 000 원을 연대보증한 사실이 인정된다. 위와 같은 사정은， 앞서 본 바와 같이 원고가 홍DD 및 최EE에게 000 원을 지급하는 날에 이 사건 주식 7，000주 및 중국법인 지분이 원고에게 양도되는 효과를 발생시켜 원고가 같은 날부터 위 7，000주 및 지분을 보유하는 주주로서 소외회사 및 중국법인의 경영권을 행사하는 것에 부합한다고 할 것이다

(b) Stockholders;

(1) According to the above, on May 2005, the Plaintiff’s shares 7,000 shares and shares in China were transferred to the Plaintiff on the date of payment of 000 won to HongD and Maximum EE. This effect occurred between HongD and the Plaintiff under the instant transfer contract. However, since the non-party company did not issue the share certificates after its establishment on March 23, 2002, the effect of transfer of 7,000 shares in this case occurred to the Plaintiff around May 2005 is effective as against the non-party company, and the transfer transferee is merely a requisite to exercise shareholder’s right in relation to the company. The Plaintiff, the transferee of 7,000 shares in this case, the transferee of 7,000 shares in this case, can claim that the non-party company is the legitimate transferee of the shares (Supreme Court Decision 209Da398494, May 23, 195).

(2) On December 13, 2007, the board of directors of the non-party company resolved to issue this case’s capital increase, and at the time, the Plaintiff paid 000 won out of 000 won to HongD and Maximum EE. However, according to the transfer contract of this case, if the Plaintiff did not pay the transfer price properly to RedD and Maximum E, it can cancel the transfer contract of this case on the ground of the Plaintiff’s default, but unless it does not cancel it, RedD and Maximum E can cancel the transfer contract of this case on the ground of the Plaintiff’s default, but only 7,000 shares and Chinese corporation shares were transferred to the Plaintiff, and the Plaintiff’s obligation to pay the transfer price and compensation therefor remains. Accordingly, even if at the time of issuing capital increase, the Plaintiff was not a shareholder of the non-party company, on the ground that the Plaintiff was not a shareholder of the non-party company.

(3) According to the evidence mentioned above, the non-party 1’s meeting of the △△△△△△ was to adopt the shareholders allocation method, and to allocate 30,000 shares out of 30 new shares, and to 9,000 shares out of 00 shares, and on March 23, 2008, HongD retired from the Non-party 1’s auditor’s office on the same day, the △△△△△ and the Maximum EE were not assigned to the Plaintiff on January 13, 2009, and it was difficult for the Plaintiff to claim that the non-party 1 were not assigned to the Plaintiff at the time of the △△△△△△△△△△△△△△△△△△△△△△△△, and that the non-party 2 was not assigned to the Plaintiff on the grounds that the non-party 1 was not transferred to the Plaintiff, and that the Plaintiff did not claim that the non-party 1 were transferred to the Plaintiff on the grounds that the non-party 2 were not transferred.

(4) Meanwhile, according to the above evidence, redD and tear, and KimF are written as shareholders in the report on changes in stocks, etc. submitted by the non-party company for the 2005 business year, and the fact that redD and tear, the plaintiff, and the KimF are written as shareholders in the report on changes in stocks, etc. for the 2007 business year submitted by the non-party company. However, according to the testimony of the non-indicted witness of the first instance trial, the detailed statement on changes in stocks, etc. for the 2007 business year is submitted for taxation administration, and according to the testimony of the non-indicted witness of the first instance trial, the detailed statement on changes in stocks, etc. for the 2007 business year was prepared and submitted in accordance with the judgment of the tax agent.

The time of transfer provided for in the Income Tax Act is related to the calculation of capital gains tax, and whether a specific person has become a shareholder of a specific company is determined by the terms and conditions of the transfer of stocks and the provisions of the Commercial Act, so it cannot be said that the transferee of stocks did not become a shareholder of the relevant company solely on the ground that the time of transfer provided for in the Income Tax Act has not yet arrived. Thus, it cannot be said that there was no effect on the transfer of the stocks of this case held by HongD and the largest E on the basis of the detailed statement of changes in stocks, etc.

(5) Accordingly, on May 13, 2005, the Plaintiff became a shareholder of the non-party company holding 7.000 shares of this case at the time of payment of 00 won to HongD and Maximum EE, and the effect of transferring 7,000 shares of this case to the Plaintiff was occurred, and the Plaintiff became a shareholder of the non-party company holding 7.00 shares of this case at the time of payment of new shares of this case on December 13, 2007, since HongD and Maximum EE did not cancel the transfer contract of this case.

5. Conclusion

Therefore, the disposition of this case imposing gift tax on the plaintiff on the ground that the plaintiff was allocated 21,00 shares as a non-party company's shareholder at the time of capital increase with new shares. Therefore, the plaintiff's claim seeking cancellation of the disposition of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed and it is so decided as per Disposition.