In calculating capital gains tax on assets acquired by inheritance, the appraisal value assessed retroactively can be seen as the acquisition value.

In calculating transfer income tax by determining the asset value as a publicly assessed individual land price at the time of determination of lack of inheritance tax, it cannot be said that the actual acquisition value should be calculated as the same amount as the actual acquisition value is binding. Therefore, it is reasonable to apply the market price appraisal value.

Article 97 of the Income Tax Act as necessary expenses

Article 60 of the Inheritance Tax and Gift Tax Act: Principles, etc.

1. The Defendant’s imposition of transfer income tax of KRW 164,541,520 against the Plaintiff on July 11, 2006, in excess of KRW 8.253,616, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. Of the litigation costs, 10% is assessed against the Plaintiff, and the remainder is assessed against the Defendant, respectively.

The Defendant’s disposition of imposing KRW 164,541,520 on the Plaintiff on July 11, 2006 shall be revoked.

1. Details of the disposition;

A. On February 20, 2004, the Plaintiff acquired 3,273 square meters of 101 forest land and 3,967 square meters in 00 square meters in ○○○-si, ○○○-si, ○○○○○○, ○○-si, by inheritance, and did not file the said tax base report within the time limit for filing the inheritance tax base (within six months from the date of commencing the inheritance). On November 25, 2004, the head of the competent tax office assessed the value of the instant real estate as 72,79,700 square meters in ○-si at the time of commencing the inheritance under Article 60(1) and (2) of the Inheritance Tax and Gift Tax Act (hereinafter referred to as “the Inheritance Tax and Gift Tax Act”) and assessed the said real estate as 72,700 square meters, which was at the time of commencing the inheritance by means of the supplementary method under Articles 60(3) and 61(1)1 of the Inheritance Tax and Gift Tax Act.

B. After that, on March 14, 2005, the Plaintiff transferred the instant real estate to ○○ Co., Ltd. with KRW 548,475,00, and filed a preliminary return on the tax base of transfer income for the year 2005 to the Defendant on April 2005, the Plaintiff filed a preliminary return on the tax base of transfer income for the year 2005. The daily price at the location of the instant real estate was designated as a one-person speculative area under Article 96 (1) 6-2 of the former Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same shall apply) and thus, the transfer price of the instant real estate was at the actual transaction price, which is at the above 548,475,000, and the acquisition price was at the same amount and reported

○○ Head of the tax office filed a return on the same amount as the above acquisition value with the market price at the time of the commencement of the inheritance of the instant real estate at the market price at the time of the above inheritance, and the above acquisition value was based on the value assessed by the sports branch office of ○○ Certified Public Accountants (hereinafter “○○ Public Appraisal Corporation”) at the Plaintiff’s request, based on the market price assessed at the time of the above inheritance commencement date.

C. However, the Defendant denied the above appraisal value, etc. of the Plaintiff’s ○○ appraisal corporation, calculated the real acquisition value of the instant real estate at KRW 72,796,700 as of the commencement date of the above inheritance, and calculated the Plaintiff’s transfer income tax for 2005, such as written in the column for imposing the attached calculation table, and issued the instant disposition imposing KRW 164,541,520 on the Plaintiff on July 11, 2006.

[Grounds for Recognition] A.2 to 9,12, A.3

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The actual acquisition value of the instant real estate shall be calculated as KRW 543,00,000, or at least as KRW 49,560,000 in the market value at the time of the commencement of the instant inheritance due to the supplementary evaluation method. Thus, the instant disposition, which was conducted based on the actual acquisition value of the instant real estate, was unlawful.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) According to Articles 94(1), 96(1), and 97(1)1(a) of the former Income Tax Act, where the transferred property falls under the real estate located within the speculative area, the transfer value and the acquisition value shall be calculated based on the actual transaction value. Article 97(5) of the former Income Tax Act and Article 163(9) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254, Dec. 31, 2005) of the former Enforcement Decree of the Income Tax Act provide that the transfer value of the transferred property shall be calculated based on the actual transaction value at the time of acquisition. According to Article 60 of the Inheritance Tax and Gift Tax Act, where the transferred property is inherited or donated, the transfer value of the property subject to inheritance tax shall be calculated based on the current market value as of the date of commencing the inheritance or donation (Article 60(1) of the Inheritance Tax and Gift Tax Act), and where it is difficult to estimate the appraisal value of the property at a certain market value within the market value determined by Presidential Decree.

As above, in the event that the transferred asset should be assessed on the basis of the actual transaction price as at the time of the acquisition of the asset, even though the tax authority assessed the value of the asset as the officially assessed individual land price for the reason that it is difficult to assess the market price at the time of the inheritance of the asset, if the market price was proved at the time of the inheritance of the asset at the time of closing argument in the lawsuit seeking revocation of the taxation, the determination of illegality of the taxation should be made based on whether the amount of the taxation exceeds the reasonable tax amount after calculating the reasonable transfer margin and the tax amount by the market price, and the "market price" in this context refers to the objective exchange price formed through a normal transaction in principle, but this is also a concept including the value assessed in an objective and reasonable manner, so if there is no exchange price through the transaction, the appraisal price by the reliable appraisal agency can be seen as the "market price," and the value does not change even if it is proved by the retroactive appraisal (see, e.g., Supreme Court Decisions 2004Du2356, Sep. 30, 2005>

