Medical Corporations Yeongdeungpo Medical Foundation (Attorney Kim Sung-sung, Counsel for defendant-appellee)

Head of North Daegu Tax Office

Daegu District Court Decision 2009Guhap2384 Decided October 13, 2010

March 25, 2011

1. Revocation of a judgment of the first instance;

2. The Defendant’s attached disposition details “date of disposition” is revoked in all the disposition imposing gift tax for 2004, each tax amount indicated in the “re-revision tax amount” column of the same list against the Plaintiff as gift tax on each date indicated in the attached list.

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

The same shall apply to the order.

1. Details of the instant disposition

(1) Plaintiff 1: (a) 2; (b) 3; (c) 4; (d) 2; (d) 1/4; (e) 2; (e) 2; (f) 1/4; (f) 2; (f) 4; (f) 1/4; (f) 5; (f) 2; (f) 2; (f) 1/4; and (f) 2; (f) 1/4; and (f) 2; (f) 1/4; (f) 5; (f) 2; and (f) 1/4; and (f) 2; (f) 1/4; and (f) 2; and (f) 9/4; and (f) 1/2,79; and (f) 14; and (f) 2; and (f) 9/4; and (f) 1/6, 279;

B. On July 1, 2008, the Defendant: (a) deemed that the Plaintiff was donated respectively from Nonparty 1, 2, and 3 on May 31, 2004 with respect to the total sum of 18,775 square meters of non-party 1, 2, and 13 square meters of non-party 1, 2, and 3 of non-party 48(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”); and (b) deemed that the Plaintiff was contributed and possessed by the Plaintiff corporation pursuant to Article 48(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance

C. On June 10, 2009, the Defendant: (a) determined that the portion of the penalty tax (additional tax on negligent return and additional tax on negligent return) from among the gift tax originally imposed on Nonparty 1 is not lawful; (b) accordingly, the Defendant corrected the amount of penalty tax of KRW 1,765,854,650 from among the gift tax related to Nonparty 1; (c) KRW 3,273,528 from among the gift tax related to Nonparty 3; and (d) KRW 1,754,660 from the gift tax related to Nonparty 2 from among the gift tax related to Nonparty 2 (the details

D. On April 1, 2010, the Defendant issued a new gift tax on Nonparty 1, as indicated in the “re-revision Tax Amount” column on the grounds that the donor was partially aware of the details of the disposition imposing the gift tax, which was partially corrected by reducing the gift tax related to Nonparty 3 and 2, and the gift tax related to Nonparty 5 and 4 related to Nonparty 4 was subsequently imposed (hereinafter “date of disposition”). On each date indicated in the “date of disposition” column of the attached disposition imposing the gift tax pertaining to Nonparty 5 and 4, the Defendant issued a disposition imposing the gift tax on the Plaintiff corporation for the imposition of the gift tax reverted to 204 as gift tax

[Based on Recognition] A without dispute, Gap evidence 1 through 3, Gap evidence 9, Eul evidence 11 through 4, Eul evidence 7-1 through 14, Eul evidence 8-1 through 13, Eul evidence 9-1 through 3, Eul evidence 10-1 through 5, Eul evidence 11-1 through 11-4, Eul evidence 12, Eul evidence 13 and 14, Eul evidence 13 and 14, Eul evidence 15, and the purport of whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

(A) The case where the Plaintiff was contributed to Nonparty 1, etc. and was approved by the Daegu Metropolitan City Mayor until May 29, 2004 due to an unavoidable cause, but the business period was not commenced by the time limit, and the Daegu Metropolitan City Mayor on May 31, 2004 was not used for the purpose of public service by cancellation of the establishment permission of the Plaintiff Corporation, does not fall under the main sentence of Article 48(2)1 of the former Inheritance Tax and Gift Tax Act.

