1. Case summary

A. On April 20, 193, the deceased non-party 1 (hereinafter “the decedent”) established and operated FT for the purpose of complete business at Hong Kong on April 20, 1993. On October 15, 2003, the deceased non-party 1 and the non-party 2, who was established and recorded in Hong Kong, acquired the total number of shares issued by the plaintiff 1 and his non-party 2 (hereinafter “the Hong Kong corporation”). Meanwhile, on April 30, 2004, the FT transferred its business and assets together to GFT. < Amended by Act No. 7813, Apr. 30, 2004>

B. On March 15, 2005, the decedent died. At the time, three banks, such as UBS, WINCHNK, CAYMNK, and three banks, each of which was opened under the joint names of the decedent and the non-party 3, but each of which was held in total US$12,858,689 (hereinafter “instant overseas assets”).

C. The Plaintiffs, as co-inheritors of the inheritee, reported and paid inheritance tax, did not include the unlisted stocks of the Hong Kong corporations of this case and the foreign assets of this case in the inherited property.

D. Accordingly, on March 10, 2014, the head of Gangnam District Tax Office imposed and notified the Plaintiffs of KRW 10,121,885,90 of the inheritance tax by including the instant overseas assets in the inherited property. Thereafter, the Hong Kong corporation’s non-listed stocks are also included in the inherited property. On July 1, 2014, the head of Gangnam District Tax Office imposed and notified the Plaintiffs of KRW 16,632,980,40 (including additional taxes) on the aggregate of 26,754,86,300 (hereinafter “instant disposition of imposition of inheritance tax”). The head of Gangnam District Tax Office assessed the value of the above non-listed stocks as the total amount of KRW 36,754,86,30 on July 1, 2014, and calculated the amount of net asset value of USD 30 under the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 828, Dec. 31, 2007; hereinafter “the former Enforcement Decree”).

E. On April 10 and July 1, 2014, Plaintiff 1 transferred a considerable portion of the overseas assets of this case to the Singapore UBS bank account (hereinafter “CM account”), which is established under the name of the tax haven, and received dividend income and interest income from the investment of the fund, the head of the regional tax office omitted the global income tax return. The head of the regional tax office imposed and notified Plaintiff 1 of the global income tax totaling KRW 957,422,010 (including the additional tax) for each global income tax for the year 2005 through 2012 (hereinafter “instant global income tax imposition disposition”), and the pertinent disposition of imposition of global income tax is referred to as “instant global income tax disposition” in total as “instant global income tax disposition,” and it is referred to as “each of the instant dispositions” as “each of the instant disposition of imposition of global income tax”).

2. Determination on the assertion regarding the shares of the Hong Kong corporation of this case among the disposition imposing inheritance tax of this case

A. As to the fourth ground for appeal

The lower court determined that the GFT shares were merely a nominal trust with Plaintiff 1, etc. as a beneficial shareholder, and that the GFT shares were included in inherited property.

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by violating the rules of evidence, as otherwise alleged in the grounds of appeal.

B. Regarding ground of appeal No. 3

The lower court determined that the Defendant Gangnam-gu Tax Office did not err by denying the relevant private loan debt included in the balance sheet as the processing debt in calculating the value of the GFT stocks.

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by violating the rules of evidence, as otherwise alleged in the grounds of appeal.

C. As to the grounds of appeal Nos. 2 and 6

1) In a case where it is inappropriate to apply the supplementary evaluation method under Article 60 of the former Inheritance and Gift Tax Act or Articles 61 through 65 of the same Act, the evaluation method may be applied only when the stocks of an unlisted company located in a foreign country are not suitable to apply the supplementary evaluation method under Article 63(1)1 (c) of the former Inheritance and Gift Tax Act and Article 54 of the Enforcement Decree of the same Act. The burden of proving that “the application of the supplementary evaluation method is inappropriate” is to the tax authority (see, e.g., Supreme Court Decision 2007Du5646, Jan. 14, 2010).

