[1] The purport of the proviso of Article 59-2 (3) 1 of the former Corporate Tax Act and the main text of Article 124-2 (3) of the Enforcement Decree of the same Act based on delegation thereof, and whether the above provisions apply in cases where a public-service corporation intends to dispose of assets contributed within a short period of time in accordance with the conditions of establishment and use the proceeds of disposal for its intended business (affirmative)

[2] Whether the proviso of Article 59-2 (3) 1 of the former Corporate Tax Act, which provides special cases in calculating special surtax, violates the principle of no taxation without law, the principle of prohibition of comprehensive delegation, the principle of equality, or the principle of excessive prohibition (negative)

[1] The purpose of the proviso of Article 59-2 (3) 1 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) and the main text of Article 124-2 (3) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) by delegation of the former Corporate Tax Act is to ensure that where a non-profit public corporation, etc. has received a contribution of assets which are not subject to inheritance tax or gift tax and has again transferred assets within a short period of time, it shall be the same as having received a direct contribution for disposal of the assets in substance. Thus, the contributor shall not be deemed to have omitted capital gains tax or special surtax from the transfer of the assets at the time of acquisition of special surtax by deeming the value of the assets at the time of acquisition to be the acquisition value of special surtax, and therefore, it shall not be deemed that the above proviso of the Enforcement Decree of the Corporate Tax Act and the proviso of Article 124-2 of the former Enforcement Decree of the Corporate Tax Act shall not apply to the transfer.

[2] The proviso of Article 59-2 (3) 1 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) provides that when calculating the tax base of special surtax, a taxpayer shall not be the value at the time of acquisition, but shall be the value at the time of acquisition by the contributor, and shall be the specific scope of the corresponding assets, without any special restriction. However, in applying the above provision, the amount of capital gains generated during the period of possession of the pertinent assets shall be included in the special surtax subject to special surtax and the substantial amount of the corresponding tax shall be reduced from the amount of capital gains tax or special surtax, which results in the difference only after the contributor bears capital gains tax or special surtax. Thus, the above provision cannot be seen as being identical to the amount of capital gains tax or special surtax in light of the period of disposal after the contribution of assets, and it cannot be seen as being in violation of the principle of no taxation without the law, and thus, it cannot be seen as a case where the contributor directly delegated the property subject to special surtax to be used as a non-profit property.

[1] Article 59-2(3)1 (proviso) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 37, 124-2(3), and 124-5 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998); Article 8-2 (see current Article 48(2)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193 of Dec. 30, 1996); Article 34-7 (Elimination) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998); Article 59-2(3)1 (proviso) of the former Corporate Tax Act (amended by Act No. 55970 of Dec. 31, 198); Article 59-2(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 13065 of the former Act)

Social welfare foundation Kim Yong-nam Welfare Foundation (Attorney Interest Rate of Attorney)

Head of Central Tax Office

Seoul High Court Decision 200 1Nu10365 delivered on March 8, 2002

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

The Defendant’s disposition of imposition of corporate tax (special surtax) for the year 1997 against the Plaintiff on April 3, 200 shall be revoked.

1. Details of taxation; and

A. The plaintiff is a non-profit public corporation established on August 30, 1995 in order to provide medical support, welfare, and scholarship programs to low-income public class, and was established with the permission of the Minister of Health and Welfare on August 5, 1995 as the sum of 7,261 square meters (hereinafter referred to as the "real estate in this case") of the land outside 633 and 4 other than Seoyang-dong, Seoyang-dong, Seoyang-gu, Seoul, Seoul, as donated on May 9, 1991 by the Foundation for the Maintenance of Seoyang-si (Seoul) as well as his own land of 60.8 square meters and 610.12 square meters of buildings as the basic property for the plaintiff's business.

B. The Minister of Health and Welfare, upon granting permission for the establishment of the above foundation, imposed the condition that real estate without profitability among the basic property contributed shall be sold within three years after its establishment and substituted with cash or profitability property. On November 27, 1997, the Plaintiff reported and paid KRW 4,423,105,440 as corporate tax on the capital gains of KRW 34,227,210 as corporate tax on the capital gains of the instant real estate on November 27, 1997, when the Plaintiff transferred the instant real estate to the High School of the High School of the Educational Foundation, etc., and filed a corporate tax return on the next year in 197.

