Court upholds ruling in favor of SPC Group chairman in tax avoidance case

The Seoul High Court upheld a lower court ruling that SPC Group Chairman Hur Young-in is not guilty of coordinating a stock sale at a reduced valuation to avoid gift taxes.

SPC Group Chairman Hur Young-in leaves the Seoul Central District Court in Seocho District, southern Seoul, on Friday after he was acquitted on charges of ordering the sale of affiliate company stocks at a low price to avoid gift tax. [YONHAP]

A high court on Friday upheld a lower court ruling in favor of SPC Group Chairman Hur Young-in, who was facing charges of allegedly coordinating the sale of shares of an affiliate at a lower price to evade gift taxes.

The bakery giant group’s chairman was declared not guilty of breach of trust by the Seoul High Court along with former CEO Cho Sang-ho and incumbent CEO Hwang Jae-bok, with the ruling citing a difficulty to deem the charges against them unlawful. The prosecution alleged that SPC subsidiaries sold stocks at a significantly lower price to evade taxes.

“It is also difficult to see that the accused parties have coerced and intervened by giving unfair instructions,” the court said.

Earlier in February, the Seoul Central Court decided that the inherent difficulty in predicting the growth of the grain-processing industry as well as subjective elements in valuing future potential made it challenging to accept the charge.

Hur faced accusations of selling Mildawon stocks, a grain company wholly owned by his family, at a significantly lower price of 255 won (19 cents) per share in December 2012. This price was lower than the 2011 estimated value of 1,180 won or the 2008 acquisition price of 3,038 won. The stocks were held by SPC affiliates Paris Croissant and Shany during a December 2012 sale to SPC Samlip, the sole publicly listed entity of SPC.

Mildawon, responsible for producing and supplying flour to SPC affiliates via Samlip, created a structure that would have subjected Hur to a transfer tax of 7.4 billion won over the following decade if the stock sale had not occurred.

Prosecutors alleged that the stocks were sold at a lower price before 2013 to avoid the gift tax on intra-group transactions, which was implemented a month after the sale, and that the stock deals caused damages of 5.81 billion won to Shany and 12.16 billion won to Paris Croissant while providing Samlip with proceeds of 17.97 billion won.

While the court agreed with the prosecutor’s claim that the stocks were sold before the gift tax on intra-group transactions was enforced, it decided that “it is difficult to see it as a breach of duty” as the court ruled against the charge on the stock price decision.

"The ruling clearly shows that the Mildawon stock transfer was legal [and] a measure to help improve the management structure to benefit the company," SPC's legal representative said. “I thank the court for providing a wise ruling."

The SPC chairman is currently under arrest over accusations that he coerced employees to leave a major union.

BY CHO YONG-JUN [cho.yongjun1@joongang.co.kr]