Seoul Administrative Court-2016-Gu Partnership-57243 ( October 13, 2017)

Cho High Court Decision 2015Du3733 ( December 23, 2015)

In the legal fiction of title trust donation, the purpose of tax avoidance cannot be denied unless there is clear intention of tax avoidance regardless of actual tax avoidance.

Even if the title trust shares were disposed of before they were actually donated to children, there is a clear intention to reduce the gift tax of the truster, and as the largest shareholder, the gift tax can be avoided by the rate of 15% increase of the gift tax, the purpose of tax avoidance cannot be denied in the title trust.

Article 41-2 of the Inheritance Tax and Gift Tax Act as Donation of Title Trust Property

2017Nu81559 Revocation of Disposition of Imposition of Gift Tax

sexual intercourse ○

AA Head of the Tax Office

April 5, 2018

May 3, 2018

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 imposing gift tax amounting to KRW 389,448,640 on the Plaintiff on February 2, 2015 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

The reasoning for this part of this Court is that the relevant part of the reasoning for the judgment of the court of first instance is the same as that of the relevant part of the reasoning for the judgment of the court of first instance, and thus, this is cited in accordance with Article 8(2)

2. Whether the instant disposition is lawful

The reasoning for this part of the judgment of the court is as follows, with the exception that the part of Article 2-3(2)(6)(8)(6)(8)(8)(4) of the reasoning of the judgment of the court of first instance is as stated in the relevant part of the reasoning of the judgment of the court of first instance. Thus, this part of the judgment of the court of first instance is cited in accordance with Article 8(2) of the Administrative Litigation Act and

2) Whether there was no tax avoidance purpose in the title trust

A) The legislative intent of Article 41-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter the same) is to recognize an exception to the principle of substantial taxation with the purport that the act of tax avoidance using the title trust system effectively prevents the act of tax avoidance and realize the tax justice. Thus, if the title trust was recognized as having been conducted for any reason other than the purpose of tax avoidance and it is only a minor reduction of tax incidental to the said title trust, it cannot be readily concluded that there was "tax avoidance purpose" (see, e.g., Supreme Court Decision 2004Du7733, May 12, 2006). However, in light of the legislative intent as seen above, it cannot be deemed that there was no other purpose of tax avoidance, such as the burden of proof that there was no other purpose of tax avoidance, not by applying the proviso of the said Article, but by the method of tax avoidance (see, e.g., Supreme Court Decision 2000Du363436.

The nominal owner, who is the nominal owner, has a clear objective of tax avoidance to the extent that it is recognized that there was no tax avoidance purpose in the title trust, and there was no tax avoidance in the future at the time of the title trust or in the future, to the extent that it would not have any doubt if the ordinary person is based on objective and conclusive evidence (see Supreme Court Decision 2004Du11220, Sept. 22, 2006).

B) According to the overall purport of Gap evidence Nos. 11, 16, and 17, and Eul evidence Nos. 11 and 11, it is recognized that ① the global income amount of AA in 2002, which title trust the instant shares, was KRW 280 million, and the plaintiff was subject to the global income tax rate of KRW 150 million. ② The plaintiff was subject to the highest tax rate after obtaining the global income amount exceeding KRW 80 million each year from 2002 to 2011.

In addition, Article 14 (4) of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003) which was applied at the time of title trust of this case provides that the dividend income received by the shareholders of an unlisted corporation shall be imposed based on the global income tax base as a matter of principle, unless it does not correspond to the dividend income received as a member of an employee stock ownership association as a member of the employee stock ownership association. Thus, it is recognized that AA had no income tax evaded due to the dividend income for the year 2002 and 203, regardless of whether A

C) On the other hand, according to the evidence No. 7, AA states, on October 30, 2014, that “AA made a title trust for the purpose of reducing the burden of gift tax due to stock donation and preparing for listing, etc.” in the investigation conducted to verify whether there is a title trust with 10,000 shares of the Plaintiff’s name. According to this, AA made clear intention to reduce the future gift tax burden and thereby, AA made the instant title trust.

Meanwhile, Article 63(3) of the Inheritance Tax and Gift Tax Act before and after the amendment by Act No. 6780 of Dec. 18, 2002 provides that the appraisal of securities shall be conducted with respect to the shares of the largest shareholder or a shareholder with a special relationship with him as prescribed by the Presidential Decree, according to the ratio as listed below, rather than the appraisal value of general shares.

