Cho High Court Decision 2010Du2001 (Law No. 1030, 2010)

Even if there was no report on the average value of estimated profits, it is unreasonable to assess it based on the net profits and losses for three years, such assessment shall not apply.

In cases where a major type of business is changed in the evaluation of unlisted stocks, etc., it is unreasonable to evaluate the average amount of net profit and loss during the business period of less than three years, which is less than three years, as the average amount of net profit and loss during the preceding three years per week, and even if the average amount of estimated profit and loss is not reported within the reporting period, it cannot

Article 101 of the Income Tax Act

Article 63 of the Inheritance Tax and Gift Tax Act

2010Gudan19372 Revocation of Disposition of Imposing capital gains tax

Is 2,000

The Head of Gangwon Tax Office and two others

July 6, 2012

August 17, 2012

1. On April 9, 2010, the imposition of capital gains tax of 000 won by the director of the Gangnam District Tax Office against Plaintiff Lee Dong-A on April 9, 2010, the imposition of capital gains tax of 000 won by the director of the Yangcheon Tax Office against Plaintiff ParkB on April 13, 2010, and the imposition of capital gains tax of 000 won by the head of the Sungdong Tax Office against Plaintiff Ansan on April 9, 2010, respectively.

2. The costs of lawsuit are assessed against the Defendants.

The phrase "114,148,86," written in the written complaint, is a clerical error of "00 won".

1. Details of the disposition;

A. On October 4, 2004, Plaintiff EA, ACC, and Plaintiff ParkB sold 180,000 shares of non-party company non-party company non-party company non-party company non-party 180,000 shares (hereinafter referred to as “the shares of this case”) to EDR non-party 3 (hereinafter referred to as “purchase”) as indicated in the table below, and they reported the transfer value per share to the Defendants at KRW 00,00, respectively.

(The following table omitted):

B. When the National Tax Service audit the Seoul Regional Tax Office, it calculated the market price of the instant shares at the time of transfer in accordance with the supplementary evaluation methods under Articles 63(1)1(c) and 54(1) and 56(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2007; hereinafter the same shall apply) (amended by Presidential Decree No. 18627 of Dec. 31, 2004; hereinafter referred to as the "Enforcement Decree of the Inheritance Tax and Gift Tax Act"). The National Tax Service shall calculate the amount of KRW 00 according to the supplementary evaluation methods under Article 56(1)1 of the former Income Tax Act (amended by Act No. 735 of Jan. 14, 2005; hereinafter referred to as the "Income Tax Act") by deeming that the Plaintiffs were the purchaser of the instant shares at low price and notified the Defendants of the imposition of capital gains tax (hereinafter referred to the Defendants’ respective calculation methods).

Each disposition of imposition of this case

(The following table omitted):

C. Meanwhile, on October 4, 2004, the head of Sung-nam Tax Office, etc.: (a) deemed that the purchaser of the instant shares acquired shares at a low price from the Plaintiffs, etc. having a special relationship, etc.; and (b) imposed gift tax on or around December 2008; and (c) the appellate court rendered a judgment revoking the imposition of gift tax upon the purchaser of the instant shares upon protesting against the disposition by the purchaser of the instant shares; and (b) concluded that the dismissal of the appeal by the Supreme Court Decision 2011Du9140 Decided May 24, 2012, became final

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 9, Eul evidence 1 and 2 (including above numbers), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. Summary of the plaintiffs' assertion

The non-party company continued to have suffered loss after the establishment of the non-party company, and part of the aggregate of 3,536 square meters of 2 parcels, including 00-3 and 3,536 square meters of land in Suwon-si, Suwon-si, which was purchased to construct housing, was unable to conduct the first-purpose business as the road site was incorporated, it was classified from inventory assets to the account type in 2003 and obtained gains gains from transfer after selling them in 2003. Thus, the above gains from transfer are tangible assets disposal profits. The non-party company has reached 175% of the average weighted average amount of profits and losses on the disposal of securities and tangible assets and special profits and losses in accordance with the corporate accounting standards as of the date of trading the stocks in this case, and the non-party company has reached 175% of the average weighted average amount of profits and losses on the profits and losses before deducting the corporate tax for the last 3 years.

