Ulsan District Court 201Guhap178 ( October 31, 2011)

Cho High Court Decision 2010Du0744 ( November 03, 2010)

A disposition that imposes tax on an individual who is a person with a special interest by deeming that the shares were bought at a low price;

Considering that securities are purchased from an individual who is a person with a special relationship at a price below the market price, the disposition imposing corporate tax is legitimate by including the difference between the market price and the purchase price in the gross income, and the established rules which are merely administrative rules do not constitute a public opinion list of the tax authorities, and there is no justifiable reason to believe that there is no evidence evaluation

2011Nu3463 Revocation of Disposition of Corporate Tax Imposition

XX

Head of Ulsan District Office

Ulsan District Court Decision 201Guhap178 Decided August 31, 2011

June 29, 2012

July 13, 2012

1. The plaintiff's appeal shall be lodged.

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

The judgment of the first instance shall be revoked. The defendant's disposition of imposing corporate tax of KRW 000 on the plaintiff on January 8, 2010 shall be revoked.

1. Details of the disposition;

A.1) On April 18, 2005, the Plaintiff purchased 160,000 non-listed shares (hereinafter referred to as the “instant shares”) of the PP (hereinafter referred to as “non-listed shares”) owned by the PP (hereinafter referred to as “non-listed company”) from the PP (hereinafter referred to as “the instant shares”) at a price of KRW 000 per share, and then completed the transfer procedure (hereinafter referred to as “the instant shares transfer”).

2) When acquiring the instant shares, 000 won per share of the acquisition price of shares determined by the agreement between the Plaintiff and the Plaintiff at the time of acquiring the instant shares is equal to the assessed amount under Article 63(1)(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax and Gift Tax Act”) and Article 54 of the Enforcement Decree of the same Act.

B. At the time of acquiring the shares of this case, Jeong owned 40,876 shares (2.724%) out of the total number of shares issued by the plaintiff in relation with the plaintiff and owned 40,876 shares (2.724%) and constitutes a specially related person under Article 52 (1) of the former Corporate Tax Act (amended by Act No. 10423, Dec. 30, 2010; hereinafter referred to as the "former Corporate Tax Act"). Jeong held 160,00 shares (20%) out of the total number of shares issued by the non-party company. Meanwhile, the non-party company held 160,00 shares of the total number of shares issued by the non-party company, Article 63 (3) of the former Inheritance Tax and Gift Tax Act, Article 53 (6) of the former Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18989, Aug. 5, 2005; hereinafter referred to as the "former Enforcement Decree").

C. However, the defendant assessed the market price of the shares of this case as 00 won per share under Article 52(4) of the former Corporate Tax Act, Article 89(2)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19891, Feb. 28, 2007; hereinafter referred to as the "former Enforcement Decree of the Corporate Tax Act"), and Article 63 of the former Inheritance Tax and Gift Tax Act (the amount determined by the agreement between the plaintiff and SiaA) (the value calculated by adding 15/100 to the appraisal amount under Article 63(1)(c) of the former Inheritance Tax and Gift Tax Act and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act). Thus, the defendant assessed the difference between the value of the shares of this case as 00 won per share to 00 won per share and 1000 won per share under Article 63(3) of the former Enforcement Decree of the Corporate Tax Act (the "former Enforcement Decree of the Corporate Tax Act").

D. The Plaintiff dissatisfied with the instant disposition and filed an administrative appeal with the Tax Tribunal on February 17, 2010, but was dismissed on November 3, 2010.

[Ground of recognition] Facts without dispute, Gap 1, 2, 5, 6, 7, 8, 11 evidence, Eul 1 through 3 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) At the time of the transfer of the shares of the non-party company, the largest holder of the shares of the non-party company at the time of the transfer of the shares of this case is the B (34.86%) and the A merely held the shares of 160,000 shares (20%) to the third third degree, and since the non-party company was not a relative or employee of DoB who is the largest holder of shares, it does not constitute the 'large shareholder, etc.' as stipulated in Article 63(3) of the former Inheritance Tax and Gift Tax Act and Articles 53(3) and 19(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act in relation to the non-party company. Therefore, the evaluation of the 'large shareholder, etc. under Article 63(3

2) In accordance with Article 89(2) of the former Enforcement Decree of the Corporate Tax Act, Article 63(3) of the former Inheritance Tax and Gift Tax Act, and Article 100-2 of the former Restriction of Special Taxation Act (amended by Act No. 8146, Dec. 30, 2006; hereinafter referred to as the "former Restriction of Special Taxation Act"), inheritance and donation should include transaction such as transfer, acquisition, and purchase. Therefore, in calculating the market price of the shares in this case, the verification of the "large shareholder, etc." under Article 63(3) of the former Inheritance Tax and Gift Tax Act should not be conducted.

