Plaintiff 1 and six others (Attorney Hong Hong-soo, Counsel for the plaintiff-appellant)

Head of North Daegu Tax Office

April 18, 2008

Daegu District Court Decision 2006Guhap1533 Decided August 8, 2007

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The decision of the first instance court is revoked. The defendant's disposition of imposition of KRW 717,244,540 (the original tax amount was KRW 745,38,700, but the reduction or correction was made in accordance with the decision of the National Tax Tribunal on March 8, 2006) against the plaintiffs shall be revoked in relation to the disposition of refusal of inheritance tax correction made by the defendant against the plaintiffs on October 20, 2004. The defendant shall be corrected to KRW 717,24,547, which was corrected to the plaintiffs on March 8, 2006, to KRW 626,278,608.

1. Details of the disposition;

The following facts do not conflict between the parties, or if Gap evidence 1-1, 2, 3, 2-1, 3-2, 3-1, 3-1, 2, 4-1, 5-2, 1, 3 through 6, 10-1, 12-3, 12-1 through 3-3, and the fact inquiry by the court of first instance at the court of first instance by gathering the purport of the whole pleadings, and there is no counter-proof.

A. Nonparty 2 Co., Ltd. (the Supreme Court Decision) was established on July 27, 1991 and was engaged in the manufacture and sale of non-metallic metals, etc. around August 200 and closed on September 30, 200. Plaintiff 2 operated Nonparty 2 as the representative director of Nonparty 2 Co., Ltd., and Plaintiff 7 was the auditor of Nonparty 2 Co., Ltd., and Plaintiff 1, 2, 3, and 7 were the shareholders of Nonparty 2 Co., Ltd.

B. On November 22, 1994, the non-party 1 corporation (the trade name was changed from the non-party 3 corporation to the current trade name after the "non-party 4 corporation" to the "non-party 4 corporation") borrowed 180,000 won of other facility funds (hereinafter "non-party 1") at the rate of 7% per annum, damages rate for delay, 17% per annum, and November 16, 2002 at the due date. The non-party 2 corporation borrowed 100,000 won of other facility funds (hereinafter "non-party 2") at the rate of interest rate, 7% per annum, 18% per annum, due date of payment, and 27 February 28, 1994. At that time, the plaintiff 2, the representative director of the non-party 2 corporation and his father 5 were the joint and several debt of the non-party 2 corporation to the non-party 1 corporation and his father 2.

C. The non-party 5 died on September 13, 1997. Accordingly, the plaintiffs jointly inherited the non-party 5's properties as his wife or children according to the ratio of statutory inheritance. The non-party 2 corporation paid interest of KRW 90,107,07,072 among the principal of the first loan up to that time, and interest of KRW 40,222,383 among the principal of the second loan, and interest of KRW 149,670,545 [the principal of the first loan - KRW 90,100,000 - KRW 90,107,07,072)] and the balance of the second loan ＋ (the principal of the second loan - KRW 100,000,000- KRW 40,222,383), hereinafter referred to as "loan 1 and 2].

D. On March 12, 1998, the plaintiffs calculated the taxable amount of inheritance taxes of 2,617,434,832 won, the tax base of 1,602,794,832 won, and the tax amount of 432,317,139 won, and reported the tax base and tax amount of inheritance tax to the defendant. In calculating the taxable amount of inheritance taxes, the amount of joint and several liability for the balance of the loans 1, 2, and 139 won against the non-party 5's non-party 1 corporation was not deducted from the taxable amount of inheritance taxes as the inheritance liability.

E. On August 5, 1999, the Defendant revealed that the taxable amount of inheritance taxes of the Plaintiffs following Nonparty 5’s death was KRW 3,394,51,751, different from the details of the Plaintiffs’ return. Based on this, the Defendant made a decision to impose inheritance tax base and tax amount of KRW 2,374,51,51, and KRW 745,38,700 on the Plaintiffs (hereinafter “the first disposition of imposition”). Around that time, the Defendant notified the Plaintiffs of the first disposition, and the first disposition of imposition became final and conclusive as is without objection by the Plaintiffs.

