Cho High-2016-Seoul Government-0193 (Law No. 31, 2016)

If the majority shareholders of a stock-listed corporation transfer stocks, they are liable to pay capital gains tax.

As the Plaintiff and related parties constitute a major shareholder of a stock-listed corporation, there is a capital gains tax liability when transferring stocks.

Article 94 of the Income Tax Act: Scope of Transfer Income

Article 157 (Scope of Securities Depository Securities and Large Stockholders) of the Enforcement Decree of the Income Tax Act

2016Gudan57390 Revocation of Disposition of Imposing capital gains tax, etc.

The AA

1. BB director of the tax office;

2. The head of ○○-si BB;

May 30, 2017

June 27, 2017

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

Each tax imposition disposition in the attached Form 1 that the Defendants made against the Plaintiff shall be revoked.

1. Details of the disposition;

A. The Plaintiff, the Plaintiff’s mother, DaD, the Plaintiff’s siblings, and MaE owned the shares of ○ Automobile Co., Ltd. (hereinafter “Nonindicted Company”), a stock-listed corporation (hereinafter “Nonindicted Company”), totaling KRW 000 (00 among these shares owned by the Plaintiff), and KRW 000 (00 among these shares owned by the Plaintiff) as of the end of 2012.

B. The Plaintiff reported and paid KRW 000 of the capital gains tax on June 30, 2015 on the shares transferred in the year 2012 after transferring 000 shares to Nonparty Company’s shares in the year 2012 and 000 shares in the year 2013, but did not report the capital gains tax on the shares transferred in the year 2013.

C. Pursuant to Article 94(1)3 (a) of the Income Tax Act and Article 157(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013), Defendant BB director of the tax office determined that the Plaintiff’s transfer is subject to capital gains tax because the total market price of the non-party company’s stocks owned by the Plaintiff, NewCC, static, and EE due to the special relationship under Article 1-2(1) of the Enforcement Decree of the Framework Act on National Taxes is at least 10 billion won or 5 billion won.

D. Accordingly, Defendant BB director of the tax office deemed that there was an error in calculating the acquisition value for the shares transferred in 2012, and determined capital gains tax for the shares transferred in 2013, and notified the Plaintiff of KRW 000 of capital gains tax for the year 2012 and capital gains tax for the year 2013 as stated in the Disposition No. 1 attached thereto. Accordingly, on September 22, 2015, Defendant BB head of the tax office decided and notified the Plaintiff of KRW 00 of capital gains tax for the year 2012 and KRW 000 of the local income tax for the capital gains tax for the year 2012 as stated in the Disposition No. 1 attached thereto (hereinafter collectively referred to as “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed a request with the Tax Tribunal on December 18, 2015. However, Defendant BB chief of the tax office was dismissed on March 31, 2016, and Defendant BB chief of the tax office on May 23, 2016.

Facts without any dispute, Gap 1 through 8, Eul 1 and 2 (including each number), and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Article 157(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013); Article 157(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013) (hereinafter referred to as “instant provision”) violates the Constitution for the following reasons, and thus, the instant disposition based thereon is unlawful.

In comparison with the past, the provision of this case, which is imposed by blood relatives within the sixth degree of relationship, relatives within the fourth degree of relationship, relatives by marriage within the fourth degree of relationship, and relatives by marriage within the fourth degree of relationship if only the spouse is a major shareholder, treats the same as the specially related person by disregarding the essential difference, even though it is an essential difference in whether there is an economic relationship between the relatives who are the specially related person, and treating the same as the specially related person. Furthermore, it is unreasonable to consider the same as the shares owned by the majority shareholders who are not the shares owned by the principal and the shares owned by the specially related person, and to consider the same as the shares owned by the same person who are not the shares owned by the principal, but all of the shares owned by the specially related persons without any reasonable reason. Accordingly, the provision of this case is contrary to the principle of equality.

○○ Capital gains tax can be easily confirmed as to whether a shareholder who trades listed stocks with a tax item specifically determined upon a taxpayer’s report is a relative or a related party, but can decide whether to report capital gains tax and whether to conduct the relevant transaction by determining whether a person is subject to reporting capital gains tax, but it is impossible to verify all of the relevant stocks against many relatives unlimitedly. Therefore, the instant provision violates the principle of self-responsibility.

○ The instant provision includes not only an economic community but also an ordinary investor who does not have any management control over the pertinent legal entity, such as one shareholder, blood relatives within the sixth degree and relatives within the fourth degree of affinity, etc. without restriction, and where the total amount of shares held exceeds 10 billion won (or five billion won), it violates the excessive prohibition principle, thereby infringing on property rights, as it violates the excessive prohibition principle, in the stock market.

