Board of Audit and Inspection ( Board of Audit and Inspection, 201. 04. 14)

The base point of time for legal fiction of title trust shares as gift shall be the transfer date.

It is reasonable to presume that, in a case where an account for securities transaction was opened in his/her name at the request of another person, it was done under the generally accepted social norms. The basic point of time for deeming trust shares as donation is the point of time for deeming the trust shares as donation even for new shares issued based on capital increase.

2011Guhap21010 Revocation of Disposition of Imposition of Gift Tax

Maximum XX et al.

Director of the Gangwon District Tax Office and one other

September 26, 2012

October 26, 2012

1. (a) The Director of the Gangwon-gu Tax Office limited to the Plaintiff Choi-A:

1) The portion exceeding KRW 000 out of the disposition imposing gift tax of KRW 000 for the year 200;

2) The portion exceeding KRW 000 out of the disposition imposing gift tax of KRW 000 for the year 2001;

3) The portion exceeding KRW 000 out of the disposition imposing gift tax of KRW 000 for the year 2004;

4) The portion exceeding KRW 000 out of the disposition imposing gift tax of KRW 000 for the year 2005;

B. The part that exceeds KRW 000,000, among the disposition of imposition of gift tax amount of KRW 000,000 on the title trust on December 31, 2000, issued by the Defendant HongB to Plaintiff HongB

Each cancellation shall be revoked.

2. The plaintiffs' remaining claims are dismissed.

3. Of the costs of lawsuit, 4/5 of the portion arising between Plaintiff LA and Defendant Kangdong Tax Office shall be borne by Plaintiff LA, and the remainder by Defendant Kangdong Tax Office, respectively. 2/3 of the portion arising between Plaintiff RedB and Defendant Kangdong Tax Office shall be borne by Plaintiff HongB, and the remainder by Defendant Kangdong Tax Office.

Each disposition taken by the Defendants against the Plaintiffs in attached Form 1 shall be revoked.

1. Details of the disposition;

A. XX (hereinafter referred to as " XX") is a corporation established on June 1, 1970 for the purpose of manufacturing products and feed feed, and registered on KOSDAQ around June 1996, and the CategoryCC is a representative director of the XX system.

B. After investigating the details of changes in the shares of the XX system, the director of the Seoul Regional Tax Office notified the Defendants, the disposition authority, of the following: (a) from October 24, 2000 to November 15, 2005, the Plaintiff purchased or received 97,285 shares in the name of the Plaintiff LA; (b) from October 17, 2000 to November 21, 200, the Plaintiff RedB’s purchase of 368,741 shares in the name of the Plaintiff HongB or received new shares for subscription; and (c) thus, he notified the Plaintiffs of the imposition of each gift tax regarding the title trust of the said shares (hereinafter “instant shares”).

C. Accordingly, the Defendants imposed gift tax on the Plaintiffs as stated in the separate disposition list (hereinafter referred to as “1-1 disposition” and “1-2 disposition” according to the marks indicated in the separate disposition No. 1).

D. On June 2010, the Plaintiffs appealed and filed a request for review with the Board of Audit and Inspection, respectively, and the Board of Audit and Inspection decided to dismiss the request on April 14, 201.

[Grounds for Recognition] Unsatisfy, Gap's 1 (including each branch number), Eul's 2, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) The Plaintiffs established only a securities transaction account in their names at the request of CategoryCC, and there was no specific agreement on whether and not a CategoryCC and a stock transaction, the type and volume of shares, and so there was no specific agreement on whether and not a stock transaction with the Plaintiff. Thus, the title trust on the instant shares is not established.

2) Even if the title trust is stable, its primary purpose was only the price manipulation of shares XX-minuteed shares, but it did not have any tax avoidance. However, it is only the reduction of minor tax burden in the process, and the purpose of tax avoidance is not recognized.

3) Since the shares in the Plaintiff RedB’s name were sold within three months after the title trust was held, it shall be deemed that there was no gift from the wife to the Eup pursuant to Article 31(4) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter “Gift Tax Act”).

4) Since the new shares acquired with the funds sold in trust under the names of the plaintiffs shall be deemed as a substitute for the shares initially held in title trust, it is unlawful to view that the secondary shares were held in title trust and impose tax on them as a donation.

