In a case where a person operating a public project is not included in the taxable value of the property as contribution before the enforcement of the former Inheritance Tax Act, but after the enforcement of the same Act, he/she owns more than 20/100 of the total number of outstanding shares of the domestic corporation as the above property contributed to the public project (negative)

In the proviso of Article 8-2 (1) 1 of the former Inheritance Tax Act (amended by Act No. 4662 of Dec. 31, 1993), where a person operating a public business owns property other than stocks in excess of 20/100 of the total amount of issued and outstanding stocks of a domestic corporation after having received a contribution of property other than stocks, the excess portion calculated as prescribed by the Presidential Decree shall not be included in the taxable value of the domestic corporation. The imposition of gift tax is based on Article 29-2 (1) of the same Act which provides for the liability to pay general gift tax. Thus, where gift tax is imposed on the property falling under the item of comprehensive title among the proviso of Article 8-2 (1) 1 of the same Act, it is difficult for the person operating a public business to strictly include the property other than stocks in the taxable value of the domestic corporation, and if the amount contributed exceeds 20/100 of the total amount of issued and outstanding stocks of the domestic corporation, it shall not be deemed that it still holds more than 10/10 of the total amount of issued and outstanding stocks of the domestic corporation.

Article 8-2 (1) 1 of the former Inheritance Tax Act (amended by Act No. 4662 of Dec. 31, 1993), Article 29-2 (1) 1 (see current Article 16 (2) and Article 48 (1) of the Inheritance Tax and Gift Tax Act), Article 3 of the Addenda (see current Article 2 (1) 1 of the Inheritance Tax and Gift Tax Act), Article 8-2 (4) 3 of the former Inheritance Tax Act (amended by Act No. 5193 of Dec. 30, 1996) (see current Article 48 (2) 2 of the Inheritance Tax and Gift Tax Act)

School Foundation Public Educational Institutes (Attorney Yoon Young-young, Counsel for defendant-appellant)

[Defendant-Appellee] The Head of Dong-gu District Office

Daejeon High Court Decision 96Gu2383 delivered on June 13, 1997

The judgment of the court below is reversed and the case is remanded to Daejeon High Court.

We examine the grounds of appeal.

Article 8-2 (1) 1 of the former Inheritance Tax Act (amended by Act No. 4283 of Dec. 31, 1990 and amended by Act No. 4662 of Dec. 31, 1993; hereinafter referred to as the "Act") provides that property contributed to religious business, charity business, academic business and other public services shall not be included in the taxable value of inherited property: Provided, That where a person operating public services contributes shares exceeding 20/100 of the total issued and outstanding stocks of a domestic corporation (including where the property, other than shares, is contributed and the property, other than shares, exceeds 20/100 of the total issued and outstanding stocks of the domestic corporation) (including where the property, other than shares, is owned in excess of the total issued and outstanding stocks of the domestic corporation, and Article 29-2 (1) 1 of the former Inheritance Tax Act provides that a person who has acquired property through a donation of another person is obligated to pay gift tax pursuant to this Act, and Article 34-7 of the proviso of the Act provides that Article 10-1 of the Addenda shall apply mutatis mutandis.

However, unlike Article 8-2 (4) 3 of the former Inheritance Tax Act (amended by Act No. 4662 of Dec. 31, 1993), where a person who received property contributed to public services and not included in the taxable value of inherited property uses such property to acquire stocks of a domestic corporation, and where the acquired stocks and stocks, etc. owned at the time of acquisition exceed a certain ratio of the total issued and outstanding stocks of the domestic corporation concerned, the value prescribed by the Presidential Decree shall be deemed as donation and the gift tax shall be imposed immediately on the domestic corporation. Unlike the proviso of Article 8-2 (1) 1 of the Act, where the person who received such donation without any provision regarding the donation thereof owns the property exceeding 20/100 of the total issued and outstanding stocks of the domestic corporation after receiving the donation of property other than stocks, the portion exceeding the value calculated according to the Presidential Decree shall be included in the taxable value of the domestic corporation, and where the person who received the donation after receiving the donation exceeds 20/100 of the total issued and outstanding stocks of the domestic corporation, it shall be interpreted to be subject to taxation of gift tax pursuant to 20/10.

Nevertheless, the court below should interpret the provision of the proviso of Article 8-2 (1) 1 of the Act to the effect that if the plaintiff acquires shares after the enforcement of the Act and owns shares in excess of 20/100 of the total amount of issued shares of the company, the provision of the above amendment shall apply to the case where the plaintiff acquired shares after the enforcement of the Act and owns shares in excess of 20/100 of the total amount of issued shares of the company after the enforcement of the Act. Thus, the court below held that the above amendment provision shall apply to the case where the plaintiff acquired shares in excess of 20/100 of the total amount of issued shares of the company after January 1, 1991 as a property contributed before December 31, 199, even if it acquired shares in excess of 20/100 of the total amount of issued shares of the company. The court below erred in the misapprehension of legal principles as to the subject matter of gift tax and Article 3 of the Addenda of the Act, which affected the conclusion of the judgment. The ground for appeal assigning this error

Therefore, the judgment of the court below is reversed and the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Yong-hun (Presiding Justice)