Cho High-2016-Seoul Government-3600 (2017.03.02)

Justifiable reasons for business practices concerning the transfer of low-price between non-specially related persons;

It is reasonable to view that there is "justifiable reasons in light of the practice of trading" in a case where there is a reasonable reason to believe that the parties to the transaction who have transferred or acquired property at a low price had properly reflected the transaction price at a normal price which is properly reflected in the objective exchange value, or there is an objective reason that cannot be viewed as being abnormal from a reasonable economic person

Article 26 of the Inheritance Tax and Gift Tax Act (Method of Calculating Benefits Following Transfer of Low or High Price)

Seoul Administrative Court 2017Guhap6586

AA

BB Director of the Tax Office

June 21, 2018

August 23, 2018

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The imposition of gift tax of KRW 18,616,220 and penalty tax of KRW 7,643,820, which the Defendant imposed on the Plaintiff on March 2, 2016, respectively, shall be revoked.

1. Details of the disposition;

A. On August 19, 2013, the CCC divided the building into 11 lots after acquiring the building by public sale at KRW 11,608,00,00 (= KRW 11,129,49,025 ( KRW 595,628), KRW 50,975 (excluding value-added tax)) and the ground of the building owned by the OOOO 33 and two parcels outside of 18,685.3 square meters (hereinafter “previous land”) (hereinafter “previous land”), which were owned by the OO trust Co., Ltd. (hereinafter “O”), and dividing all of them into 11 lots. The details of the transfer of ten parcels are as listed below (hereinafter “area” means the area calculated by multiplying the co-owned share acquired by the transferee to the entire area; hereinafter “each parcel number shall be specified”).

B. On December 31, 2013, the Plaintiff purchased each of the 1/2 shares of 33-37 square meters in warehouse sites 1,665.6 square meters and 1/2 shares in the 99.54 square meters in the above ground from CCC [529,200,000 won in the land = [614,200,000 won in the land + 15,000,000 won in the building] (hereinafter referred to as “the instant sale”); and 33-377 land purchased by the Plaintiff due to the instant sale (“the instant land”).

C. In the course of the tax investigation with respect to CCC, the Defendant determined that CCC sold the instant land at a low price to the Plaintiff, on the ground that the market price should be calculated based on the unit area of 1,149,473/m2, which is the sales price per unit area of the factory site of 33-40 m2, which is similar to the instant land, 798.3m2 (hereinafter “non-permanent land”).

D. Accordingly, the Defendant: (a) deemed that the Plaintiff donated KRW 143,081,00 [1,473 won x 1,665.6 square meters x 1,65.6 square meters x 300,000,000] from CCC through the instant sales; (b) on March 2, 2016, pursuant to Article 35(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter the same shall apply), Article 26(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014; hereinafter referred to as “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on March 2, 2017.

F. In a case where the Defendant, while continuing the instant lawsuit, deemed the assessed value of KRW 1,150,000/m2 at the market price as the average of the assessed value of the instant land at the market price, the instant disposition was justifiable and added the grounds for disposition.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 5, Eul evidence 1 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Article 49(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, which provides that the value of the case, such as the sale and purchase of other assets similar to the pertinent property, may be the market price, is unconstitutional against the principle of clarity of taxation requirements, and thus, the instant disposition based on

2) Since the land subject to comparison on which the Defendant calculated the market price differs from the land category, area, publicly assessed individual land price, appraisal price, and sharing relationship, it does not constitute “similar other property” under Article 49(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act. In addition, the appraisal amount the Defendant claimed in the preliminary assessment is unlawful as a retroactive assessment.

3) The Plaintiff became aware of the CCC through the introduction of a branch and became a joint acquisition of the instant land, and there was no special relationship between the Plaintiff and his husband, and the Plaintiff’s husband DD was only in the position of a service contractor who is not a CCC and a partner. Rather, when CCC falls short of funds for the initial business period, the Plaintiff participated in the purchase of the previous land and purchased shares in the same value as that of other selective investors, and there is a justifiable reason for the determination of its value. Thus, even if the purchase price of the instant land is lower than the market price, the Defendant did not prove that the decision of the purchase price was made “ without a justifiable reason,” and thus, the instant disposition was unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether Article 49(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act goes against the principle of clarification of taxation requirements

