Where gift tax is imposed on the status of an insurance contract transferred to the donee by the donor, the method of calculating the value.

The property belonging to the donee and of property value that can be converted into money is included in the donated property. The valuation of the value is based on the market price as of the date of donation. However, if no donated property is freely traded among many and unspecified persons, and the market price of the donated property cannot be calculated immediately as of the date of donation, there is no provision for valuation of the value thereof, and thus, it is bound to impose gift tax on the basis of the amount equal to the value of the property value of the donated property. In a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no adequate method to promptly calculate the market price of the status under an insurance contract, whereas on the other hand, in a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, the monetary value of the various rights recognized in the status of an insurance contract, such as refund money that may be cancelled at the time of donation or various insurance proceeds that may be received at the time

Articles 31(1) and 60(1), (2), and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013);

Plaintiff 1 and one other (Law Firm Ilung, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

The director of the tax office.

Seoul High Court Decision 2015Nu38537 decided September 15, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 31(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “Gift”) provides that donated property subject to gift tax includes all things having economic value convertible into money and all de facto or de facto rights having property value, which are attributed to the donee. Article 60(1) of the same Act declares the principle of market value by requiring the value of the property subject to gift tax to be valued at the market price as of the date of donation. Article 60(2) of the same Act provides that “Where it is difficult to calculate the market price in applying paragraph (1), the value assessed by the method prescribed in Articles 61 through 65 shall be considered as the market price in consideration of the type, scale, transaction circumstances, etc. of the pertinent property.” Article 60(3) provides that “Where it is difficult to calculate the market price in applying paragraph (1).”

Therefore, property belonging to the donee and of property value that can be converted into money is included in the donated property, and its value shall be calculated based on the market price as of the date of donation. However, if no donated property is freely traded between many and unspecified persons, and there is no other provision for valuation of its value, and thus its market price cannot be calculated immediately, it shall be imposed on the basis of the amount most appropriate for the property value of the pertinent donated property. In a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market price of the relevant insurance contract. On the other hand, in a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market value of the relevant donated property. On the other hand, when an insurance contract is terminated at the time of donation or maintaining refund or insurance contract that can be received by withdrawal of subscription, and if such rights are incompatible with each other, gift tax may be imposed on the basis of this,

2. A. Review of the reasoning of the first instance judgment partially admitted by the lower court and the record reveals the following facts.

(1) On June 14, 2012, the Nonparty concluded two immediate pension insurance contracts with Samsung Life Insurance Co., Ltd. for a temporary payment of KRW 600,000,000,000, respectively, and paid KRW 1,800,000,000 in total as KRW 300,000,000 for a temporary payment of insurance premium with K DF Life Insurance Co., Ltd. (hereinafter collectively referred to as “instant immediate pension insurance”). The Nonparty concluded two immediate pension insurance contracts with KF Life Insurance Co., Ltd. for a temporary payment of KRW 300,00,000,000 for a contract term of ten years.

(2) On July 3, 2012, the period for withdrawing an application expires, the Nonparty: (a) donated each of the instant immediate pension insurance premium of KRW 600,000,000 to the Plaintiffs, who are their children; (b) on July 19, 2012, one of the instant immediate pension premium of KRW 300,000,000, respectively; and (c) accordingly, the Nonparty changed the policyholders, pension beneficiaries, and maturity beneficiaries of each of the instant insurance to the Plaintiffs.

(3) On September 7, 2012, the Plaintiffs deemed that the instant immediate pension insurance constituted a right to receive regular payments under Article 65(1) of the Inheritance Tax and Gift Tax Act and Article 62 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”), and evaluated the value of donated property as KRW 781,724,842, respectively, and reported and paid gift tax.

(4) On August 23, 2013, the Defendant, upon notification of the results of the investigation by the director of the Seoul Regional Tax Office, deemed that the donation of the instant immediate pension insurance without the commencement of pension payment from the Nonparty was the same as the immediate donation of the paid-in premium, and accordingly, decided and notified the Plaintiffs of the gift tax calculated on the difference between KRW 900,00,724,842 and KRW 781,590,810 as to each of the paid-in premium.

B. Examining these facts in light of the legal principles as seen earlier, the following circumstances are revealed.

(1) The position of the contractor, beneficiary, and maturity beneficiary of the instant immediate annuity insurance is not freely traded among many and unspecified persons, and there is no provision assessing the value thereof, and there is no way to calculate the market price immediately.

(2) The Plaintiffs: (a) immediately terminated the instant immediate pension insurance and acquired the right to receive the premium upon being the policyholder, pension beneficiary, and maturity beneficiary of the instant immediate pension insurance; and (b) according to the terms and conditions, the policyholder is entitled to receive the termination refund calculated according to the predetermined calculation method, at any time before the contract is terminated; (c) therefore, it is reasonable to deem that the value of the right to receive the premium upon termination of the instant immediate pension insurance is KRW 832,536,017, respectively, equivalent to the termination refund calculated according to the terms and conditions; and (d) the Plaintiffs did not acquire such right on the ground that the Plaintiffs did not actually terminate the instant immediate pension insurance at the time of donation, or that the value thereof should not be calculated differently.

(3) Meanwhile, while maintaining the instant immediate pension insurance, the Plaintiffs also acquired the status to receive a monthly survivors’ pension. However, according to the standard terms and conditions, the amount of such survivors’ pension is linked to the interest rate changed on the basis of the date on which the contract is concluded each year. Therefore, whether to receive a survivors’ pension in the future at the time of the donation is possible and the accurate amount thereof cannot be known. Based on the amount of a survivors’ pension that can be received in the year of donation, even if the value is estimated by applying Article 62 of the Enforcement Decree of the Inheritance and Gift Tax Act based on the amount of a survivors’ pension that can be received in the year of donation, so long as the amount of the right to receive a premium is less than the value of the right to receive a premium upon termination of the instant immediate pension insurance, it cannot be deemed that the Plaintiffs’ value of the donated property

C. In full view of these circumstances, it is reasonable to view that the amount equivalent to the termination refund calculated according to the terms and conditions of the immediate annuity insurance of this case is the amount that the Plaintiffs received as a donation to the policyholders of the immediate annuity insurance of this case, the beneficiaries of the pension and the beneficiary status

Nevertheless, the lower court determined otherwise, that the instant disposition was lawful on the ground that the amount of insurance premium paid by the Nonparty should be deemed as the value of donated property. In so determining, the lower court erred by misapprehending the legal doctrine on the value of donated property of rights under an insurance contract, thereby adversely affecting

3. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)