If one of the relatives by blood within the sixth degree and relatives by marriage within the fourth degree of relationship holds a majority of the listed shares, it constitutes a specially related person and imposes a duty of taxation on him/her as a result of an act committed by relatives, and thus, the provision of this case is in violation of the prohibition principle on the annual

2) The instant provision is unlawful by deviating from the scope of delegation under Article 94(1)3 (a) of the Income Tax Act.

3) Article 157(4)1 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27074, Mar. 31, 2016) reduces the scope of relatives who correspond to other shareholders into “a lineal ascendant or descendant”, which is subject to retroactive application to the Plaintiff, as it was revised from reflecting the fact that the relationship of relatives is reduced. According to the Enforcement Decree of the Income Tax Act, the Plaintiff and NewCC’s share price as of the end of 2011 and 2012 did not exceed 10 billion won, and thus, the imposition of capital gains tax for the stock transaction in 2012 and 2013 should be revoked.

4) Even if the instant provision is not unconstitutional, the Plaintiff was independent of his blood relatives within the sixth degree of relationship with relatives within the fourth degree of relationship and relatives within the fourth degree of relationship with relatives within the fourth degree of marriage, and no institutional system was established to ascertain the current status of shares held by related parties, making it impossible to understand that the transfer of shares meets the taxation requirement of capital gains tax. The Plaintiff became aware of the Plaintiff’s duty to taxation after receiving contact with the tax office. Accordingly, the Plaintiff’s justifiable ground under Article 48(1) of the Framework Act on National Taxes exists

(b) Related statutes;

Attached Form 2 is as shown in the relevant statutes.

C. Determination

1) Although the Plaintiff asserts that the statute disputing the unconstitutionality of this case is the provision of this case, the Enforcement Decree of the Income Tax Act, which applies to the disposition of this case, is amended several times, and different from the applicable law applicable to each disposition. However, in the end, the part disputing the Plaintiff (one shareholder or one investor and a related party under Article 1-2(1) of the Enforcement Decree of the Framework Act on National Taxes, are the same before and after the amendment, and therefore

The Plaintiff asserts that the instant disposition based on the instant provision is unlawful because it is in violation of the Constitution to deem that the Plaintiff is a blood relative within the sixth degree and a relative within the fourth degree without any restriction. However, at the time of December 31, 201, the Plaintiff, the Plaintiff’s mother, and the Nonparty Company’s mother as of December 31, 2012, exceeding 10 billion won in total. Accordingly, there is no dispute between the parties. Accordingly, regardless of whether the Plaintiff owned the shares of the Nonparty Company, the blood relative within the sixth degree and the relative within the fourth degree, regardless of whether the relatives by marriage within the fourth degree, regardless of whether they owned the shares of the Nonparty Company, they constitute a major shareholder who is liable to pay capital gains tax on the transfer income of the listed shares, and thus, the Plaintiff’s assertion is considered as the Plaintiff’s major shareholder.

2) Whether the instant provision violates the principle of equality

There has been a long-term discussion on whether to impose capital gains tax on the transfer of listed stocks. However, Article 94(1)3 of the Income Tax Act provides legislative decision that capital gains tax should be imposed on cases where listed stocks are traded in order to prevent abnormal donation using listed stocks and to ensure the equity of taxation in cases where other assets, such as real estate, are transferred. As such, even if listed stocks are included in taxable objects, rather than for all stocks at once, the intent of legislators to gradually expand the scope of the capital market is reflected in cases where the capital market is developed in a sound manner by easing shockness of the capital market and protecting the interests of small investors (see, e.g., Constitutional Court Decision 2004Hun-Ba32, Feb. 23, 2006; 2005Hun-Ba63, 102, 104, 104, 105, etc.).

In the instant provision, even if a person with a special interest with listed stocks identical to one shareholder who is the taxpayer, and the person who did not do so, have caused a difference in the tax burden, or had the same tax imposed on the person with a special interest or a related party with no economic relation, there are reasonable and reasonable grounds for discrimination or equal treatment. As long as the instant provision sets the scope of the major shareholder in consideration of financial policy, national economy, social policy, and tax and technical factors, such discrimination cannot be deemed arbitrary or unfair, as long as the scope of the major shareholder is determined.

Therefore, this part of the argument is without merit.

