Former STX Chairman Kang Deok-su Loses Final Appeal in Gift Tax Lawsuit Over Preferential Contracting

Kang Deok-su, former chairman of STX Group

[Asia Economy Reporter Heo Kyung-jun] Former STX Group Chairman Kang Deok-su filed a lawsuit challenging the imposition of gift tax on the grounds of ‘preferential allocation of work’ among group affiliates but ultimately lost the case.

The Supreme Court’s 3rd Division (Presiding Justice Noh Jeong-hee) announced on the 9th that it upheld the lower court’s ruling, which dismissed Kang’s lawsuit against the Seocho Tax Office head seeking cancellation of the ‘gift tax assessment decision.’

Kang, the major shareholder of STX and holder of the group’s management rights, filed the lawsuit after the Seocho Tax Office imposed a gift tax of approximately 2.68 billion KRW in November 2013 under the Inheritance and Gift Tax Act.

Article 45-3 of the Inheritance and Gift Tax Act stipulates that if the proportion of sales revenue from internal transactions of a large conglomerate affiliate exceeds 30%, the controlling shareholder or relatives of that corporation are deemed to have received a gift, and gift tax is imposed accordingly.

During the trial, Kang argued, “The gift tax was levied based on unrealized gains rather than actual profits obtained by the controlling shareholder, resulting in double taxation of income tax and gift tax when the gains are realized and dividends are received by the controlling shareholder.”

However, both the first and second trials rejected Kang’s claims. They stated, “The controlling shareholder can decide to distribute or retain the profits earned by the corporation by exercising voting rights. Considering the difficulty in calculating the indirect benefits obtained by controlling shareholders, it is reasonable and convenient to collect taxes based on the profits earned by the corporation.”

The Supreme Court also agreed with the lower courts’ judgment.