Lee & Ko successfully obtained a favorable ruling at the Seoul Administrative Court to cancel the entire tax assessment based on the application of Article 39.1 of the Inheritance and Gift Tax Law (“IGTL”) of Korea which prescribes that the tax imposition requires the issuance of new shares at a discount and transfer of gains.
The Korean tax authority has imposed gift tax based on the assumption that the increase in stock price resulting from the announcement of a capital increase is a gift from the existing shareholders to the new shareholders without detailed review.
Lee & Ko effectively attested against the precedentSupreme Court decision that there is no transfer of gains from the existing shareholders to the new shareholders as the increase of stock price is attributable only to the capital contribution, and that calculating the market price based on the payment date not the date of Board resolution violates predictability and legal stability of the taxpayer. This case has significant value in that it protects the interests of the taxpayers and puts the brakes on the Korean tax authority’s unreasonably aggressive attempt to tax.