F. Meanwhile, around 201, the non-party 1 corporation filed a lawsuit against the plaintiffs on the ground that the plaintiffs succeeded to the joint and several debt obligations of KRW 1,209,670,545 with respect to non-party 5's non-party 1 corporation, and that "the non-party 1 corporation, the non-party 1, the non-party 1, the non-party 29,34,108 won and its delay damages, the plaintiff 3,4,56,071 won and its delay damages, the non-party 2, the non-party 2, the non-party 3, the non-party 2, the non-party 4, the non-party 2, the non-party 2, the non-party 2, the non-party 3, the non-party 4, the non-party 2, the non-party 2, the non-party 2 and the non-party 2, the non-party 2, the non-party 2 and the non-party 2, the non-party 2, the non-party 2 and the non-party 2.

G. On October 11, 2004, the plaintiffs were confirmed to be liable for joint and several liability to the non-party 1 and 2's balance of loans at the time of commencement of the inheritance (the non-party 1 and 2's death at the time of the death of the non-party 5) due to the lack of any means to repay the debt at the time of commencement of the inheritance. In addition, when the plaintiffs perform the above joint and several liability, they cannot exercise the right to indemnity against the non-party 2. In addition, the plaintiff 2, who is another joint and several liability, did not have any means at the time of the performance of the above joint and several liability obligations, and the plaintiff 1, 3, 4, 5, 6, and 7 cannot exercise the right to indemnity as to the portion of the plaintiff 2's share, and the defendant cannot exercise the right to indemnity as to the portion of the initial imposition of the inheritance tax against the non-party 1 and 2's balance of the loans to the non-party 5's inheritance tax base and tax amount.

H. On October 20, 2004 at the time of commencement of the inheritance, the Defendant rendered a disposition of refusal of correction with respect to the Plaintiffs’ claim against Nonparty 2, on the ground that: (a) Nonparty 2, the primary debtor of the first and second loans, i.e., the primary debtor of the first and second loans, had sufficient ability to repay the remainder of the first and second loans to Nonparty 5’s joint and several liability with respect to the remainder of the loans, was not finalized as the obligation the Plaintiffs are obligated to pay; and (b) Nonparty 5 or its heir could have exercised the right to demand reimbursement against the Plaintiffs on the ground that the Plaintiffs, who were Nonparty 5 or its heir, could have exercised the right to demand reimbursement against Nonparty 2 (hereinafter “instant refusal disposition”).

I. However, on March 8, 2006, the Defendant recognized the portion of Plaintiff 2’s share of KRW 54,875,386, out of KRW 109,75,771, which the Plaintiff paid to Nonparty 1 Company upon the decision of the National Tax Tribunal based on the Plaintiffs’ claim, as the inheritance liability, the remainder of KRW 54,875,385,386, and calculated the taxable amount of inheritance taxes by deducting it from the taxable amount of inheritance taxes of the Plaintiffs on the ground that the Plaintiffs can claim reimbursement against Plaintiff 2.3,339,643,366, and calculated the taxable amount of inheritance taxes of KRW 2,319,643,666, and the amount of inheritance taxes of KRW 717,24,547, which was calculated as KRW 745,388,70, KRW 700, KRW 717,247,547 (hereinafter “the initial disposition of imposition and correction”).

(j) On December 196, 196, Nonparty 2 Co., Ltd. owned an active property equivalent to KRW 5,467,147,155, including the debt of KRW 4,95,809,662, and KRW 511,337,49,49, and KRW 3,044,382,69, and KRW 609,222,449, and other assets; and on the other hand, Nonparty 2 Co., Ltd. owned an active property equivalent to KRW 5,467,147,155, and KRW 662, including the debt of KRW 1,200, KRW 511,37,493.

2. Whether the lawsuit of this case is legitimate with respect to the portion of request for inheritance tax correction;

A. At the time of the commencement of the inheritance, the plaintiffs filed a claim with the purport that the amount of the inheritance tax in this case shall be corrected from KRW 717,24,547 to KRW 626,278,608,608 on the ground that the amount of the inheritance tax in this case is KRW 233,061,924 on the principal and interest of the balance of the loans 1, 2,000 for the non-party 5's non-party 1 corporation, for which the plaintiffs are obligated to repay at the time of the commencement of the inheritance.