3) Whether it goes against the principle of self-responsibility

Since the total amount of shares of the Plaintiff and the non-party company owned by the Plaintiff exceeds 10 billion won, it cannot be said that it is impossible to grasp the shares in consideration of the relationship between newCC, static, E and the Plaintiff. In addition, in a case where the total amount of shares held by the Plaintiff is likely to exceed 10 billion won (or 5 billion won) at the time of the end of the business year, if the market price is less than 10 billion won (or 5 billion won) at the time of the end of the business year after the transfer of shares in advance during the business year, the transfer of shares in advance during the business year and then the market price is less than 10 billion won (or 5 billion won (or 5 billion won) at the time of the end of the business year, it cannot

Therefore, this part of the argument is without merit.

4) Whether the property right is infringed

As seen earlier, the purpose of this case is to induce the sound development of the capital market by imposing tax on capital income generated from the transfer of stocks on a preferential basis, and by imposing tax on only a major shareholder, and therefore, the legitimacy of the purpose of this case is recognized. To achieve the above legislative purpose, the provision of this case is divided into a major shareholder and non-taxable shareholder who are subject to taxation on the basis of a certain share ratio or total market value, and this is one of the appropriate methods to achieve the legislative purpose. This is to meet the minimum of infringement and the balance of legal interests, as long as the provision of taxation on capital gains by a major shareholder is established in accordance with the ordinary standard of taxation on capital income.

Therefore, this part of the argument that the provision of this case infringes on property rights in violation of the excessive prohibition principle is without merit.

5) Whether it is against the principle of prohibition of dynamics

Article 13(3) of the Constitution of the Republic of Korea applies only to cases where a person takes unfavorable treatment solely on the ground that he/she is a relative, even though he/she does not have any substantial relation between the act of the relative and the principal. In other cases, by finding any other constitutional norm or fundamental rights norm that protects the disadvantage at issue and examining whether it is reasonable to give disadvantage to the principal in relation to his/her relative or whether it is a means within the necessary limit to achieve the legislative purpose (see, e.g., Constitutional Court Order 2005Hun-Ma19, Dec. 12, 2005).

However, in order to achieve the above legislative purpose, the provision of this case does not violate Article 13 (3) of the Constitution, since not only one shareholder who transfers shares, etc. but also the shares of a person with a special relationship.

Therefore, this part of the argument is without merit.

6) Whether the instant provision deviates from the delegated legislation

Article 94 (1) 3 (a) of the Income Tax Act provides that "major shareholders prescribed by Presidential Decree in consideration of the ratio of shares owned, total market price, etc." Accordingly, since the provision of this case specifically provides the scope of major shareholders in consideration of the ratio of shares owned, total market price, etc., the provision of this case is legitimate within the scope of delegation in order to achieve the legislative purpose of Article 94 (1) 3 (a) of the Income Tax Act. Thus, the provision of this case is not deemed unlawful because it deviates from the delegation scope of Article 94 (1) 3 (a) of the Income Tax Act (see, e.g., Supreme Court Decision 2006Du4394, Nov. 10, 206).

7) Whether to apply retroactively

The proviso of Article 1 of the Addenda to the Enforcement Decree of the Income Tax Act provides that "the amended provisions of Article 157 (4) 1 shall enter into force on April 1, 2016," and Article 3 of the Addenda to the Enforcement Decree of the Income Tax Act provides that "where shares are transferred before the enforcement date under the proviso to Article 1 of the Addenda, notwithstanding the amended provisions of Article 157 (4) 1, if shares are transferred before the enforcement date under the proviso to Article 1 of the Addenda, the previous provisions shall apply." Accordingly, where the plaintiff transfers all shares of the non-party company before April 1, 2016, the previous provisions shall apply. Accordingly, the plaintiff's above assertion on the premise that Article 157 (4) 1

8) Whether part of the disposition of this case is illegal

Under the tax law, where a taxpayer violates various obligations, such as reporting and payment, without justifiable grounds, as prescribed by the individual tax law, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, the taxpayer’s intention and negligence is not considered as administrative sanctions imposed as prescribed by the individual tax law. On the other hand, the taxpayer’s failure to perform his/her obligations should be imposed as to nonperformance of his/her obligations under the tax law unless there are justifiable grounds, such as where the taxpayer is deemed to be not aware of his/her obligations, or where it is unreasonable for him/her to expect the fulfillment of his/her obligations. (see, e.g., Supreme Court Decision 2010Du1622, Apr. 28, 2011).

