Cho Jae-2018-Gu-838 (23 April 2018)

An inheritor who has received a decision of approval of limited granting of inheritance has a liability to pay capital gains tax on the inherited property voluntarily sold for the repayment of inheritance debts.

Even if an inheritor who made a qualified acceptance did not directly receive the proceeds of the transferred asset inherited, it is clear that he/she is liable to pay capital gains tax for the economic effect that the proceeds of sale were delivered to the obligees of the deceased and the Plaintiff would have caused the extinguishment of his/her inherited obligation due to the repayment of the obligation due to inheritance.

Article 88 of the Income Tax Act

2018Guhap892 Revocation of Disposition of Imposing capital gains tax

SAA

(B) the Director of the North Korean Tax Office

November 23, 2018

December 19, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The disposition of imposition of capital gains tax of KRW 98,052,100 (including additional tax) for the Plaintiff on November 1, 2017 shall be revoked.

1. Details of the disposition;

A. The plaintiff's inheritance of property

1) The Plaintiff’s father, “HCC” (hereinafter referred to as “H-dong”) owned D EE-Gu FFdong (hereinafter referred to as “FF Dong”), FFdong (hereinafter referred to as “F-dong”), FFdong (hereinafter referred to as “F-dong”) 168-4 1,197 m2, before 168-4, before FF-dong (hereinafter referred to as “F-dong land”), FF-dong 172 52 m29 m2 (hereinafter referred to as “F-dong”) and GG HHdong (hereinafter referred to as “H-dong”) 582-2 m2 325 m2,582-11 m2, and 200 m20 m20 m2 (hereinafter referred to as “H-dong land,” collectively.

2) As the Deceased died on March 22, 2004, on June 17, 2004, the Plaintiff was adjudicated to accept the report from the above court on July 2, 2004 by filing a qualified acceptance report on the inheritance with Ddong District Court’s Family Branch (2004Ra000).

B. Compulsory auction of the land of this case

(i) FF-dong land;

A) JJC Co., Ltd., a creditor of the deceased (hereinafter referred to as “JJC”) on 2016.

5. 12. Application for a compulsory auction of real estate with respect to FF-dong land to the District Court (2016, 000) was made on the 30th of that month.

B) Accordingly, FF-dong land was sold during the compulsory auction on April 4, 2017, and the sale price was distributed to the creditors of the deceased.

(2) H-dong land

A) The two KK and Park L L, on December 30, 1997, established the establishment of a mortgage on the HHdong land as the secured debt against the deceased, with the maximum debt amount of 280,000,000,000 won, the debtor, the deceased, the persons who have a right to collateral security, both KK and Park LL.

B) On November 15, 2012, the aforementioned two persons filed an application for an auction to exercise the right to collateral security with respect to Hdong land at the 00 District Court 00 Branch 00,000 (20,000) and received the decision to voluntarily commence the auction on the 16th of that month.

C) Accordingly, HH-dong land was sold at the voluntary auction procedure of the above real estate on May 10, 2017, and the proceeds of sale were distributed to the creditors of the deceased.

C. Defendant’s imposition of capital gains tax

1) The Plaintiff reported the transfer income tax on the instant land to the Defendant on June 28, 2017, on the ground that both the sale price of the instant land was distributed to the obligees of the Deceased and that there was no income accrued to him/her.

2) The Defendant conducted a tax investigation with respect to the Plaintiff from September 1, 2017 to September 29, 2017. As a result, even if the Plaintiff was succeeded to one half of the instant land by qualified acceptance, it determined that the Plaintiff was liable to pay capital gains tax as long as the said share was sold at the real estate auction procedure.

3) Accordingly, on November 1, 2017, the Defendant notified the Plaintiff of the correction of KRW 98,052,100 (including additional tax) for the transfer income tax reverted to year 2017 (hereinafter “instant disposition”).

(d) Procedures of the previous trial; and

The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on January 30, 2018, but the appeal was dismissed on April 23, 2018.

