Korea-U.S. M&D (Law Firm U.S., Attorney Han-soo, Counsel for the defendant-appellant)

Daejeon Head of the District Tax Office

September 1, 2011

Daejeon District Court Decision 201Guhap473 Decided June 8, 2011

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of gift tax of KRW 572,242,160 against the Plaintiff on April 9, 2010 is revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. On November 5, 2003, the Plaintiff is a non-profit corporation established for the purpose of the pre-paid educational activities, pre-paid training center, social welfare activities, and pre-service activities.

B. On November 20, 2003, the Plaintiff received a donation from Nonparty 1 (non-party to the judgment of the Supreme Court) to the 342,810 square meters of forest land in Ansan-si ( Address omitted) located in the development-restricted zone (hereinafter “instant forest”). The Plaintiff planned to utilize the instant forest for the project, such as the restoration of the ground and the construction of temple. However, the Plaintiff was unable to use the instant forest in accordance with the said plan due to the Act on Special Measures for Designation and Management of Development-Restricted Zones providing that no act, such as the construction of buildings and the installation of structures, etc., may be performed

C. Accordingly, on April 9, 2010, the Defendant imposed KRW 572,242,160 on the Plaintiff on the ground that the Plaintiff did not directly use the instant forest land, which is the property contributed to a public-service corporation, for public-service corporation, within three years from the date of receiving the contribution (hereinafter “instant disposition”).

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on June 11, 2010, but the Tax Tribunal dismissed the appeal on November 8, 2010.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 5, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful for the following reasons.

1) The Plaintiff is using the forest of this case for “pre-service activities”, the public interest project.

2) Even if the Plaintiff did not use the forest of this case for the public interest purpose, it is due to an inevitable reason under the law or administration of Article 38(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree of the Act”).

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Determination on the first argument

Article 48(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007; hereinafter “the Act”) provides that where the property contributed by a public-service corporation, etc. is not used for a public-service project within three years from the date of receiving the contribution, etc., gift tax shall be levied immediately. Whether the property contributed is used for a public-service project, etc., shall be objectively determined on the basis of the actual use relationship in consideration of the purpose of the public-service corporation’s business and the purpose of the contribution.

As to this case, in full view of the statements or images of evidence Nos. 6, 7, and 8 (including additional numbers) and the purport of testimony and arguments by Non-Party 2 as witnesses of the first instance trial from 2004, the Plaintiff refers to the “salperma” of the forest of this case. From the forest of this case, the Plaintiff may recognize the fact that the Plaintiff directly used the forest of this case to the public for outdoor pre-service, vocational training, pre-service training, and pre-service training, etc. over 3 to 6 times a year for 1st half a year from the forest of this case. However, according to the statement No. 2 of evidence No. 2 and the purport of testimony and arguments by Non-Party 2 of the first instance trial witness of the first instance trial, it is difficult to recognize that the forest of this case belongs to the salpermaeum of the repair pre-existing and the natural development of the forest of this case, etc., and it is hard to recognize the fact that the Plaintiff directly used the forest of this case to the public convenience facilities of this case, etc.

Therefore, the plaintiff's first argument is without merit.

2) Determination on the second argument

A) Tax provisions and legislative intent related to public interest corporations, etc.

(1) Provisions of tax law

Article 107 subparagraph 1 of the former Local Tax Act (amended by Act No. 7843, Dec. 31, 2005; hereinafter the same) provides that "acquisition tax shall not be imposed on the real estate to be used for its business by any nonprofit business operator prescribed by Presidential Decree, who uses it for religious, religious, charity, academic, art, or public services: Provided, That Article 186 subparagraph 1 of the former Local Tax Act provides that "where such real estate is used for profit-making business prescribed by Presidential Decree and it is not used directly for the business without justifiable grounds within three years from the date of its acquisition, acquisition tax shall be imposed on the relevant portion." Article 127 (1) 1 of the former Local Tax Act provides that "No registration tax shall be imposed on the registration of real estate to be used for such business by any nonprofit business operator prescribed by Presidential Decree, who uses it for religious, charity, academic, art, or public services: Provided, That the same shall not apply to cases where part of the property is used directly for the business without justifiable grounds and where such property is not used for the profit-making business."

