Cho High Court Decision 201Do3524 ( November 24, 2011)

The calculation of the value of donated property shall not be deemed an objective and reasonable method.

It cannot be deemed that calculating the value of donated property is based on objective and reasonable methods, as well as that it is unlawful against predictability or taxation, by increasing the difference between the value of stocks and the value of stocks prior to the donation of real estate without compensation or by increasing the value of stocks through the contribution.

2012Guhap4784 Revocation of Disposition of Imposition of Gift Tax

AAA

The Director of Gangnam District Office

March 29, 2013

May 24, 2013

1. The Defendant’s imposition of gift tax of KRW 000 (including additional tax of KRW 000) against the Plaintiff on July 1, 2011 shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the plaintiff, and the remainder by the defendant.

The disposition of imposition of gift tax of KRW 000 (including additional tax of KRW 000) against the Plaintiff on July 1, 2011 is revoked.

1. Details of the disposition;

A. At the time of January 2006, the branchB held 5,000 shares (10% of the total number of shares issued) issued byCC Building Co., Ltd. (DDD Co., Ltd. on January 20, 2010; hereinafter referred to as “instant company”).

B. On February 27, 2006, the branchB transferred the aggregate of 4,182 shares (83.64% of the total number of shares issued, hereinafter referred to as "the shares of this case") issued by the company to eight persons including the plaintiff (hereinafter referred to as "the plaintiff, etc.") who are related parties as follows, at par value of 00 won per share.

C. On February 28, 2006, DoE, which is a part of the branchB, donated to the company of this case the buildings of 000 OOdong 2,112 m2 and 3 m2 above ground (hereinafter referred to as the "real estate of this case"), and on March 3, 2006, the registration of ownership transfer was made in the name of the company of this case with respect to the real estate of this case.

D. The instant company included KRW 000,000 in the gross income for the donation of the instant real estate by NA, and reported and paid KRW 000 in the corporate tax in 2006.

E. On April 201, the director of the Seoul Regional Tax Office imposed capital gains tax on the Plaintiff, etc. on the transfer of the instant shares by applying the provision of unfair calculation book for unlisted stocks between the related parties, and notified the Defendant of taxation data by applying Articles 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006) by deeming the difference between the transfer value of the instant shares and the value calculated based on the supplementary evaluation method to be a donation profit from the transfer at a low price, and imposing gift tax on the Plaintiff, etc., the transferee, etc., as the Plaintiff was donated to the Plaintiff due to the increase in the value of the Plaintiff’s shares due to the gift of the instant real estate by the instant company.

F. Accordingly, the Defendant decided and notified the Plaintiff on July 1, 201, and the gift tax of KRW 000 (including additional tax of KRW 000, including KRW 1000, and KRW 200) in relation to the transfer of the instant stocks, and the gift tax of KRW 000 in relation to the gift of the instant real estate (including additional tax of KRW 000, and hereinafter referred to as “instant imposition of gift tax of KRW 2”).

G. On September 23, 2011, the Plaintiff appealed to the Tax Tribunal, and the said claim was dismissed on November 24, 201.

[Based on Recognition] The facts without dispute, Gap evidence 1 through 3, evidence 16 (including each number, hereinafter the same shall apply), and Eul evidence 1 to 4, and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

1) The imposition of gift tax No. 1 of this case

The difference between the transfer value of the instant shares and the value calculated by the supplementary assessment method, and the imposition of gift tax on the Plaintiff, the transferee, while imposing transfer income tax, constitutes double taxation on the difference between the market value and the actual transaction value, and the imposition of gift tax on the first of this case is unlawful.

2) Imposition of gift tax No. 2 of the instant case

The imposition of gift tax No. 2 of this case is unlawful for the following reasons.

(A) taxation based on Article 2(3) of the Act;

Article 2 (3) of the Act is a confirm and declared provision on the concept of donation, and it does not stipulate requirements for the imposition of gift tax, calculation method of gift tax, etc., and it violates the principle of no taxation without law to impose gift tax on the basis of these provisions.

B) a taxation based on Article 42(1)3 of the Act;

The gift of the real estate of this case does not fall under the "acquisition and transfer of business" under Article 42 (1) 3 of the Act, and "transfer of organization of the corporation", and the company of this case has deficits, and Article 41 (1) 1 of the Act applies to the gift of this case to the company of this case. Thus, the imposition of gift tax of this case 2 of the gift tax is illegal.

C) Taxation on unrealized benefits

The imposition of gift tax of this case on the second gift tax of this case is conducted on unrealized gain of stock value increase, and in order to impose unrealized gain, it is necessary to solve the problems such as fair and accurate measurement of gain subject to taxation, and establishment of supplementary regulations on the decline in the value of assets. Nevertheless, the Defendant’s imposition of gift tax by deeming the unrealized gain as taxable gain without resolving such preliminary issues as the gain subject to taxation is contrary to the principle of excessive prohibition under the Constitution.

(d) double taxation;

The instant company has already paid corporate tax on the donation of the instant real estate, and the Plaintiff bears the dividend income tax when receiving dividends from the instant company, and the transfer income tax when transferring the instant stocks. Nevertheless, the Defendant’s imposition of gift tax on the Plaintiff in relation to the donation of the instant real estate violates Article 2(2) of the Act prohibiting double taxation against the uniform taxable object.

E) Violation of the principle of equality

The tax authorities impose gift tax on shareholders only when stocks value increase as a capital transaction of a juristic person, and when stocks value increase as a capital transaction of a juristic person, no gift tax is imposed on shareholders, and since both have increased the value of stocks as a transaction of a juristic person without the shareholder’s property contribution, the economic substance is the same. Therefore, imposing gift tax only when stocks value increase as a capital transaction without reasonable grounds is contrary to the equality principle

F) Violation of imposition of penalty tax

Even if the second gift tax imposition disposition (main tax part) of this case was lawful, and the defendant has authoritative interpretation to the effect that gift tax is not imposed on matters similar to the gift of the real estate of this case several times from March 2006, and the plaintiff trusted the gift of this case and did not report and pay gift tax around March 2006, and therefore, it constitutes a case where there is a justifiable reason for violating the plaintiff's duty to report gift tax. Accordingly, the penalty tax portion of the second gift tax imposition disposition of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination on the imposition of gift tax No. 1 of this case

1) As gift tax and capital gains tax vary between the requirements and timing for establishing tax liability and taxpayers, in cases where the tax authority imposes each disposition, it shall be judged independently in accordance with the respective taxation requirements, and if both of them meet the respective taxation requirements, only one taxation can be made, unless there is any special provision excluding double application. Article 2(2) of the Inheritance Tax and Gift Tax Act provides that gift tax shall not be imposed when income tax is imposed on a donee pursuant to the Income Tax Act on donated property under paragraph (1). However, in light of the language and text thereof and the nature of the gift tax as a supplementary tax for income tax, in cases where gift tax is imposed on a donee, it does not fall under any special provision excluding overlapping application of capital gains tax and provisions excluding double application of gift tax (see, e.g., Supreme Court Decisions 98Du11830, Sept. 21, 199; 2002Du12458, May 13, 2003).

2) As seen earlier, with respect to the transfer of the Company’s shares at low price by the branchB to the Plaintiff, etc., the Defendant imposed the transfer income tax on the Plaintiff, etc. on the difference between the actual transfer value of the shares and the value assessed by the supplementary assessment method of the Company’s shares, one form of gift tax was imposed on the Plaintiff, etc., and the assessed value was the transfer value.

3) Examining these facts in light of the aforementioned legal principles, and the imposition of capital gains tax on the first gift tax and the branchB of the instant case cannot be deemed to constitute double taxation, and the imposition of the first gift tax in this case cannot be deemed to have violated Article 2(2) of the Act. Therefore, this part of the Plaintiff’s assertion is without merit.

D. (1) The introduction and purport of the complete comprehensive taxation of gift tax, which is based on Article 2(3) of the Act, is to determine whether to impose gift tax on the 2nd gift tax of this case

The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the "former Act") borrowed the concept of gift under the Civil Act that "in order to clarify which act is a gift, one of the parties expresses his/her intention to confer property to the other party without compensation and the other party approves it," which takes effect upon the other party. However, the concept of such gift does not have any way to prevent the phenomenon in which gift tax was evaded through the transfer of property beyond the form of gift under the Civil Act without compensation, so the tax authorities did not include the concept of gift under the Civil Act, but did not include the concept of gift under the Civil Act, and even if it did not include the concept of gift under the Civil Act, have provided a provision explaining the type of act and method of calculating gift tax so that gift tax may be imposed on it (Article 32 through 42 of the former Act). However, if the concept of gift tax was introduced through the amendment of the Civil Act and the comprehensive method of gift taxation, it did not constitute a new provision or a new provision on gift.

B) Contents of the complete comprehensive gift tax

Article 2(3) of the Inheritance Tax and Gift Tax Act amended by Act No. 7010 on December 30, 2003 concluded that even if a tangible or intangible asset, which is valuable, is transferred without compensation, or is not transferred without compensation, or is not used by the method of transfer, in a direct or indirect manner, to another person by which economic value can be calculated regardless of the name, form, purpose, etc. of the act or transaction, all of the valuable tangible or intangible asset should be considered as a "donation", and even if the method of transfer is not used, if the value of the other party's property increases due to one's act, it shall be subject to the imposition of a gift tax as a donation under tax law. Accordingly, the various regulations stipulated in Articles 32 through 42 of the former Act are included in the concept of donation under the premise that the transfer of property or increase in value due to such type of transaction or act is included in the concept of donation under Article 2(3) of the Inheritance Tax and Gift Tax Act.

