Appropriateness of valuation of donated property

Basic rules are merely guidelines for the administration of affairs within the national tax administrative agencies, and there is no legal binding force on the court or the general public, so the taxation of this case is illegal because it constitutes the taxation of this case by the general rules.

Article 61 of the Inheritance Tax and Gift Tax Act

General Provisions of the Inheritance Tax and Gift Tax Act 61-50.5 (Method of Valuation of Property under Actual Lease Contract)

1. The defendant filed a lawsuit to impose gift tax of KRW 98,863,200 on the plaintiff on May 3, 2005.

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

The same shall apply to the order.

1. Details of taxation; and

A. On September 2, 2003, the Plaintiff: (a) leased 4,000,000 monthly rent for ○○○○-dong, Seoul, ○○○○○○-○○○○, 314.8 square meters (hereinafter “instant land”); and (b) newly constructed a building on the instant land, the second and nine stories underground (hereinafter “instant building”). On September 2, 2003, the Plaintiff leased the instant land and the instant building to receive KRW 950,450,00 as a rental deposit, and received KRW 40,074,750 per month as a rent.

B. On December 31, 2003, the Plaintiff: (a) donated the instant land from Song○○; (b) provided the instant land as a collateral by Song○○○○; and (c) acquired the obligation of KRW 1.5 billion on the loan; (b) assessed the value of the instant land according to the officially announced value on February 20, 2004 according to the officially announced value; and (c) assessed the value of the instant land as KRW 1,983,240,000 ( KRW 6,300,000 per square meter X 314.8 square meters); and (d) calculated and paid the gift tax as KRW 483,240,00 ( KRW 1,983,240,240,000; 1,500,000,0000) and the tax amount as KRW 72,583,200.

C. Under Article 61(7) of the Inheritance Tax and Gift Tax Act (hereinafter referred to as the “Act”), the Defendant calculated the value of the instant land and buildings by adding 3,62,100 won [40,074, X 12] ± 0.18,450,000] to the amount calculated by dividing the annual rent by the rate (0.18), as prescribed by the Ordinance of the Ministry of Finance and Economy, under Article 61(7) of the Inheritance Tax and Gift Tax Act (hereinafter referred to as the “Act”) by 3,62,10,00 won by the total amount of rental deposit, and then calculated by adding 1,983,240,240,767,407,407,630,740,740,740,740,707,507,709,709,7406,7407,506,705,7405,7,307,74004,7,4007,

[Reasons for Recognition] Facts without dispute, Eul evidence Nos. 1 through 4, Eul evidence No. 5-1 and 2, and the purport of the whole pleadings

2. Whether the taxation disposition is legitimate

A. The parties' assertion

(1) Plaintiff

In order to calculate the value of the instant land under Article 61(7) of the Act, the above provision shall not apply in cases where a lease contract has been concluded on the instant land itself or where a lease registration has been completed with respect to the instant land owned by a third party, and where the owner of the instant building leases the instant land en bloc with the land owned by a third party as in this case. However, the above general rule provides for the aforementioned provisions by establishing a new method of appraisal, which is not provided for in Acts and subordinate statutes, and thus, is in violation of Article 61(7) of the Act. Therefore, in calculating the value of the instant land, the Defendant erred in the misapprehension of the converted amount of the rent of the instant land under Article 61(1) and (7) of the Act by comparing the officially announced land value (4,66,660,000 = (4,000), 0.18) ± (1,983,240,000) and the officially announced land value (1,983,240,00).

(2) Defendant

In a case where the rent that the Plaintiff paid to Song○○ and the rent that the Plaintiff received from a third party are different, even if the rent that the Plaintiff received is paid for all of the land and buildings, if it can be reasonably divided according to the standard market price, etc., then the rent that the Plaintiff received from a third party is reflected in the market price. As such, it is more reasonable to calculate the value of the land of this case in proportion to the calculation in accordance with Rule 61-50, 50, and 3 (a) of the Act based on the market price.

(b) Related statutes;

○ Article 60 of the Act on Assessment, etc.

(1) The value of property on which an inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 63 (2))

(2) The market price referred to in paragraph (1) shall be the price which is deemed to be normal in cases of free trade between many and unspecified persons, and shall include the price of confinement and public auction, appraisal price, and others recognized as the market price, as prescribed by

(3) In the application of paragraph (1), where it is difficult to calculate the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, size, transaction status, etc. of the relevant property.

