Law: "'Jangnae Gyeongjaeng Maemae Method' Stock Transfer... Not Low-Price Trading Between Specific Individuals"

Seoul Administrative Court, Seocho-gu, Seoul. / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Daehyun] The court ruled that stock transactions among members of the LG Group's controlling family conducted through the “on-market competitive trading method” cannot be regarded as low-price transfers between specific individuals.

According to the court on the 22nd, the Seoul Administrative Court Administrative Division 4 (Presiding Judge Kim Jeongjung) ruled in favor of the plaintiffs in the first trial of the lawsuit filed by five people, including Koo Yeonkyung, eldest daughter of the late Koo Bon-moo, former chairman of LG Group and representative of the LG Welfare Foundation, against the tax authorities to cancel the imposition of capital gains tax amounting to about 2.3 billion KRW.

Previously, Representative Koo and others transferred a total of approximately 2,048,000 shares of LG Group stock held between 2008 and 2015 through the Korea Exchange’s on-market competitive trading method and reported and paid capital gains tax based on the transaction amount.

However, the tax authorities confirmed that some stock transactions were conducted between different members of the LG Group’s controlling family and judged that the capital gains tax of 17.56 billion KRW was underreported, issuing an additional assessment and notification of about 7 billion KRW. This was because Representative Koo and others evaluated the market price of the traded stocks by comparing the average closing price over two months before and after each transaction date and applied a 20% premium.

Representative Koo and others filed an administrative lawsuit against the tax authorities’ decision. They argued, “Transferring stocks through the on-market competitive trading method cannot be considered a transaction between related parties,” and “The stock transaction price corresponds to the actual transaction price and thus is the ‘market price,’ not a ‘low-price transfer.’”

The first trial ruled in favor of Representative Koo and others. The court explained, “Competitive trading on the exchange market is difficult to view as a transaction between specific individuals,” and “In the exchange market’s competitive trading, there is no way to exclude other investors from orders, and there is no guarantee that transactions will be 100% executed at the designated price.”

It added, “Stocks are considered traded at market price and it is difficult to regard them as transferred at a low price.”

The tax authorities appealed this ruling.

Earlier, the Seoul Administrative Court Administrative Division 6 (Presiding Judge Lee Jooyoung) recently ruled in favor of the plaintiffs in the first trial of a capital gains tax cancellation lawsuit filed by Koo Bonnung, chairman of Heesung Group, and other LG family members.

Additionally, about ten LG family members including Representative Koo and executives were criminally prosecuted for violating the Tax Crime Punishment Act, but the Supreme Court confirmed their acquittal.

This content was produced with the assistance of AI translation services.