[1] Whether the main text of Article 163 (9) of the former Enforcement Decree of the Income Tax Act does not delegate the parent law or unfairly expands the taxation requirement beyond the delegation scope of the parent law is an invalid provision (negative)

[2] Whether the penalty paid to cancel a separate sales contract made before the transfer act can be deducted from the transfer value in calculating the transfer income tax (negative)

[1] Articles 94(1), 96(1), and 97(1)1 and (5) of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003); Article 163(9) of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 18173 of Dec. 30, 2003); Article 95(1) and Article 97 of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003) / [2] Articles 95(1) and 97 of the former Income Tax Act

[2] Supreme Court Decision 79Nu374 delivered on July 8, 1980 (Gong1980, 13039)

Plaintiff (Attorney Jeon Jae-tae, Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2004Nu23522 delivered on October 14, 2005

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Whether the main sentence of Article 163 (9) of the former Enforcement Decree of the Income Tax Act is invalid;

According to Articles 94(1), 96(1), 97(1)1(a)(c) and 97(1)(c) of the former Income Tax Act (amended by Act No. 7006, Dec. 30, 2003; hereinafter the same), where an asset transferred falls under expensive houses, etc., the transfer value and acquisition value shall be calculated based on the actual transaction value in calculating transfer margin. In this case, where it is impossible to verify the actual transaction value at the time of acquisition, the amount calculated by applying in sequence the transaction value, appraisal value, or conversion value as prescribed by the Presidential Decree may be deemed the acquisition value. Meanwhile, Article 97(5) of the former Income Tax Act provides that “The necessary matters concerning the calculation of necessary expenses, such as the scope of the actual transaction value required for acquisition and the calculation of gift tax amount, shall be prescribed by the Presidential Decree.” In applying the main sentence of Article 163(9) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 20003) to the inheritance tax or the proviso of donation.

In full view of the purport of the above provisions, in case where the transfer income is calculated based on the actual transaction value in accordance with the proviso of Article 97 (1) 1 (a) of the former Income Tax Act because the assets other than the assets inherited or donated are the general high-priced assets, etc., and thus it is impossible to confirm the actual transaction value required for such acquisition, it shall be calculated based on the transaction example, appraisal value, or conversion value as prescribed by the Presidential Decree. However, in case where the transfer income is to be calculated based on the actual transaction value pursuant to the proviso of Article 97 (1) 1 (a) of the former Income Tax Act as the assets inherited or donated fall under the expensive houses, etc., there is no actual transaction value at the time of acquisition. Thus, in case of the assets inherited or donated under the provision of this case, it is necessary to establish separate provisions as to the actual transaction value at the time of acquisition.

Therefore, the provision of this case is a provision based on Article 97(5) of the former Income Tax Act, which delegates necessary matters concerning the calculation of necessary expenses such as “the scope of actual transaction values required for acquisition” so that it can be prescribed by the Presidential Decree, and thus cannot be deemed as a provision for invalidation without delegation of the parent law. In addition, in the event that assets inherited or donated are transferred, the value corresponding to the tax base of inheritance tax or gift tax (the value assessed pursuant to Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencement of inheritance or donation) can be deemed as necessary expenses when calculating transfer gains and only when the transfer value exceeds the above value can prevent tax evasion or double taxation. In light of the fact that the provision of this case can not be deemed as a provision for invalidation unreasonably expanding the taxation requirement beyond the delegation scope

In the same purport, the court below citing the judgment of the court of first instance, and it is just that the defendant calculated gains from transfer of the status of being selected as occupant of the former Housing Construction Promotion Act (amended by Act No. 6916 of May 29, 2003) which constitutes a high-priced house under the relevant Acts and subordinate statutes (hereinafter referred to as the "right to move in of this case") based on the actual transaction price, and it shall calculate gains from transfer on the basis of the actual transaction price of the value assessed under the provisions of the Inheritance Tax and Gift Tax Act at the time of donation of this case, which is the ground for acquiring the right to move in of this case under the provisions of this case.

2. Whether penalty is included in necessary expenses;

The penalty paid to cancel a separate sales contract prior to the act of transfer, which is subject to capital gains, is not directly related to the above transfer act, and it does not constitute necessary expenses under Article 97 of the former Income Tax Act, and it does not constitute a deduction from the gross income (transfer value) resulting from the above transfer act or a disposal as necessary expenses (see Supreme Court Decision 79Nu374 delivered on July 8, 1980).

In the same purport, the court below accepted the judgment of the court of first instance and recognized the facts as stated in its holding, and held that the penalty paid by the plaintiff to the same purport is to cancel a separate sales contract prior to the sales contract of the right to occupancy in this case, and it is merely to transfer the real estate acquired by ownership to the largest buyer rather than to secure ownership, and it is not necessary expenses to be deducted from the transfer value, and there is no error in the misapprehension of legal principles as to necessary expenses

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Young-ran (Presiding Justice)