Article 159 of the Enforcement Decree of the Income Tax Act: Calculation of gains on transfer of onerous donation

2. The costs of lawsuit shall be borne by the Plaintiff.

"A. On September 29, 2001, the plaintiff acquired 340 million won of 00 million won of 00 million won of ○○ apartment-dong ○○○○○, ○○○○○, ○○○, ○○○, ○○, ○○○, ○○○, (hereinafter "the real estate of this case") on September 29, 2001, the plaintiff donated the real estate of this case under the condition that he takes over a total of 358 million won of the deposit for lease and bank mortgage loan amount of the plaintiff's real estate of this case to ○, ○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○○, ○, ○, ○, ○, ○, ○., a donee, with the amount of debt of this case's real acquisition (350 million won, 636.5 billion won).

C. Accordingly, the Defendant calculated gains from transfer with the amount of KRW 197,138,66, which is calculated by multiplying the standard market price at the time of the acquisition of the real estate of this case (2.65 million won) by the amount of debt (including KRW 358,000,000, KRW 3775,000) of the amount of debt from among the amount of donation. On November 1, 2005, the Defendant determined and notified the Plaintiff of KRW 37,226,750 (including additional tax) of the transfer income tax for the year 2003, and thereafter, determined and notified the transfer income tax for the Plaintiff on November 1, 2005, after deducting the estimated amount of KRW 5,914,159 from necessary expenses during the Plaintiff’s filing an objection, the amount of the original tax was reduced to KRW 34,575,260 (including additional tax) [including the grounds for recognition], Gap-21 through 28, and 260 (including additional tax].

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

"The area where the real estate of this case is located is announced as real estate speculation area, and the transfer gains should be calculated by applying the transfer value and acquisition value based on the actual transaction value to the real estate located in the speculative area. Therefore, in calculating the transfer gains on the portion to be deemed a transfer among onerous donations on the real estate of this case, the transfer value should be the "amount equivalent to the debts taken over by the donee", and the acquisition value should be calculated by multiplying the actual acquisition value by the "ratio equivalent to the debts taken over by the donee". Thus, the disposition of this case is unlawful;

In the calculation of gains on transfer where a real estate in the speculative area is transferred, both the transfer value and the acquisition value shall be based on the actual transaction value. However, in the case of calculating gains on transfer of the portion deemed a transfer in respect of onerous donation, there is no actual transaction value at the time of donation, so the transfer value is bound to be based on the standard market price, and so long as the transfer value is calculated based on the standard market price, the acquisition value shall also be calculated based on the standard market price. Therefore, it is legitimate to calculate gains on transfer after the Defendant calculated the transfer value and the acquisition value of the portion deemed a transfer in respect of the portion deemed a transfer in respect of the real estate in this case’s onerous donation,

/ former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003)

○ Transfer of Article 88 of the Income Tax Act

(1) For the purpose of subparagraph 3 of Article 4 and this Chapter, the term "transfer" means that any assets are actually transferred for price due to sale, exchange, investment in kind in a corporation, etc., regardless of any registration or enrollment concerning such assets. In such cases, where a donee takes over an obligation of a donor of an onerous donation (excluding cases falling under the main sentence of Article 47 (3) of the Inheritance Tax and Gift Tax Act), the portion equivalent to the amount of obligation

○ Transfer Value of Article 96 of the Income Tax Act

(1) The transfer value of assets referred to in Article 94 (1) 1 and 2 shall be the standard market value at the time of transfer of the relevant assets: Provided, That where the relevant assets fall under any of the following subparagraphs, it shall be the actual transaction value between the transferor and transferee (hereinafter referred to as the "actual transaction value"):

6-2. Where the rate of increase of real estate prices in the relevant area is higher than the national consumer price inflation rate, and falls under the real estate prescribed by the Presidential Decree, among the real estate located in the area designated by the Minister of Finance and Economy according to the standards and methods prescribed by the Presidential Decree, because the prices of

○ Article 97 of the Income Tax Act as necessary expenses

(1) In calculating gains on transfer of a resident, necessary expenses to be deducted from the transfer value shall be as follows:

1. Acquisition value:

(a) In case of assets as prescribed in Article 94 (1) 1 and 2, the standard market price at the time the assets are acquired: Provided, That in case where the assets concerned fall under any of subparagraphs of Article 96 (1), it shall be based on the actual transaction price required for the acquisition of such assets;

○ Calculation of gains on transfer under Article 100 of the Income Tax Act

(1) In the calculation of gains on transfer, the transfer value shall be based on the actual market price (including the amount provided for in Article 96 (3) and the amount of transaction example or appraised value, etc. in cases where the amount of transaction example or appraised value is applied pursuant to Article 114 (5)), and the acquisition value shall be based on the actual market price (including the amount provided for in Article 97 (7) and the amount provided for in Article 114 (5) in cases where the amount of transaction example, appraised, converted value, etc. is applied), and if the transfer value is based on the standard market price, the acquisition value shall