(B) Although permission to incorporate a corporation was revoked while the property contributed by the Plaintiff corporation was not used for a direct public project, but the articles of incorporation of the Plaintiff corporation stipulate that the remaining property shall be donated to a non-profit corporation for the purpose similar to the purpose of the establishment of the Plaintiff corporation or shall be reverted to the State, etc. In such cases, Article 48(2)5 of the former Inheritance and Gift Tax Act and Article 38(8)1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter “former Enforcement Decree”) shall apply, and in the case of the Plaintiff corporation, it does not constitute “where the remaining property is not reverted to the State, etc. at the time of the completion of the business,” and thus, gift tax shall not be imposed.

(C) Even if a gift tax is subject to gift tax, it is reasonable to impose gift tax on the basis of the time three years have elapsed since the date of contribution of property.

(D) Therefore, the instant disposition should be revoked in an unlawful manner.

(2) The defendant's assertion

(A) Article 48(2)1 of the former Inheritance and Gift Tax Act applies since the property contributed by the Plaintiff corporation is not used for the purpose of public interest directly within the term of use. The date on which the term of use is revoked shall be deemed to be the date of donation and gift tax should be imposed.

(B) Article 48(2)5 of the former Inheritance and Gift Tax Act applies to cases where a public-service corporation provided donated property to a business and operated it as a business, and thus, it is not applicable to cases where the donated property is not provided to the business like the Plaintiff corporation.

(C) Therefore, the instant disposition is lawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Facts of recognition

(1) After obtaining permission to establish a medical corporation on January 1, 1992, the Plaintiff corporation received land contribution from Nonparty 1, etc. to establish the medical corporation, but as seen earlier, as the location of the land contributed was incorporated into the facility site for the urban planning project in Daegu Metropolitan City, the authorization of the implementation plan for the urban planning project was obtained, as a result of the change of the scale of the project was incorporated into the adjacent liber1 housing site development zone, or the consultation was delayed to purchase real estate owned by another person included in the project site, and the authorization was obtained from the Daegu Metropolitan City Mayor from January 1, 1996 to January 6, 2004 to extend the term of establishment and use of the property contributed by a medical institution

(2) The Daegu Metropolitan City Mayor did not establish a medical institution within the extended period of establishment of the medical institution with respect to the Plaintiff corporation. The Plaintiff corporation was granted a grace period on May 29, 2004 on the ground that the Daegu Metropolitan City Mayor made a promise to start the establishment of the medical institution to the Daegu Metropolitan City Mayor on the ground that the revocation of establishment was suspended.

(3) However, on May 29, 2004, the Plaintiff corporation did not commence the construction of a medical institution until the grace period, due to the fluority of the capital financing plan, including the purchase of incorporated land and the fund for hospital construction, and eventually notified the Daegu Metropolitan City Mayor to voluntarily dissolve.

(4) On May 31, 2004, the Plaintiff Daegu Metropolitan City Mayor revoked the permission to establish a medical corporation with respect to the Plaintiff corporation.

(5) On October 20, 2006, the Plaintiff corporation appointed Nonparty 3 as a liquidator according to a resolution of the board of directors, and received notice of approval from the Daegu Metropolitan City Mayor on November 3 of the same year.

[Reasons for Recognition] Facts without dispute, Gap evidence 4-1, 2, Gap evidence 5-1 to 6, Gap evidence 6, the purport of the whole pleadings

D. Determination

(1) Whether the main sentence of Article 48(2)1 of the former Inheritance and Gift Tax Act is applied

(A) According to Article 48(1) and (2)1 of the former Inheritance and Gift Tax Act and Article 38(3) of the former Enforcement Decree of the former Enforcement Decree, the value of property contributed by a public corporation, etc. shall not be included in the taxable amount of gift taxes. However, in cases where the public corporation, etc. uses the property contributed for the direct public interest business within three years from the date it was used or contributed directly to the public interest business, it shall be deemed donated by the public interest corporation and the gift tax shall be levied immediately. However, in cases where it is difficult for the competent Minister or the delegated person to use the property for the public interest business within three years from the date of such use due to statutory or administrative inevitable reasons, such as requiring a long period of use, etc. The above provision is excluded from the taxable value on the condition that the property contributed to the public interest business should be used for the purpose of contribution within a certain period of time after the contribution, but if the conditions are not met, it is reasonable to view that the competent Minister or the delegated person should be excluded from the subject of gift tax (see, e.g., Supreme Court Decision 96Nu394, Jun. 39, 1394.