The main sentence of Article 60 (1) of the former Inheritance Tax and Gift Tax Act provides that "the value of property on which inheritance tax or gift tax is levied shall be based on the market price as of the date on which the inheritance commences or the date of donation (hereinafter referred to as "date of appraisal"), and Paragraph (2) of the same Article provides that "the market price under paragraph (1) shall be the value which is generally recognized as normal where a transaction takes place freely between many and unspecified persons and which is recognized as the market price under conditions prescribed by Presidential Decree, such as the expropriation, public sale price, and appraisal price," and Paragraph (1) of the same Article of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the market price shall be recognized as the market price under conditions prescribed by Presidential Decree, such as the expropriation, public sale price, and appraisal price" under Article 60 (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act shall be six months before and after the base date of appraisal (three months in cases of donated property). In cases of sale on the relevant property under the main sentence of subparagraph 1, the value of the relevant property shall be deemed as the market price or other property:

As above, Article 60 of the former Inheritance Tax and Gift Tax Act declares the principle of market price in the appraisal of inherited or donated property under Article 60 (1). Article 60 (2) of the former Inheritance Tax and Gift Tax Act provides for a broad standard that the market price is formed through general and normal transactions, which can be recognized as the market price on the premise that the objective exchange value should be reflected, and the specific scope of the market price shall be determined by Presidential Decree. The provision of transaction price, etc. on the "relevant property" under each subparagraph of Article 49 (1) of the Enforcement Decree delegated by the former Inheritance Tax and Gift Tax Act is a representative case where the market price can be seen as the market price of inherited or donated property (see Supreme Court Decision 2000Du5098, Aug. 21, 200). Since Article 60 (2) of the former Inheritance Tax and Gift Tax Act does not limit only the transaction price, etc. on the "relevant property" to include only the transaction price of the relevant property identical or similar to the relevant property subject to taxation, it cannot be clearly defined as the scope of comparative and invalid market price.

Meanwhile, even under Article 15(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act amended by Presidential Decree No. 27835, Feb. 7, 2017; and Article 15(3) of the Enforcement Rule of the Inheritance Tax and Gift Tax Act amended by Ordinance of the Ministry of Strategy and Finance No. 605, Mar. 10, 2017; however, Article 15(3)1 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act provides that "the apartment price shall be within the same complex with respect to apartment prices, and the exclusive residential area shall not exceed 5/100," while subparagraph 2 of the other property provides that "property subject to evaluation, the area, location, purpose, issue, and standard market price shall be identical or similar to that of the property subject to evaluation. This is because it is difficult to set a uniform and simple detailed criteria, unlike multi-unit houses created by building, building, and residential area. This part of the Plaintiff's assertion is without merit.

2) Whether the comparable land constitutes “other similar property” with the land of this case

In full view of the purport of Gap evidence Nos. 2 and Eul evidence Nos. 2-1 and 2-2 as of December 23, 2013, when the plaintiff acquired the instant land as of December 23, 2013, when the plaintiff acquired the instant land, the land of this case and the land to be compared are classified as "miscellaneous land" and were facing the center of 33-45, when the land category was located within the industrial area and used as a private road. The specific use area, topographical land tax, road conditions, and hazardous facilities on the land characteristics survey table in 2014 were identical, and the officially assessed individual land price was the same amount as KRW 814,50,00, and the appraisal value was the same amount as KRW 1,120,000, KRW 170,000, KRW 160,000, KRW 160,000.

According to the above facts, the comparative land is identical or similar to the instant land and its location, use, standard market price, and appraisal value, and can be recognized as the market price of the instant land as the market price of the instant land, which was concluded on November 13, 2013 with respect to the comparative land. Therefore, without examining the legality of the appraisal value claimed by the Defendant as preliminary, the Plaintiff’s assertion on this part is without merit.

(iii) the existence of justifiable reasons for trade practice;

A) Article 35(2) of the former Inheritance Tax and Gift Tax Act provides that, where a transferee of an asset acquires it from a person who is not a specially related person at a remarkably lower price than the market price without justifiable grounds for transaction practices, the transferee of the asset shall be presumed to have received a donation of an amount equivalent to the difference between such price and the market price, and Article 26(5) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that, upon delegation, the amount of money equivalent to the interests prescribed by the Presidential Decree shall be deemed the value of donated property of the person who has acquired such profits. Article 35(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “Where the market price of the acquired asset differs by 30/10 or more of the market price of the transferred asset, the said price shall be deemed to be the value calculated by deducting 300 million won from the market price of the transaction.” Article 35(2) of the former Inheritance Tax and Gift Tax Act provides that “The legislative purport of Article 35(2) of the former Inheritance Tax and Gift Tax Act is reasonable for taxation without reasonable reasons for the transfer of gift tax.

