[1] Whether Article 56 (1) 1 and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act concerning the evaluation and inclusion of unlisted stocks violates the substance over form principle or the market principle (negative)

[2] The method of assessing "the appraised value per share before capital increase" in the formula under Article 29 (2) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which provides for the method of calculating the value of deemed gift, which is the profit to be gained by being allocated again

[1] Article 5(6)1 (f) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193, Dec. 31, 1996); Article 5(6)1 (c) Item (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and Article 54(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998; Presidential Decree No. 15193, Dec. 31, 1996; Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193, Dec. 196; Presidential Decree No. 15196, Apr. 19, 199; Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19657, Apr. 1, 196; Presidential Decree No. 2001, Mar. 16, 19, 197).

[2] In the formula of Article 29(2)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998), which provides for the method of calculating the value of deemed gift, which is the profit to be gained by receiving a new share of forfeited stocks, the method of assessing the value of “value per share before capital increase” is not explicitly stipulated in the above Enforcement Decree. However, the relevant provision and the literal interpretation refer to the amount calculated pursuant to the provisions of Articles 54 through 56 of the above Enforcement Decree based on the point immediately before capital increase.

[1] Article 9(1) and (2) (see current Article 60(1) and (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193, Dec. 30, 1996); Article 60(1) of the Inheritance Tax and Gift Tax Act; Article 5(6)1 (c) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193, Dec. 31, 1996); Article 5(6)1 (c) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act [see current Article 63(1)1 (c) of the Inheritance Tax and Gift Tax Act; Article 56(1) (f) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act; Article 9(1) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15197, Dec. 31, 1998; Article 196(1) of the former Enforcement Decree)

[1] Supreme Court Decision 2002Du9667 delivered on October 10, 2003 (2003Ha, 2192) Supreme Court Decision 2004Du12193 Delivered on January 28, 2005

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

Head of the District Tax Office and four others

Seoul High Court Decision 2004Nu4453 delivered on January 13, 2005

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

We examine the grounds of appeal.

1. Regarding ground of appeal No. 1

Article 5(6)1(c)(2) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 15193, Dec. 31, 1996; hereinafter “Enforcement Decree”) and Article 5(1)1(c)(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) may not be deemed to be in violation of the current average value of shares issued and outstanding under Article 5(6)1(f) of the Enforcement Decree, Article 5(4) and (5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193, Apr. 19, 1996; hereinafter “the current Enforcement Decree of the Inheritance Tax and Gift Tax Act”) and to be in violation of the current average value of shares issued and outstanding under Article 5(6)1(2)2)1(f) of the former Enforcement Decree of the Inheritance Tax Act for 20 years.

The decision of the court below to the same purport is just, and there is no violation of law as otherwise alleged in the ground of appeal.

2. Regarding ground of appeal No. 2

In the formula of Article 29(2)1 of the Enforcement Decree of the Inheritance and Gift Act stipulating the method of calculating the value of deemed gift, which is the profit to be gained by receiving the forfeited stocks again, the method of assessing the value of “value of appraised per share before the capital increase” is not explicitly stipulated in the Enforcement Decree of the Inheritance and Gift Act. However, it is reasonable to view that the relevant provision and the literal interpretation refer to the amount calculated under the provisions of Articles 54 through 56 of the Enforcement Decree of the Inheritance and Gift Act as of the time immediately before the capital increase.

In the same purport, the court below is just in rejecting the plaintiffs' assertion that the value of new stocks after the capital increase on May 30, 1997 under Article 29 (2) 1 of the Enforcement Decree of the Inheritance and Gift Tax Act should be applied, not based on the supplementary evaluation methods under Articles 54 through 56 of the Enforcement Decree of the said Inheritance and Gift Tax Act, in calculating the value of one share before the capital increase on June 26, 1997, and there is no error in the misapprehension of legal principles as to the formula under Article 29 (2) 1 of the Enforcement Decree of the said Inheritance and Gift Tax Act, as otherwise alleged in the ground of appeal.

3. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Ahn Dai-hee (Presiding Justice)