3) If the appraisal of the market price of the stock in this case is conducted under Article 63(3) of the former Inheritance Tax and Gift Tax Act when calculating the market price of the stock in this case, the transferee shall be deemed to have assessed the market price of the stock in this case as the appraised value of the market price of the stock in this case. As to the transferor, the transferee shall be deemed to have been assessed as the appraised value of the stock in this case, Article 101 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 167(6) of the former Enforcement Decree of the Income Tax Act, Article 52 of the former Corporate Tax Act, Article 89 of the former Enforcement Decree of the Corporate Tax Act, the market price of the stock in this case shall be deemed to have been assessed as the appraised value before the increase under Article 63(3) of the former Inheritance Tax and Gift Tax Act. In addition, the plaintiff shall not be deemed to have acquired the stock in this case for the purpose of acquiring transfer marginal profits, but shall not be included in the capital transaction under Article 15(2).

4) On March 30, 2005, the Plaintiff confirmed the contents of the established rules of the Income Tax Act (written 4 team-467) (written 4 team-467) in which the market price does not increase in the acquisition of the instant shares, and acquired the instant shares on July 27, 2005, the National Tax Service revised the established rules (written 4 team-1326 (written 4 team-1326) of the Income Tax Act) to include the amount of premium on the acquisition of the shares by the largest shareholder, etc. against the established rules and regulations of the said Income Tax Act (written 4 team-1326) and assessed the Plaintiff’s acquisition of the instant shares. In addition, the Plaintiff confirmed the established rules of the said Income Tax Act (written 4 team-467) and asked the tax officials belonging to the Defendant to verify the established rules and regulations of the said Income Tax Act (written 4 team-467) and did not assess the market price of the instant shares. Accordingly, according to the principle of trust and good faith, the Defendant cannot assess the market

5) Since the tax authority trusted the public opinion list that the Plaintiff is not subject to the assessment of the premium as above and assessed the market price of the instant shares, there is a justifiable reason not to mislead the Plaintiff into the breach of corporate tax payment obligation. Nevertheless, the Defendant erred by imposing penalty on the Plaintiff.

6) Therefore, the instant disposition should be revoked as it is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) As to the Plaintiff’s assertion

A) Organization of issues

According to the evidence evidence No. 6, at the time of acquisition of the shares of the non-party company, the shares of the non-party company were held 278,880 shares (34.86%) and 186,480 shares (23.31%) and 160,00 shares (20%) of the non-party company. The non-party company's maximum share holder is B. Meanwhile, Article 63 (3) of the former Inheritance Tax and Gift Tax Act provides that "the largest shareholder or largest shareholder and shareholders or investors in a special relationship with them (hereinafter "the largest shareholder") shall increase the shares of the non-party company." Article 53 (3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the largest shareholder, etc. shall be one shareholder under the part other than each subparagraph of Article 19 (2) of the Enforcement Decree, and Article 19 (2) 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the shares of this case shall be the largest shareholder.

B) Scope of employees under Article 19(2)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act

Article 13 (4) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "executive officers (referring to the executive officers under Article 43 (6) of the Enforcement Decree of the Corporate Tax Act and the former executive officers under Article 43 (6) of the Enforcement Decree of the Corporate Tax Act, who have not passed five years after retirement; hereinafter the same shall apply)", and Article 43 (6) of the former Enforcement Decree of the Corporate Tax Act provides that "executive officers" and all members of the board of directors, such as directors of the corporation. Article 13 (6) 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "employees (including the employees of the corporation under control by investment; hereinafter the same shall apply) prescribed by the Ordinance of the Ministry of Finance and Economy" and Article 13 (8) 1 and Article 19 (2) 6 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provide that "corporation employees under control by investment" as mentioned above and Article 19 (2) 1 through 5 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

As above, Articles 13 (4) 1 and 13 (6) 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate that "executive" and "employee" shall be defined as "executive," and Articles 53 (3) and 19 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate that all of the above Articles 13 (4) 1 and 13 (4) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate "the contributor" and "the above Articles 13 (2) 1 and 37 (4) and 38 (10) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulate that "the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not limit the scope of the application of the above provisions to "the largest shareholder" and "the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall not limit the scope of the application of the terms to the corporation's spouse's lineal descendant and other specific provisions of the Enforcement Decree of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act."