5) Even if deemed donation due to title trust under the Family Affairs and Gift Tax Act is recognized, it is unlawful to calculate the donation amount based on the market price formed by artificially manipulating the share price. In addition, the base period for calculating the tax base for the shares received with capital increase on October 24, 2000, which is the transfer date, should be calculated based on 000 won, since the base period for calculating the tax base for the shares received with capital increase on December 31, 2000, which is the transfer date. The Defendants calculated the donation amount based on the appraised value per share on December 8, 200, which is the payment date of stock price.

B. Relevant statutes

Attached Table 3 shall be as stated in the relevant statutes.

(c) Fact of recognition;

(i) primary market price manipulation;

To sell approximately 230,00 shares of DoD, which are a major shareholder of XX, the CategoryCC operated the stock market using various borrowed accounts from April 6, 200 to September 5, 200, and sold the above shares to approximately 000 won and deposited the price into the securities account of DoD.

(ii) secondary market price manipulation;

A) On October 200, LCC asked Plaintiffs, Park G, Hah H, ChoJ, HakK, etc. to open a borrowed account. Accordingly, Plaintiff LA around September 2000, the Korea Investment Securities Account was opened on the Korea Investment Securities Account on November 27, 2000, and Plaintiff HongB around October 200.

B) Around September 200, CC deposited approximately KRW 000,000 from the securities account of ED, and deposited them into its own personal account or XX minutes through a complex fund laundering process, but deposited them into the securities account under the names of Plaintiffs, Park G, HaH, and HK, and operated the market price by purchasing and selling shares in their names.

C) Details of stock trade (including stock allocation due to oil increase) made by CategoryCC using the Plaintiffs’ account and details of imposing gift tax on the Defendants are as follows.

3) Criminal punishment for stock price manipulation

From May 2, 200 to August 25, 200 of the same year, the CategoryCC issued an order to purchase high-priced shares using several borrowed accounts, such as the NamL, for the purpose of inducing the sale and purchase of shares in XX portion from May 2, 200 to August 25, 200, thereby artificially controlling the market price of shares, and the first price manipulation), including the Plaintiffs, and issued a false order to purchase and sell shares of XX portion from October 12, 200 to November 21, 200 of the same year with the aim of inducing the sale and purchase of shares (the second price manipulation) using the borrowed account with the Plaintiffs, including the Plaintiffs, and issued a fine of KRW 40 billion on October 23, 2002. The judgment became final and conclusive on March 1, 2003.

(iv) criminal punishment against the violation of the duty to report changes in stocks and the duty to report changes in stocks;

A) On August 31, 2004, the CategoryCC held 12 shares of the instant company (50.54% of the shares of the instant company) through a 12 borrowed account, such as the account in the name of KimM, including its own shares and its specially related persons, but did not report to the Financial Supervisory Commission and the Exchange during the period from September 1, 2004 to June 3, 2005. However, despite the fact that the shares change occurred from September 1, 2004, to June 3, 2005, it violated its mass duty of reporting, and (2) from November 12, 2004 to December 12, 2004, it did not file a summary order of 12 shares of the instant company with the Securities Futures Commission and the Korea Securities Futures Commission and the Korea Securities Futures Commission and the Korea Securities Futures Commission did not file a fine order of 2008.208.27.208.

B) Meanwhile, among the 12 borrowed accounts listed in the above facts constituting the crime, securities transaction accounts in the name of the plaintiffs, which were used to operate the second market price as above, are included.

(v) Transfer of holders;

XX System’s shares were changed following the closing of the register of shareholders on October 24, 2000 when offering capital increase and then the change of holders was made on the last day of each year, and the shares of the above plaintiffs were changed accordingly.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 3 through 8, Eul evidence Nos. 7 through 11, the purport of the whole pleadings

D. Determination

1) Determination on the first argument

A) The actual owner of the instant shares

In light of the following circumstances acknowledged by the aforementioned facts and evidence, i.e., ① 20 KK, and HH 1: (a) 20 members of the 20-year-old company were charged with committing the crime of “as if the 20-year-old company did so by means of false purchase of shares from October 12, 200 to November 21 of the same year; (b) 10-year-old company shares were 500 won under the 20-year-old company name from April 6, 200 to September 5, 200; and (c) 20-year-old company shares were sold to the 20-year-old company shares from the 10-year-old company shares to the 10-year-old company shares; and (d) 20-year-old company shares were sold to the 20-year-old company shares from the 10-year-old company shares to the 20-class company shares.

