Plaintiff (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

December 13, 2012

Seoul Administrative Court Decision 2011Guhap35118 decided May 3, 2012

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of gift tax of KRW 524,736,00 against the Plaintiff on June 9, 2011 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

The court's explanation in this part is identical to the corresponding part of the reasoning of the judgment of the court of first instance (the second half to the last half of the judgment). Thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The acquisition price of the instant shares of KRW 5,00 per share of KRW 10,00 and KRW 10,00 per share of the instant transfer price fall under “market price” because all of the parties to the instant transaction are determined freely in an equal relationship pursuing the maximizement of their respective economic interests by taking into account the situation at which each party to the transaction was in no special relationship. Even if the market price of the instant shares does not reach KRW 10,00,00, Nonparty 2 was guaranteed to be able to take part in the management of global carbons by acquiring the instant shares, and Nonparty 2 was able to take part in the management of global carbons by minimizing the value of the global carbons when Nonparty 2 took part in the management of global carbons, thereby maximizeing the value of the instant shares of KRW 10,00 per share, and thus, the Plaintiff and Nonparty 2 transferred the instant shares of KRW 100,000 per share of KRW 10 without justifiable grounds. The Plaintiff’s transfer of the shares to Nonparty 210 without justifiable reasons.

2) Article 2(2) of the former Inheritance and Gift Tax Act declares the principle of priority in income taxation by prescribing that gift tax shall not be imposed in cases where income tax is levied on a donee on donated property under the Income Tax Act. As such, in cases where the Plaintiff’s income derived from transferring the shares of this case to KRW 10,000 per share is subject to the transfer income tax, only the transfer income tax may be imposed, and no gift

B. Relevant statutes

This Court's reasoning is as stated in the corresponding part of the reasoning of the judgment of the first instance except for the addition of the "related Acts and subordinate statutes" to the "related Acts and subordinate statutes" attached to the judgment of the court of first instance. Thus, this Court shall accept it in accordance with Article 8 (2) of the Administrative Litigation Act and the main sentence of Article 420 of the Civil Procedure Act.

C. Determination

1) As to the Plaintiff’s first argument

A) Each description of Gap's evidence Nos. 2, 11, 13, 16, 19, 21, 23, 25 through 27, 30, Eul's evidence Nos. 1, 2, and 4 (including a serial number), and the following facts can be acknowledged in full view of the purport of the whole pleadings in the testimony of non-party 2 of the witness non-party 2 at the trial.

(1) Globalis is a company incorporated on April 21, 2006, which invests mainly in bio-energy projects, such as acquiring stocks issued by AM, a company operating bio-carbon projects.

(2) On March 2, 2007, the Plaintiff and Nonparty 2 concluded a transfer contract for the instant shares (Evidence A No. 12). According to the said transfer contract, the Plaintiff and Nonparty 2, based on mutual trust, respect and rationality, agreed to cooperate for the growth and development of global youth (Articles 1 and 2), but there is no content that Nonparty 2 will take over the management rights of global youth or participate in management.

(3) At the time of the instant transfer contract, the shares owned by the Plaintiff were 2,040,002 shares, and among which the shares owned by the Plaintiff were 90,00 shares, the share ratio was 4.41%. The shares acquired by Nonparty 2 from the Plaintiff were 300,00 shares, and the share ratio was 14.7%. At the time of the instant transfer, there were Manki Co., Ltd (60,00 shares, 29.41%) Nonparty 3 (40,00 shares owned, 19.61%) new shares owned by the Plaintiff (20,000 shares, and 9.8%).

(4) 소외 2는 이 사건 주식 양수 후인 2007. 5. 23. 글로벌리소스의 이사로 취임하였다가 2008. 3. 20. 사임하였고, 글로벌리소스로부터 2007년 32,784,884원, 2008년 12,000,000원의 급여를 지급받았으나, 위 기간 동안 글로벌리소스의 대표이사는 여전히 원고였다. 소외 2는 또한 2007. 4. 27. 글로벌리소스의 일본 현지법인인 주식회사 글로벌리소스 저팬(이하 ‘글로벌리소스 저팬’이라 한다)이 설립되면서 원고와 함께 이사로 취임하였고, 취임 후 일본 제파(ゼフア－ , ZEPHYR) 그룹으로부터 투자를 받기 위한 활동을 하기도 하였으나, 위 기간 동안 글로벌리소스 저팬의 대표이사는 소외 4 및 소외 5였다.

