Late Honorary Chairman Ham Tae-ho Donates 200,000 Shares to Foundation, Court Rules "Donor's Intent Cannot Be Ignored for Same-Day Share Donation"
When a person donates their own shares to multiple public interest corporations on the same day, the Supreme Court ruled that in determining whether there was a donation exempt from gift tax, it is not appropriate to consider all corporations as having received the donation simultaneously. Instead, the exact time the donor actually donated to each corporation must be accurately examined and calculated in that order.
The Supreme Court's First Division (Presiding Justice Kim Seon-su) announced on the 20th that it overturned the lower court ruling in favor of the National Tax Service in the gift tax imposition cancellation lawsuit filed by Namseoul Eunhye Church and Milal Art Museum against the National Tax Service, and remanded the case to the Seoul High Court.
The late Ham Tae-ho, honorary chairman and founder of Ottogi, donated a total of 30,000 Ottogi shares he owned to public interest corporations including Namseoul Eunhye Church (17,000 shares, 0.49% stake), Milal Art Museum (3,000 shares, 0.09%), and Milal Welfare Foundation (10,000 shares, 0.29%) on November 17, 2015. Before the donation, Chairman Ham agreed with the three organizations to donate the shares in sequence on the same day in the order of Milal Art Museum, Namseoul Eunhye Church, and Milal Welfare Foundation.
Subsequently, the church, art museum, and foundation reported gift tax on 28,000 shares excluding 2,000 shares received by the art museum in 2016. In 1996, former Chairman Ham also donated 170,000 shares (4.94% stake) to the Ottogi Foundation. The Ottogi Foundation, Milal Foundation, Eunhye Church, and Milal Art Museum to which Ham donated are legally classified as public interest corporations, and among them, Milal Foundation and Ottogi Foundation qualified as sincere public interest corporations, thus eligible for tax benefits.
The former Inheritance and Gift Tax Act (Sangjeungse Act) stipulated that property received by public interest corporations is excluded from the taxable amount for gift tax. However, if the property received includes voting shares or equity interests of a domestic corporation, gift tax exemption applies only up to 5% of the total issued shares of that corporation.
Accordingly, the three organizations voluntarily reported gift tax, including the 2,000 shares donated to the art museum within the 5% non-taxable limit. However, the National Tax Service argued that the 2,000 shares donated to Milal Art Museum, which were omitted from the voluntary gift tax report, should be included in the taxable amount, and imposed gift tax of 7.3 billion KRW on the church and 1.3 billion KRW on the art museum.
The first trial court ruled to cancel the gift tax imposition, but the second trial court upheld the gift tax imposition as legitimate. The Supreme Court found no problem with the second trial's judgment but held that the hearing on the additional gift tax imposed on the art museum was not properly conducted. Even if multiple public interest corporations received the same shares on the same day, gift tax should be imposed based on the 'respective donation times' by considering the chronological order.
The court stated, "Although the donor sequentially donated shares considering the gift tax exemption limits, it is difficult to find a reasonable basis to disregard the donor's intention and deem the shares as donated simultaneously just because the donations occurred on the same day," and added, "The lower court should have examined the chronological order and related circumstances."
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