B) Whether title trust was established

(1) The provision on deemed donation under Article 41-2(1) of the Gift Tax Act shall apply in cases where the actual owner and the nominal owner register property in the future under an agreement or communication with the nominal owner in order to transfer or exercise the right (see, e.g., Supreme Court Decisions 84Nu748, Mar. 26, 1985; 95Nu13531, May 31, 1996). In this case, if the tax authority proves only that the actual owner is different from the nominal owner, it shall be proved that the unilateral act of the actual owner, regardless of the intent of the nominal owner, is performed by the nominal owner (see, e.g., Supreme Court Decisions 89Nu3465, Feb. 27, 1990; 90Nu5023, Oct. 10, 1990).

(2) We examine the facts that the actual owner of the instant shares is CC, the Plaintiffs voluntarily opened a securities transaction account in their names at the request of the CategoryCC, and the fact that the instant shares were changed in the Plaintiffs’ name is as seen earlier. Therefore, the Plaintiffs are deemed to have donated the instant shares from CC pursuant to Article 41-2(1) of the Gift Tax Act.

(3) The plaintiffs asserted that title trust is not established on the grounds that there was no specific agreement between the plaintiffs and SectionCC on the size, type, and quantity of the shares traded using the securities transaction account under the plaintiffs' names. However, it is reasonable to deem that, upon the others' request, the opening of the securities transaction account under one's own name would have made a stock transaction under the other person's own name, and that the other person comprehensively accepted it. As such, the plaintiffs must prove that the transfer of the shares in this case was made under the names of the plaintiffs as the unilateral act of CategoryCC regardless of the plaintiffs' intent, and there is no other evidence to acknowledge it. Accordingly, this part of the plaintiffs' assertion is without merit.

2) Judgment on the second argument

A) The legislative purport of Article 41-2 of the Gift Tax Act is to recognize exceptions to the substance over form principle with the purport of effectively preventing the act of tax avoidance using the title trust system and realizing the tax justice. Thus, the proviso of the same Article is applicable only where the purpose of the title trust is not included in the purpose of the tax avoidance. In such a case, the burden of proving that the purpose of the tax avoidance was not included in the purpose of the title trust lies in the person claiming it (see, e.g., Supreme Court Decisions 2003Du13649, Dec. 23, 2004; 2004Du1223, Jan. 28, 2005). Therefore, with respect to the absence of the purpose of the tax avoidance, it may be proven by the method of proving that there was another purpose of the tax avoidance, other than the purpose of the tax avoidance (see, e.g., Supreme Court Decisions 2004Du7733, May 12, 2006; 2004Du13936).

B) On the basis of the aforementioned evidence, the following facts are found as follows: ① ClassCC’s manipulation of stock price by using the Plaintiff’s account to engage in the Plaintiff’s stock transaction; however, the reduced global income tax and capital gains tax are KRW 000 as a result of the Plaintiff’s stock transaction under the Plaintiff’s name; and the reduced global income tax and capital gains tax are KRW 000,000,000. This cannot be deemed as merely a minor reduction of tax incidental to the title trust. ② The existence of tax avoidance purpose due to the title trust should be determined as at the time of the title trust. Since the UNCC held more than 3% of the shares of XX, and thus, the transfer income tax would have been subject to the payment of capital gains tax if it transferred the shares to the Plaintiffs upon the rapid increase of the share price due to the price manipulation, etc.; thus, even if the Plaintiff’s share price was not subject to the Plaintiff’s increase in the purpose of the title trust without any tax avoidance purpose, the Plaintiff’s share increase in the title trust agreement.

3) Judgment on the third argument

In full view of the following facts, Plaintiff HongB’s sale of the instant title trust shares cannot be seen as “return of donated property” under Article 31(4) of the Inheritance Tax and Gift Tax Act.