With respect to the market price at the time of commencing the inheritance of the instant real estate, KRW 543,00,00 of the above appraised value by the Plaintiff’s ○○○ certified public appraisal corporation at the Plaintiff’s request and KRW 49,560,000 of the appraised value by the market price at ○○○○○○○○○○○○○○○, a party-certified public appraisal corporation at the time of commencing the inheritance of the instant real estate. Considering the subject and purpose of appraisal in each of the above market price appraisal, the accuracy of the calculation process of the land unit price, and whether specific grounds are publicly known, it is reasonable to deem that the above market price at the court below assessed KRW 49,560,00 by the most objective and reasonable method. Accordingly, the real acquisition value of the instant real estate at issue is KRW 499,560,000 as at the time of commencing the inheritance of the instant real estate. Accordingly, when calculating the legitimate transfer income

(2) As to this, the Defendant asserts that, inasmuch as ○○○ Tax Office at the time of the determination of below the inheritance tax amount, deeming it difficult to calculate the market price at the time of the inheritance of the instant real estate as the officially assessed individual land price, the actual acquisition price of the instant real estate should also be calculated by the same publicly assessed individual land price. However, even though Article 163(9) of the former Enforcement Decree of the Income Tax Act provides that where the inherited property is transferred under Article 163(9) of the former Enforcement Decree of the Income Tax Act, the value corresponding to the inheritance tax base (value appraised under Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as at the time of the commencement of inheritance) shall be deemed as the actual acquisition price at the time of acquisition, it does not stipulate that the tax base at the time of the determination of inheritance tax amount itself should be considered as the actual acquisition price as at the time of the commencement of the argument that the value appraised under Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as at the time of the closure lawsuit.

(3) If so, the instant disposition is lawful within the scope of KRW 8,253,616, which is a legitimate tax amount, and the exceeding part is deemed unlawful.

3. Conclusion

Therefore, the part exceeding KRW 8,253,616 of the disposition of this case should be revoked. Thus, the plaintiff's claim shall be accepted within the above legal category.

Calculation List

Imposition Tax Amount

Justifiable Tax Amount

Transfer Value

548,475,00

548,475,00

Acquisition Value

72,796,700

49,560,000

Necessary expenses

2,183,901

2,183,901

Transfer Price Difference

473,494,399

46,731,099

Long-term possession special deduction

0

0

Capital gains amount;

473,494,399

46,731,099

Basic Transfer Income Deduction

2,500,000

2,500,000

Tax Base

470,994,399

44,231,099

Tax Rate

17,100,00 +80,000,000

6,300,000 + 40,000,000

Part in excess of the Won 27%

calculated tax amount

157,857,983

7,442,396

Tax credit for preliminary return

0

0

Amount of final tax

157,857,983

7,442,396

Additional Tax on negligent tax returns

5,262,816

744,239

Faithfully Paid Price Tax

1,420,721

66,981

Total determined tax amount

164,541,520

8,253,616

Related Acts and subordinate statutes

The actual provisions of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005)

Article 94 Scope of Transfer Income

(1) Transfer income shall be the following incomes 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);

Article 96 (Transfer Value)

(1) The transfer value of assets referred to in Article 94 (1) 1 and 2 shall be the standard market value at the time of transfer of the assets concerned: Provided, That where the assets concerned fall under any of the following subparagraphs, the actual transaction value between the transferor and transferee (hereinafter referred to as “actual transaction value”) shall apply:

6-2. Where the rate of increase of real estate prices in the relevant area is higher than the national consumer price inflation rate, and falls under the real estate determined by the Presidential Decree from among the real estate located in the area designated by the Minister of Finance and Economy according to the standards and methods as determined by the Presidential Decree, because the

Article 97 (Calculation of Necessary Expenses for Capital Gains)

(1) In the calculation of gains on transfer of a resident, necessary expenses to be deducted from the transfer value shall be as follows:

1. Acquisition value:

(a) In case of assets prescribed in Article 94 (1) 1 and 2, the standard market price at the time the assets are acquired: Provided, That in case where the assets concerned fall under any of Article 96 (1), it shall be based on the actual transaction price required for the acquisition of such assets;

(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 actual provisions of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254, Dec. 31, 2005)

§ 163. Necessary expenses of transferred assets

(9) In the application of the provisions of Article 97 (1) 1 (a) (proviso) and (b) 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 assessed 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 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)

(2) The market price under paragraph (1) shall be the price which is considered to be normal in the case of free trade between many and unspecified persons, and shall include the price of expropriation, public auction, appraisal price, etc. which is recognized as the market price under conditions

(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 for which no officially assessed individual land price exists shall be the amount appraised by the method as determined by the Presidential Decree in consideration of the officially assessed individual land price of neighboring similar land, and with respect to the land in the area prescribed by the Presidential Decree

The Inheritance Tax and Gift Tax Act Enforcement Decree

(1) For the purpose of Article 49 (2) of the Act, the term “those recognized as the market price under the conditions as prescribed by the Presidential Decree, such as the expropriation or public sale price, appraisal price, appraisal price, etc.” means, in case of sale, appraisal, expropriation, or public auction (referring to an auction under the Civil Execution Act; hereafter the same shall apply in this paragraph) or public auction (hereafter referred to as “sale, etc.” in this paragraph) during a period of not more than six months before or after the base date of appraisal, the amount verified pursuant to the following provisions: