Examination-transfer-2017-099 (28. 2017.09)

After the expiration of the exclusion period of inheritance tax, it is difficult to regard the appraisal value acquired through retroactive appraisal as suitable for the purpose of tax payment.

Since it is difficult to regard the appraisal value acquired through retroactive appraisal for the purpose of reducing capital gains tax after the expiration of the exclusion period of inheritance tax, the disposition taken by the tax authority excluding it is legitimate.

Article 97 (1) of the Income Tax Act

2017Guhap8923 Revocation of Disposition rejecting capital gains tax rectification

WonO

Head of Yongsan Tax Office

May 25, 2018

June 22, 2018

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of refusal to rectify in excess of KRW 66,252 of the disposition of refusal to rectify in excess of KRW 87,194,242 of the transfer income tax for the year 201; ② the disposition of refusal to rectify in excess of KRW 67,748,426 of the disposition of refusal to rectify in excess of KRW 89,873,772 of the transfer income tax for the year 2012; ③ the disposition of refusal to rectify in excess of KRW 131,078,792 of the disposition of refusal to rectify in excess of KRW 170,000,521 of the transfer income tax for the year 2013; ④ the disposition of refusal to rectify in excess of KRW 243,197,938 of the transfer income tax for the year 2014; ⑤ the disposition of refusal to rectify in excess of KRW 243,197,675,63 of the disposition of refusal to rectify in excess.

1. Details of the disposition;

A. On November 8, 2002, the Plaintiff acquired an OO-dong 361-00,000 O-dong 361-0,000 square meters (hereinafter “land before division”) for inheritance by consultation or division. After the division, the land before division was divided into 361-00,000 square meters, and the said land was again divided into 361-0,326 square meters and 361-00 square meters and 1,957 square meters before the said 361-0,000 square meters on December 26, 2012 (hereinafter “instant land”) and then divided the said land into 361-0,326 square meters and 361-00 square meters on December 26, 2012 (hereinafter “the instant land”).

B. As the instant land was incorporated into a site for a project to create an O camping ground, the instant land was successively expropriated at the time of OO from April 13, 2011 to April 28, 2016. The Plaintiff filed a return and paid each transfer income tax calculated by setting the officially assessed individual land price as of November 8, 2002, which was the commencement date of the inheritance, as the acquisition price as of November 8, 2002. The specific details are as set forth in Table 1 below.

Details of return and payment of transfer income tax on Table 1.

Transferred Real Estate

Transfer Date

(Acquisition Date of Consultation)

Date of Declaration

Tax amount paid by tax return

1,230 shares in the land of this case

April 13, 2011

June 9, 2011

87,194,242 won

1,267 shares in the land of this case

May 1, 2012

July 31, 2012

89,873,772 won

93.24/10,283 of land 361-00

March 19, 2013

May 31, 2013

170,000,521 won

361-x Shares 7,786/10,283 out of 361-x land

4,378.25/100 of land 361-00

April 29, 2014

June 26, 2014

307,327,938 won

34.493 Shares in 361-00

April 28, 2016

September 13, 2016

297,602,756 won

C. Since May 2017, the Plaintiff requested an appraisal business entity of two sites to calculate the value of 5,337 square meters among the land before subdivision as of November 8, 2002, which was at the time of inheritance, at the time of inheritance. As a result of the appraisal, the Plaintiff calculated the value of 8,000 won per square meter and 87,000 won per square meter.

