[1] In a case where the provision on the calculation of individual donated property under Articles 33 through 42 of the former Inheritance Tax and Gift Tax Act can be deemed to have established the scope and limitation of the imposition of gift tax by regulating a specific type of transaction or act, whether gift tax may be levied if a transaction or act excluded from the subject or scope of taxation of gift tax constitutes the concept of donation under Article 2(3) of the former Inheritance Tax and Gift Tax Act (negative)

[2] Requirements for determining the amount equivalent to the “profit from the listing, etc. of stocks or equity shares” under Article 41-3 of the former Inheritance Tax and Gift Tax Act as the value of donated property / In a case where the promoters before the incorporation of a corporation donated funds and acquired the stocks of a newly incorporated corporation, whether gift tax may be levied on the profits accrued from listing by analogy under Article 41-3(1) of the former Inheritance Tax and Gift Tax Act

[1] In a case where a certain transaction or act constitutes the concept of gift under Article 2(3) of the former Inheritance and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance and Gift Tax Act”), gift tax may be levied in principle. However, in order to ensure taxpayers’ predictability, in a case where the provision on the calculation of individual donated property under Articles 33 through 42 of the former Inheritance and Gift Tax Act regulates a specific transaction or act as a subject of gift tax by limiting only a certain transaction or act as a subject of gift tax, and the scope of taxation can be deemed to have set the scope and limit of gift tax by restricting the scope of imposition, gift tax may not be levied even if the transaction or act excluded from the subject or scope of gift tax can not constitute the concept of gift under Article 2(3) of the former Inheritance and Gift Tax Act.

[2] Article 41-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance and Gift Tax Act”) provides for “the donation of profits from the listing of stocks or equity shares.” The requirements for determining the amount corresponding to the above profits as the value of donated property are as follows: First, donor is the largest shareholder, etc. who is recognized to be in a position to use undisclosed information on corporate management, etc.; second, there is a special relationship with the largest shareholder, etc.; second, a person with special relationship should receive stocks, etc. of a corporation from a person other than the largest shareholder, etc. or to acquire stocks, etc. of a corporation from the largest shareholder, etc. or property donated by the largest shareholder, etc.; third, within five years from the date of acquisition of the said stocks, etc. (Paragraph 1). Such profits shall be calculated based on the date on which three months have elapsed from the date of listing, etc. (Paragraph 2).

The legislative intent of this provision is to promote tax equality by imposing gift tax on listed profits of unlisted stocks acquired by a person with special interest in the largest shareholder, etc., and imposing tax on them before the first donation or acquisition without compensation, which is anticipated at the time of the first donation or acquisition. In light of the language and text of this provision, where a person with special interest has received stocks, etc. of a corporation or acquired them with compensation, the benefits arising from the listing of such stocks, etc. shall be limited to donated stocks, etc., and it cannot be deemed that the provisions

Article 41-3(1) of the former Inheritance and Gift Tax Act applies only to the acquisition, etc. of stocks of a corporation specified in the relevant provision, and to other types of stocks acquired, such as acquisition of stocks by promoters prior to the incorporation of a corporation, even if profits have been gained through listing, it is reasonable to view that the restriction of gift tax is not imposed even if profits have been gained after listing. Such conclusion can be derived by comprehensively taking account of the content and language of this provision, legislative purport, the difference between the acquisition of stocks by promoters prior to the establishment of a corporation and the acquisition of stocks using undisclosed management information, predictability of taxpayers, etc. Therefore, gift tax may not be imposed by analogy

[1] Articles 2(1) and (3) (see current Article 4(1) and (3) (see current Article 2 subparag. 6), 33, 34, 35, 36, 37, 38, 39, 39-2, 39-3, 40, 41 (current Article 45-5), 41-3, 41-4, 41-5, 42 (see current Article 42, 42-2, 42-3, and 42-3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 8828, Dec. 31, 2007); / [2] Articles 34, 35, 36, 37, 38, 39-2, 39-3, 41-4, 41-5, and 42-3 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 828, Dec. 31, 20007)

