Requirements for exemption from gift tax on farmland donated to farming children by a self-employed farmer pursuant to Article 15 (2) of the Addenda to the Restriction of Special Taxation Act.

In order to exempt the gift tax on the value of the farmland donated to farming children by a self-employed farmer pursuant to Article 15(2) of the Addenda of the Restriction of Special Taxation Act (amended by Act No. 7003, Dec. 30, 2003; hereinafter “the Addenda of this case”), the farmland shall be subject to exemption from the gift tax pursuant to Article 58(1) of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter “former Regulation of Tax Reduction and Exemption Act”) at the time of the enforcement of the Restriction of Special Taxation Act. Article 58(1) of the former Regulation of Tax Reduction and Exemption Act provides that the farmland subject to exemption from the gift tax shall be owned by a self-employed farmer. Accordingly, in order to be exempted from the gift tax pursuant to the Addenda of this case, the farmland subject to exemption from the gift tax should be owned by the self-employed farmer at the time of the enforcement of the Restriction of Special Taxation Act.

Article 58(1) of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584 of Dec. 28, 1998) (see current Article 71(1) of the Restriction of Special Taxation Act), Article 15(2) of the Addenda to the Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 28, 1998) (see current Article 71(1) of the Restriction of Special Taxation Act)

Plaintiff (Law Firm Dongdong, Attorneys Choi Jong-chul et al., Counsel for the plaintiff-appellant)

The director of the tax office

Seoul High Court Decision 2011Nu2899 decided November 2, 2011

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

The grounds of appeal are examined.

Article 15(2) of the Addenda of the former Restriction of Special Taxation Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter “former Restriction of Special Taxation Act”) (amended by Act No. 7003, Dec. 30, 2003; hereinafter “the Addenda provision of this case”) provides that “The farmland, etc. subject to exemption from the gift tax pursuant to Article 58(1) of the previous Regulation of Tax Reduction and Exemption Act as at the time this Act enters into force and donated to farming children by a self-employed farmer until December 31, 2006 shall be exempted from the gift tax pursuant to Article 58(2) through (5) of the previous Regulation of Tax Reduction and Exemption Act, and the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter “former Regulation of Tax Reduction and Exemption Act”) provides for exemption from the value of the farmland, etc. as prescribed by the Presidential Decree (hereinafter “self-employed”).

In order to exempt the gift tax on the value of farmland donated to a farmer by a self-employed farmer pursuant to the supplementary provision of this case, such farmland shall fall under the farmland subject to exemption from the gift tax pursuant to Article 58(1) of the former Restriction of Tax Reduction and Exemption Act at the time of entry into force of the former Restriction of Special Taxation Act. Article 58(1) of the former Regulation of Tax Reduction and Exemption Act provides that the farmland donated by a self-employed farmer shall be exempted from the gift tax, and the farmland subject to exemption from the gift tax pursuant to the above Act shall be owned by the self-employed farmer. Accordingly, in order to be exempted from the gift tax pursuant to the supplementary provision of this case, it shall be deemed that the farmland owned by the self-employed farmer at the time of entry

According to the reasoning of the judgment below, the court below found that the farmland of this case donated by the plaintiff was jointly purchased on May 3, 2003 after the enforcement of the former Restriction of Special Taxation Act and completed the registration of transfer of ownership on June 4, 2003 after the non-party, the father of the plaintiff and the non-party, was purchased on May 3, 2003, when the former Restriction of Special Taxation Act was enforced. The court below held that the donation of this case was not subject to exemption of gift tax under the former Restriction of Tax Reduction and Exemption Act because the plaintiff, the donee at the time of the enforcement of the former Restriction of Special Taxation Act, did not meet the requirements for farming children at the time of the enforcement of the former Restriction of Special Taxation Act, and the non-party, the donor at the time of the enforcement of the former Restriction of Special Taxation Act, was not subject to exemption of gift tax (the decision of the court below is justified since the non-party, who was the donor at the time of the enforcement of the former Restriction of Special Taxation Act, did not own farmland at the time of this case.

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 Nung-hwan (Presiding Justice)