Seoul High Court 2016Nu46795 (Law No. 18, 2017)

Tax Tribunal 2014Seoul 5755 (2015.06.15)

Where new stocks are acquired through a third party allocation, taxation shall not be made by applying Article 41-3 (1) and (6) of the Act.

Since Article 41-3(6) of the Act is premised on the application of Article 41-3(1) of the Act, as there is no new stocks acquired for consideration regardless of the property donated without basis for the stocks acquired for consideration, and thus, such stocks shall not be deemed as the value of donated property prescribed by the Act even if they have acquired listed profits. The relevant provision is deemed to have set the scope and limit of gift tax assessment

The gift tax imposed under Article 2 of the Inheritance Tax and Gift Tax Act on the donation of profits accruing from the listing of shares or equity shares under Article 41-3.

Supreme Court Decision 2017Du35691 Decided revocation of gift tax rectification

O

○ Head of tax office

on 18, 2010

on 21, 2017

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (the supplemental appellate brief not timely filed).

The grounds are examined to the extent of supplement.

1. Article 41-3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter “the Act”) provides that “where a person having a special relationship with the largest shareholder, etc. receives a donation of or acquires with compensation for the stocks, etc. of the relevant corporation from the largest shareholder, etc., the date of donation or acquisition, and where the stocks, etc. are acquired from a person who is not the largest shareholder, etc., as such stocks, etc. are listed on the securities market within five years from the date of acquisition, and where the value increases as such stocks, etc. are listed on the securities market, it shall be deemed that the person who received a donation or received a compensation for the stocks, etc. has acquired a certain amount of profits in excess of the original taxable value or acquisition value of the gift tax.” In addition, Article 41-3(1) of the Act provides that “The acquisition of stocks, etc. shall include new stocks, etc. that a corporation acquired or received according to the issuance of stocks in order to increase the capital” (see Article 40(1).6).

Meanwhile, Article 2(1) of the Act provides that gift tax shall be imposed on donated property from another person’s donation, and Article 2(3) of the Act provides that “donations” shall be comprehensively prescribed. However, in cases where individual provisions on the calculation of donated property limit only certain transactions and acts among specific types of transactions and acts to be subject to gift tax, and the scope of taxation can be limited to the scope and limit of imposing gift tax by prescribing the scope of taxation, any transactions and acts excluded from the taxable subject or scope of taxation regulated by individual provisions may not be subject to gift tax even if they conform to the concept of “donation” under Article 2(3) of the Act (see, e.g., Supreme Court Decision 2013Du13266, Oct. 15, 2015).

Therefore, Article 41-3(1) and (6) of the Act provides that only the case where a person who has a special relationship with the largest shareholder, etc. receives stocks including new stocks of the relevant corporation from the largest shareholder, etc. or acquires stocks at a cost, shall be subject to the application of only the case where the largest shareholder, etc. receives stocks from the largest shareholder, etc. or gains profits from listing, etc. after being acquired, and only the specific type of transaction and act as above are limited to the transaction and act subject to gift tax. Therefore, gift tax may not be imposed on listed stocks excluded from the taxation subject to the above individual provision, barring special circumstances.

2. According to the reasoning of the judgment below, the company of this case: (a) held a board of directors on July 31, 2009 and decided to issue common shares, △△△△△△ shareholders through the allotment of shareholders; (b) four affiliated companies, including the Plaintiff, the largest shareholder of the company of this case, and the director HH of the company of this case, assigned to them on August 18, 2009, the aggregate of △△△△△△, △△, and △△△△△△ (hereinafter “the shares of this case”); (c) the shareholders of the company of this case, who did not have a special relationship with the Plaintiff, including ○○○ Bank, have waived the remaining preemptive rights; and (d) on August 19, 2009, the company of this case sold the shares of this case to the Plaintiff with the entire amount of the shares which the Defendant reported on the acquisition and payment of the shares; and (d) on August 20, 2016, the company of this case, upon which the Plaintiff accepted the shares of this case.

3. Examining these facts in light of the legal principles as seen earlier, the stocks of this case acquired by the Plaintiff are merely stocks that the Plaintiff acquired by being allocated to the Plaintiff after the waiver of preemptive rights by the largest shareholder, ○, etc., and do not constitute new stocks acquired based on the stocks donated or acquired with compensation from the largest shareholder, etc., or the assets acquired by the Plaintiff. Therefore, the listed profits on the stocks are excluded from taxation, and are not subject to taxation even based on Article 2(3) of the Act.

Nevertheless, the lower court, contrary to Article 41-3(1) and (6) of the Act, deemed that only a specific type of transaction and act does not constitute a provision setting the scope and limit of taxation as limited to taxable objects, and determined that the acquisition of the instant shares and the holding of listing marginal profits therefrom are subject to gift tax under Article 2(3) of the Act. In so determining, the lower court erred by misapprehending the legal doctrine on the relationship between the applicable scope of Article 2(3) of the Act and the calculation provision of the value under Article 41-3 of the Act, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal

4. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.