(5) With respect to the reasons for the purchase of the instant shares by determining 10,000 won per share from the Plaintiff, Nonparty 2: “The business value of global interest was deemed to exist; the Plaintiff was to take part in the management of global interest, such as taking charge of the business of attracting investment in Japan; and the Plaintiff anticipated to increase the value of the instant shares if the investment was made only by Japanese investors; and the Plaintiff acquired the instant shares. Nonparty 2 knew that the Plaintiff purchased the instant shares in KRW 5,00 per share and sold them in KRW 10,00 per share on the same day, but did not have an interest in the purchase price per share, but considered that the instant shares were worth at least 10,000 won per share. At the time of acquiring the instant shares, the Plaintiff did not assess the market price at the time of acquiring the instant shares; and the Plaintiff’s profits earned by selling the instant shares to himself was a long-standing statement made to the effect that the Plaintiff was the Plaintiff’s operation of the global interest.”

(6) On February 27, 2008, Nonparty 2 failed to attract investment from the Japanese Exchange Group, sold the instant shares to the Plaintiff in KRW 10,000 per share, and retired from the position of a global director on March 20, 2008. Nonparty 2 stated that “The circumstances of global corruption are good,” and that “the Plaintiff should transfer the instant shares to another place,” provided that “The Plaintiff was paid KRW 10,000 for the acquisition price of the instant shares and transferred the instant shares to the Plaintiff again.”

Around that time, the Plaintiff collected all global complaint shares (2,040,002 shares; No. 16,002 shares; No. 16; No. 4,000 shares are 2,040,00 shares, including the shares purchased from Nonparty 2, but this appears to be a clerical error) and sold them to the Solon&A Co., Ltd. (hereinafter “ Solon&A”) 7,206 won per share (hereinafter “ Solon&A”).

(7) According to the supplementary assessment method stipulated in Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20323, Oct. 15, 2007; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), the value per share of the instant shares at the time of March 16, 2007 is 2,976 won.

B) Comprehensively taking account of the above facts acknowledged and the following circumstances revealed by the relevant laws and regulations, the Plaintiff transferred the instant shares to Nonparty 2 at a price significantly higher than the market price without justifiable grounds in light of transaction practices. Thus, the instant disposition based on the premise is lawful, and the Plaintiff’s first argument to this effect is without merit.

(1) Article 49(1)1 of the former Inheritance and Gift Tax Act provides for the purport that “Where a transaction of the pertinent property occurs during the period of three months before or after the evaluation base date (the evaluation base date), the transaction value shall be recognized as the market price.”

As seen earlier, the Plaintiff purchased the instant shares from Nonparty 1, etc. on March 2, 2007. The Plaintiff purchased shares from Nonparty 1, etc. without any changes in its shares, without any particular difficulties from the above Nonparty 1, etc., who is an existing minority shareholder, in preparing the shares necessary to attract Nonparty 2 to the global entertainment business without any changes in its shares. Since the said sale was made on the same day as the transfer of the instant shares ( there was no other evidence that there was a case of selling the shares of the global entertainment within the period of three months before and after the transfer of the instant shares), the said sale price can be recognized as the market price of the instant shares.

(2) Nonparty 2, despite being aware of the fact that the Plaintiff purchased the instant shares in KRW 5,00 and sold KRW 10,000 on the same day, does not seem to have negotiations between the Plaintiff and the Plaintiff to set the sales price per share of the instant shares.

In this regard, Nonparty 2 stated to the effect that “self-employed will have been interested in the purchase price per share because, if he participates in the management of the global directorship and attracts investments from Japan, the share value of the global directorship would increase.”

However, even if Nonparty 2 purchased the shares of this case from the Plaintiff, the share ratio is 14.7%, and thus, it was not possible to become a major shareholder of the Maco Global Corporation against the Plaintiff’s will, as the representative director of the Maco World, by adding some shares he own. In addition, Nonparty 2 was appointed as a director of the global lupan and global lupanty after the acquisition of the shares of this case, and in Japan, there was a separate representative director in the global lupan and global lupanty, and Nonparty 2 was not a major shareholder of the global lupan and did not take over the management right, so the above management participation was not guaranteed by law or a contract, but at any time excluded by the Plaintiff or the global lus shareholder. In such a situation, it is difficult to recognize that Nonparty 2 did not take over the shares of this case from the existing market price on the ground that Nonparty 2 did not directly take over the shares of this case from the existing luspanty at the price of the global lus.

(3) Nonparty 2 made a statement that “The profits earned by the Plaintiff from the sale of the instant shares to himself was the Plaintiff for a long time to operate the global forum, and thus, it was determined in terms of the Plaintiff’s compensation for the deceased and the deceased, not on the basis of the market price of the instant shares and the interests of Nonparty 2.” According to this, part of the purchase price of the instant shares was determined not on the basis of the instant interests, but on the basis of the Plaintiff’s compensation for the deceased and the deceased, not on the part of the purchase price of the instant shares, which is the intention of Nonparty 2 to donate the part of the purchase price of the instant shares to the Plaintiff (if the Plaintiff had achieved the outcome while operating the global forum, it can be deemed that it was already reflected in the market price of the instant shares. Accordingly, Nonparty 2 did not have any reason to determine at least the purchase price of the instant shares in terms of compensation for the deceased and the amount equivalent to that of the instant shares, if determined on such grounds, at least the purchase price was made to the Plaintiff).