C) Whether gift tax may be imposed pursuant to Article 2(3) of the Act

① As such, in order to impose gift tax on the increase or decrease in value of various forms of free property that have not been predicted by legislators, the concept of donation has been introduced by complete comprehensiveism under Article 2(3) of the Act, and ② accordingly, the existing provisions on deemed donation have been changed to the calculation rules on donated property, which, in any case, is intended to enhance predictability as to whether the concept of donation is included in the concept of donation and to suggest the method of calculating the donated property if there is a similar type of gift in any case (see Article 2(3) of the Act, which is not a provision on deemed an example of existing deemed donation, and is limited to cases where the transfer form of property exceeds the concept of donation under the Civil Act is stated in the relevant provisions, and Article 2(3) of the Act has been established comprehensively with the concept of donation as above, and Article 2(3) of the Act has been established with the meaning of "the gift tax is imposed on the donated property of another person," and Article 2(3) of the Act has been applied with the concept of gift tax to all Articles 2 through 31 of the Act.

D) Sub-determination

ZE transferred to the Plaintiff significant interest in the increase in the value of the shares of the instant company by gifting the instant real estate to the instant company, and this constitutes “donation” as stipulated in Article 2(3) of the Act, and this part of the Plaintiff’s assertion is without merit.

2) The meaning of Article 42(1)3 of the Act as to the calculation of value of donated property

Article 2(3) of the Act only provides for the taxable object subject to the application of the "total comprehensive taxation of gift tax" and does not provide for the method of calculating the value of donated property acquired through the donation. This seems to be due to the fact that Article 2(3) of the Civil Act directly provides for the method of calculating the value of donated property in the form of "total taxation of gift tax" is impossible in the legislative form. As seen earlier, the legislators introduced the complete comprehensive taxation of gift tax; while expanding the scope of taxation of gift tax; while calculating the value of donated property (based on this, the tax base is calculated) under the title of Section 2 of Chapter 3 of the Act, "Calculation of the value of donated property", the existing individual provision on donated property (Articles 32 through 42 of the former Act) is converted to the example provision on the calculation of the value of donated property; in light of the background and legislative intent of the comprehensive taxation of gift tax, it cannot be deemed that the specific provision on the taxation of gift property is not in violation of the legal form of the specific taxation requirement and the scope of the taxation requirement.

B) Relationship under Articles 41(1)1 and 42(1)3 of the Act

In addition to donations under Articles 33 through 41, 41-3 through 41-5, 44, and 45, Article 42(1) of the Act, where profits falling under any of the following subparagraphs, other than donations under Articles 33 through 41, 41-3 through 41-5, and Articles 44 and 45, are above the standard prescribed by the Presidential Decree, such profits shall be deemed the value of donated property of the person who has acquired such profits. In addition, Article 43(1) of the Inheritance Tax and Gift Tax Act amended by Act No. 10411 of December 27, 2010, amended by Act No. 1041, Article 33(1) of the Inheritance Tax and Gift Tax Act (amended by Act No. 10411 of Dec. 27, 2010, Article 33(1) of the Inheritance Tax and Gift Tax Act shall not apply to one gift, and Article 41(1)4(1) of the Act shall not apply to the same.

C) Whether Article 41(1)1 of the Act is applied

Article 41 (1) 1 of the Act provides a specific corporation with property free of charge to the shareholders of such specific corporation, and Article 41 (1) 2 of the Act provides that "where the shareholders of such specific corporation gain profits, the amount equivalent to such profits shall be deemed as the value of property donated to the shareholders of such specific corporation," while Article 31 (1) 1 of the Enforcement Decree of the Act (amended by Presidential Decree No. 1989 of Feb. 28, 2007) provides that "where the shareholders of such specific corporation have losses, or have special relationship with them, the amount equivalent to such profits shall be deemed as the value of property donated to the shareholders of such specific corporation, and where the shareholders of such specific corporation are calculated with respect to the profits they acquired, the amount of losses incurred during the specific business year under paragraph 1 of Article 18 (1) 1 of the Enforcement Decree of the Corporate Tax Act shall be deemed as 0 (not including losses incurred to the corporation under the Securities and Exchange Act) that falls under paragraph 10 of the same Article.

(d)Smallness;

Therefore, as long as Article 41(1)1 of the Act applies to the gift of the real estate of this case, Article 42(1)3 of the Act, which is a supplementary provision, cannot be applied. Thus, the imposition of gift tax of this case on different premise, which is subject to the different premise, is unlawful without any need to further examine the remainder of the Plaintiff’s assertion.

3. Conclusion

If so, the plaintiff's claim of this case is accepted within the above scope of recognition, and the other claim is dismissed as it is without merit. It is so decided as per Disposition.