C. On the ground that the Plaintiff received the instant real estate as a contribution, and thereafter, was exempted from gift tax pursuant to Article 34-7 and Article 8-2 (1) 1 of the former Inheritance Tax Act (amended by Act No. 5193 of Dec. 30, 1996), the Defendant again transferred the instant real estate within three years from the date of receiving the contribution without using it for the intended business, on April 3, 200, by applying the proviso of Article 59-2 (3) 1 of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 59-2 (4) of the same Act (amended by Act No. 5597 of Dec. 31, 1998), Article 124-2 (3) 1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 15970 of Dec. 31, 198), and Article 59-2 (3) of the former Enforcement Decree of the same Act (amended by Presidential Decree No. 294 of the same Act) of the same Act). 197.

【Non-Disputes】

2. Relevant statutes;

A. The former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998)

Article 59-2 (Tax Base) (1) The tax base for special surtax shall be the gains on transfer accruing from the transfer of land, buildings, rights to real estate, stocks or equity shares (hereinafter referred to as “land, etc.”) prescribed by the Presidential Decree.

(3) The transfer margin under paragraph (1) shall be the amount obtained by deducting the following amounts from the transfer value: Provided, That where the transfer value and acquisition value are unclear, the transfer value and the standard market price at the time of transfer shall be the transfer value and acquisition value, respectively:

1. Acquisition value: Provided, That in case where a corporation having received a contribution of the properties not included in the taxable amount of inheritance taxes or the properties exempted from gift taxes under the Inheritance Tax Act transfers the land, etc. as prescribed by the Presidential Decree, the acquisition value of the contributor of the relevant land, etc. shall be the acquisition value of the relevant corporation; and in case of an organization deemed as a corporation under Article 13 (2) of the Framework Act on National Taxes, the acquisition value acquired initially prior

(4) In applying paragraph (3), where any of the transfer or acquisition values is not obvious, such ambiguous value shall be converted by the formula prescribed by Presidential Decree.

Article 99(1) of the Corporate Tax Act (amended by Act No. 6259, Feb. 3, 2000; Act No. 6259, Feb. 3, 2000) cannot be applied to this case by the Constitutional Court en banc Order 96Hun-Ba95, 97Hun-Ba1, 36, 64 (Consolidated) decision of January 27, 200, and instead, Article 99(1) of the Corporate Tax Act (amended by Act No. 6259, Feb. 3, 200) is applicable to this case, but the method of calculating acquisition value

B. former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998)

(2) The term “acquisition value” in Article 59-2 (3) of the Act means the sum of the acquisition value (including the discounted debt estimated by the present value appropriated under the provisions of Article 37 (2) but excluding the amount exceeding the market price calculated by wrongful calculation) calculated by applying mutatis mutandis the provisions of Article 37 (1), and the interest of the amount appropriated for the construction fund and the capital expenditure.

(3) The term "land, etc. prescribed by Presidential Decree" in the proviso to Article 59-2 (3) 1 of the Act means the land, etc. transferred within three years from the date of receiving the contribution: Provided, That the land, etc. directly used for the projects (excluding the profit-making projects other than medical services) falling under any of the following subparagraphs for not less

1. Business prescribed by Acts and subordinate statutes; and

2. Where permission, authorization, etc. is granted by an administrative agency, a project for which permission, authorization, etc. is granted;

3. The business that is prescribed as an objective business on the corporate register, except as provided in subparagraph 1 or 2.

(4) The provisions of paragraph (3) shall not apply to the case where the taxable amount of inheritance taxes is not included in the taxable amount of inheritance taxes under the provisions of the Inheritance Tax and Gift Tax Act, or where the amount equivalent to the whole amount of the inheritance tax which is not included in the taxable amount

(2) "The formula prescribed by Presidential Decree" in Article 59-2 (4) of the Act means the following formula:

1. Where the acquisition value is not obvious; and

Article 37 (Acquisition Value, etc. of Assets) (1) The acquisition value of assets under the provisions of Article 17 (2) and (4) of the Act shall be the amount under each of the following subparagraphs:

1. For assets purchased from another person, the amount obtained by adding the acquisition tax, the registration tax and other incidental expenses to the purchase price (not including the discounted debt estimated by the present value appropriated under paragraph (2));

2.The sum of the raw material cost, labor cost, freight, loading and unloading cost, insurance premium, fees, public charges (including acquisition tax and registration tax), installation cost, and other incidental costs, for assets acquired by a person himself/herself through manufacture, production, construction, etc.