In principle, the tax authority shall bear the burden of proving that there is no justifiable reason for the transaction practice. However, if the tax authority is a reasonable economy, it may prove that there is no justifiable reason for the transaction practice by submitting the data on objective circumstances, etc. that the transaction did not have been traded under such conditions as at the time of the transaction. If such circumstances are proved to a considerable extent, it is necessary to prove that there are special circumstances where it is easy for the taxpayer to submit specific data on the transaction details, the reasons for determining the transaction terms and conditions, etc. in light of the difficulty and fairness of proof to reverse it (see, e.g., Supreme Court Decision 2013Du2495, Feb. 12, 2015).

B) The following facts are acknowledged in full view of the purport of the entire pleadings in each of the evidence Nos. 1, 2-1, 2-2, Eul evidence Nos. 2 through 4, and 7 through 11.

(1) The location of land that CCC transferred by dividing the previous land is as follows:

(2) The following is the result of appraisal commissioned by the Defendant to an appraisal corporation based on the date of each purchase and sale contract for the said land and the actual transaction value.

(3) On July 17, 2013, the Plaintiff and CCC did not have a relative relationship. However, on the land and its ground buildings between CCC and Plaintiff’s husband DDDD, DDR concluded a “real estate consulting and service contract” between CCC and CCC to pay service deposits and success fees if DDR sells the above land and buildings after obtaining an order from a tenant, etc. by December 31, 2013.

(4) In the course of the tax investigation conducted before the disposition of this case, CCC stated that D was a representative of mining development, but the specific business was conducted by DD, and DD was to purchase and operate the land in the process of the public auction with the first CCC as to the process of concluding the above 'real estate advisory and service contract', but it was decided to conduct the same business. However, dD was to enter into a service contract due to her failure to provide financing, and she was to perform the overall duties such as name, division, sale, and road construction in relation to the land development project of mining development. Some of the land was recruited through the sale advertisement, and some of them were sold to the buyer.

(5) On April 2, 2014, the Plaintiff and CCC jointly operate a lease business with a trade name called EE companies, and run a lease business with respect to land 3-44, 33-37.

C) Comprehensively considering the following circumstances revealed by the above facts, CCC renounced the opportunity to gain profit by transferring the instant land at a price significantly lower than the market price, and caused the Plaintiff to gain profit. If the Plaintiff is a reasonable economic person, it was evident that the Plaintiff did not engage in the transaction under such terms and conditions. It was well known that the CCC and the Plaintiff did not properly reflect the objective exchange value. Therefore, there is no justifiable reason for the transfer of the instant land between CCC and the Plaintiff’s transaction practice. This part of the Plaintiff’s assertion is without merit.

① Since CCC’s transfer of co-ownership shares in the instant land to the Plaintiff is merely about 55% of the appraised value, it is the value considerably lower than the objective market value.

② The land that CCC transferred to the Plaintiff and the Plaintiff’s children and the CCC’s children among the land that was transferred by dividing the previous land was considerably lower than the appraised value, while CCC traded the remaining land that is transferred to other selective investors or general buyers in the amount similar to the appraised value.

③ On the same day as the acquisition date of the instant land, the Plaintiff acquired 33-44 land from CCC. Since the instant land is abutting on the general roads, it is clear that the market price is much higher than that of the said 33-44 land. Nevertheless, as the Plaintiff and CCC set the transfer price of the instant land lower than 33-44 land, it seems that the Plaintiff and CCC sufficiently recognized the fact that the transfer price of the instant land is considerably lower than the market price.

④ The Plaintiff’s husband DD actually purchased the previous land and actually led the overall affairs of dividing, building roads, and selling the land. The transactional circumstances, such as CCC’s financial difficulties presented by the Plaintiff are not sufficient to reasonably explain the fact that the transaction value of the land in this case is significantly low compared to the appraised value, the general buyers who bought another land divided from CCC at a similar time to the Plaintiff, unlike the Plaintiff, acquire the land at a price similar to the appraised value.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.