A) Article 31(4) of the Inheritance Tax Act provides that “In cases where the property (excluding money) donated after receiving the donation is returned within the time limit for report under the provisions of Article 68 by agreement between the parties concerned, it shall be deemed that there was no donation from the beginning” shall also apply to the case of deemed donation due to the title trust of stocks. This is because even in cases where the requirements for taxation of gift tax have already been met due to the title trust of stocks, if the title was converted to the name of the actual owner within a given conversion period, the actual owner of the stocks of a trust can be retroactively exempted from the donation, thereby preventing the avoidance of tax and promoting the realization of stocks. However, if it is deemed that the same is included in the case where the property is sold in the stock market without changing the name in the name in the future of the actual owner, the first owner of the trust nature will not be reflected in the purport of applying the above provisions to the title trust of stocks.

B) In the case of title trust of shares, since the property deemed to have been donated by the trustee is itself the shares held in a trust, not the purchase price of the shares, it cannot be deemed that the donated property was returned by having refunded the sale price, and it is difficult to view that the sale price is still in the securities account of the trustee.

C) In the case of registered shares, such as the instant shares, even if the title trustee sells the title trust shares, it appears that the shares are still registered as owned by the title trustee in the register of shareholders until the transfer of title. There is no evidence to deem that Plaintiff HongB sold the shares that it received under title trust and completed the opening of the name by the deadline

D) The act that a title trustee disposes of the property held in title trust and returns the price to a title truster is naturally planned in the context of a title trust for the purpose of tax avoidance. If the title trustee interprets that the return of the property donated to the title truster for the disposal of the property held in title trust or the amount equivalent to the value thereof is deemed the return of the property donated to the title truster, and thus, gift tax cannot be imposed, the purport of the law, which attempts to restrain the title trust for the purpose of tax avoidance, by deeming the act of title trust as a gift (see, e.g., Supreme Court Decision 2005Du1020

4) Judgment on the fourth argument

In light of the fact that Article 41-2(1) of the Inheritance Tax Act provides for the purpose of effectively preventing the act of tax avoidance using the title trust system and realizing the tax justice, (2) even if all the newly purchased shares are shares, the shares cannot be deemed the same shares, and (3) even if a property deemed as a donation by a truster of the shares is the shares held in a trust, not the purchase price of the shares, even if the shares were purchased again with the funds for selling the title trust shares, it cannot be deemed as a substitute for the shares initially held in a title trust. (4) Even if the shares were purchased again with the funds for selling the shares initially held in a title trust, a gift tax is imposed on the remaining shares initially opened in the name at the time of the transfer date, and thus, the shares again acquired with the funds for selling the shares initially acquired in a title trust cannot be deemed as a substitute for the shares initially held in a title trust. Therefore, in light of the fact that the gift tax is imposed in duplicate.

5) Judgment on the fifth argument

A) First, we examine the argument that the gift value was calculated on the basis of the market price normally formed.

① The market price of the shares cannot be deemed to have increased because the price of the shares was determined by the manipulation. ② The shares of this case, despite the price manipulation, are freely traded among many and unspecified persons as listed shares, so the market price at that time can be deemed to be an objective exchange price, as well as the Plaintiffs could have purchased and sold the shares of this case according to the market price formed at the time of stock market. ③ Even if the price manipulation was formed due to the price manipulation, it seems that the plaintiffs who provided the original shares could not accept it against the principle of good faith. In light of the fact that the market price of the shares at that time cannot be deemed to be an abnormal price. Accordingly, the Plaintiffs’ assertion on this part is without merit.

B) Next, we examine whether the market price of shares issued with capital increase is the base date for calculating the market price or the transfer date.

(1) Where the actual owner and the nominal owner are different, the value of their property shall be deemed to have been donated by the actual owner on the date on which the actual owner registers, etc. as the nominal owner". Article 60(1) of the Inheritance Tax Act provides that the value of the property shall be deemed to have been donated from the actual owner on the date on which the donation was made. Article 60(2) of the same Act provides that the value of the property shall be the current market value as of the date of donation. ② Even if subscription price for new shares based on capital increase is paid by the defendant on the date following the due date of payment, it cannot be deemed as equal to the date of the registration, etc. of the subscription price for new shares, ③ In the case of new shares, unless the actual owner and the nominal owner are changed in the name of a person other than the actual owner in the register of shareholders, the acquisition price of new shares shall not be deemed to have been determined as the market value on the basis of 00 days in the case of shares purchased in the market.

