In calculating gains on transfer of assets inherited or donated, whether the main text of Article 163(9) of the former Enforcement Decree of the Income Tax Act, which provides that the appraised value under the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation shall be viewed as the actual transaction value used for the acquisition, is invalid because the main text of Article 163(9) of

Article 94(1), Article 96(1), the proviso of Article 97(1)1(a) and (c), and Article 97(5) of the former Income Tax Act (amended by Act No. 7006, Dec. 30, 2003); Article 163(9) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 2003); in light of the purport of Article 97(1)1(a) of the former Enforcement Decree of the Income Tax Act, where transfer income tax is to be calculated based on the actual transaction value of assets other than inheritance or donation, and it is impossible to verify the actual transaction value required for acquisition by transfer, it is difficult to determine the scope of appraisal value of the assets at the time of inheritance or donation under the proviso of Article 97(1)6 of the former Enforcement Decree of the Income Tax Act, which is the actual transaction value to be determined by the inheritance tax or gift tax base, and thus, it is unnecessary to determine the scope of actual transaction value at the time of inheritance or donation.

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

Plaintiff (Attorney Yoon In-bok, Counsel for the plaintiff-appellant)

The Head of Gangnam District Tax Office (Law Firm Dongin, Attorneys Kim Jae-in et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2004Nu23256 delivered on December 6, 2005

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

The grounds of appeal are examined.

1. The lower court determined that Article 163(9) main text of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 2003) (hereinafter “the former Enforcement Decree”) which provides for the actual transaction value at the time of acquisition of inherited or donated assets in calculating capital gains tax as the grounds for the instant taxation disposition is not consistent with the provisions of the Income Tax Act as the mother corporation, and that the Defendant’s refusal to correct the instant tax disposition on the premise that the instant provision is valid is unlawful.

2. However, we cannot agree with the judgment of the court below for the following reasons.

According to Articles 94(1), 96(1), the proviso of Article 97(1)1(a) and (c) of the former Income Tax Act (amended by Act No. 7006, Dec. 30, 2003; hereinafter the same), where the transferred asset falls under expensive houses, etc., the transfer value and acquisition value shall be based on the actual transaction value in calculating transfer margin. In this case, where the actual transaction value at the time of acquisition cannot be confirmed, the amount calculated by applying the transaction value, appraisal value, or conversion value as prescribed by the Presidential Decree in sequential order may be 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, the calculation of gift tax amount, etc., shall be prescribed by the Presidential Decree." In applying the proviso of Article 97(1)1(a) of the Act to the inherited or donated assets, the value appraised at the time of acquisition pursuant to the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act."

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 special provision as to the actual transaction value at the time of acquisition, and accordingly, in case of the assets inherited or donated under the provision of this case, the value assessed pursuant to the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax

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

Nevertheless, the court below erred by misapprehending the legal principles as to the validity of the provision of this case, which affected the conclusion of the judgment. The ground of appeal assigning this error is with merit.

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Si-hwan (Presiding Justice)