(4) After acquiring the instant shares, Nonparty 2 transferred the instant shares to the Plaintiff at KRW 10,00 per share, which led to the failure of his investment attraction activities and the aggravation of the management status of the global interest center. The Plaintiff, including the Plaintiff, sold the entire shares of the global interest center, and transferred the shares in KRW 7,206 per share to the Solon&A.

The Plaintiff may be deemed to have transferred the right to manage the global carbon to Nonparty 2 as much as possible by transferring the entire global carbon stock to Nonparty 1, and KRW 7,206 per share, which is the transfer price of the global carbon, can be deemed to have been the purchase price of the instant stocks at KRW 10,00 per share. Nevertheless, compared to the transfer price between the Plaintiff and Nonparty 2, it may be deemed to have purchased the instant stocks at a significantly higher price than the market price (i.e., the purchase price of the instant stocks from Nonparty 2 to Nonparty 2 for the purpose of preserving the purchase price of the instant stocks at a higher price than the market price, even if the Plaintiff transferred the instant stocks to Nonparty 2, the Plaintiff appears to have sold the instant stocks to Nonparty 2 at a significantly higher price than the market price of the instant stocks at KRW 16,00 per share, based on the circumstance that the Plaintiff would have sold the instant stocks to Nonparty 2 as the sale price of the instant stocks at KRW 27,000 per share.

(5) As above, the Plaintiff purchased the instant shares of KRW 5,00 and sold them to Nonparty 2 in KRW 10,000 on the same day. Nonparty 2 was also aware of such circumstances, and there was no reasonable and reasonable ground for the Plaintiff and Nonparty 2 to determine the transfer value of the instant shares as KRW 10,000, and thus, the Plaintiff’s transfer of the instant shares to Nonparty 2 constitutes “the case where the instant shares are transferred at a price significantly higher than the market price without justifiable grounds under transaction practices.”

2) As to the second argument of the Plaintiff

In a case where a tax authority imposes gift tax on a donee according to different requirements for establishment of tax liability, timing, and taxpayers, it is not possible to impose gift tax unless there are special provisions excluding duplicate application. Article 2(2) of the former Inheritance and Gift Tax Act provides that “No gift tax shall be imposed on a donee when income tax is imposed on the donated property provided for in paragraph (1).” However, in light of the language and content thereof and the nature of the gift tax as supplement tax, where gift tax is imposed on a donee, it does not constitute a special provision excluding duplicate application of the capital gains tax and the gift tax (see Supreme Court Decision 2012Du3200, Jun. 14, 2012).

In this case, comprehensively taking account of the purport of the entire arguments as to Gap evidence Nos. 1 and 3 of the former Inheritance and Gift Tax Act and Article 26 (7) of the former Enforcement Decree of the Inheritance and Gift Tax Act, the defendant calculated gift tax by deducting KRW 300 million from the difference between the price of the stocks transferred by the plaintiff to non-party 2 pursuant to Article 35 (2) of the former Inheritance and Gift Tax Act and the market price of the stocks of this case: 1.2 billion [ [[(10,00 won ? 5,00 won ? 30,000 won] - 30 million won] - 300 million won] as the taxable value of gift tax, and imposed the disposition of this case on the plaintiff. Further, on December 12, 2011, the defendant calculated the amount of KRW 3 billion after deducting the gift tax amount of KRW 120,000,000 from the transfer value of the stocks of this case to non-party 2 (1.3.5 billion won).

Examining the above facts in light of the legal principles as seen earlier, the instant disposition imposes gift tax on the difference between the transfer price of the instant shares and the market price, and is different from the transfer price calculated by using the remaining value (the value based on the market price of the instant shares) other than the taxable value as the transfer price, and thus, it cannot be deemed that it constitutes double taxation.

Therefore, the instant disposition cannot be deemed to be in violation of Article 2(2) of the former Inheritance and Gift Tax Act, and the second assertion by the Plaintiff is without merit.

3. Conclusion

Therefore, the plaintiff's claim shall be dismissed due to the lack of reason, and the judgment of the court of first instance is unfair with different conclusions, so the defendant's appeal shall be accepted, the judgment of the court of first instance shall be revoked, and the plaintiff'

[Attachment Form 5]

Judges Lee Tae-tae (Presiding Judge)