In light of the following, the instant disposition was imposed on the Plaintiff and mother-related persons, the Plaintiff, and Mate-related persons, as the major shareholder who are liable to pay capital gains tax on the capital gains from listed stocks, and there is no evidence to deem that there is no special circumstance in which the Plaintiff cannot confirm the current status of stockholding with MaCC, Mad-in, Mad-in, and MaE, it is difficult to deem that there is a justifiable reason that the Plaintiff cannot be found to have faultd with the Plaintiff.

Therefore, this part of the argument is without merit.

3. Conclusion

All of the plaintiff's claims are dismissed as it is without merit, and it is so decided as per Disposition.

2

Related Acts and subordinate statutes

/ Income Tax Act

Article 94 (Scope of Transfer Income)

(1) Capital gains shall be the following incomes, generated in the relevant taxable period:

3. Income generated from transfer of stocks or investment shares falling under any of the following items (including preemptive rights to new stocks, and securities depository receipts prescribed by Presidential Decree; hereafter in this Chapter, the same shall apply):

(a) Transfer of stocks, etc. of a stock-listed corporation under the Financial Investment Services and Capital Markets Act (hereinafter referred to as "stock-listed corporation") by its major shareholders prescribed by Presidential Decree (hereafter in this Chapter, referred to as the "major shareholders") in consideration of the ratio of stocks owned, total market value, etc. and transfer of stocks not through transactions in the securities exchange (hereinafter referred to as

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013)

§ 157. Scope of securities depository receipts and major shareholders

(4) "Large shareholders prescribed by Presidential Decree" in Article 94 (1) 3 (a) of the Act means persons falling under any of the following subparagraphs (hereafter referred to as "major shareholders" in this Chapter):

1. Where one stockholder or one investor (hereafter referred to as "one stockholder" in this Chapter) possessing the stocks or equity investment shares of a corporation (including the preemptive right to new stocks, and securities depository receipts under paragraph (1); hereafter the same shall apply in this Chapter) and a related party under Article 1-2 (1) through (3) of the Enforcement Decree of the Framework Act on National Taxes with him/her (hereafter referred to as "other stockholders" in this Chapter) possess 3/100 or more (5/100 in cases of stocks, etc. of a corporation listed on the KOSDAQ market and stocks, etc. of a venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses, which are traded pursuant to Article 178 (1) of the Financial Investment Services and Capital Markets Act; hereafter the same shall apply in this Article) as of the end of the business year immediately preceding the date of transfer of stocks, etc., but thereafter possess 3/100 or more by acquiring such stocks, etc.: one stockholder and other stockholders after the date of acquisition shall be included;

2. One stockholder and other stockholders concerned, in cases where the total market value of the stocks, etc. of the relevant corporation owned by one stockholder and other stockholders as of the end of immediately preceding business year immediately preceding that whereto the transfer date of stocks, etc. belongs is not less than 10 billion won (five billion won in cases of stocks, etc. of listed corporations on the KOSDAQ market and stocks, etc. of venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses which are traded under Article

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24640, Jun. 28, 2013)

§ 157. Scope of securities depository receipts and major shareholders

(4) "Large shareholders prescribed by Presidential Decree" in Article 94 (1) 3 (a) of the Act means persons falling under any of the following subparagraphs (hereafter referred to as "major shareholders" in this Chapter):

1. Where one stockholder or one investor (hereafter referred to as "one stockholder" in this Chapter) possessing the stocks or equity investment shares of a corporation (including the preemptive right to new stocks, and securities depository receipts under paragraph (1); hereafter the same shall apply in this Chapter) and a related party under Article 1-2 (1) and (3) 1 of the Enforcement Decree of the Framework Act on National Taxes (hereafter referred to as "other stockholders" in this Chapter) possess 2/100 or more (4/100 in cases of stocks, etc. of listed corporations on the KOSDAQ market and stocks, etc. of venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses traded pursuant to Article 178 (1) of the Financial Investment Services and Capital Markets Act; hereafter the same shall apply in this Article) of the total sum of stocks, etc. of the relevant corporation as of the end of immediately preceding business year, but thereafter possess 2/100 or more by acquiring the stocks, etc.;

2. One stockholder and other stockholders in cases where the total market price of the stocks, etc. of the relevant corporation owned by one stockholder and other stockholders as of the end of immediately preceding business year whereto the transfer date of stocks, etc. belongs is not less than five billion won (four billion won in cases of stocks, etc. of listed corporations on the KOSDAQ market and stocks, etc. of venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses which are traded under Article 178 (1)

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24697, Aug. 27, 2013)

