[2] In a case where inheritance due to the death of a donor was commenced after a gift tax was imposed pursuant to Article 57 of the former Inheritance Tax and Gift Tax Act because it constitutes a donation to a lineal descendant who is not a donor's child, and the donee becomes a heir by satisfying the requirements for inheritance by representation under Article 1001 of the Civil Act, whether the omission of household due to the amount of gift tax deducted from the amount of gift tax calculated by inheritance tax pursuant to the main sentence of Article 28(1) of the former Inheritance Tax and Gift Tax Act

[2] In a case where inheritance commences due to the death of a donor after a gift tax was imposed pursuant to Article 57 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11690, Mar. 23, 2013; hereinafter “former Inheritance Tax Act”), which constitutes a donation to a lineal descendant who is not a donor’s child, and where a donee becomes a heir by satisfying the requirements for substitute inheritance under Article 1001 of the Civil Act, the amount of gift tax to be deducted from the amount of inheritance tax calculated pursuant to the main sentence of Article 28(1) of the former Inheritance Tax and Gift Tax Act shall be deemed as including the amount of household omission due to the increase of taxation. The reasons are as follows.

Article 27 of the former Inheritance Tax Act provides that the transfer of a division due to inheritance is made by building the household in order to prevent any imbalance in the taxation due to omission of the household, but the transfer of a division due to inheritance is excluded from the subject of a premium for inheritance with legitimate reasons. Considering the purpose of taxation of inheritance tax and the fact that the subject of taxation of inheritance tax is determined in principle at the time of commencement of inheritance, it is necessary to prevent an act of unreasonably reducing the burden of inheritance by taking the form of donation in advance. Accordingly, Article 57 of the former Inheritance Tax Act provides that a premium shall be imposed on a gift with respect to a gift omitted from a household, as in cases of inheritance omitted from a household, and Article 13(1)1 of the same Act provides that the property subject to prior donation to a certain extent should be added to the taxable value of inheritance tax.

Meanwhile, an inheritor is obligated to pay inheritance tax according to the ratio of the inherited property received or to be received by each person among inherited property. This is intended to impose tax on a person who acquired the property gratuitously transferred due to the death of the inheritee by taking into account the actual ability to pay taxes. As such, the amount of tax payable for inheritance tax should be reflected in determining the amount of tax payable for inheritance tax. Article 28 of the former Inheritance Tax and Gift Tax Act provides for the deduction of the amount of tax payable for donated property in advance from the amount of tax assessed for inheritance tax, thereby excluding double taxation while maintaining the effect of the tax imposed

Therefore, even if a premium was imposed pursuant to Article 57 of the former Inheritance Tax and Gift Tax Act due to a donation involving households, if the donee is unable to impose a premium on inheritance that leads to the commencement of inheritance by representation at the time of the death of the donor, and there is no concern that there is a problem of avoidance of inheritance through omission of household because the donee is unable to impose a premium on inheritance that leads to the commencement of inheritance by representation at the time of the death of the donor, there is no need to maintain only the effect of a premium on the donation by omission of household as it is, and to put

1. Case summary

A. Nonparty 1: (a) as his child Nonparty 2 and Nonparty 4, Plaintiff 5, Plaintiff 6, Plaintiff 7, and Plaintiff 8. On August 10, 2007, Nonparty 1 donated KRW 500,000,000 to Plaintiff 2, the grandchild, and KRW 300,00,000,00 to Plaintiff 3, and donated cash and real estate to the Plaintiffs until around 2009.

B. The Plaintiffs paid gift tax on the said donation. Plaintiff 2 and Plaintiff 3 paid an amount calculated by adding 30/100 to the amount of gift tax on cash donation as seen earlier pursuant to the main sentence of Article 57 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11690, Mar. 23, 2013; hereinafter “former Inheritance Tax Act”), which constitutes a lineal descendant other than Nonparty 1’s children, a donor. As seen earlier, the Plaintiffs paid the amount of cash donation added to 30/10 of the amount of gift tax calculated (hereinafter “the amount added”).

C. Although Nonparty 1 died on February 22, 2013, Nonparty 2 died on November 21, 2008, Nonparty 1, Plaintiff 2, and Plaintiff 3, who was the inheritor of Nonparty 2, jointly inherited Nonparty 1, along with the rest of the Plaintiffs.

