(a) Method of valuation of taxable value of business rights held by a corporation;

B. Whether a tax authority’s assertion that the transfer of shares constitutes a low-price transfer may be modified in a lawsuit seeking revocation of a tax disposition where the tax authority imposed a tax disposition based on the assumption that the transfer of shares constitutes a low-price transfer

A. The net asset value of the corporation under Article 5 (5) 1 (b) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 12038 of Dec. 31, 1986) is naturally included in the business rights of the corporation, and the evaluation of such business rights shall be assessed in accordance with Article 5 (1) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 13196 of Dec. 31, 1990) if the market value can be calculated pursuant to Article 5 (1) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 13196 of Dec. 31, 1990), which provides for supplementary evaluation methods, if it is difficult to calculate the market value, in accordance with each subparagraph of Article 5 (4)

B. Since the object of tax litigation is the existence of income amount determined by the tax authority, the tax authority may submit all arguments and materials that the tax base amount acknowledged in the relevant taxation disposition until the closing of argument in the lawsuit for revocation of the taxation disposition, to the extent that it does not harm the identity of the disposition. Thus, if a corporation disposes of its shares and appropriates the amount of the disposal loss as losses for the business year, the tax authority considers it as constituting a low-price transfer prescribed in the Corporate Tax Act and imposed a tax disposition as losses pursuant to the provisions on calculation of the amount of the taxation disposition, if the above transfer of shares is not a low-price transfer, it shall not be deemed that the high-price purchase or low-price transfer or the difference in the business year in which the corporate tax is attributed through the denial of the amount of the disposal loss even if the tax disposition was changed to the assertion that the above transfer of shares constitutes a high-price purchase, and on the other hand, one of the counter parties to the purchase and transfer constitutes a specially related party as provided in Article 46 (1) of the Enforcement Decree of the Corporate Tax Act.

A. (B) Article 20 of the Corporate Tax Act, Articles 46 and 40 of the Enforcement Decree of the same Act, the proviso of Article 16-2 of the Enforcement Decree of the same Act (amended by Ordinance of the Ministry of Finance and Economy No. 1671 of March 31, 1986). Article 5 of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 12038 of December 31, 1986), Article 5 of the same Enforcement Decree (amended by Presidential Decree No. 13196 of December 31, 1990). Article 19 of the Administrative Litigation Act

[Plaintiff-Appellant-Appellee] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Park Jae-soo et al., Counsel for plaintiff-appellant-appellant-appellee)

Law School aluminium Co., Ltd., Counsel for the defendant-appellant

Director of the tax office

Supreme Court Decision 89Nu46 Decided December 22, 1989

Seoul High Court Decision 90Gu2583 delivered on November 13, 1991

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

The grounds of appeal by the defendant litigant are examined.

(1) As to the low-price transferred part:

(A) The court below, based on the evidence adopted by the plaintiff, found that the above disposal price of the shares was 1,00,000 won per share for the above 40-year market price since the plaintiff's above disposal of the shares was 60,000 won per share because the above disposal of the shares was not based on the market price of the non-party corporation, which was 1,00,000 won for the above 40-year market price since the above disposal of the shares was not based on the above disposal of the shares. The court below found that the above disposal price of the shares was 1,240,00,000 won per share for the above disposal of the shares, and it is reasonable to view that the above disposal price of the shares was 1,00,000 won per share as the market price of the above 10-year market price of the shares, and the above disposal price of the shares was 1,000 won per share for the above disposal of the shares as 10-year market price of the shares.

(B) Article 20 of the Corporate Tax Act provides that, under the conditions as prescribed by the Presidential Decree, the Government may calculate the income amount of a domestic corporation in cases where it is deemed that the tax burden on the income amount of the corporation has been unjustly reduced due to its activities or transactions with a related party as prescribed by the Presidential Decree, regardless of the calculation of the income amount of the corporation. Article 46 (1) and (2) 4 of the Enforcement Decree of the same Act provides that one of the cases where it is deemed that the above tax burden has been unjustly reduced, shall be transferred to investors below the market price. The proviso of Article 16-2 of the Enforcement Decree of the same Act (amended by the Ordinance of the Ministry of Finance and Economy No. 1671 of March 31, 1986) provides that, in the application of Article 46 of the same Act, the market price of the corporation shall be calculated by applying mutatis mutandis the provisions of Article 5 (5) of the Enforcement Decree of the Inheritance Tax Act (amended by the Presidential Decree No. 1293 of May 1, 1990).

