Listing on the KONEX market

It is reasonable to determine the listing of shares according to the listing on the securities market that existed at the time of donation or acquisition of the shares of this case, and the market where shares that were not listed in the securities market at that time are traded was the reason for the KOSDAQ market, and there was no KON market.

Inheritance Tax and Gift Tax Act

The revocation of revocation of the imposition of gift tax by the Seoul Administrative Court 2018Guhap68124

: EOO-6

: O Head of tax office and 4

March 6, 2019

April 26, 2019

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The Defendants’ imposition of each gift tax and additional tax stated in the details of imposition (attached Form 1) against the Plaintiffs shall be revoked.

1. Details of the disposition;

A. AAmercar Co., Ltd. (hereinafter referred to as "AAmercar") was established on November 1, 2006 and is engaged in retail business of medical devices. The current status of shareholders as of December 31, 2009 was as listed below, and the liquidation was completed on January 14, 2014.

BB (hereinafter “BB”) was established on December 11, 2007 and produced mination therapy equipment, etc. As of December 31, 2009, the shareholder status as of December 31, 2009 is as follows: BB’s shares were listed on the KON market on July 1, 2013; thereafter, they were listed on the KOSDAQ market on December 17, 2014.

C. As between October 28, 2010 and December 2, 2011, the Plaintiffs acquired BBB’s shares through purchase, capital increase with or without consideration (hereinafter “instant shares”), and the relationship between the Plaintiffs is as listed below.

The omission of Table

D. After investigating the gift tax on the Plaintiffs from May 19, 2016 to January 24, 2017, the director of the Central District Tax Office: (a) determined that the Plaintiffs did not report gift tax pursuant to Article 41-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter referred to as the “former Inheritance Tax and Gift Tax Act”) as the stocks of this case were listed on the KOSDAQ market; and (b) determined that the Plaintiffs did not report gift tax pursuant to Article 41-3 of the former Inheritance Tax and Gift Tax Act; and (c) notified the disposition authority of relevant data.

E. On May 2, 2017, the Defendants notified by the Commissioner of the Z Regional Tax Office of the above data were individually determined and notified KRW 71,323,938,650 in total of gift tax and additional tax (hereinafter “instant disposition”).

F. The Plaintiffs appealed and filed an appeal with the Tax Tribunal on June 14, 2017 and July 27 of the same year, but the Tax Tribunal dismissed the appeal on April 11, 2018.

[Ground of recognition] Unsatisfy, Gap evidence 1, 3-5 evidence, Eul evidence 1 (including separate serial numbers for those with additional numbers), the purport of the whole pleadings

2. Whether the disposition of this case is unlawful

A. The plaintiffs' assertion

The instant disposition is unlawful for the following reasons.

(1) The fact that Plaintiff CCC, CAA, and CB acquired BB’s shares from AAAmera, a major shareholder of BB. However, this is merely a self-donation in which the said Plaintiffs indirectly owned BB BB by taking over BB’s shares from AAAmera, and thereby directly owned BB through AAmera, and thus is not subject to gift tax. The imposition of listed gains on the said Plaintiffs’ shares acquired by the said Plaintiffs should not be allowed to be contrary to the legislative intent of Article 41-3 of the former Inheritance Tax and Gift Tax Act.

(2) In order to impose tax under Article 41-3 of the former Inheritance Tax and Gift Tax Act, the Plaintiffs should have obtained the listing marginal profit using undisclosed information, and the Plaintiffs did not have such fact.

(3) Whether there was a listing among the instant disposal requirements ought to be determined by the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) which was enforced at the time of listing rather than the date the Plaintiffs acquired the instant stocks. According to Articles 9(13) and 393(1) of the Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter “former Capital Markets Act before the amendment”), since the instant stocks were listed on the KON market and were traded on the KON market on July 1, 2013, and were enforced at the time of the listing, it should be deemed that the KON market began to have been separated from the KON market on August 29, 2013 (amended by Act No. 893, Mar. 22, 2013) and its first market on the KOSDAQ market on the securities market (amended by Act No. 11893, Dec. 13, 2014).

