Law Firm Changchun LLC represented a taxpayer assessed global income tax on a treasury share acquisition and profit cancellation carried out after shares were gifted to a spouse, and obtained an appellate judgment setting aside the first instance decision.
The tax authority viewed the series of transactions — the gift of shares to the spouse and the subsequent treasury share acquisition and profit cancellation — as a whole and concluded that they amounted to a sham transaction for the purpose of tax avoidance. It disregarded the transactions, treated the proceeds as a deemed dividend and imposed a substantial amount of global income tax. The first instance court likewise found for the defendant, in substance holding the tax authority's view sound.
On appeal, Law Firm Changchun LLC proved through specific evidence that the shares in question had actually been transferred to the spouse, and that the transfer proceeds had likewise vested in the spouse in substance rather than in form only, being used for real purposes such as repaying debt. We further argued persuasively, on the basis of the substance-over-form principle, that where the legal form and the economic substance of a transaction correspond, the mere fact of having chosen a structure with a comparatively lower tax burden cannot establish a sham transaction aimed at tax avoidance.
The appellate court accordingly held clearly that where a reasonable purpose exists — such as the appropriate allocation of assets and the raising of funds — the effect of a transaction must not be hastily disregarded merely because a structure carrying a lower tax burden was chosen. It therefore held the global income tax assessment against the plaintiff unlawful, set aside the first instance judgment and entered judgment for the plaintiff.
Law Firm Changchun LLC is a firm staffed by numerous specialists devoted to tax law and tax litigation, and has handled many tax disputes arising from share transactions, capital transactions, and inheritance and gifts. Drawing on accumulated practical experience and closely constructed legal arguments, Changchun devotes itself to protecting our clients' interests even in the most complex tax matters.