(4) In applying paragraph (1), the value of the donated property added to the value of the inherited property pursuant to Article 13 shall be based on the market price as of the date of donation.

Article 61 of the Act (amended by Act No. 7335 of January 14, 2005)

(1) Real estate shall be appraised by the following methods:

1. Land:

The individual officially assessed land price under the Public Notice of Values and Appraisal of Lands, etc. Act (hereinafter referred to as the “individual assessed land price”): Provided, That the value of the land for which no officially assessed individual land price exists, shall be the amount assessed by the superintendent of the competent tax office by a method as determined by the Presidential Decree, taking into consideration the officially assessed individual land price

2. Buildings:

The value calculated and publicly notified by the Commissioner of the National Tax Service at least once a year in consideration of the new construction price, structure, purpose of use, location, year of new construction, etc.

(7) In cases of property, the lease contract of which is de facto concluded or the lease of which is registered, the larger amount between the value assessed on the basis of rent, etc. as prescribed by Presidential Decree and the value assessed under the provisions of paragraphs (1) through (6).

Article 50 of the Enforcement Decree of the Act

(7) The term “value appraised under the conditions as prescribed by the Presidential Decree” in Article 61 (7) of the Act means the aggregate of the amount obtained by dividing rents for one year by the rate as prescribed by the Ordinance of the Ministry of Finance

Article 15-2 (Calculation of Lease Price) of the Enforcement Rule of the Act

"Rate prescribed by the Ordinance of the Ministry of Finance and Economy" in Article 50 (7) of the Decree means 18/100.

○ Method of Valuation of Property under a de facto rental contract under General Rule 61-50, 5 of the Act

In evaluating the conversion of land and buildings (including the area not used or leased by a person himself/herself; hereafter the same shall apply in this Article) of which a lease contract is de facto concluded or for which a lease contract is registered under Article 61 (7) of the Act and Article 50 (7) of the Decree into the rent and a lease deposit (hereafter referred to as "rental deposit, etc." in this Article) for land and buildings, the evaluation shall be based on the classification, etc. of ownership of land

1. Where the owners of land and buildings are the same;

The conversion price of rental deposit, etc. shall be based on the conversion price of land and buildings, and the price of land and buildings shall be calculated in accordance with the price assessed under Article 61 (1) through (6) (hereafter referred to as "standard market price" in this Article).

3. Where the land or building is leased to a third party.

(a) Where a building owner leases a parcel of land from a landowner to a third party, the value of land and buildings shall be assessed based on the conversion price of rental deposits, etc. received by the third party by the building owner, and the classification of land and building values shall be calculated based on the standard market price of land and buildings. In such cases, where the appraised value of land calculated in such calculated calculation is less than the rental deposit paid to the landowner

○ Determination, public announcement, etc. of individual land price (amended by Act No. 7335 of January 14, 2005) under Article 10-2 of the Act on the Publication of Land Prices and the Evaluation of Land, etc.

(1) In order to impose development charges under the Restitution of Development Gains Act and use them for the calculation of land prices for other purposes prescribed by other Acts and subordinate statutes, the head of a Si/Gun/Gu shall, after deliberation by the Si/Gun/Gu Land Appraisal Committee under Article 12-2, determine and publicly announce the price per unit area of individual land (hereinafter referred to as the "individually announced land price") within his/her jurisdiction as of the basic date of the officially announced land price each year, and provide it to the relevant administrative agencies, etc.: Provided, That with respect to the land which is not subject to imposition of the land price, taxes or charges, and other land prescribed by Presidential Decree, the officially announced land price may not be determined and publicly announced. In such cases

(2) The head of a Si/Gun/Gu shall determine and publicly announce the officially assessed individual land price for land for which division, merger, etc. has occurred after the basic date, based on the dates prescribed by Presidential Decree.

