Whether gift tax may be levied on the shares acquired as the selling price for the shares held in title, which are subject to a first donation and have been imposed or can be imposed, and re-transfered under the name of the same person pursuant to Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (negative in principle)

Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007)

Supreme Court Decision 2011Du10232 Decided February 21, 2017 (Gong2017Sang, 646) Supreme Court Decision 2014Du42117 Decided March 22, 2017

Plaintiff (Law Firm LLC, Attorneys Gyeong-soo et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2011Nu28730 decided February 8, 2012

The part of the lower judgment against the Plaintiff regarding the donation on December 31, 2006 is reversed, and that part of the case is remanded to the Seoul High Court. The remaining appeal by the Plaintiff is dismissed.

The grounds of appeal are examined.

1. As to the assertion that the shares of this case are not nominal trust property

The allegation in the grounds of appeal on this part is that the Plaintiff merely borrowed the acquisition fund from the Nonparty and purchased the shares of the company of this case with the Daesung Industrial Co., Ltd., and did not receive the title trust from the Nonparty.

However, this assertion is merely an issue of dispute over the selection of evidence or fact-finding which belongs to the lower court’s full power as a fact-finding court, and thus cannot be a legitimate ground

2. As to the assertion that the deemed gift for title trust cannot be applied in duplicate

A. The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007) (hereinafter “instant legal provision”) provides that “where the actual owner and the nominal owner are different from that of the property (excluding land and buildings; hereafter the same shall apply in this Article), the value of the property shall be deemed to have been donated by the actual owner on the date (where the property requires a change of ownership, referring to the date following the end of the year following the year in which the date of acquisition of ownership falls) on which the actual owner and the nominal owner are registered, notwithstanding Article 14 of the Framework Act on National Taxes.”

In addition to the legal provisions of this case, in order to prevent the act of title trust for the purpose of tax avoidance, ① as an exception to the principle of substantial taxation, the provision allowing the actual owner to consider the property to be donated from the title holder to the title holder to the extent necessary and appropriate to prevent the act of tax avoidance. As such, in the case of the shares in this case, in a case where the first title trust shares, which were subject to taxation or are able to be taxed due to the deemed donation, are sold, and another shares are acquired with the sale price, and a transfer of ownership is again made in the same name under the name of the same person, the imposition of gift tax without restriction on another shares, which is re-transfered, may result in inconsistency in denying the effect of the deemed donation of the first title trust shares in relation to the imposition of gift tax. ③ When the first title trust shares were sold after the acquisition of the first title trust shares and another shares are transferred to the same person under the name of the same person, the first title trust shares or the purchase fund can be imposed more than the gift tax amount.

B. According to the reasoning of the first instance judgment as cited by the lower court, the Nonparty: (a) opened a borrowed-name securities account in the Plaintiff’s name on July 9, 2004 and deposited investment money; (b) up to March 2005, a transfer of ownership was made in the name of the Plaintiff with respect to shares 82,690 (hereinafter “first shares”) on December 31, 2004; (b) the Nonparty, from February 17, 2005 to April 8, 2005, issued a transfer of ownership to the Plaintiff on the purchase price of shares acquired in the Plaintiff’s name or for other purposes; and (c) the Nonparty, upon the application of the transfer of ownership to the Plaintiff’s shares in the name of the Plaintiff, issued a transfer of ownership to the Plaintiff on December 31, 2006 and issued a transfer of ownership to the Plaintiff (hereinafter “the Nonparty”) on each of the instant shares under the name of the Plaintiff’s transfer of ownership, including the Plaintiff’s shares; and (d) the Nonparty’s shares were issued to the Plaintiff 30.

C. Examining these facts in light of the legal principles as seen earlier, since the instant primary shares are the first title trust shares that the Nonparty transferred to the Plaintiff, it may be subject to taxation pursuant to the legal provisions of this case. However, since the instant secondary shares are likely to constitute the shares re-acquisition in the same name using the sales price of the instant primary shares that are the first deemed donation, there is a possibility that they may not be subject to taxation pursuant to the legal provisions of this case.

Nevertheless, the lower court did not examine whether the instant secondary shares were re-acquisitiond as the sales price of the instant primary shares, and determined that the imposition of gift tax (excluding the part in favor of the Plaintiff) on the instant secondary shares was lawful solely for the reasons indicated in its reasoning. In so determining, the lower court erred by misapprehending the legal doctrine on deemed donation under the legal provisions of this case, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

3. Conclusion

Therefore, the part of the judgment of the court below against the plaintiff regarding the imposition of gift tax on the second stocks of this case is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining appeal by the plaintiff is dismissed. It is so decided as per Disposition by the assent of all participating Justices on

Justices Lee Ki-taik (Presiding Justice)