In addition, Article 17(3) of the Addenda of the former Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter referred to as the "former Capital Markets Act") provides that "if any other Act or subordinate statute at the time this Act enters into force, and any corresponding provision of this Act or this Act is cited, it shall be deemed that the corresponding provision of this Act or this Act is cited in lieu of the former Act or the corresponding provision of this Act, if any, at the time of the enforcement of this Act." Since the former Capital Markets Act enters into force after the amendment, the former Capital Markets Act, which was prescribed in the former Capital Markets Act, is not the former Capital Markets Act before the amendment, but after the amendment, the former Capital Markets Act is not the former Capital Markets Act before the amendment, and thus, the listing date of the KONEX market shall be deemed the first listing date under the former Capital Markets Act after the amendment.

(4) Even if it is determined whether the shares are listed under the former Capital Markets Act before the amendment, Article 9(13) of the former Capital Markets Act provides that "a market established for sale and purchase of securities prescribed by Presidential Decree" shall also be deemed to be "market for sale and purchase of securities prescribed by Presidential Decree". Article 12 of the former Enforcement Decree of the Capital Markets Act (amended by Presidential Decree No. 24697, Aug. 27, 2013; hereinafter referred to as "former Enforcement Decree of the Capital Markets Act") provides that "share certificates not listed on the securities market" shall be deemed to be "share certificates not listed on the securities market at the time of listing the KONEX market." Therefore, the shares of this case are listed on the KOSDAQ market on July 1, 2013, and thus, the listing under the former Capital Markets Act shall be deemed to have been conducted.

B. Relevant statutes

[Attachment 3] The entry is as follows.

C. Determination

(A) Whether the instant disposition is a taxation on self-donation and goes against the purpose of legislation

(1) As of December 31, 2009, Plaintiff CCC, CAA, and CB held 51%, 10%, 10%, and 1% of the AAmerdicar shares as of December 31, 2009, and around that time, AAmerdicar held 48.5% shares in BB against BB as seen earlier. However, AAmerdicar and Plaintiff CCC, CAA, and CB are separate rights holders, and the economic effect of the indirect ownership and the direct ownership through a corporation is considerably different by many other variables unrelated to governance, so it cannot be treated equally as owned by the above Plaintiffs. Accordingly, the acquisition of Plaintiff CCC, CAA, and CB shares cannot be deemed as self-donation.

(2) The provisions of Article 41-3 of the former Inheritance Tax and Gift Tax Act are stipulated to allow transfer of stocks to a person with a special relationship by donating or transferring stocks to a person with a special relationship with the largest shareholder, etc. for the purpose of obtaining large profits from stocks listed on the Korea Exchange through internal government of the company, or to impose taxation on gains from listing stocks of this case which meet the taxation requirements under Article 41-3 of the former Inheritance Tax and Gift Tax Act by continuously holding the same without transferring it by the donee or the acquisitor. It is difficult to conclude that the disposition of this case on gains from listing stocks of this case, which satisfies the taxation requirements under Article 4

(3) Each of the above plaintiffs' arguments is rejected.

(B) As to the non-use of non-public information

Article 41-3(1) of the former Inheritance Tax and Gift Tax Act provides that where a person with a special relationship receives or acquires stocks from the largest shareholder, etc. who is deemed to be in a position to use undisclosed information pertaining to the management, etc. of the company, such person shall be subject to taxation, and further does not require that the person should use undisclosed information. Therefore, this part of the Plaintiffs’ assertion on the premise that the use of undisclosed information is a taxation requirement is without merit.

(C) Whether to list the instant shares should be determined in accordance with the Capital Markets Act at the time of listing the KONEX, rather than the donation or acquisition price of the instant shares.

In full view of the following circumstances revealed by the aforementioned facts and the purport of the entire pleadings, it is reasonable to determine the listing of the shares of this case under the former Inheritance Tax and Gift Tax Act prior to the amendment, which was enforced at the time of the donation or acquisition of the shares. As such, the Plaintiffs’ assertion on this part is without merit.