D. On December 8, 2014, the Defendant calculated the value of the property donated by Nonparty 1, the inheritee, within ten (10) years prior to the date of commencing the inheritance, based on the inheritance value of the Plaintiffs, co-inheritors, and notified the Plaintiffs of the payment of the total tax amount and the amount of tax payable to each inheritor (the sum of the imposition, assessment and collection notice of inheritance tax and the collection notice as well as the inherited property). However, the Defendant calculated the tax amount by deducting only the gift tax amount omitted from the inheritance tax amount calculated by deducting only the amount of tax calculated by deducting the amount of tax calculated by deducting the amount of

2. Relevant regulations and issues

A. (1) Article 13(1) of the former Inheritance Tax Act provides that “The value of property donated by an ancestor to his/her heir within ten years prior to the date of commencement of inheritance (Article 13(1)1) and the value of property donated by an ancestor to a person other than his/her heir within five years prior to the date of commencement of inheritance (Article 28(1)2) shall be calculated by adding the value of inherited property to the value of inherited property. The main text of Article 28(1) of the former Inheritance Tax Act provides that “The amount of gift tax (referring to the amount of gift tax calculated on donated property as at the time of donation) on donated property added to inherited property

(2) Article 56 of the former Inheritance and Gift Tax Act defines the amount of gift tax calculated as “the amount calculated by applying the tax rate stipulated under Article 26 to the tax base stipulated under Article 55.” The main text of Article 57 of the former Inheritance and Gift Tax Act provides that “where a donee is a lineal descendant who is not a donor’s child, an amount equivalent to 30/100 of the gift tax calculated shall be added to the gift tax calculated.” The proviso of the proviso provides that, “where a donee is a lineal descendant who is a recent lineal descendant of the donor and was donated to the surviving lineal descendant of the deceased, the donor does not impose the gift

(3) Meanwhile, Article 27 of the former Inheritance Tax and Gift Tax Act provides that “Where an inheritor or testamentary donee is a lineal descendant other than a son or descendant of the inheritee,” the household shall be deemed inherited, and thus, the amount of premium equivalent to a certain percentage of the amount of the inheritance tax calculated is excluded in the case of inheritance by representation.

B. The key issue of the instant case is whether: (a) even though Plaintiff 1, Plaintiff 2, and Plaintiff 3 received property from Nonparty 1 during the existence of Nonparty 2, it may be deemed that such donated property constitutes “property donated to an ancestor to his heir”; (b) Plaintiff 2 and Plaintiff 3 paid not only the calculated tax amount applied to the gift tax base at the time of receiving property from Nonparty 1 as gift tax, but also the premium on gift tax pursuant to Article 57 of the former Inheritance Tax and Gift Tax Act; (c) whether the amount of gift tax on donated property added to inherited property should be deducted from the inheritance tax amount calculated; and (d) whether the amount of gift tax on donated property added to inherited property should be deducted from the amount of gift tax calculated.

3. The judgment of the court below

On the following grounds, the lower court determined that the instant disposition was lawful.

A. Whether or not inheritance occurred due to the death of Nonparty 1 or its scope should be determined at the time of commencement of inheritance. As such, Plaintiffs 1, 2, and 3 as the inheritor of Nonparty 1, who was the deceased, should be added to the value of the inherited property that was donated by Nonparty 1 ten (10) years prior to the commencement of inheritance.

B. According to the language and text of Articles 28(1) main text and 56 of the former Inheritance Tax Act, the amount of gift tax to be deducted from the amount of inheritance tax calculated is the amount of gift tax calculated on donated property added to inherited property, and the amount of household omission under Article 57 is not included in the amount of gift tax calculated on donated property added to inherited property, and the provision on the deduction of the amount of gift tax on donated property added to inherited property is distinguishable from the purport of the provision on the amount of gift

4. Judgment of the Supreme Court

A. Regarding ground of appeal No. 1

Inheritance tax is imposed on inherited property as of the commencement date of inheritance, and the inheritance tax is also established when the inheritance commences, and an inheritor is obligated to pay inheritance tax on the basis of the property received or to be received by each inheritor. Here, an inheritor includes inheritance by representation under Articles 1001 and 103 of the Civil Act (Articles 1(1) and 3(1) of the former Inheritance Tax Act). Therefore, if an inheritor becomes a heir under the former Inheritance Tax Act by satisfying the requirements for inheritance by representation when inheritance commences due to the death of an inheritee, the value of property donated to an inheritee within ten years before the commencement date of inheritance shall be deemed as a donation to an inheritor pursuant to Article 13(1)1 of the former Inheritance Tax Act and shall be included in the taxable value of inherited property.