C) Determination on the instant case

As seen earlier, the branchB is the largest shareholder holding 34.86% of the shares of the non-party company and is also the person who controls the non-party company by means of an investment of at least 30%. And as from March 24, 2004, the status of the non-party company’s director working as a director on March 23, 2005 and for whom five years have not passed since the retirement at the time of the transfer of the shares of this case, is recognized by the overall purport of the pleadings. Accordingly, the status of the Party becomes an employee of the non-party company under the control of the branchB as the largest shareholder. Accordingly, the Plaintiff’s assertion in this part constitutes “large shareholder, etc.” as provided by Article 63(3) of the former Inheritance Tax and Gift Tax Act, Articles 53(3) and 19(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

2) As to the Plaintiff’s assertion Nos. 2 and 3

The reasons for this Court to this part are as stated in Section 2.(c) and (3) of the judgment of the first instance.

3) As to the Plaintiff’s assertion

A) In general, in order to apply the principle of trust and good faith to a tax authority’s act in a tax law relationship, the tax authority should give the taxpayer a public opinion that is the subject of trust, and the taxpayer should not be responsible for the taxpayer’s reliance on the legitimacy of the tax authority’s expression of opinion, and the taxpayer should engage in the taxpayer’s reliance on the expression of opinion and in what manner it is. Third, the tax authority’s disposition against the above expression of opinion should result in a violation of the taxpayer’s interest by making the tax authority’s disposition against the above expression of opinion. Meanwhile, the content of the tax law and the administrative rules themselves do not constitute a public opinion of the tax authority (see Supreme Court Decision 2001Du403, Sept. 5, 2003).

B) We examine the instant case.

According to each statement of evidence Nos. 9 and 10, if it is deemed that the tax burden has been unjustly reduced because the unlisted stocks are acquired in excess of the market price or are transferred below the market price in trading with a related party under Article 98(1) of the Enforcement Decree of the Income Tax Act, the acquisition price or transfer price shall be calculated based on the market price. If the market price is unclear, the market price of the stocks shall be calculated according to the supplementary evaluation method under Article 63 of the Inheritance Tax and Gift Tax Act. In the case of the assessment of unlisted stocks by applying the provisions of Article 63(1)1 (c) of the Income Tax Act of March 30, 2005, the "in case of the assessment of unlisted stocks by applying the provisions of Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act, the assessment of the largest shareholder is exempted under Article 100-2 of the Restriction of Special Taxation Act."

However, with regard to the Plaintiff’s specific answer that the Plaintiff was exempt from the application of the provisions on the assessment of premium under Article 100-2 of the former Act on Special Cases concerning Taxation by inquiring the tax officials belonging to the Defendant about the acquisition of the instant shares, it is not sufficient to recognize the Plaintiff’s written evidence alone, and there is no other evidence to acknowledge it.

In addition, the above established rules of the Income Tax Act (written 4 team-467) are only administrative rules within the National Tax Service, which provide the criteria and enforcement criteria for tax interpretation within the tax authority, and thus does not constitute a public statement of opinion by the tax authority itself.

Therefore, in the instant case, it cannot be deemed that there was an expression of public opinion by an administrative agency subject to trust, so the principle of protection of trust cannot be applied. The Plaintiff’s assertion on this part is without merit.

4) As to the Plaintiff’s assertion

A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed as prescribed by the individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, and it is unreasonable for the taxpayer to be aware of such obligations, and thus, it is unreasonable for the taxpayer to be reasonably present or to expect the performance of such obligations to the party concerned (see, e.g., Supreme Court Decisions 2003Du4089, Apr. 15, 2005). However, additional tax under the tax law does not constitute a justifiable ground that does not constitute a taxpayer’s intentional and negligent act but does not constitute a ground that does not constitute a breach of duty (see, e.g., Supreme Court Decisions 2005Du10545, Apr. 26, 2007; 2009Du3177, Apr. 23, 2009).

B) We examine the instant case.

Even if the Plaintiff acquired shares by means of the purchase price calculated based on the market price of the instant shares without any verification of the belief of the established rules of the Income Tax Act (as seen in the foregoing, there is no evidence to acknowledge that the Plaintiff was exempt from the application of the provisions on assessment of the premium under Article 100-2 of the former Restriction of Special Taxation Act with respect to the acquisition of the instant shares by inquiring of the tax official belonging to the Defendant, and there is no evidence to support the Plaintiff’s response to the exemption of the application of the provisions on assessment of the premium under Article 100-2 of the former Restriction of Special Taxation Act). This is in accordance with the trust of the established rules of the Income Tax Act

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just as it is concluded, and the plaintiff's appeal is dismissed.