Article 163 (9) of the Enforcement Decree of the Income Tax Act

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

A. On July 12, 1997, the Plaintiff acquired a forest of 335-1 forest of 0,275 square meters (hereinafter “the instant real estate”) in 0,000 won on January 17, 2006. Since the instant real estate is within a designated area under Article 104-2 of the former Income Tax Act (amended by Act No. 8852 of Feb. 29, 2008), the transfer difference should be calculated with the real transaction value.

B. On March 29, 2006, the Plaintiff filed a final return on capital gains tax with the transfer value of the real transaction value, and reported the acquisition value of the instant real estate to be deducted as necessary expenses to KRW 81,763,085, which is calculated by the conversion value under Article 97(1)1(c) of the Income Tax Act and Article 176-2(2)2 of the Enforcement Decree of the Income Tax Act.

C. However, the Defendant, pursuant to Article 163(9) of the Enforcement Decree of the Income Tax Act, deemed the acquisition value of each real estate of this case as KRW 19,663,00 calculated by the officially announced value as at the time the inheritance commences, and increased the transfer income tax for the year 2006 to the Plaintiff on June 1, 2007 by KRW 15,987,620 (hereinafter the disposition of this case).

[Reasons for Recognition] Facts without dispute, Gap 1, 2 evidence, Eul 1, 2 (including each number), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) Where the actual transaction value at the time of acquiring land in an area designated as an speculation is unknown, the acquisition value of assets inherited from the transfer value to the necessary expenses to be deducted from the transfer value shall be calculated by the transaction example, appraisal value, or conversion value as provided in Article 97 (1) 1 (c) of the Income Tax Act. Therefore, the Plaintiff’s report is justifiable in calculating the tax base

② The Defendant’s method prescribed under Article 163(9) of the Enforcement Decree of the Income Tax Act (hereinafter “instant provision”) that is based on the ground provision does not have any specific ground for delegation to the mother law, and, in the case of an asset acquired by inheritance, the actual market price at the time of acquisition has decreased. As such, the instant provision infringes on the people’s property rights and becomes null and void against the principle of excessive prohibition, and thus, the instant disposition based thereon is unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(i)the deviation from the limits of delegation legislation;

(A) According to Articles 94(1), 96(1), 97(1)1(a)(proviso) and (c) of the Income Tax Act, in the case of land within an area where the transferred asset is speculatively designated, the transfer value and the acquisition value shall be calculated based on the actual transaction value. In this case, when it is impossible to confirm the actual transaction value at the time of acquisition, the acquisition value may be calculated by applying the transaction example value, appraisal value or conversion value as determined by the President in sequential order. Meanwhile, Article 97(5) of the Income Tax Act provides that “the necessary matters concerning the calculation of necessary expenses, such as the scope of the actual transaction value required for acquisition, the calculation of the gift tax amount, etc.” In the application of the proviso of Article 97(1)1(a) of the Income Tax Act to the inherited or donated assets, the amount appraised pursuant to Articles 60 through 66 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”) as of the date

(B) In light of the purport of the above provisions, in a case where the transfer assets other than the assets inherited or donated are calculated based on the actual transaction value pursuant to the proviso of Article 97 (1) 1 (a) of the Income Tax Act, if it is impossible to confirm the actual transaction value required for such acquisition, the transfer value may be calculated based on the transaction example, appraisal value, or conversion value as prescribed by the Presidential Decree. However, in a case where the transfer margin is to be calculated based on the actual transaction value pursuant to the proviso of Article 97 (1) 1 (a) of the Income Tax Act as the assets inherited or donated, there is no room for existence at the time of acquisition, and thus, separate provisions on the actual transaction value at the time of acquisition need to be established. Accordingly, in a case of the assets inherited or donated under the provision of this case, the value assessed pursuant to the provisions of Articles 60 through 66

(C) Therefore, this case’s provision provides for necessary matters concerning the calculation of necessary expenses such as “the scope of actual transaction price required for acquisition” under Article 97(5) of the Income Tax Act, which is delegated by the mother’s law so that it can be prescribed by the Presidential Decree, and thus, cannot be deemed as an invalid provision without delegation of the parent’s law. In addition, in the event that assets inherited or donated are transferred, the value corresponding to the tax base of inheritance tax or gift tax (value assessed under Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencement of inheritance or donation) may be recognized as necessary expenses of the relevant assets when calculating gains from transfer, and only when the transfer value exceeds the above value, imposing capital gains tax may prevent tax evasion or double taxation (see, e.g., Supreme Court Decision 2006Du1326, Oct. 26, 2007).

(ii)whether the right to property has been infringed

In addition, according to the Inheritance Tax and Gift Tax Act, the value of property falling under the tax base of inheritance tax or gift tax is, in principle, based on the market price, and where the market price is verified at the time of the imposition of the inheritance tax or gift tax and thus, if the inheritance tax or gift tax is imposed on the basis of the market price, necessary expenses shall be deducted from the imposition of the transfer income tax. However, if a favorable tax amount is imposed upon the basis of the standard market price on the ground that it is difficult to calculate the market price at the time of the imposition of the inheritance tax or gift tax, even if necessary expenses recognized as more than the case based on the market price based on the standard market price are calculated based on the application of the standard market price and the transfer income tax burden is somewhat increased, it is imposed in accordance with the consistent standard

(3) The instant disposition is lawful, and the Plaintiff’s assertion disputing this is without merit.