B. Where, prior to the judgment on the merits, a disposition of taxation, such as inheritance, becomes final and conclusive on the legality of the lawsuit concerning the portion of the claim for rectification of inheritance tax, a request for rectification as to the tax disposition, which was final and conclusive by the competent tax office under Article 45-2 of the Framework Act on National Taxes concerning the claim for rectification, unless there are grounds for invalidation. Where the competent tax office has issued a disposition of rejection as to the claim for rectification, it is possible to file a lawsuit seeking revocation of the disposition of rejection, and it is not possible to file a lawsuit seeking revocation or a lawsuit seeking reduction or correction of the amount of tax with the court without undergoing the procedure for filing a request for correction as to the final and conclusive tax disposition.

C. However, according to the facts acknowledged earlier, the original disposition is finalized as it is because the plaintiffs are not dissatisfied. Accordingly, the plaintiffs' claim for correction against the competent tax office under Article 45-2 of the Framework Act on National Taxes, and the competent tax office has rendered a disposition of refusal as to the claim for correction, unlike filing a lawsuit to revoke the original disposition of revocation, the court cannot file a lawsuit seeking the reduction or correction of the amount of tax, or directly seek the reduction or correction of the amount of tax against the court. Thus, the plaintiffs' lawsuit on the part of the claim for correction of inheritance tax is unlawful.

3. Whether the disposition rejecting the correction of this case is legitimate

A. The parties' assertion

The defendant asserts that the rejection disposition of correction in this case is a legitimate disposition in accordance with relevant laws and regulations.

On September 13, 1997, at the time of commencement of inheritance, the plaintiffs were found to exist as uncertain debt, and the related civil judgment became final and conclusive debt on September 13, 2004, and the cause for follow-up correction as provided for in Article 45-2 (2) 1 of the Framework Act on National Taxes occurs. On August 2000, the non-party 2 corporation, as the principal debtor, becomes insolvent and thereafter becomes insolvent, and even if the plaintiffs exercise their claim for indemnity against the non-party 2 corporation, there is no possibility of being repaid thereafter, and even if the other joint and several surety, the plaintiff 2, who is another joint and several surety, did not know of the balance of the above debt, and thus, the amount of the inheritance tax at the time of commencement of inheritance was reduced due to such reasons as the decrease in the amount of inherited property after deducting the plaintiffs' claim for reimbursement from the total amount of inherited property at the time of commencement of inheritance. In such cases, the judgment on whether the plaintiffs' claim for reimbursement was unlawful under Article 45-2, Article 25-1 of the Enforcement Decree of the Inheritance Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1)the obligation of the inheritee to be deducted from the value of the inherited property and the burden of proof for it;

Since an inheritee’s obligation to be deducted from the value of inherited property refers to an inheritee’s obligation which is deemed certain when the inheritee ultimately assumes and ultimately assumes, or is liable as a surety, for a third party at the time of commencement of the inheritance, if the primary obligor is in an insolvent situation where the obligor is unable to perform his/her obligation, and it is deemed that there is no possibility for the obligor to receive reimbursement even if the primary obligor exercises his/her claim for reimbursement against the primary obligor, the amount of such obligation may be deducted from the value of inherited property. In such a case, whether the primary obligor is not in an insolvent condition at the time of commencement of the inheritance, such as bankruptcy, composition, company reorganization or compulsory execution, missing, and execution of punishment for a considerable period of time, there is no possibility for the obligor to receive a loan differently, and the obligor cannot be objectively acknowledged to have been in an irrecoverable situation at the time of the commencement of the inheritance. On the other hand, it is reasonable to view that there is a special reason for the obligor to have an effect on the taxable value of inherited property as an exception, and thus, it is reasonable to 2000.4.54.