○ Determination, rectification, and notification of the tax base and tax amount for transfer income under Article 114 of the Income Tax Act

(4) If the chief of the district tax office or the director of the regional tax office having jurisdiction over the place of tax payment determines or revises the tax base of transfer income and the amount of tax under paragraphs (1) through (3), he shall determine or correct the tax base of transfer income and the amount of tax under Articles 96 and 97: Provided, That in case where the resident makes the preliminary return or the final return on the tax base of transfer income under Articles 96 (1) 6 and 97 (1) 1 (a) (proviso), and if such returned amount is different from the fact, and if

(5) In applying the provisions of paragraph (4), in case where the transfer price or acquisition price is based on the actual transaction price, and where it is impossible to recognize or confirm the actual transaction price at the time of transfer or acquisition of the relevant assets by the books or other documentary evidence on the grounds as determined by the Presidential Decree, the transfer price or acquisition price may be determined or corrected by the estimated survey based on the transaction example price, appraisal price, conversion price (referring to the actual transaction price, sale price, or appraisal price converted by the method as determined by

Article 159 of the Enforcement Decree of the Income Tax Act: Calculation of gains on transfer of onerous donation

For the gains on transfer of onerous donation under the latter part of Article 88 (1) of the Act, its acquisition value and transfer value in the calculation of gains on transfer of the portions to be deemed a transfer, shall be the amount calculated by multiplying the value of the relevant assets under Articles 96 and 97 (1) 1 of the Act by the ratio occupied by the portions equivalent to the amount of debts from among the value of donations

C. Determination

Article 88 (1) of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003; hereinafter referred to as the "Act") provides that where a donee takes over a donor's obligation in the case of an onerous donation (excluding the case falling under the main sentence of Article 47 (3) of the Inheritance Tax and Gift Tax Act), the part equivalent to the amount of such obligation in the donation amount shall be considered to be actually transferred for price of the property, regardless of the registration or enrollment of the property, if the donee takes over the donor's obligation in the case of an onerous donation (excluding the case falling under the main sentence of Article 47 (3) of the Inheritance Tax and Gift Tax Act), the former ○○ takes over the Plaintiff's obligation of KRW 358 million in total of the deposit and bank loan funds with respect to the real property of this case. Accordingly, the donation is deemed to have been transferred for price equivalent to the amount of the above 358 million won in the value of the real property of this case as an onerous donation.

According to Article 100 (1) of the Act, if the transfer value is based on the actual transaction value, the acquisition value shall be based on the actual transaction value, and if the transfer value is based on the standard market price, the acquisition value shall also be based on the standard market price. In the calculation of the transfer margin on the portion to be deemed a transfer, the acquisition value and the transfer value in the calculation of the transfer margin on the portion to be deemed a transfer, under the latter part of Article 8 (1) of the Act, shall be the value calculated by multiplying the value of the relevant asset under Articles 96 and 97 (1) 1 of the Act by the ratio occupied by the part equivalent to the amount of debts to the value of the relevant asset. In Articles 96 (1) and 97 (7) of the Act, the transfer value and the acquisition value in the transfer of land and buildings shall be based on the standard market price in principle, but the actual transaction value at the time of transfer and acquisition by keeping evidential documents within the date of determination of the transfer income tax base and tax amount, or in the area designated by the Minister of Finance and Economy.

The purpose of Article 88 of the Act and Article 159 of the Enforcement Decree of the Act is to determine the ratio (B/A) taken by a debt (B/A) acquired from the transfer value (B/A) of real estate in calculating the transfer income tax in the case of onerous donation, and then to determine the transfer value (transfer value - acquisition value) multiplied by the said ratio as the transfer income tax, and to impose the transfer income tax.

In addition, if the transfer value is calculated based on the actual transaction value, not based on the standard market price, the actual transaction price is not the market price reflecting the objective exchange value, but the actual transaction price itself or at the time of the transaction (see, e.g., Supreme Court Decision 97Nu6629, Feb. 9, 199). It is difficult to regard the burden of onerous donation as the transaction price corresponding to the entire donated property or the price for its performance. It is difficult to consider this concept from the onerous donation. (In the case of onerous donation on real estate, the plaintiff is exempted from the plaintiff by acquiring the above amount of 358 million won by the former ○○, but the above amount of the debt should be considered as the actual transaction price at the time of transfer, so long as the amount of the debt can not be considered as the transfer price at the time of the above transfer (see, e.g., Supreme Court Decision 97Nu629, Feb. 9, 199).

Therefore, the instant disposition that calculated capital gains tax based on the standard market price at the time of transfer and acquisition is lawful.

3. Conclusion

Thus, the plaintiff's claim seeking the cancellation of the disposition of this case cannot be accepted.

The dismissal is dismissed.