D. On May 31, 2017 and June 5, 2017, the Plaintiff filed a request for reduction or correction of capital gains tax on the basis of the acquisition value of KRW 88,000 per square meter (hereinafter “instant appraisal value”) calculated based on the acquisition value calculated based on the real estate value of KRW 88,00 per square meter (hereinafter “instant appraisal value”) among the appraisal value, and filed a request for reduction or correction of capital gains tax that was reported and paid in the past,

Table 2. Details of a request for reduction or correction (unit: Initial

Time of Reversion

Original Report

Acquisition Value

Claim for Rectification

Acquisition Value

Original

Transfer Income Tax

Income Tax Re-calculated

Tax Refund

201 Reversion for the year 201

9,827,700

108,240,000

87,194,242

66,252,105

20,942,137

2012 Reversion of year 2012

10,123,330

11,496,00

89,873,772

67,748,426

2,125,346

2013 Reversion of year 2013

6,424,99

70,763,440

170,000,521

131,078,792

38,921,729

11,840,141

130,404,560

2014 Reversion of year 2014

28,324,550

311,960,000

307,327,938

243,197,963

64,129,975

2016 Reversion of year 2016

15,620,450

172,040,000

297,602,756

262,156,980

35,445,776

E. On July 13, 2017, the Defendant rejected the Plaintiff’s request for correction on the grounds that the instant appraisal value does not fall under the appraisal value assessed within six months before or after the base date of appraisal, and thus cannot be seen as acquisition value (hereinafter “instant disposition”).

Facts that there is no dispute over recognition, described in Gap evidence 1 through 13, the purport of the whole pleadings, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In calculating capital gains tax, the acquisition value of assets acquired by inheritance or donation shall be calculated as the market price at the time of acquisition. In cases where there exists appraisal value by a reliable appraisal institution, it shall be included in the market price recognized as the market price, not the appraisal value within the evaluation period. Therefore, the instant disposition made on the ground that it cannot be deemed as the acquisition value is unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Relevant legal principles

A) According to the main text of Article 97(1)1(a) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) and the main text of Article 163(9) of the Enforcement Decree of the Income Tax Act, the acquisition value that is deducted as necessary expenses for the calculation of gains on transfer refers to the actual transaction value at the time of acquisition of the assets. In the case of inherited assets, the value appraised under Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencement of inheritance is deemed as the actual transaction

According to Article 60(1) and (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 14388, Dec. 20, 2016; hereinafter the same), the value of the property on which inheritance tax is levied shall be the market value as of the date the inheritance commences, and such market value shall include the value which is generally deemed to have been established in cases of free transactions between many and unspecified persons, and the value which is recognized as the market value, as prescribed by Presidential Decree, such as the expropriation and public sale price, and the appraisal price. Article 49(1)2 (a) and (b) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 27835, Feb. 17, 2017; hereinafter the same shall apply) provides for the average value of the appraisal value appraised by two or more reliable appraisal institutions for a period of not more than six months before or after the date the inheritance commences, and the appraisal value not suitable for the purpose of payment, such as inheritance tax, or the above appraisal value shall be excluded.

According to the above, in calculating gains on transfer of inherited property, the market price of real estate should be recognized as the acquisition value at the time of commencing the inheritance. If the appraisal value by a reliable appraisal institution is the market price regardless of whether it was based on retroactive appraisal, the appraisal value by retroactive appraisal may also be recognized as the acquisition value (see Supreme Court Decision 2010Du8751, Sept. 30, 2010).

B) However, Article 97 (1) 1 (b) of the former Income Tax Act provides that "where it is impossible to confirm the actual transaction value at the time of acquisition, it shall be based on the transaction example value, appraisal value or conversion value as prescribed by the Presidential Decree." Article 163 (12) of the Enforcement Decree of the Income Tax Act delegated by it provides that "the value of transaction example, appraisal value or conversion value as prescribed by the Presidential Decree" means the value under the provisions of Article 176-2 (2) through (4). The main sentence of Article 176-2 (3) of the former Income Tax Act provides that "where the transfer value or acquisition value is estimated or revised by applying the following method in the order of priority, it shall be based on the value calculated by applying the following method in order." Article 176-2 (2) 2 of the former Income Tax Act provides that "Where there is an appraisal value which is evaluated by two or more appraisal business entities with respect to the relevant assets within three months before or after the date of transfer or acquisition (limited to those whose appraisal date is within three months before or after the date of acquisition date).