(2) Time to determine whether the principal debtor is insolvent and the financial status of the non-party 2 corporation

A claim or an obligation as an inherited property shall be assessed according to the price of the claim or the status of the obligation at the time of commencement of the inheritance. Even if there was a change in the financial resources of the principal debtor due to the management deterioration of the principal debtor after the commencement of the inheritance, such change in circumstances may not affect the evaluation of the value of the inherited property because of the change in the value of the property acquired by inheritance after the inheritance took place, and it cannot be a circumstance that may affect the evaluation of the value of the inherited property. The obligation of the principal debtor deducted from the value of the inherited property pursuant to Article 14 (1) 3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7580 of July 13, 2005; hereinafter the same shall apply) is clearly deemed to have been paid by the principal debtor at the time of the commencement of the inheritance. As such, the time of determining whether it is possible to receive the payment by exercising a claim for reimbursement against the said principal debtor in relation to the above obligation

However, according to the facts established earlier, as the principal debtor of the first and second loans, Nonparty 2 was engaged in business normally for three years after the death of Nonparty 5, as well as KRW 1,813,542,09 of fixed assets, KRW 3,044,382,69 of current assets, KRW 609,222,49 of investment and other assets, and KRW 5,467,147,147,155 of total assets, including KRW 1,205,80,62 of this case’s debts, and it is difficult to recognize that Nonparty 2 had no reason to recognize the Plaintiffs’ debt repayment at the time of the commencement of the inheritance, since it was difficult for Nonparty 2 to acknowledge that the Plaintiffs’ debt repayment had no reason to recognize the Plaintiffs’ debt repayment due to the lack of sufficient evidence at the time of the commencement of the inheritance.

In light of the purport of each provision of Article 45-2 of the Framework Act on National Taxes, Article 25-2 of the Enforcement Decree of the same Act, Article 79 of the former Inheritance and Gift Tax Act, and Article 81 of the Enforcement Decree of the same Act, where the value of inherited property is reduced due to subsequent causes, the Plaintiffs may file a request for correction of the amount of inheritance tax. Thus, each provision of Article 45-2 of the Framework Act on National Taxes and Article 25-2 of the Enforcement Decree of the same Act shall be deemed unlawful. However, in order to recognize a request for correction as a procedural provision that the relevant judgment, etc. can file a request for correction within a certain period of time after the statutory request period expires, the grounds prescribed by the relevant tax law shall be satisfied, and special provisions of Article 79 of the former Inheritance and Gift Tax Act shall be limited to cases where a lawsuit for recovery of inheritance becomes final and conclusive, or where the value of inherited property is significantly decreased due to expropriation or auction by one year after the commencement of inheritance. Therefore, the above assertion is without merit.

(3) Whether the substance over form principle is violated

The plaintiffs asserted that they were unaware of the joint and several debt obligations of the non-party 1 and 2 before the filing of the relevant civil lawsuit. However, the plaintiffs asserted that the non-party 5's wife was exempted from the joint and several debt obligations of the non-party 1 and 2 (Evidence 3-2), and that the non-party 5 was aware of the joint and several debt obligations of the non-party 1 and 2. The plaintiff 2 operated the non-party 2 corporation as the representative director of the non-party 2 corporation. The plaintiff 7 was the auditor of the non-party 2 corporation. The remaining plaintiffs were the shareholders of the non-party 1, 2, 3, and 7, and the balance of the non-party 5's debt at the time of commencement of inheritance. In light of the facts that the non-party 2 corporation or the non-party 2 corporation did not know or easily know of the situation related to the debt obligations of the non-party 1 and 2 as at the time of commencement of inheritance, it cannot be viewed that the plaintiffs did not exercise their claim for reimbursement against the principal debtor's claim.

4. Conclusion

Therefore, the plaintiffs' lawsuits against the part of the claim for correction of inheritance tax are dismissed as it is unlawful, and the remaining claims are dismissed as it is without merit. Since the judgment of the court of first instance is justified as it is in conclusion, the plaintiffs' appeal is dismissed as it is without merit, and all of them are dismissed.

[Attachment]

Judges Choi Jin-sik (Presiding Judge)