Facts that there is no dispute over recognition, the purport of the whole pleading.

2. Whether the instant disposition is lawful

A. The disposition of the Plaintiff’s assertion in the instant case must be revoked on the following grounds.

1) All proceeds from the auction of the instant land were reverted to the obligees of the deceased, and the Plaintiff did not gain any benefit from the transfer of the instant land.

In addition, as an inheritor who has made a qualified acceptance, the plaintiff is not responsible for the repayment of the deceased's obligation to the inheritance obligee as his own property, and is also responsible for the repayment of the deceased's obligation to the extent of the property to be acquired by inheritance.

Therefore, under the principle of substantial taxation and the purport of the qualified acceptance system, the Plaintiff does not constitute a taxpayer of capital gains tax following the transfer of the instant land.

2) Since the transfer of the instant land was made according to the auction procedure requested by the obligees to recover their claims, the transfer income tax on this matter constitutes “expenses concerning inheritance” under Article 998-2 of the Civil Act.

Therefore, the plaintiff is liable to pay capital gains tax only within the limit of inherited property as an inheritor who has made a qualified acceptance.

3) Even if the Plaintiff constitutes a taxpayer of capital gains tax following the transfer of the instant land, it is also unclear whether capital gains tax of KRW 98,052,100 (including additional tax) has been lawfully calculated.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Whether a person is liable for capital gains tax

1) Relevant legal principles

A) Voluntary auction of real estate for exercising a mortgage or compulsory auction of real estate for executing a claim is an act for realizing the contents of a claim and thus constituting “transfer of assets subject to capital gains tax as stipulated in Articles 4(1)3 and 88(1) of the Income Tax Act.”

In such cases, the sale price, which is capital gains, belongs to the owner of the real estate, and even if the owner has qualified acceptance, it is no different from the heir who has granted simple approval in that it becomes the owner of the real estate by comprehensively succeeding the rights and obligations on the property of the inheritee from the time the inheritance commenced (see, e.g., Supreme Court Decision 2010Du13630, Sept. 13, 2012).

B) The obligation of capital gains tax following the sale of real estate, which is inherited property, in the auction procedure, is an inherent obligation of an inheritor, not an inherited obligation. The qualified acceptance system is not merely a restriction on the existence of an obligation, but merely

Therefore, since an inheritor made a qualified acceptance, the obligation of transfer income tax is not naturally limited to the limit of the property acquired by an inheritor due to inheritance.

Therefore, it cannot be deemed that an inheritor’s obligation of capital gains tax, based on a qualified acceptance by an inheritor, is limited to the scope of an inherited property, or a disposition imposing capital gains tax in excess of the said property is unlawful (see, e.g., Supreme Court Decision 2010Du13630, Sept. 13, 2012).

2) Determination on issues

In light of the above relevant legal principles, even if the plaintiff did not directly receive the proceeds from the auction of the land of this case, it is clear that the above proceeds from the sale will have the economic effect of extinguishing the inheritance obligation which the plaintiff was born to the obligees of the deceased by the delivery of the proceeds from the auction of the land of this case and the repayment of the debt to the obligees of the deceased.

Therefore, the Plaintiff is liable to pay capital gains tax following the auction of the instant land.

In addition, the qualified acceptance system does not merely restrict the existence of an obligation, but merely limits the scope of the liability. In other words, the obligation itself does not limit the scope of the property acquired by the Plaintiff due to inheritance.

Therefore, this part of the plaintiff's assertion is without merit.

D. Determination on the assertion of expenses concerning inheritance

1) Relevant legal principles

A) According to Article 998-2 of the Civil Act, expenses for inheritance shall be paid out of the inherited property.

Here, "expenses relating to inheritance" means taxes, public charges, administrative expenses, liquidation expenses, etc. (see, e.g., Supreme Court Decision 2003Da30968, Nov. 14, 2003).

Meanwhile, according to Articles 1022 and 1031 of the Civil Act, (1) an inheritor shall manage the inherited property with the same care as a substitute for its own property; (2) where an inheritor has made a qualified acceptance, the heir shall not extinguish the heir’s property rights and obligations against the inheritee.