§ 157. Scope of securities depository receipts and major shareholders

(4) "Large shareholders prescribed by Presidential Decree" in Article 94 (1) 3 (a) of the Act means persons falling under any of the following subparagraphs (hereafter referred to as "major shareholders" in this Chapter):

1. Where one stockholder or one investor (hereafter referred to as "one stockholder" in this Chapter) possessing the stocks or equity investment shares of a corporation (including the preemptive right to new stocks, and securities depository receipts under paragraph (1); hereafter the same shall apply in this Chapter) and a related party under Article 1-2 (1) and (3) 1 of the Enforcement Decree of the Framework Act on National Taxes (hereafter referred to as "other stockholders" in this Chapter) possess not less than 2/100 of the total sum of stocks, etc. of the relevant corporation as of the end of the business year immediately preceding the business year in which the transfer date of stocks, etc. belongs [including the corporation listed on the KOSDAQ (including the corporation prescribed and publicly notified by the Financial Services Commission pursuant to the part other than subparagraphs of Article 11 (2) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act) and the stocks, etc. of the relevant corporation traded pursuant to Article 178 (1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act; hereafter the same shall apply in this Article] and other stockholders of the relevant corporation. In such cases, where they possess not less than 2/10/10/10 after the date;

2. One relevant stockholder and other stockholders where the total market price of the stocks, etc. of the relevant corporation owned by one stockholder and other stockholders as of the end of immediately preceding business year whereto the transfer date of stocks, etc. belongs is five billion won or more [in cases of stocks, etc. of a corporation listed on the KOSDAQ market (excluding the stocks, etc. of a corporation listed on the KOSDAQ market (excluding the stocks, etc. of a corporation prescribed and publicly notified by the Financial Services Commission pursuant to the part other than each subparagraph of Article 11 (2) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act) and stocks, etc. of a venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses which are traded pursuant to Article 178 (1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act, 4 billion won

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016)

§ 157. Scope of securities depository receipts and major shareholders

(4) "Large shareholders prescribed by Presidential Decree" in Article 94 (1) 3 (a) of the Act means persons falling under any of the following subparagraphs (hereafter referred to as "major shareholders" in this Chapter):

1. Where one stockholder or one investor (hereafter referred to as "one stockholder" in this Chapter) holding stocks or equity investment shares of a corporation (including preemptive rights and securities depository receipts under paragraph (1); hereafter the same shall apply in this Chapter) and his/her related party under Article 1-2 (1) and (3) 1 of the Enforcement Decree of the Framework Act on National Taxes (hereafter referred to as "other stockholders" in this Chapter) possess 2/100 (referring to a corporation which has issued stocks listed on the KOSDAQ under Article 8 of the Addenda to the partial amendment of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (hereafter referred to as " KOSDAQ") of the Act on Special Measures for the Promotion of Venture Businesses as of the end of the business year immediately preceding that in which the transfer date of stocks, etc. belongs, including 2/100 or more of the total amount of stocks, etc. of the relevant corporation as of the date of acquisition of stocks, etc. of the stocks, etc. of the KOSDAQ or KON market (referring to a corporation listed on the KON market under Article 111 (2) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;

2. One stockholder and other stockholders in cases where the total market value of the stocks, etc. of the relevant corporation owned by one stockholder and other stockholders as of the end of the immediately preceding business year whereto the transfer date of stocks, etc. belongs is not less than five billion won (in cases of stocks, etc. of listed corporations on the KOSDAQ market and stocks, etc. of venture business under Article 2 (1) of the Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses which are traded under Article 178 (1) of the Financial Investment Services and Capital Markets Act, four billion won, and in cases of stocks, etc. of listed corporations on

【National Tax Basic Act

Article 48 (Reduction, Exemption, etc. of Additional Taxes)

(1) Where penalty tax is to be imposed under this Act or any other tax-related Act, if the ground for such imposition corresponds to that for extending the due date under Article 6 (1) or the taxpayer has any justifiable ground for non-performance of the obligation concerned, the Government shall not impose penalty tax.

【Enforcement Decree of Framework Act on National Taxes

Article 1-2 (Scope of Specially Related Persons)

(1) Relationships prescribed by Presidential Decree, such as blood relatives and relatives under subparagraph 20 (a) of Article 2 of the Act means any of the following relationships (hereinafter referred to as "ties of kinship"):

1. Blood relatives within the sixth degree of relationship;

2. Relatives relatives within the fourth degree of relationship;

3. The spouse (including the person who is in a de facto marital relationship);

4. A person who enters a family as an adopted child, his/her spouse, lineal descendant, or lineal descendant.