[1] [2] Supreme Court Decision 2016Du55926 Decided March 30, 2017 (Gong2017Sang, 899), Supreme Court Decision 2017Du35691 Decided September 21, 2017 / [1] Supreme Court Decision 2013Du13266 Decided October 15, 2015 (Gong2015Ha, 1683), Supreme Court Decision 2014Du1864 Decided October 29, 2015, Supreme Court Decision 2014Du40722 Decided December 23, 2015

[Judgment of the court below]

Sungnam Tax Office (Law Firm, Kim & Lee LLC, Attorneys Cho Il-young et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Nu67095 decided March 25, 2015

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. The key issue of this case is whether a person with special interest, who is scheduled as the largest shareholder of a newly incorporated corporation, acquires stocks issued by a newly incorporated corporation with the funds donated, the profits from the listing of such stocks are subject to gift tax pursuant to Articles 2(3) and 41-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance and Gift Tax Act”).

In a case where any transaction or act constitutes a concept of gift under Article 2(3) of the former Inheritance and Gift Tax Act, gift tax may be imposed in principle. However, in order to ensure predictability of taxpayers, in a case where the provision on the calculation of individual donated property under Articles 33 through 42 of the former Inheritance and Gift Tax Act regulates a specific type of transaction or act, and the scope of taxation is limited to only a certain transaction or act, and the scope of taxation can be limited, thereby establishing the scope and limit of imposing gift tax, even if the transaction or act excluded from the subject or scope of gift tax can be deemed as falling under the concept of gift under Article 2(3) of the former Inheritance and Gift Tax Act, gift tax may not be imposed (see Supreme Court Decision 2013Du13266, Oct. 15, 2015, etc.).

Article 41-3 of the former Inheritance and Gift Tax Act provides for “the donation of profits from the listing, etc. of stocks or equity shares.” The requirements for determining the amount equivalent to the above profits are as follows: First, it is the largest shareholder, etc. deemed that a donor is in a position to use undisclosed information on the management, etc. of a company; second, it is required that a donee is in a special relationship with the largest shareholder, etc.; second, a related person is to obtain stocks, etc. of a corporation from a person other than the largest shareholder, etc., or to acquire stocks, etc. of a corporation with property donated from the largest shareholder, etc.; third, within five years from the date of acquisition of the above stocks, etc.; third, it is to obtain profits above a certain standard because the stocks, etc. are listed on the Korea Stock Exchange (Paragraph

The legislative intent of this provision is to promote tax equality by imposing gift tax on listed profits of unlisted stocks acquired by a specially related person to the largest shareholder, etc., and imposing tax on them before the first donation or acquisition is made at the time of the first donation (see, e.g., Supreme Court Decision 2016Du55926, Mar. 30, 2017). In light of the language and text of this provision, where a specially related person received stocks, etc. of a corporation or acquired them with compensation, profits arising from the listing of such stocks, etc. shall only be deemed as donated property, and it shall not be deemed that the promoters before the incorporation of a corporation also regulate the case where a

Article 41-3(1) of the former Inheritance and Gift Tax Act applies only to the acquisition, etc. of stocks of a corporation specified in the relevant provision, and to other types of stocks acquired, such as acquisition of stocks by promoters prior to the incorporation of a corporation, even if profits have been gained through listing, it is reasonable to view that the restriction of gift tax is not imposed even if profits have been gained after listing. Such conclusion can be derived by comprehensively taking account of the content and language of this provision, legislative purport, the difference between the acquisition of stocks by promoters prior to the establishment of a corporation and the acquisition of stocks using undisclosed management information, predictability of taxpayers, etc. Therefore, gift tax may not be imposed by analogy

2. The lower court determined that Article 41-3 of the former Inheritance and Gift Tax Act cannot be applied or applied by analogy to the first issued stocks with respect to the Plaintiff’s first acquired stocks as a promoter with the money donated by the Nonparty, which was scheduled to be the largest shareholder at the time of the Plaintiff’s establishment of a corporation of L&C. Such determination is justifiable as it is based on the legal doctrine as seen earlier. In so determining, the lower court did not err by misapprehending the legal doctrine on the calculation method of donated assets based on the complete comprehensive gift taxation, requirements under Article 41-

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)