In a case where Party A received a loan from Party B by being provided with a fixed deposit claim as collateral from Party B, and the tax authority received a gift tax on Party B, the case affirming the judgment below that the above disposition that calculated the value of donated property by applying mutatis mutandis Article 41-4 (1) 2 of the former Inheritance Tax and Gift Tax Act was unlawful on the ground that the value of donated property for providing a fixed deposit claim by Party B should be calculated based on the market price, which is the price ordinarily paid among unspecified unspecified persons in a similar situation to the relevant transaction, in principle, on the grounds that the value of donated property for offering a fixed deposit claim by Party B ought to be calculated based on the market price, which is a price ordinarily paid between unspecified and unspecified persons in a similar situation.

Article 42(1)2 of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 31-9(2)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22042, Feb. 18, 2010; see current Article 31-9(1)1)

Plaintiff (Law Firm Taeju, Attorneys Kim Jong-cheon et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2011Nu527 decided June 29, 2011

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

Article 42(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 916, Jan. 1, 2010; hereinafter “Inheritance Tax Act”) provides that “In cases where profits falling under any of the following subparagraphs, other than donations under Articles 33 through 41, 41-3 through 41-5, 44 and 45, are acquired above the standard prescribed by the Presidential Decree, such profits shall be deemed the value of donated property of the person who has acquired such profits.” In subparagraph 2 of the same Article, “In cases where profits have been acquired above the standard prescribed by the Presidential Decree, such profits shall be deemed to be the value of donated property of the person who has acquired such profits.” In this case, the provision of such profits shall be deemed to be the difference between the market price and the actual paid or received without consideration among many unspecified persons and the provision of services at a price higher than the market price.” In this case, the provision of such profits shall be deemed to be “where profits have been made without consideration or at least the standard prescribed by the Presidential Decree No. 214 of the former Enforcement Decree:

Based on the reasoning of the judgment of the court of first instance, the court below presumed that the non-party provided his term deposit as security and provided the Plaintiff with the credit for the loan of this case for a certain period of time and provided money free of charge to the Plaintiff, and thus constitutes a donation of profits from the provision of services. The court below held that the disposition of this case was unlawful on the ground that the non-party calculated the amount of donated money under Article 42 (1) 2 of the Inheritance Tax and Gift Tax Act and Article 31-9 (2) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, in principle, based on the fact that the value of donated money should be calculated based on the market price, which is the price ordinarily paid between unspecified and unspecified persons in a similar situation to the pertinent transaction, based on analogical application of Article 41-4 (1) 2 of the Inheritance Tax and Gift Tax Act on the calculation of profits from the provision of money at low interest rate to the Plaintiff.

In light of the above provisions and relevant legal principles and records, we affirm the judgment of the court below as just, and there is no error in the misapprehension of legal principles as to the method of calculating the value of donated property, as otherwise alleged in the grounds of appeal.

Therefore, the appeal is 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.

Justices Lee In-bok (Presiding Justice)