Seoul Administrative Court 2009Guhap4081 (Law No. 97.03)

Examination Donation 2008-0043 ( October 31, 2008)

Taxes subject to tax avoidance are not limited to gift tax.

Since taxes subject to the tax avoidance are not limited to the gift tax, if the deemed acquisition tax for oligopolistic shareholders under the Local Tax Act is avoided, there is the purpose of the tax avoidance.

The contents of the decision shall be the same as attached.

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The disposition of imposition of KRW 200,336,230 against the plaintiff on May 9, 2008 by the defendant shall be revoked.

1. Quotation of judgment of the first instance;

The reasoning for the court's explanation on this case is as stated in the judgment of the court of first instance, in addition to adding the judgment on the matters asserted by the plaintiff in the court of first instance as stated in paragraph (2). Thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure

2. Judgment on matters asserted in the trial

A. Determination as to the assertion that it is not subject to deemed acquisition tax

(1) In the trial, the Plaintiff asserts to the effect that, in particular, the Trade Union and Labor Relations Commission did not perform its duty to report to the Financial Supervisory Service pursuant to the provisions related to the former Mutual Savings and Finance Company Act as an oligopolistic stockholder of the PP Mutual Savings and Finance Company, the Plaintiff could not exercise voting rights. Therefore, the Plaintiff asserts to the effect that there was no purpose of tax evasion because the said Act was not in a position

(2) However, in order to determine whether there was a purpose to avoid taxes due to the title trust of stocks in this case, it is necessary to examine whether the Trade Union and Labor Relations Commission, without holding a title trust, acquired stocks in its own name without holding a title trust, and fulfilled all the obligation to report under the relevant laws and regulations, if a normal shareholder’s right was exercised, the tax that can be imposed should be exempted from the title trust of stocks, and it cannot be determined by presenting a case where a normal shareholder’s right is not exercised due to a deviation from law or illegality. According to the above evidence, it is sufficiently recognized that the Trade Union and Labor Relations Commission, in fact, can be subject to deemed acquisition tax under the Local Tax Act because it is a person who has the right to dispose of all stocks of the PP mutual savings and finance company and is in a position to exercise a shareholder’s right, and therefore

B. Judgment on the unconstitutionality argument

(1) The Plaintiff asserts that the legal provision of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780 of Dec. 18, 2002) which served as the basis of the instant disposition is unconstitutional since it violates the principle of substantial proportionality and the principle of equal taxation, and thus, the instant disposition is unlawful.

(2) However, for the following reasons, the legal provision of this case cannot be deemed to have violated the Constitution.

A) The imposition of gift tax may be contrary to the principle of substantial taxation. However, in a case where a title trustee uses a title trust as a means of concealing or evading taxes, deeming such donation as a gift within the limited scope recognized as the purpose of tax avoidance can be allowed as an exception to the principle of substantial taxation, since it is recognized as appropriate means to realize the equity of tax justice and tax, and as such, it does not go against the principle of proportionality or the principle of equality as delineated below. Therefore, even if the title trustee is deemed to have not acquired any economic benefits as asserted by the Plaintiff, even if the purpose or content of the donation’s agenda is deemed to be a gift, it cannot be said that the purpose or content of the donation does not significantly go beyond the legislative discretion and does not comply with the constitutional ideology guaranteeing fundamental rights, and thus, it does not violate the principle of no taxation without the law (see Supreme Court Decision 2007Du8652, Mar. 12, 2009).

B) The avoidance of tax under the title trust is not only a gift tax, but also various national taxes, local taxes, and customs duties such as inheritance tax, income tax, acquisition tax, etc. As such, the same is also applicable to the case of gift tax that needs to prevent avoidance and sanction other taxes other than the gift tax by the method of the title trust. Moreover, the imposition of gift tax on the title trust intending to avoid tax other than the gift tax, as a sanction method, cannot be said to give more damage to the taxpayer compared to the case where the violator is subject to criminal punishment or imposition of a reasonable amount of penalty, etc., and the public interest achieved by the restriction is more significant than the disadvantage that the title trustee runs. Accordingly, the choice of the legislation that requires the imposition of a gift tax higher than the tax for the purpose of avoidance is reasonable, and there is no obvious error in the limit of legislative discretion contrary to the principle of proportionality or any problem of unconstitutionality, such as the decision of the Constitutional Court Decision 200Hun-Ba46, Apr. 26, 2004.

C) Furthermore, imposing gift tax on a title trustee, which is considerably high-rate with respect to the act of tax evasion using title trust, is a substantial monetary burden on that trustee. However, this is limited to the case where the purpose of tax evasion is recognized, and the title trustee is bound to be held liable for the tax evasion by lending his/her name. Therefore, the disadvantage suffered by the title trustee through the imposition of gift tax cannot be deemed to be grossly unfair, and if not, there is a reasonable ground that the degree of tax evasion cannot be effectively prevented. Therefore, it cannot be said that there is a violation of the principle of equality by treating the same as the actual donation to the title trustee who has no ability to pay taxes (see, e.g., Constitutional Court Order 2002Hun-Ba66, Nov. 25, 2004; Constitutional Court Order 2004Hun-Ba40, Jun. 30, 2005).

(3) Therefore, the plaintiff's above assertion on the premise that the legal provision of this case is in violation of the Constitution is without merit.

3. Conclusion

The judgment of the first instance is just and the plaintiff's appeal is dismissed, and it is so decided as per Disposition.