The annual increase rate of premium;

Gu Sector

Above 200 up to 2002

Since 2003

Small and Medium Enterprises

Small and Medium Enterprises

50% or below the equity ratio;

20%

10%

20%

Over 50% in shares;

30%

15%

30%

However, according to the purport of the evidence No. 10-2 and the entire pleadings, it can be acknowledged that 30,000 shares immediately after the trust of this case was raised free of charge, and from around that time, AA had 33% (33,000 shares) and 10,000 shares (10%) out of the shares issued in its name from that time to 2012, and BB (35,000 shares) held 35% (35,00 shares) under the name of the Plaintiff. Therefore, AA was the largest shareholder of 2003, which is a specially related party BB as the largest shareholder of 200, and thus, in the event of a donation of shares held after 203, it was a position to pay gift tax based on the value appraised by 15% of the shares issued in title trust to the Plaintiff, thereby evading gift tax by reducing the value of shares by 150,000 shares, which are the evaluation rate of the shares issued in title trust.

Of course, the Plaintiff’s assertion that the title trust was carried out for any purpose other than tax avoidance and that there is a possibility that the result of tax reduction may arise, is not recognized as the purpose of tax avoidance (see Supreme Court Decision 2004Du7733, May 12, 2006). Meanwhile, as seen earlier, the instant shares were disposed of as the pledge before they were actually donated to the children of AA, and it does not seem that AA had a specific plan to donate the instant shares to the children at the time of the instant title trust.

However, in the instant case of title trust, insofar as there was clear intention to reduce a gift tax to AA, the purpose of tax avoidance cannot be denied based on the aforementioned circumstances alone.

In addition, the Income Tax Act was amended by Act No. 7006 of Dec. 30, 2003, and the amount of financial income (dividend income + interest income) below KRW 40 million is applied, but financial income exceeding this rate is added to global income and subject to global income tax rate. However, according to each of the statements in subparagraph 9-1 through 5, the details of annual global income tax return from AA to 2012 can be acknowledged as listed in the following table.

According to this, since the annual financial income during the above period of AA exceeded KRW 40,000,000, which is a comprehensive taxation basis, it resulted in the Plaintiff’s evasion of taxes to the extent equivalent to the difference between the above global income tax rate and the withholding tax rate.

D) The Plaintiff asserted that AA acquired the instant shares from AA for the purpose of share distribution in preparation for a stock listing, and that AA stated the purpose of share distribution in preparation for listing at the time of the investigation as one of the purpose of title trust in this case.

However, according to the purport of Eul's evidence No. 14 and the whole argument, the examination requirements of a new listed company pursuant to the Securities Listing Regulations, which was in force at the time, are as listed in the following table. It is true that a previous listed company fails to meet all other standards than the elapsed standards after its establishment. In particular, at the time of 2002, shareholders including the plaintiff are only five persons, and therefore, the listing requirements for shares are very insufficient in the case of the distribution standards of shares. This circumstance is also the same by 2012.

requirements of incorporation

Criteria for Examination

In the case of Doha

Number of years elapsed after establishment

A person who has been engaged in business for more than three years;

Meeting

Sales

Average of 15 billion won or more for the latest three business years;

Requirements Non-requirements expenses

At least 20 billion won in the latest business year;

Requirements Non-requirements expenses

Dispersion of Stocks

Total number of stocks held by minority shareholders, etc.

at least 30/100 of the Act;

Requirements Non-requirements expenses

At least 100 minor shareholders holding voting stocks;

Requirements Non-requirements expenses

Total number of stocks held by the largest shareholder, etc. and voting rights

under 70/100 of the total number of shares

Requirements Non-requirements expenses

Therefore, it seems highly probable that AA securing "100 minority shareholders who hold voting stocks" among the listing requirements would be highly feasible. In light of the circumstances that AA voluntarily stated that the instant title trust was made for the purpose of reducing not only the distribution of stocks but also the reduction of gift taxes, it cannot be deemed that the instant title trust was made for the main purpose of the distribution of stocks for listing rather than the purpose of tax avoidance.

E) Ultimately, the evidence submitted by the Plaintiff alone is insufficient to deem that there was no tax avoidance purpose at the time of the instant title trust. This part of the Plaintiff’s assertion is without merit.

3. Conclusion

Since the disposition of this case is lawful, the claim of this case seeking its revocation shall be dismissed as it is without merit. Since the judgment of the court of first instance is unfair based on its conclusion, the appeal of the defendant is accepted and the judgment of the court of first instance is revoked, and the plaintiff's claim is dismissed.