According to the above provisions, an inheritor who has made a qualified acceptance shall continue to manage the inherited property until the liquidation of the inherited property is completed.

Therefore, the expenses incurred at the time of termination of the liquidation of inherited property by an heir who has made a qualified acceptance, namely, capital gains tax arising from the sale of inherited real estate in the auction procedure, constitutes liquidation expenses among the expenses related to inheritance, and in light of the purport of the qualified acceptance system for the protection of an heir, tax obligations equivalent to such inheritance expenses are only responsible within the scope of inherited property (see, e.g., Supreme Court Decision 2010Du13630, Sept. 13, 2012)

2) In light of the above relevant legal principles, capital gains tax on the land of this case constitutes liquidation expenses among the "expenses relating to inheritance" under Article 998-2 of the Civil Act.

Therefore, in light of the purport of the qualified acceptance system for the protection of the inheritor, the Plaintiff is liable only to the extent of the inherited property for tax liability corresponding to the expenses for inheritance.

However, even though the Plaintiff is liable only within the limit of inherited property with respect to the liability to pay capital gains tax on the instant land, as seen earlier, it is only limited to the scope of inherited property, and it does not limit the “liability” itself.

In other words, if the inherited property remains, the Plaintiff shall pay the transfer income tax within the limit and if the inherited property does not remain, there is no "liability to pay the transfer income tax".

Therefore, if the defendant in the future goes through a collection procedure of seizure, etc. against "property owned by the plaintiff" rather than "property owned by the plaintiff" in accordance with the National Tax Collection Act based on the disposition of this case, the plaintiff can seek the cancellation of the seizure disposition, etc.

Therefore, there is no reason for the plaintiff's assertion on this part.

E. The legality of calculating capital gains tax amount

1) According to the aforementioned evidence, the FF-dong land was sold to the real estate auction procedure totaling KRW 905,20,000 (i.e., KRW 165-4 1,211 m25 m26,819,316 m2, FF-dong + KRW 390,469,294 m294 m29 m29 m29 m29 m27,88,800 m2, 325 m25 m25 m25 m26,931,162 m2, FF-dong 168-4 m201 m205 m205 m205 m2581,586 m205 m205 m258,675 m205).

In addition, at the time of March 22, 2004, the inheritance date of the instant land: (i) the publicly announced individual land price of Fdong is a total of KRW 213,069,10 [A total of KRW 213,06,00 [A total of KRW 165-4,211㎡ 83,316,80 square meters (individual publicly announced land price of KRW 68,800 x 1,211 square meters] + 16,478,200 square meters before 168-4, 168-4, 197 x 96,478,200 square meters (individual publicly announced land price of KRW 80,600 x 1,197 x 1,000 m20 m229 m2,900 x 529 m2529 m2, 30525 m25 m27, m2525 m25)];

As follows, the Defendant: (a) determined the transfer value of the instant land as KRW 1,304,08,80 in total at the auction procedure (i.e., KRW 905,20,00 in FF-dong land + KRW 652,04,400 in total, which is 1/2 (share ratio) of HH-dong land 398,88,800 in total; (b) determined the acquisition value of the instant land as at March 22, 2004 by deducting the acquisition value from the publicly assessed individual land price of KRW 595,794,100 in total as at the time of inheritance (i.e., KRW 213,069,100 in F-dong land + KRW 382,725,000 in total; and (iii) determined the acquisition value of the instant land from KRW 97,97,97,00 in total as at the time of acquisition under the Presidential Decree of the Income Tax Act (amended by Presidential Decree No. 2136397, Dec. 16, 197, 2097)

2) The method of calculating capital gains tax is lawful under the relevant statutes. The evidence submitted by the Plaintiff alone is insufficient to deem that the method of calculating capital gains tax or its calculated tax amount is unlawful.

Therefore, there is no reason for the plaintiff's assertion on this part.

3. Conclusion

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