In the same purport, the lower court is justifiable to have rejected the Plaintiffs’ assertion that the heir of Nonparty 1’s deceased non-party 1’s deceased property donated by the non-party 1 ten (10) years prior to the commencement date of the inheritance should be added to the inherited property value. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending

B. Regarding ground of appeal No. 2

(1) In a case where inheritance due to the death of a donor was commenced after a gift tax was imposed pursuant to Article 57 of the former Inheritance Tax Act because it constitutes a donation to a lineal descendant who is not a donor’s child, and the donee becomes a heir by satisfying the requirements for inheritance by representation under Article 1001 of the Civil Act, the amount of gift tax deducted from the inheritance tax amount calculated pursuant to the main sentence of Article 28(1) of the former Inheritance Tax Act shall be deemed as including the amount of household omission due to the increase in taxation. The reasons are as follows.

(A) Inheritance tax is provided for the relaxation of inheritance tax and concentration through inheritance of property. Article 27 of the former Inheritance Tax Act provides that in order to prevent the imbalance of taxation due to the omission of household, where the transfer of a donation due to inheritance is opened, a premium shall be imposed, but it is excluded from the case of inheritance by substitute which has justifiable grounds for the omission of household. Considering the fact that the subject of inheritance tax is determined in principle as at the time of commencement of inheritance along with the purpose of taxation of inheritance tax, it is necessary to prevent an act of unreasonably reducing the burden of inheritance by taking the form of donation in advance. Accordingly, the former Inheritance Tax Act provides for the imposition of a premium on donation by way of omission of household as in Article 57, and Article 13(1)1 provides for the addition of a certain range of prior donated property to an inheritor to the taxable value of inheritance tax.

(B) Meanwhile, an inheritor is obligated to pay inheritance tax according to the ratio of the inherited property received or to be received by each person among inherited property. This is also intended to impose tax on a person who acquired the property that is gratuitously transferred upon the death of the inheritee by taking into account the actual ability to pay the inheritance tax, and thus, it should be reflected in the determination of the amount of the tax payable of inheritance tax. Article 28 of the former Inheritance Tax and Gift Tax Act stipulates that the amount of the amount of the gift tax on the donated property shall be deducted from the amount of the gift tax calculated in advance, thereby excluding double taxation while maintaining the effect of the taxation by adding the donated property to the taxable value of inherited property (see, e.g., Supreme Court Decision 2012Du720, May

(C) Therefore, even if the premium was imposed pursuant to Article 57 of the former Inheritance Tax and Gift Tax Act due to a donation involving households, if, at the time of commencement of inheritance due to the death of a donor, the donee is unable to impose a premium on inheritance that leads to the death of a donor, thereby satisfying the requirements for inheritance by proxy at the time of commencement of inheritance, and there is no room to bring about a problem of avoidance of inheritance through omission of households, it is unnecessary to maintain only the effect of a premium on a gift that leads to omission of households as it is and to give separate disadvantages to donee and his/her

(2) Examining the facts in light of the aforementioned legal principles, inasmuch as Plaintiff 2 and Plaintiff 3 paid a household omission amount on the cash donated by Nonparty 1 pursuant to Article 57 of the former Inheritance Tax Act, and when inheritance commences due to the death of Nonparty 1, a donor and Nonparty 1, the donor, the above Plaintiffs would become the donor and Nonparty 1’s heir, the donor, as long as the inheritance commences due to the death of Nonparty 1, the amount of gift tax calculated on the donated property added to the inherited property, it is reasonable to deduct the above Plaintiffs from the inheritance tax amount including the gift tax calculated on the donated property added to the inherited property and the household omission amount

Nevertheless, the lower court determined that the instant disposition was lawful on the grounds indicated in its reasoning. In so doing, the lower court erred by misapprehending the legal doctrine on the meaning of the amount of gift tax to be deducted under Article 28(1) of the former Inheritance and Gift Tax Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal

5. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jung-hwa (Presiding Justice)