(1) Article 41-3(2) of the former Inheritance Tax and Gift Tax Act provides that the date three months from the date on which the relevant stocks, etc. were listed shall be calculated as the date on which the settlement is based, except for the substantial increase in corporate value from the initial date of donation to the date on which settlement is based, and Article 41-3(1)2 provides that where the value of stocks, etc. as of the date on which settlement is based under the proviso of Article 41-3(3) is less than the initial taxable value, the amount of the gift tax already paid may be refunded. The above provision provides that the amount of the gift tax shall be deemed to have been donated (or acquired) at the time of donation and taxation by deeming the listed gains anticipated at the time of donation (or acquisition) to have been donated from the beginning. Thus, even if three months from the date on which the date on which the date on which the settlement of profits was based falls, the time when the obligation to pay gift tax comes into existence shall be deemed the time of donation or

The imposition of taxes shall be governed by the provisions of the law in force at the time when the liability for tax payment comes into existence, and even in the case of an amendment of the tax law, the laws and regulations at the time when the liability for tax payment comes into existence among the Acts and subordinate statutes before and after the amendment, unless there are special circumstances (see, e.g., Supreme Court Decision 97Nu9253, Oct. 14, 1997). In determining the listing of the stocks of this case, it is reasonable to apply the former Capital Markets Act prior to the amendment that was enforced at the time when the donation

(2) The purport of Article 41-3 of the former Inheritance Tax and Gift Tax Act is that "the taxation is to be made by the free of charge predicted at the time of donation or acquisition of shares," but Article 9 (13) of the former Capital Markets Act before the amendment that was enforced at the time of the acquisition of the shares of this case only stipulates the securities market and the KOSDAQ market. Thus, the "free transfer of shares through the listing on the KONEX market" does not constitute the interest expected to be realized at the time of donation or acquisition of the shares of this case. Therefore, it is difficult to view the listing on the KONEX market as a listing that constitutes a taxation requirement under the above provision.

(3) If, as alleged by the Plaintiffs, a listing profit is imposed on the grounds that the stocks were not the securities market (securities market and KOSDAQ market) that existed at the time of the donation or acquisition of stocks, but the stocks were listed at the market newly created after the donation or acquisition, such as KONEX market, this would result in a substantial risk of undermining the predictability and legal stability of the taxpayers who are opposed to the Plaintiffs, on the ground that the taxation is imposed on the grounds that the said stocks did not exist at the time of the establishment of the taxation obligation,

(4) Article 17(3) of the Addenda to the former Capital Markets Act after the amendment "other than at the time this Act enters into force."

Although the former Capital Markets Act or its provisions are stipulated in the former Act, it shall be deemed that this Act or the corresponding provisions of this Act apply to the listing of the stocks of this case. However, as seen earlier, with respect to the listing of the stocks of this case, the former provisions of the former Capital Markets Act prior to the donation and acquisition of the stocks of this case shall apply, and the above provisions of the former Capital Markets Act shall be deemed to be merely a provision that does not provide for the application of the former Capital Markets Act after the amendment through the acceptance of the provisions of the former Capital Markets Act or the former Capital Markets Act, in preparation for cases where the provisions of the former Capital Markets Act are not reflected in other Acts on the premise that the provisions of the former Capital Markets Act are applied after the amendment. Therefore,

(D) Even under the former Capital Markets Act before the amendment, whether the pertinent shares should be listed on the basis of the KONEX market listing date should be determined.

Before the amendment, Article 9(13) of the former Financial Investment Services and Capital Markets Act provides that "the market which is established for the sale and purchase of securities prescribed by Presidential Decree" of the securities market, and Article 12 of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act provides that "the stock certificates that are not listed in the securities market shall be one of the securities traded in the KOSDAQ market.

However, as seen earlier, it is reasonable to determine the listing of the shares of this case according to the listing on the securities market that existed at the time of donation or acquisition of the shares of this case. The reason for the KOSDAQ market in which the shares that were not listed in the securities market at that time were traded was that there was no KONEX market, and even if the shares of this case can be included in the "stock certificates that are not listed in the securities market" under the former Capital Markets Act and the Enforcement Decree of the former Capital Markets Act before the amendment, the listing of the shares of this case cannot be interpreted as listed in the separate KON market (the KONEX market is limited to the shares of small and medium enterprises, and the shares that are the object of the transaction are limited to the shares of this case, and it cannot be interpreted as listed on the KOSDAQ market that existed at the time of donation or acquisition of the shares of this case.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in entirety as it is without merit. It is so decided as per Disposition.