3. The normal price as at the time of acquisition, in cases of assets other than subparagraphs 1 and 2.

C. The former Inheritance Tax Act (amended by Act No. 5193 of Dec. 30, 1996)

The provisions of Articles 3, 8-2, 8-3 (1) 2 and (2) (limited to museum material), 9, 10, 17, 20, 20-2, 21, 23, 24, 25 (1) through (3), 26, 28, 28-2 and 29 shall apply mutatis mutandis to the gift tax.

Article 8-2 (Non-Inclusion in Taxable Amount of Inheritance Taxes) (1) The value of any of the following property shall not be included in the taxable amount of inheritance taxes: Provided, That this shall not apply where all or part of the profits accruing from such property belongs to the heir, the decedent or his/her relatives:

1. Property (Ban omitted) contributed to religious projects, charity projects, academic projects and other public works (hereinafter referred to as "public works") that are operated under the conditions as prescribed by the Presidential Decree;

3. The plaintiff's assertion

A. The Plaintiff’s sale of the instant real estate and substitution of the proceeds therefrom for profit-making assets, such as deposits and rental real estate, constitutes the use of the land subject to transfer under the proviso of Article 124-2(3) and 2 of the Enforcement Decree of the former Enforcement Decree of the Corporate Tax Act for the low-income medical welfare support and scholarship program, which is the target business, directly for the business permitted by the administrative authorities, and thus, is excluded from

B. The purport of the instant legal provision is to prevent the Plaintiff from evading the burden of capital gains tax or corporate tax through the process of contribution to nonprofit public corporations in the course of transferring the land to a third party. The Plaintiff’s transfer of the instant real property is to implement the conditions for the permission of establishment set by the Minister of Health and Welfare, and as the Foundation for the Maintenance of Seocheon-Seoul, the contributor, did not have contributed to the Plaintiff in order to avoid capital gains tax or corporate tax

(c) Although the legal provision of this case differs from the content of the acquisition value, which serves as the factor of calculating the tax base, it is against the principle of no taxation without law and the principle of prohibition of comprehensive delegation under the Constitution, and therefore, it is contrary to the principle of no taxation without law and the principle of prohibition of comprehensive delegation. Accordingly, the difference in the tax base depending on whether the property contributed is a profit property or a non-profit property and is a condition of establishing a short-term transfer. It is against the principle of equality, and it is also against the principle of excessive prohibition to impose heavy taxation even in cases where it inevitably satisfies the requirements of the above provision in order to comply with

4. Determination as to the legitimacy of taxation disposition

A. Whether it falls under the proviso of Article 124-2 (3) of the Enforcement Decree of the Corporate Tax Act;

The provision of this case and the main sentence of Article 124-2 (3) of the former Enforcement Decree of the Corporate Tax Act based on delegation thereof, where a nonprofit public corporation, etc. receives a contribution of assets which are not subject to inheritance tax or gift tax and re-transfers such assets within a short period, it can be deemed as the same as receiving a direct contribution for the disposal of the assets in substance. Thus, the purpose of this case is to ensure that capital gains tax or special surtax pursuant to the transfer of assets is not omitted by deeming the value of the assets at the time of the acquisition of the assets as the acquisition of special surtax tax base. Therefore, it cannot be deemed that the transfer of assets contributed by the public interest corporation is a case where the assets are actually used for the purpose of the business and were disposed of after the need for ex post facto use, and therefore, the provision

Therefore, the proviso of Article 124-2(3) of the Enforcement Decree of the above Act and the exceptions of each subparagraph shall apply to cases where a nonprofit public corporation, etc. directly uses the assets contributed to its business for at least one year prior to the transfer of assets. It is reasonable to view that the case does not constitute the case where the Plaintiff disposes of the contributed assets and intends to use them for the purpose of business.

Article 124-2(3) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by the former Inheritance Tax and Gift Tax Act before the amendment of the former Inheritance Tax and Gift Tax Act) states that the Plaintiff’s disposal of the instant real estate shall be deemed as an exception requirement under the proviso of Article 124-2(3) of the Enforcement Decree of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, on the ground that the Plaintiff’s use of the donated property directly for public interest projects is included in cases where the proceeds from the sale of the donated property is used for public interest projects. However, the above provision of the Inheritance Tax and Gift Tax Act provides for the requirement for the imposition of the gift tax which was exempted from taxation in cases where the donated property is not used for public interest projects or within three years from the date of contribution. Rather, it is inconsistent with the purport or language of Article 124-2(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act and the proviso of Article 124-2(3) of the Enforcement Decree of the Corporate Tax and Gift Tax Act as alleged by the Plaintiff.