Meanwhile, Article 48(1) of the Act provides, “The value of property contributed by a public-service corporation, etc. (a person who operates a business for religion, charity, academic purpose, or other public interest) shall not be included in the taxable amount of gift taxes.” Article 48(2)1 of the Act provides, “Where the public-service corporation, etc. does not use the property contributed to it directly for public-service projects within three years from the date of receiving the contribution, etc., gift tax shall be levied immediately, but it shall be excluded from the subject of gift tax in extenuating circumstances prescribed by Presidential Decree, such as requiring a long period of use.

(2) Legislative intent

The legislative intent of the above provisions under the tax law is to actively encourage the public-interest projects and smoothly carry out such projects by exempting taxes, such as acquisition tax, registration tax, property tax, and gift tax, for the property used directly or directly for the public-interest projects. Therefore, even if the property is acquired by the public-interest corporation, etc., if it is not directly used for the public-interest projects, it is merely a means of increasing the division, and such tax exemption provisions do not apply.

Meanwhile, according to the above provisions, "acquisition tax and registration tax shall be imposed if the property acquired is not used directly for the public interest business without any justifiable reason within three years from the date of acquisition or registration, and gift tax shall be imposed if the property acquired by the public interest corporation is not used for the public interest business within three years from the date of receiving the contribution, etc." The purpose of this provision is to grant a grace period of three years in consideration of the need for a specific preparation period, such as the construction of buildings, the implementation of various authorization and permission procedures, etc., in order to use the property acquired by the public interest corporation, etc. for the public interest business, and at the same time, it is deemed that the property not used for the public interest business even after

B) Whether Article 38(3) of the Enforcement Decree of the Act is applied

Article 38 (3) of the Enforcement Decree of the Act provides that "any inevitable reason prescribed by Presidential Decree" in the proviso of Article 48 (2) 1 of the Act refers to a case where the competent Minister (including a person delegated with authority) recognizes it as a case where it is difficult to use the contributed property in whole within 3 years due to statutory or administrative inevitable reasons when it is used for a business directly for public interest. In light of the above legislative intent, it is reasonable to view that "the property which can be used for a business directly for public interest and it is difficult to use in whole within 3 years due to statutory or administrative restrictions, but it is difficult to use in whole within 3 years due to statutory or administrative restrictions, and the preparation period is required for more than 3 years and the competent Minister recognizes such circumstances."

If the above provision is interpreted as above, it is reasonable to view that there was no intention to use the contributed property for the public interest project, so that it is deemed that there was no intention to use it for the public interest project. Therefore, it is deemed that the property is property in a private sector other than the public interest. Therefore, the tax reduction or exemption for it should be deemed as a property subject to gift tax. ② Even in a case where the contributed property has been prepared to use it for the public interest project for three years, but it is later impossible to use it for the public interest project in the future due to changes in circumstances, the property becomes a property in a private sector other than the public interest, and thus, it shall be deemed that the tax reduction or

According to the overall purport of the statement and arguments as to this case, Gap evidence No. 9-1 and No. 9-2, it was impossible for the plaintiff to construct religious facilities, such as temple or training place, in the forest of this case due to the relation within the development restriction zone under the Act on Special Measures for Designation and Management of Development Restriction Zones from the time when the plaintiff was donated. The plaintiff did not prepare for the use of the forest of this case for public interest projects even after three years have passed since the date when the forest of this case was donated to the plaintiff. Since the plaintiff intended to construct the religious facilities of this case but it was impossible to use the religious facilities within three years due to legal restrictions, it constitutes "the case where it is difficult for the plaintiff to use the forest of this case entirely within three years due to unavoidable reasons" under Article 38 (3) of the Enforcement Decree of the Act. However, since only the building of religious facilities does not have the only purpose of the plaintiff's business as stipulated in the plaintiff's articles of incorporation, the plaintiff's efforts to use the forest of this case for public interest within three years after it was acquired.

Therefore, Article 38 (3) of the Enforcement Decree of the Act cannot be applied to the plaintiff.

C) Therefore, the plaintiff's second assertion is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed due to the lack of reason, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed. It is so decided as per Disposition.

[Attachment Form 5]

Judges Shin Jae-op (Presiding Judge)