2020du49324 Disposition of revocation of imposition of acquisition tax, etc.

Dak Cosmetics Co., Ltd.

Law Firm Adoz., Counsel for the plaintiff-appellant

Gangnam-gu, Attorneys Gangnam-gu et al.

The head of Nam-gu Incheon Metropolitan City

Seoul High Court Decision 2020Nu33673 Decided August 28, 2020

may 7, 2021

The judgment below is reversed and the case is remanded to Seoul High Court.

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

1. Scope of specially related persons under Article 2(1)34(c) of the former Framework Act on Local Taxes (wholly amended by Act No. 14474, Dec. 27, 2016; hereinafter the same) (ground of appeal No. 2)

The lower court determined that it was difficult to view that Nonparty 1 had a management control relationship under Article 2(1)34(c) of the former Framework Act on Local Taxes, since it cannot be deemed that Nonparty 1 had a controlling influence over the Plaintiff’s management.

Examining the reasoning of the lower judgment in light of the relevant provisions and legal principles, the lower judgment did not err by misapprehending the legal doctrine on the scope of specially related persons under the former Framework Act on Local Taxes, thereby affecting the conclusion

2. Scope of specially related persons under Article 2(1)34(b) of the former Framework Act on Local Taxes (Ground of appeal No. 1)

A. (1) The main sentence of Article 7(5) of the former Local Tax Act (amended by Act No. 14474, Dec. 27, 2016; hereinafter the same) provides that, if an oligopolistic shareholder becomes an oligopolistic shareholder under Article 47 subparag. 2 of the former Framework Act on Local Taxes by acquiring a corporation’s stocks or shares, such oligopolistic shareholder shall be deemed to have acquired the real estate, etc. of the relevant corporation. According to Article 47 subparag. 2 of the former Framework Act on Local Taxes and Article 24(2) of the former Enforcement Decree of the Framework Act on Local Taxes (wholly amended by Presidential Decree No. 27958, Mar. 27, 2017; hereinafter the same) of the former Enforcement Decree of the Framework Act on Local Taxes (wholly amended by Act No. 27958, Mar. 27, 2017; hereinafter the same) “ oligopolistic shareholder” means one shareholder and a person who actually exercises his/her rights to the stocks

On the other hand, Article 2 (1) 34 of the former Framework Act on Local Taxes stipulates that "relative relationship (a) prescribed by Presidential Decree, such as blood relative, blood relative, etc. with the principal, and economic relationship prescribed by Presidential Decree, such as executives, employees, etc. (b) or "management control relationship prescribed by Presidential Decree, such as shareholders, investors, etc. (c)" shall be regarded as "specially related persons", and Article 2-2 (2) 1 and 3 of the former Enforcement Decree of the Framework Act on Local Taxes provides that "the person himself/herself shall also be regarded as a specially related person when applying this Act and local tax-related Acts."

In principle, the former Framework Act on Local Taxes should take precedence over local tax-related Acts, including the Local Tax Act (Article 3 and Article 2 (1) 4 of the former Framework Act on Local Taxes).

(2) Whether it constitutes an oligopolistic shareholder who is liable to pay deemed acquisition tax under Article 7(5) of the former Local Tax Act shall not be determined on the basis of the increase in the total stocks owned by a group of oligopolistic shareholders, rather than on the basis of the increase in the number of stocks owned by a group of oligopolistic shareholders. Therefore, even if a person who was neither a shareholder nor a shareholder of the relevant corporation was transferred all or part of the stocks from an existing oligopolistic shareholder, but became a new oligopolistic shareholder, the said oligopolistic shareholder cannot be subject to taxation of deemed acquisition tax, unless there is a change in the percentage of stocks owned by the existing oligopolistic shareholder and a new oligopolistic shareholder (see, e.g., Supreme Court Decisions 2007Du10297, Aug. 23, 2007; 2012Du12495, Jul. 25, 2013).

B. According to the reasoning of the lower judgment, the following facts are revealed.

(1) The Plaintiff is a corporation that manufactures cosmetics, etc., and Nonparty 2 served as a representative director or an internal director from August 22, 201 to November 15, 2016.

(2) On April 19, 2016, the Plaintiff acquired all of the shares of IM cosmetic Co., Ltd. (hereinafter referred to as IM cosmetic), an unlisted corporation, from Nonparty 1 and his/her children, Nonparty 3 and Nonparty 4 (hereinafter referred to as “Nonindicted 1, etc.”).

(3) On the premise that the Plaintiff acquired the entire stocks of the IM cosmetic and thereby became an oligopolistic shareholder under Article 47 subparag. 2 of the former Framework Act on Local Taxes, the Defendant deemed to have acquired real estate, etc. of the IM cosmetic pursuant to Article 7(5) of the former Local Tax Act, and imposed a total of KRW 232,984,000 (including additional taxes) on the Plaintiff on November 21, 2017 (hereinafter “instant disposition”).

C. Examining these factual relations in light of the aforementioned provisions and legal principles, the following conclusions are derived. Since Nonparty 1, etc. is the spouse and children of Nonparty 2, who are the Plaintiff’s executives and children, Nonparty 2, etc., if their livelihood together with Nonparty 2, it can be seen as “the relatives living together with the Plaintiff’s executives and children” pursuant to Article 2(1)34(b) of the former Framework Act on Local Taxes and Article 2-2(2)3 of the former Enforcement Decree of the Framework Act on Local Taxes. If Nonparty 1, etc. is the Plaintiff’s specially related person, the Plaintiff shall be deemed as the specially related person, such as Nonparty 1. Even if the Plaintiff acquired the entire shares of the IM cosmetic from Nonparty 1, etc. and became a new oligopolistic shareholder, there is no change in the ratio of the total shares owned by the Plaintiff

The lower court should have deliberated on whether Nonparty 1 et al., a relative living together with Nonparty 2, an officer of the Plaintiff, constitutes the Plaintiff’s specially related person, and determined the lawfulness of the instant disposition. Nevertheless, the lower court determined that the instant disposition was lawful on the ground that it was impossible to determine whether the Plaintiff and Nonparty 1 et al. were in a special relationship on the basis of Nonparty 2 on the ground that Nonparty 2 did not own stocks of IM cosmetics without examining the aforementioned issues. The lower court erred by misapprehending the legal doctrine on the scope of specially related persons under the former Framework Act on Local Taxes and failing to exhaust all necessary deliberations, thereby adversely affecting

3. Conclusion

The Plaintiff’s appeal is with merit, and the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won

Justices Kim Jae-hyung

Justices Min You-sook

Justices Noh Tae-ok