B. Whether the Defendant’s taxation disposition is contrary to the purport of the instant legal provision

As seen above, the legal provision of this case does not require that the non-profit public corporation, etc. received a contribution of assets which are not subject to inheritance tax or gift tax, and then transfers such assets again in a short period, it is to collect capital gains tax or special surtax from the transfer of the assets at the same time as they received a direct contribution for the disposal of the assets. It does not require that the Plaintiff has an intent to avoid capital gains tax, etc.... Accordingly, the real estate of this case contributed by the Incheon Metropolitan Government Foundation for the Maintenance of the Maintenance of the Maintenance of the Maintenance of the Maintenance of the Maintenance of the Maintenance of the Foundation for the Maintenance of the United Metropolitan City for the Maintenance of the United Metropolitan City for the purpose of the establishment of the Plaintiff as non-profit assets which can not be directly used for the Plaintiff’s objective, which would be disposed of from the time when the Plaintiff was established, and thus, it cannot be said that the Defendant erred in the interpretation and application of the legal provision of this case by applying the provision of this case

C. Whether the legal provisions of this case are unconstitutional

(1) Violation of the principle of no taxation without law, and comprehensive delegation

Article 59 of the Constitution of the Republic of Korea provides for taxation requirements to ensure the legal stability and predictability of citizens' property rights by stipulating the taxation requirements, and to ensure the legal stability and predictability of citizens' lives. The core contents of Article 75 of the Constitution include the principle of statutory taxation requirements and the principle of clarity of taxation requirements. Article 75 of the Constitution also includes a specific and clear provision as long as possible the basic matters of the contents and scope stipulated in subordinate statutes when delegated to subordinate statutes under subordinate statutes. The existence of predictability must not be determined solely on the relevant delegation provisions itself, but by systematically and systematically considering the relevant delegation provisions. Even if the delegation provisions itself do not clearly stipulate the specific scope of delegation, if it can objectively clearly determine the scope or limitations of inherent delegation provisions in light of the overall structure of the relevant statutes and relevant provisions, it cannot be deemed as constituting a general and comprehensive delegation (see, e.g., Constitutional Court Order 94HunBa40, Nov. 30, 195; 95HunBaBa1396, Sept. 19, 1995).

Therefore, in calculating the tax base of special surtax, the legal provision of this case delegates regulations to the Presidential Decree without any special restriction as to the specific scope of assets with regard to the specific scope of assets of the contributor, rather than the value at the time when the taxpayer acquires the assets. However, in applying the legal provision of this case as seen above, the amount of capital gains accruing during the period in which the contributor owns the assets is included in the subject of special surtax, which makes the substantial amount of contribution to the amount equivalent to the amount of the capital gains tax or special surtax reduced, which eventually brings about the same result as the contributor contributed the capital gains tax or special surtax after disposing of the assets. Thus, the legal provision of this case presents cases where it can be deemed to be identical to the price after disposal of the assets in light of the time or actual use order of the assets after the contribution, notwithstanding the time or use order of the disposal after the contribution. However, it cannot be deemed as violating the principle of no taxation without law or prohibition of delegation under the Constitution.

(2) Violation of the principle of equality and violation of the principle of excessive prohibition

The Plaintiff asserts that the tax base differs depending on the application of the legal provision of this case as to whether the contributed property is profitable property or non-profit property, and the tax base is contrary to the principle of equality under the Constitution, and that the property subject to heavy taxation is contrary to the principle of excessive prohibition, even in a case where it inevitably satisfies the requirements of the above provision in order to comply with the conditions of the permission of establishment of a corporation. However, it cannot be said that the contributed property can be used for the purpose business immediately by a non-profit public corporation that received the donation, or can not be used for the purpose business nor can it be used for the purpose business, and it can be used for the purpose business only by disposing of the donated property and replacing it with other profitable property, which is subject to special corporate tax, because it is a substantial factor different from the nature of the disposal of the property subject to special corporate tax. Accordingly, the difference in tax burden is deemed to be contrary to the principle of equality under the Constitution, and therefore, the taxpayer is at least at least at a disadvantage than the contribution to the relevant property after directly disposing of the donated

5. Conclusion

Therefore, the defendant's taxation disposition of this case is legitimate, and the plaintiff's claim seeking its revocation is decided as per Disposition as it is without merit.

Justices Kim Young-tae (Presiding Justice)