One Law Partners, LLC successfully defended its client against a gift tax audit concerning the source of funds used to acquire convertible bonds and the subsequent conversion of those bonds into shares. By submitting supporting materials and legal opinions substantiating the source of funds and the substance of the underlying legal relationships, the firm successfully eliminated the client's entire gift tax exposure.

The key issues in this matter included the source of the funds used to acquire the convertible bonds, whether financial transactions with third parties constituted taxable gifts, and whether the deemed-gift provisions relating to nominee ownership could apply in connection with the management of convertible bonds and the conversion of those bonds into shares on behalf of an overseas resident.

One Law Partners, LLC advanced two principal defenses. First, the application of the deemed-gift rules relating to nominee ownership requires tax avoidance as a prerequisite, and no such circumstances existed in this case. Second, financial entrustment arrangements or loans between nonresidents, as in this matter, fall outside the scope of Korean taxation jurisdiction.

Specifically, the firm analyzed relevant court judgments and financial transaction records to demonstrate that the funds at issue originated from the repayment of pre-existing loans. The firm also explained in detail the economic substance of transactions involving third-party remittances, including offset arrangements between loan receivables and cost-sharing obligations.

In addition, One Law Partners, LLC comprehensively reviewed the convertible bond agreements, communications between the parties, and factual confirmation statements to establish that the management of the convertible bonds and the conversion into shares were not substantive gifts but transactions based on an agency relationship for the management of domestic assets owned by an overseas resident.

In particular, relying on the substance-over-form principle under the Framework Act on National Taxes, the firm demonstrated the nature of the transactions by focusing on the actual flow of funds, the parties' intentions, and authority over the disposition of assets, rather than on nominal ownership or the formal appearance of contractual documents.

As a result, One Law Partners, LLC presented legal grounds and objective documentary evidence supporting the substantive nature of the transactions questioned during the tax audit and successfully achieved a 100% defense against the client's gift tax exposure.


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Suk-Oong Lee, Attorney | solee@onelawpartners.com
Jeong-Min Ha, Attorney | jmha@onelawpartners.com
Chan-Woo Chung, Advisor | cwchung@onelawpartners.com
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Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com