3. Conclusion

The plaintiff's claim is dismissed on the ground that it is without merit.

Related Acts and subordinate statutes

[The scope of transfer income] Article 94 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006)

(1) Capital gains shall be the following income generated in the relevant year:

1. Income accruing from transfer of land (referring to a lot of land subject to registration of land category in the cadastral record under the Cadastral Act) or buildings (including the facilities and structures annexed to such buildings);

[Income Tax]

Article 96 (Transfer Price)

(1) The transfer value of assets as prescribed in each subparagraph of Article 94 (1) shall be the actual transaction value between the transferor and transferee at the time of transfer of the relevant assets (hereinafter referred to as the "actual transaction value").

(2) Notwithstanding the provisions of paragraph (1), where assets provided for in Article 94 (1) 1 and 2 are transferred not later than December 31, 2006, their transfer value shall be based on the standard market price at the time of the transfer of relevant assets except for the case falling under any of the following subparagraphs:

7. Cases of real estates located within the designated area under the provisions of Article 104-2 (2);

Article 97 (Calculation of Necessary Expenses in Transfer Income)

(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) The actual transaction price required for the acquisition of assets under subparagraphs of Article 94 (1): Provided, That in cases falling under the main sentence of Article 96 (2), the standard market price at the time of acquisition of the relevant assets;

(b) In case of the text of item (a), where it is impossible to confirm the actual transaction value at the time of acquisition, the transaction example value, appraisal value or conversion value;

(5) Matters necessary for calculation of necessary expenses, such as the scope of actual transaction price required for acquisition and gift tax amount shall be prescribed by Presidential Decree.

[The former Income Tax Act (amended by Act No. 8852 of Oct. 29, 2008)] Article 104-2 (Operation of Designated Area)

(1) Where the increase rate of real estate prices in the relevant region is higher than the national consumer price inflation rate, and the prices of real estate in the relevant region are sharply rise or are likely to rise rapidly, the Minister of Strategy and Finance may designate it as a designated area according to the standards

(2) The term "real estate within the designated area" in Articles 96 (2) 7 and 104 (4) 1 and 2 means the real estate prescribed by the Presidential Decree from among the real estate located within the designated area under the provisions of paragraph (1).

[Enforcement Decree of the Income Tax Act] Article 163 (Necessary Expenses for Transferred Assets)

(1) The term "actual transaction price required for acquisition" in the main sentence of Article 97 (1) 1 (a) of the Act means the sum of the following amounts:

1. Values correspond to the cost for acquisition computed by applying mutatis mutandisArticle 89 (1) (including the discounted debt estimated by the present value under Article 89 (2) 1, but excluding the amount exceeding the market price under the unfair act and calculation);

2. With respect to assets for which acquisition litigation is concerned, the amount of the litigation expenses, compromise expenses, etc. directly required to secure the ownership thereof, excluding those included in the necessary expenses in calculating the income amount of each year paid;

3. In applying subparagraph 1, where the transaction price is determined by adding the amount corresponding to the cost for acquisition under the method of payment under an agreement between the parties concerned, the amount equivalent to the relevant interest shall be included in the cost for acquisition: Provided, That the amount equivalent to the interest additionally accrued due to the delay in the time for payment

(9) In applying the provisions of the text of Article 97 (1) 1 (a) of the Act to the assets received by inheritance or donation (excluding the donations under the provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act), the value appraised under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation shall be considered as the actual transaction value at the

(12) The term “business example amount, appraisal value or conversion value prescribed by the Presidential Decree” in Article 97 (1) 1 (b) of the Act means the value provided in the provisions of Article 176-2 (2) through (4).

[Estimated and revised Article 176-29 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008)]

(2) The term “acquisition price converted by the method prescribed by the Presidential Decree” in Article 114 (7) of the Act means the acquisition price converted by the method in the following subparagraphs:

2. In cases of the rights to acquire the land, buildings and real estate under Article 96 (1) and (2) 1 through 9 of the Act (the provisions of subparagraph 6 shall apply only to the assets acquired before a fictitious acquisition date under paragraph (4)), the amount calculated by the following formula:

The actual transaction value at the time of transfer, transaction example under paragraph (3) 1, or appraisal value under subparagraph 2

The standard market price at the time

X----------- ---- ---- --

Standard market price at the time of transfer (in the case of Article 164 (8), the standard market price at the time of transfer under the same paragraph)

[Inheritance Tax and Gift Tax Act]

Article 60. Principles, etc. of Appraisal

(1) The value of property on which an inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value (excluding cases falling under the provisions of Article 63 (2)) appraised by the method of appraisal stipulated in Article 63 (1) 1 (a)

(3) In applying paragraph (1), where it is difficult to compute the market price, the price assessed by the methods prescribed in Articles 61 through 65 shall be based on the types, scale, transaction conditions, etc. of the relevant property.

Article 61 Appraisal of Real Estate, etc.

(1) Real estate shall be appraised by the following methods:

1. Land:

The officially assessed individual land price under the Public Notice of Values and Appraisal of Real Estate Act (hereinafter referred to as the "officially assessed individual land price"): Provided, That the value of the land without the publicly assessed individual land price shall be the amount appraised by the method as determined by the Presidential Decree in consideration of the publicly assessed individual land price of neighboring similar land, and with respect to the land in the area prescribed by the Presidential Decree, where the