2) Examining the following facts and circumstances revealed through the reasoning of the lower judgment and the record in light of the aforementioned legal doctrine, it is reasonable to view that the head of Gangnam Tax Office’s evaluation of the value of the instant stocks of the Hong Kong corporations, which are stocks of the instant unlisted corporations in a foreign country, by applying the supplementary evaluation method based on the net asset value under Article 63(1)1(c) of the former Inheritance and Gift Tax Act and Article 54(4)2 of the Enforcement Decree of the same Act, is reasonable and appropriate, and that the tax authority’s evaluation of the value of the instant stocks of the instant Hong Kong corporations is not “the case where it is inappropriate for the tax authority

A) In evaluating the value of the shares of the Hong Kong corporations, the assets of which are foreign countries, the head of Gangnam Tax Office applied the supplementary assessment method based on the net asset value that does not consider the net profit value pursuant to Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Article 54(4)2 of the Enforcement Decree of the same Act on the ground that the FT as of March 15, 2005, was a corporation under temporary or permanent closure as of March 15, 2005, and GFT was a corporation less than three years after the commencement of the business. This is an objective and reasonable assessment method reflecting the characteristics of the newly established corporation.

B) In addition, the head of Gangnam-gu Tax Office considered USD 31,026,364 as net asset value for the transfer of business received from GFT. The book value of GFT as of March 31, 2005, which was prepared as of March 31, 2005, the end of the business year under the Hong Kong tax law after the evaluation base date, and calculated the net asset value of the Hong Kong corporation in calculating the net asset value of the Hong Kong corporation (which was denied as seen earlier) by deeming the book value of the assets included in the balance sheet audited by the Hong Kong certified public accountant as net asset value (the debt of the Hong Kong company was denied as seen earlier). The method of calculating the net asset value of the Hong Kong corporation in this case also seems reasonable

3) Although the reasoning of the lower judgment on this part is partly inappropriate, the lower court’s conclusion is justifiable to have rejected the Plaintiffs’ assertion that the tax authority failed to prove that it was inappropriate to apply the supplementary evaluation method under the Inheritance and Gift Tax Act to the shares of the Hong Kong corporations of this case, and that the method was erroneous. In so doing, it did not err by misapprehending the legal doctrine on the supplementary evaluation method under the Inheritance and Gift Tax Act, thereby adversely affecting the conclusion of the judgment.

D. As to the grounds of appeal Nos. 1 and 5

The court below rejected the plaintiffs' assertion that the business losses of USD 12,642,441 are recorded in the financial statements first prepared on October 15, 2003 after the establishment of GFT and then on March 31, 2005, and that the plaintiffs' internal taxes are insufficient to recognize that the business profits pursuant to the corporate accounting standards have been accrued during the period from October 15, 2003 to March 31, 2004, which is the business year immediately preceding the business year to which March 15, 2005 belongs, and that the largest shareholder should not be assessed in accordance with Article 53 (5) 4 of the former Enforcement Decree of the Inheritance and Gift Tax Act.

In addition, the court below rejected the plaintiffs' assertion that "FT was not subject to liquidation procedures at the time of the commencement of the inheritance on March 15, 2005, and is not yet paid for the transfer of business by GFT, and was increased from USD 2 to USD 100 on August 31, 2005, and the capital was increased from USD 2 in the former Hong Kong to USD 100 on August 31, 2005, and FT did not constitute "the case where the liquidation becomes final and conclusive by the deadline for filing the inheritance tax base" under Article 53 (5) 5 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and it does not constitute "the largest shareholder shall not be assessed in accordance

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on presumption or by misapprehending the legal doctrine on the grounds for exception to the evaluation of the largest shareholder under Article 53(5)4 and 5 of the former Enforcement Decree of the Inheritance and Gift Tax Act, or by violating the rules of evidence

3. Determination on the assertion regarding the foreign assets of this case among each disposition of this case (Ground of appeal Nos. 7 and Plaintiff 1’s ground of appeal No. 8)

The lower court determined that the instant disposition on global income tax was lawful on the premise that it is difficult to regard the instant overseas assets as assets outside the territory of the Hong Kong corporations, and that such assets are included in the inherited property as personal property of the inheritee. Therefore, the instant disposition on imposition of inheritance tax on this premise is lawful. Furthermore, the lower court determined that the instant disposition on global income tax was lawful on the premise that Plaintiff 1 was not reported and paid the dividend income accrued from the CM account in which a significant amount was transferred from the instant overseas assets,

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by violating the rules of evidence, as otherwise alleged in the grounds of appeal.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Noh Tae-tae (Presiding Justice)