Main Issues
[1] The case holding that where a company and a person with a special relationship as a major shareholder of its affiliated company acquires all new stocks issued by its affiliated company including forfeited stocks, etc., it constitutes "where assets are purchased in excess of the market price from investors, etc." under Article 20 of the former Corporate Tax Act and Article 46 (2) 4 of the former Enforcement Decree of the Corporate Tax Act, it constitutes an object of denial of unfair act and calculation under Article 46 (2) 9 of the former Enforcement Decree, and even if the above Act and subordinate statutes do not separately provide for the method of calculating the dividend
[2] Whether Article 31-2 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 2010, Jan. 1, 2001) is a invalid provision that expands the taxable object beyond the scope delegated by Article 42
[3] In the application of the formula under Article 31-2 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, in case where there are treasury stocks whose acquisition of treasury stocks is restricted under the Commercial Act, and which have not been allocated new stocks, whether “value per share before capital increase” or “total number of issued stocks before capital increase” should be calculated except for those cases (affirmative)
Summary of Judgment
[1] The case holding that where a company and its specially related person, as its major shareholder, have acquired all new stocks issued by its affiliated company including forfeited stocks, etc., it constitutes an object of denial of unfair calculation under subparagraph 9 of the same paragraph, and the company can calculate profits by objective and reasonable means, in light of the purport of the system of wrongful calculation, even if the above law does not separately provide for the method of calculating the profits by distribution, in light of the purport of the system of wrongful calculation and calculation, etc., as long as the company gains profit from the actual value of the existing stocks, and Article 20 of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998) and Article 46 (2) 4 of the former Enforcement Decree of Corporate Tax Act (wholly amended by Presidential Decree No. 15970 of Dec. 31, 1998).
[2] In light of the contents and legislative purport of Article 42(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582, Dec. 28, 1998); Article 31-2(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998); and effects of the high-priced acquisition of new shares on the value of existing shares, etc., the amount calculated by subtracting the appraised value per share after the increase of new shares from the value of the forfeited shares after the increase of the new shares from the value of the forfeited shares is the economic loss that the shareholders who acquired new shares at high-priced acquisition of the forfeited shares will suffer from the additional acquisition of the forfeited shares of the forfeited shares. Thus, the above provision cannot be deemed as invalid by the provision of the Enforcement Decree of the Act beyond the scope of delegation.
[3] In allocating forfeited stocks, in case where a stockholder who has renounced all or part of the right to receive new stocks and a stockholder who has renounced such right acquires a profit by accepting forfeited stocks, the formula stipulated in Article 31-2 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998) is calculated on the premise that economic benefits are transferred between the stockholder who acquired new stocks at a higher price and the forfeited stockholders in light of the structure. In applying the formula, in case where the acquisition of treasury stocks under the Commercial Act was restricted, and there exist treasury stocks for which new stocks have not been allocated, the evaluation value per share before the person who has renounced such rights, or the total number of issued stocks before the person who has renounced such stocks, shall be calculated except for the case where there are treasury stocks
[Reference Provisions]
[1] Article 20 (see current Article 52) of the former Corporate Tax Act (wholly amended by Act No. 5581 of Dec. 28, 1998), Article 46 (2) 4 (see current Article 88 (1) 8 and 8-2), and Article 88 (1) 9 (see current Article 88 (2) 9) of the former Enforcement Decree of the Corporate Tax Act (wholly amended by Presidential Decree No. 15970 of Dec. 31, 1998) / [2] Article 42 (1) of the former Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5582 of Dec. 28, 1998), Article 31-2 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (wholly amended by Presidential Decree No. 15971 of Dec. 31, 198) / [197) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act
Plaintiff-Appellee-Appellant
Plaintiff 1 Co., Ltd (Law Firm, Kim & Lee, Attorneys Kim Tae-tae et al., Counsel for the plaintiff-appellant)
Plaintiff-Appellee
Plaintiff 2 [Plaintiff 2, Kim & Lee LLC, Attorneys Kim Tae-tae et al., Counsel for plaintiff-appellant-appellant-appellant-appellee]
Defendant-Appellant-Appellee
The Head of Central Tax Office (Attorney Lee Jung-soo, Counsel for defendant-appellant)
Defendant-Appellant
The Head of Seongbuk Tax Office (Attorney Lee Jae-soo, Counsel for defendant-appellant)
Judgment of the lower court
Seoul High Court Decision 2004Nu1829 decided January 24, 2007
Text
The part of the lower judgment against the Defendants is reversed, and that part of the case is remanded to the Seoul High Court. Plaintiff 1 corporation’s appeal is dismissed.