(B) In this case, even if the term of use of donated property was extended on May 29, 2004 by the Daegu Metropolitan City Mayor upon recognition of inevitable reasons for inclusion in a facility site for urban planning projects, but the establishment of a medical institution was not commenced until the expiration of the term. On the 31st of the same month, the permission for establishment of a medical corporation was cancelled, thereby making it impossible to finally provide the donated property for public interest projects. The purport of the above provision is to determine whether the donated property is subject to gift tax under Article 48(2)1 of the former Inheritance Tax and Gift Tax Act, unless it is used for public interest projects despite the expiration of the term of use, if the competent Minister deems it necessary to use the donated property for a long period of time due to the expiration of the term of use of the donated property, it is difficult to apply the above provision to the extent that the donated property is not subject to gift tax under Article 48(2)1 of the former Inheritance Tax and Gift Tax Act.

(2) Whether Article 48(2)5 of the former Inheritance and Gift Tax Act and Article 38(8)1 of the former Enforcement Decree are applied

(A) Article 48(2)5 of the former Inheritance and Gift Tax Act provides that "where property received as contribution and directly for the operation of public interest projects are not operated under the conditions as prescribed by the Presidential Decree, it shall be subject to the imposition of gift tax." Article 38(8)1 of the former Enforcement Decree provides that "where a public interest corporation, etc. does not operate under the conditions as prescribed by the Presidential Decree."

(B) The purport of the former Inheritance and Gift Tax Act and the Enforcement Decree thereof stipulating that gift tax shall not be imposed in cases where the acquisition of the relevant property was not subject to lawful gift tax even after the completion of the business, in cases where the acquisition of the relevant property was used for the same or similar purpose after the completion of the business by the public interest corporation, etc., even after the completion of the business. Therefore, regardless of whether the corporation’s business was completed after the commencement of the business in a regular manner, or whether the corporation’s establishment was cancelled at the preparation stage without the commencement of the business in the preparation stage, and whether the corporation’s business was completed by dissolution, the remaining property at the time of the completion of the business should be deemed subject to gift tax exemption in cases where the property is reverted to the State, local government, or public interest corporation identical or similar to the pertinent

(C) In this case, the Daegu Metropolitan City Mayor revoked the establishment permission of the juristic person according to the intent of dissolution of the juristic person. The revocation of the establishment permission of the juristic person also constitutes the cause of dissolution of the juristic person (see Articles 38 and 77 of the Civil Act). The dissolved juristic person has rights only within the scope of the purpose of liquidation and bears obligations (see Article 81 of the Civil Act). Article 87 of the Civil Act (Directly, it is the same as the contents or scope of liquidation affairs of the liquidated juristic person) provides that "an act necessary for the completion of liquidation affairs, collection of debts and repayment of debts, delivery of residual assets and the above affairs" as a liquidator's duties. In particular, Article 80 of the Civil Act provides that the ownership of the dissolved juristic person's residual assets belongs to the person designated by the articles of association, and the director or liquidator of the juristic person can dispose of the property for any purpose similar to that of the juristic person with permission of the juristic person without permission of the competent authority or with the consent of all the juristic person to dispose of the property belonging to the National Treasury.

(3) Therefore, the Defendant’s disposition of this case must be revoked in an unlawful manner.

3. Conclusion

The plaintiff corporation's claim of this case is accepted on the grounds of its reasoning, and the judgment of the court of first instance is unfair on the grounds of its conclusion, and thus the plaintiff corporation's claim is revoked and accepted.

[Attachment]

Judges Kim Chang-sung (Presiding Judge) Kim Jong-sung free of charge