(3) Where the head of a Si/Gun/Gu determines and publicly announces the officially assessed individual land price, he/she shall calculate the land price by using the land price ratification table on the basis of the officially announced land price of one or more reference land deemed to have similar usefulness to the relevant land, but shall ensure that the price of the relevant land and the officially announced land

(4) When the head of a Si/Gun/Gu calculates the price of individual land in order to determine and publicly announce the officially assessed individual land price, he/she shall verify the propriety of the price by an appraisal business entity and hear the opinions of landowners and other interested persons: Provided, That where it is deemed unnecessary to verify the land price, the head of a Si/Gun/Gu may omit the verification of appraisal business entity's land price changes or

(5) Where the Minister of Construction and Transportation deems it necessary for efficiently promoting the determination and public announcement of the officially assessed individual land price, he/she may designate an appraisal business entity who investigates and evaluates the officially assessed land price of the relevant area or an appraisal business entity who has excellent appraisal performance, etc. as prescribed by Presidential Decree as an appraisal business entity to conduct verification under paragraph (4), and the head of a Si/Gun/Gu shall request this appraisal

(6) When the head of a Si/Gun/Gu intends to determine and announce the officially assessed individual land price, he/she shall obtain confirmation from the Minister of Construction and Transportation, and when the Minister of Construction and Transportation intends to confirm the officially assessed individual land price, he/she shall undergo

(7) The Minister of Construction and Transportation may guide and supervise the head of a Si/Gun/Gu with regard to the determination, public announcement, etc. of the officially assessed individual land price, where deemed necessary for promoting the rational development of the officially assessed individual land price and for maintaining a balance between the officially assessed individual land price and the officially assessed individual land price.

(8) Except as otherwise expressly provided for in paragraphs (1) through (7), matters necessary for the calculation, verification, determination, and public announcement of the officially assessed individual land price, hearing of interested parties, designation of appraisal business entities, etc. shall be prescribed by Presidential Decree

C. Determination

In principle, the Act provides that the value of the property on which gift tax is levied shall be appraised on the basis of the market price on the donation date (Article 60 of the Act). However, in the case of real estate, in consideration of the fact that there is no market price which is freely traded between many and unspecified persons due to its characteristics, it is difficult to calculate the market price, the "individually announced land price" is stipulated as a supplementary assessment method, and the "building standard market price which is the value calculated and publicly announced by the Commissioner of the National Tax Service at least once a year in consideration of the newly constructed price, structure, use, location, new construction year in the case of a building (Article 61(1) of the Act). In addition, in consideration of the fact that the above officially assessed land price and the building standard market price are not accurately reflected in the market price, the method of assessing the value of the real estate acquired by lease shall be determined at the rate calculated by the Ordinance of the Ministry of Finance and Economy on the basis of annual rent, and it shall be determined at the larger

However, as in the instant case, the Act does not provide for the case where the owner of land and a building enters into a lease agreement en bloc, but only stipulates that the value shall be assessed by dividing it by the ratio of the standard market price of land and a building in the case of general rules 61-50, 50, and 3

The general rules of the law are merely guidelines for the administration of affairs inside the national tax administrative agency, and there is no legal binding force on the court or the general public. Thus, the court can refer only to reference for the reasonable interpretation of the tax law. If such general rules are unreasonable or they are newly restricted, and if it cannot be accepted as the basis of legal interpretation because they are the contents that limit the people's property rights, it shall not be exempted even if the defendant issued a tax disposition in accordance with the general rules.

In light of the principle of the market price assessment, in case where land and buildings are leased en bloc, it is reasonable to divide the converted amount of rent into the portion of land and the portion of the building, the individual land price and the ratio of the standard market price of the building should be reflected in the market price at the same ratio. However, in this case, there is no evidence to acknowledge that both are reflecting the market price at the same ratio, and the individual land price is determined and publicly announced by appraisal business entity through verification, etc. based on the officially announced price of the officially announced land as determined by the Minister of Construction and Transportation and the head of the Si/Gun/Gu. In addition, it is known that the market price of the standard market price of the building could not reach that of the officially announced land price.

Despite the circumstances, interpreting that the rent conversion amount should be divided into the ratio between the officially assessed individual land price and the building standard market price is unreasonable, and rather, it would result in an excessive increase of the amount of gift tax by excessively assessing the value of land. Therefore, applying the general rule 61-50, 53 (a) of the Act in this case as the interpretation method under Article 61 of the Act cannot be accepted (where there is no other reasonable method that can divide the total rent conversion amount of land and building into the land and the building, the value of land cannot be calculated by using it, and in this case, the value of land can not be calculated by using it, and in this case, the value of land should be calculated according to the officially assessed individual land price, such as the Plaintiff’s calculation.

Therefore, the defendant's taxation disposition of this case is illegal, and the plaintiff's assertion that points this out is justified.

3. Conclusion

Therefore, the plaintiff's claim is justified and it is so decided as per Disposition with the assent of all participating Justices.