In addition, the non-party company constitutes a case where the normal sales period is less than three years based on the date of stock transaction in this case, and thus, Article 17-3 (1) 7 of the Enforcement Rule of the Inheritance Tax

Therefore, inasmuch as it is unreasonable to apply the weighted average amount of net profit and loss for the last three years per share to the value under Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act due to the reason that the amount of net profit and loss for the last three years increases normally through a temporary contingency case, the weighted average amount of net profit and loss for the last three years per share of the shares of this case shall not be based on the value under Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

Furthermore, the Defendants asserted that the average amount of net profit and loss per share under Article 56(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act cannot be calculated on the basis of the average amount of net profit and loss per share as the purchaser did not declare the value of the loss within the deadline for filing the gift tax base. However, inasmuch as the grounds falling under any of the subparagraphs of Article 17-3(1) of the Enforcement Rule of the Inheritance Tax and Gift Tax Act are acknowledged, each disposition of this case is unlawful on the basis of calculating the average amount of net profit and loss per share for the last three years according to the value under Article 5

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Relevant legal principles (see Supreme Court Decision 2011Du9140 decided May 24, 2012)

Articles 60 and 63(1)1 (c) of the Inheritance Tax and Gift Tax Act, Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and Article 63(1)1 (c) of the same Act, and Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act shall apply to the market price as of the date of inheritance commencement or donation, which is the base date for appraisal, and where it is difficult to calculate the market price, in principle, to the net value per share (the interest rate determined and publicly notified by the Commissioner of the National Tax Service in consideration of the weighted average amount of net profits and losses for the last three years per share ± the net asset value per share (the net asset value of the relevant corporation ± total issued value) and the net asset value per share (the total asset value of the relevant corporation ± the total issued value), respectively, shall be based on the weighted average

In addition, Article 56 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "the weighted average amount of net profit and loss per share for the preceding three years" shall be the value under subparagraph 1, i.e., [(x3) net profit and loss per share for the business year before the base date of appraisal x 2) + (x2) net profit and loss per share for the business year before the base date of appraisal 2 years before the base date of appraisal x 1/6] calculated by the formula of x 1/6. Where the relevant corporation uses the value under subparagraph 1 for reasons such as less than three years after the commencement of its business or an abnormal increase in the net profit and loss for the latest three years, it is unreasonable to evaluate the value under subparagraph 2, i.e., the value under subparagraph 2, the average amount of profit and loss per share for the business year before the base date of appraisal x 1/7) calculated by a specialized credit rating institution or accounting corporation in the preceding three years (limited to cases where it has reported within the inheritance tax or gift tax, and net profit per share).

It is desirable to calculate the net value of unlisted stocks by the method of assessing the current value after estimating the future expected profit of the stocks. However, Articles 54(1) and 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is the past performance, provides that the net value of the net profit and loss per share shall be calculated by discounting the annual average amount of the net profit and loss per share for the preceding three years by the interest rate reflecting the distribution profit rate of the bonds with three years maturity. As such, substitution of future expectation profit and loss with the past performance is premised on the fact that the past performance will continue in the future. If the normal sales period is not three years after the change of the main business, it is not appropriate to estimate the weighted average amount of the net profit and loss between the preceding three years and the normal sales period, as it is difficult to accurately predict the future expected profit and loss. Therefore, such case should be deemed as including the case where the normal sales period is less than three years under Article 17-3(1)7 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act.

(2) In this case, the non-party company operated financial business, such as factoring financing and short-term financing, with the trade name of "OO corporation" as its main business purpose. Around May 14, 1999, its trade name was changed to "GG public" corporation, and its main business purpose was also changed to housing construction business, etc. The sales amount generated from the main business type in the 1998 business year prior to the change of its business purpose was 00 won, but there was no sales amount from 1999 to 2001, which was after the change of its business purpose. The sales amount generated from the main business type in the 2002 business year and 2003 business year was 00 won and 00 won, respectively, or it can be recognized by adding the whole evidence submitted by the plaintiff and the defendants to the whole purport of the arguments.

According to the above relevant legal principles, where the main type of business is changed, etc., it is reasonable to view that the normal period of sales is less than three years during the subsequent business period, and that it constitutes a ground under Article 17-3 (1) 7 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act. Thus, it is reasonable to view that the non-party company constitutes a ground under Article 17-3 (1) 7 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act, since the normal period

(3) Article 17-3(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that the net value per share shall not be calculated for the latest three years, or that it would be unreasonable to calculate the net value per share on such basis because the net profit or loss for the latest three years is abnormal. Thus, barring any special circumstance, the net value per share cannot be calculated on the basis of the weighted average amount of profit or loss for the latest three years under Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and even if the method of calculating the net value per share is not calculated on the basis of the value under Article 56(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, which is the value under Article 56(1)2 of the Inheritance Tax and Gift Tax Act, by failing to meet the requirements under Article 56(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Article 54(1) of the Enforcement Decree of the Inheritance Tax Act provides that the net value per share calculated on the basis of the net asset value under Article 16(1).

Therefore, even if the purchaser did not report the average value of the presumed profit per share under Article 56(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act within the gift tax, as long as it is deemed unreasonable to determine the value under Article 56(1)1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act because it falls under Article 17-3(1)7 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act, it cannot calculate the "average average amount of net profit and loss per share for the preceding three years". Thus, each of the instant dispositions in which the market price at the time of transfer is calculated based on the value under Article 56(

3. Conclusion

If so, all of the plaintiffs' claims are justified, they shall be accepted.