C) As seen earlier, inasmuch as Article 163(9) of the Enforcement Decree of the Income Tax Act provides that the value assessed under Articles 60 through 66 of the Inheritance Tax and Gift Tax Act shall be deemed as acquisition value, it is difficult to view that Article 97(1)1(b) of the former Income Tax Act and Article 163(12) of the Enforcement Decree of the Income Tax Act shall apply.

However, in calculating gains on transfer, “actual transaction value” refers to the actual transaction price in itself or at the time of transaction, and its meaning is not always the same as the general market price that reflects the objective exchange value (see, e.g., Supreme Court Decision 2009Du19465, Feb. 10, 201). In addition to cases where Article 97(1)1(b) of the former Income Tax Act and Article 163(12) of the Enforcement Decree of the Income Tax Act are applied as the acquisition price based on retroactive appraisal, it is necessary to apply more strict standards than the evaluation of objectivity or credibility in recognizing the appraisal value based on retroactive appraisal beyond the evaluation period as the acquisition price based on retroactive appraisal.

2) Whether the appraisal value of the instant case can be viewed as acquisition value

A) In light of the following facts and circumstances acknowledged by comprehensively taking account of the purport of the entire pleadings, it is difficult to view the appraisal value of the instant land as the acquisition value of the instant land.

(1) The appraisal value of this case is not the average appraisal value assessed by two or more reliable appraisal institutions within six months before or after the commencement date of the inheritance, which is the standard date of appraisal, but only one of the appraisal values assessed retroactively after the lapse of at least 14 years and six months from the commencement date

② The object of each appraisal above is nothing more than a part of the land before subdivision. The instant land, which was a part of the land before subdivision, was expropriated in sequence at O from 2011 to 2016. Considering the passage of time, division of the land, and rapid change in the surrounding environment, etc., it is difficult to view that the appraisal value of the instant land was appraised according to its original form at the time of commencing the inheritance, and thus, reflects the generally established objective value in the event that the instant land was freely traded between many and unspecified persons as at the time of the date of appraisal.

③ Since the exclusion period of inheritance tax on the Plaintiff’s inheritance of land before division is ten years from the date following the statutory due date of return (six months from the last day of the month in which the commencement date of inheritance falls), the Defendant may impose inheritance tax on the Plaintiff from June 1, 2003 to May 31, 2013, the day following the day on which six months elapsed from the end of the commencing date of inheritance, which was the date of commencing the inheritance. However, the Plaintiff reported and paid inheritance tax on the instant land based on the initial standard market price, and then, on May 2017 through June 6, 2017, requested two appraisal institutions with the exclusion period of inheritance tax to conduct an appraisal on the part of land before division as the assessment base date, and filed an application for rectification by recalculation the acquisition value of the instant land based on the highest of the two appraisal values. Considering these circumstances, it is difficult to view that the Plaintiff requested the reduction of capital gains tax after the lapse of the exclusion period of inheritance tax imposition, and objectively made an appraisal based on such appraisal.

(4) If inherited property becomes a subject matter of transfer by an heir later, it is logical that the original return value of inherited property becomes the acquisition value of capital gains tax. For this reason, Article 97(1)1 (a) of the former Income Tax Act and Article 163(9) of the Enforcement Decree of the Income Tax Act shall apply mutatis mutandis to the calculation of the acquisition value of inherited property under the Inheritance Tax and Gift Tax Act in calculating the acquisition value of inherited property. Considering this, it is difficult to view the appraisal value acquired through retroactive appraisal for the purpose of tax payment after the expiration of the exclusion period of inheritance tax, for the purpose of reduction

B) Therefore, the Defendant’s disposition rejecting the Plaintiff’s request for correction is lawful by taking the value of the instant appraisal as the acquisition value.

3. Conclusion

Therefore, all of the plaintiff's claims are dismissed, and it is so decided as per Disposition.