Reasons
The grounds of appeal are examined.
1. Judgment on the ground of appeal by Plaintiff 1
According to the reasoning of the judgment below, the court below determined that the non-party 1 corporation ("the non-party 2") was a shareholder of the same ○○ Group as its affiliated company, and the non-party 2 corporation's purchase price per share of 5,00 won for the purpose of issuing new shares on December 2, 1997, and the initial 645,59,596 shares as well as the acquisition of new shares by the non-party 2 as its affiliated shareholder of the non-party 99,97,000 won under the former Enforcement Decree of the Corporate Tax Act (the non-party 2's acquisition of the forfeited shares by the non-party 9,970,000 won for the non-party 9,000 won for the non-party 9,000 won for the non-party 2's acquisition of the forfeited shares under the same 97,00 won for the non-party 19,000 won for the non-party 2's new shares.
In light of the relevant legal principles and records, the above judgment of the court below is just and acceptable, and there is no error in the misapprehension of legal principles as to the interpretation and application of profit distribution under Article 46 (2) 9 of the former Enforcement Decree of the Corporate Tax Act.
2. Judgment on the Defendants’ grounds of appeal
Article 42(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998) (hereinafter “instant provision”) provides, “Where assets having economic value are, as similar to those of Articles 32 through 41, and 43 through 45, are actually gratuitously transferred through transactions between persons having a special relationship, as prescribed by the Presidential Decree, not through normal trade, an amount equivalent to the benefits as prescribed by the Presidential Decree shall be deemed to have been donated among the persons having a special relationship.” The instant provision on delegation provides, “Where a person having a special relationship, who has renounced all or part of the right to receive new stocks, obtains profits by accepting forfeited stocks, such deemed benefit shall be deemed to have been donated” [in case where a stockholder who has renounced the right to receive new stocks by acquiring forfeited stocks, + (i.e., appraised value per share before increase of new stocks 】 (i., before increase of new stocks 】 (i.e., increase of forfeited stocks ± increase of forfeited stocks ± increase of forfeited stocks ± increase of forfeited stocks by a person having a special relationship];
In light of the contents and purport of the above provisions, and the effect of the high-priced acquisition of new stocks on the value of existing stocks, when the entire forfeited stocks are cultivated, the amount calculated by subtracting the appraised value per stock after the increase in the value of new stocks from the acquisition value of each new stocks in the instant formula refers to the economic loss suffered by the stockholders who acquire the forfeited stocks additionally, and the amount of loss is consistent with the economic profit amount that the forfeited stockholders would have transferred from the stockholders who acquired the forfeited stocks at a high-priced level without compensation in the form of an increase in the value of existing stocks by giving up the subscription of the forfeited stocks. Therefore, the enforcement decree of the instant case cannot be deemed to be an invalid provision which expands the scope of delegation under the instant provision of the Enforcement Decree beyond the scope of delegation under the instant provision. Therefore, the calculation of profit by the stockholders who acquired the new stocks at a high-priced level under the instant provision is an objective and reasonable method. However, in light of the structure of the instant formula, the economic profit is calculated on the premise that the value of the new stocks at a high-priced stock is transferred between the forfeited stockholders and the forfeited stocks.
Nevertheless, under the premise that every shareholder acquiring new shares issued at a high price shall incur losses equivalent to the amount calculated by subtracting the appraised value per share after the increase of new shares from the acquisition value per new shares, whenever acquiring new shares, the court below determined that the provision of this case constitutes profits acquired by waiver of the loss incurred by the forfeited shareholders who are liable to acquire the remaining new shares under the Commercial Act, and that it is invalid because it expanded taxable objects beyond the scope delegated by the provision of this case where the taxable object is spreading due to the increase of stock value due to the increase of forfeited shares, and thus, it is unreasonable to calculate profits distributed by the Plaintiff company to Plaintiff 2 under the provision of the Enforcement Decree of this case. In so determining, the court below erred by misapprehending the legal principles on the imposition of gift tax of this case by calculating the constructive value of the Plaintiff Company by applying the provision of the Enforcement Decree of this case to the constructive value of the Plaintiff Company, by applying the provision of this case, and by calculating the proportion of the forfeited shares to the Plaintiff Company 260 billion won and the limit of the existing shares acquired by the Plaintiff 4.
3. Conclusion
Therefore, the part of the lower judgment against the Defendants is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Plaintiff Company’s appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.
Justices Shin Young-chul (Presiding Justice)