(C) It is impossible to deny the real value of a license for manufacture of the instant alcoholic beverage at issue in this case, and the above case did not include the net asset value of the instant alcoholic beverage in calculating the net asset value of the instant alcoholic beverage, as decided by the court below, and on the other hand, it cannot be found that the appraisal by an appraisal agency is also impossible to identify the value of the instant alcoholic beverage manufacture license on the record, and it is found that the valuation of the value constitutes a case where it is difficult to calculate the market value under Article 5(1) of the Enforcement Decree of the Inheritance Tax Act. Accordingly, the valuation of the value cannot be based on the valuation formula under Article 5(4)1 of the Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 12567 of Dec. 31, 198) (the purchased intangible property right is based on Article 5(3) of the same Act, but it is apparent that the manufacture license of this case was not purchased on the record, and it cannot be seen that the aforementioned appraisal method including the aforementioned net asset value of the instant alcoholic beverage at issue.

Therefore, in this case where there is no evidence to deem that the appraisal value of the stock of this case assessed by a reliable appraisal agency was erroneous, the transfer value of the stock of this case based on its appraisal value shall be deemed a reasonable value. Therefore, the defendant's taxation disposition of this case, which imposed tax by deeming the transfer value of this case as a low price transfer, as it is unlawful in this point.

(D) The court below rejected the defendant's assertion on the transfer of low-price solely on the ground that the burden of proof on the market price, which is the criteria for determining the transfer of low-price, is the defendant who is the tax authority, without omitting the above evidence determination on the appraisal of the value of the shares of this case. However, the conclusion that the court below's determination that the transfer of low-price is not a transfer of low-price is legitimate

2. As to the high-priced part:

(A) Since the object of a tax lawsuit is the existence of income amount determined by the tax authority, the tax authority may submit all arguments and materials that the tax base amount acknowledged in the relevant tax disposition until the closing of argument in the lawsuit seeking revocation of the tax disposition, to the extent that it does not harm the identity of the disposition. Thus, if a corporation disposes of its stock and appropriates it as losses for the business year in which the disposal loss amount was disposed of as losses, the tax authority considers it as constituting a low-price transfer prescribed in the Corporate Tax Act and imposed a tax disposition as losses pursuant to the provisions of the Evaluation of Wrongful Acts and subordinate statutes, if the above stock transfer is not a low-price transfer, it shall not be deemed that the high-price purchase or low-price transfer or the difference in the business year in which the corporate tax is attributed through the denial of the disposal loss amount, even if the tax authority changed the claim that the above stock transfer constitutes a high-price purchase, and on the other hand, one of the counter parties to the purchase and transfer constitutes a specially related party under Article 46 (1) of the Enforcement Decree.

(B) Examining the record, the Defendant clearly stated that the Plaintiff’s acquisition of the shares of this case from the preparatory document dated July 8, 198 and the preparatory document dated October 14, 198 as stated on the date of the second pleading of the lower court on the date of pleading on July 8, 1988, constitutes an elevated purchase. In addition, as seen above, if the transfer value of the Plaintiff’s shares is based on the appraised value under the law and is recognized as a justifiable price, the Plaintiff’s acquisition price of the shares of this case appears to have exceeded the market price or the arm’s length price, barring any special circumstances, in light of the scope of the difference or the retention period, and thus, the lower court should have deliberated and determined on the scope of the above excessive amount, including whether the Plaintiff constitutes a specially related person

(C) The judgment of the court below is erroneous in the misapprehension of the judgment of the defendant on the above high-priced purchase, and this affected the conclusion of the judgment. Therefore, the judgment of the court below cannot be maintained from this point, and the appeal pointing this out is justified.

3. Therefore, the judgment of the court below is reversed and the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Chang-chul (Presiding Justice)