6) The calculation of a reasonable amount of tax;

A) Disposition of imposition against Plaintiff LA

(1) 1-1.

Although the head of Gangnam District Tax Office should calculate the market price of 25,00 shares issued with capital increase on October 24, 200 to the Plaintiff LA and impose gift tax by calculating the market price of 000 won per share as of December 31, 200, the market price of 2000 won per share as of December 31, 200, which is the date of payment of stock price (= KRW 000 won x 25,000 shares) and calculate the value of donated property as of December 8, 200, and make a disposition 1-1 as above. Therefore, the value of donated property calculated by applying the correct assessment value per share is 000 won (= KRW 00 x25,00 shares). The amount of gift tax calculated by applying the correct assessment value per share is 00 won as of December 24, 200 among the list of legitimate tax amount in attached Form 2, the portion exceeding the above amount should be revoked as of KRW 1-1 (including additional tax).

(2) 1-2.

On December 31, 2001, the fact that the head of Gangnam District Tax Office made a disposition 1-2 on the basis of the value of donated property calculated by evaluating 30,800 shares of the XX (30,800 won per share) that was transferred under the Plaintiff’s name as of December 31, 2001, based on the value of donated property calculated on the basis of the value of donated property. However, since a disposition 1-2 (the taxable value less than 10 years added to the gift value in question) has the above law making the value of the second gift (the taxable value less than 10 years added to the gift value in question) as the gift value of 1-1 disposition, the legitimate amount of gift tax shall be 00 won (including additional tax) as in the table of legitimate tax calculation of the amount of gift tax in attached Table 2. Accordingly, the part exceeding the above amount should be revoked.

(3) 1-3.

The facts are as follows: (a) on December 31, 2004, the head of Gangnam District Tax Office made a disposition of 1-3 on the basis of the value of donated property calculated by evaluating 10,837 shares of the XX-37 shares as of December 31, 2004, which were transferred under the name of Plaintiff LA; and (b) on the basis of the value of donated property calculated by evaluating 000 won per share. However, since the disposition of 1-3 was erroneous for making a disposition of 1-2, which is the gift value of illegal 1-2 disposition, as above, as seen above, the amount of legitimate gift tax would be 00 won (including additional tax) as of the amount of tax notified for the re-calculated item of the amount of gift tax of Plaintiff LA in the table of legitimate tax calculation in attached Table 2. Accordingly,

(4) 1-4 disposition

The fact that the head of Gangnam Tax Office rendered a disposition 1-4 on the basis of the value of donated property calculated by evaluating 10,837 shares of the XX-37 shares as of December 31, 2005, which were transferred to the Plaintiff’s name, as of December 31, 2005, based on the value of donated property calculated by evaluating 100 won per share. However, since the disposition 1-4 was erroneous as above, which is the value of the gift of the illegal 1-3 disposition, as above, 00 won, which is the value of the gift of the illegal 1-3 disposition, as seen above, the legitimate amount of gift tax shall be 00 won (including additional taxes) from among the list of legitimate tax calculation in attached Table 2. Accordingly, the portion exceeding the above amount among the disposition 1-3 disposition shall be revoked.

B) Disposition against Plaintiff HongB

(1) 2-1.

There is no error of law in a disposition made by the Director of the Young Tax Office against the plaintiff HongB.

(2) 2-2.

The Defendant-U.S. Director of the Korea Tax Office should impose gift tax on the Plaintiff HongB on 85,094 shares issued with capital increase on October 24, 2000, by calculating the market price as KRW 000 per share as of December 31, 200, notwithstanding the fact that the value of donated property is calculated as KRW 000 (= KRW 000 KRW x 85,094 shares) by applying the assessed value per share as of December 8, 2000, the date of payment for the share price, by applying the assessed value per share as of December 31, 200. Accordingly, the value of donated property calculated by applying the correct assessed value per share (=00 KRW 00x85,049 shares). Accordingly, the amount of gift tax on it should be revoked as of December 31, 200, since it exceeds the amount of additional tax as of December 31, 200.

3. Conclusion

Therefore, each claim of the plaintiffs is justified within the scope of the above recognition, and each remaining claim is dismissed as it is without merit. It is so decided as per Disposition.