Where gift tax is imposed on the status of an insurance contract transferred to the donee by the donor, the method of calculating the value.

Articles 31(1), 34(1), and 60(1), (2), and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013);

Plaintiff 1 and three others (Law Firm Shin, Attorneys Lee Jong-soo et al., Counsel for the plaintiff-appellant)

The head of the sericultural Tax Office and two others

Seoul High Court Decision 2015Nu40400 decided September 2, 2015

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. As to the assertion of misapprehension of legal principles as to gift tax objects

A. Article 31(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “Gift”) provides that donated property subject to gift tax includes all things having economic value convertible into money and all de facto or de facto rights having property value. Article 60(1) of the same Act declares the principle of market value by stipulating that the value of the property subject to gift tax shall be in accordance with the market price as of the date of donation. Article 60(2) of the same Act provides that “where it is difficult to calculate the market price in applying paragraph (1), the value assessed by the method provided for in Articles 61 through 65 shall be deemed the market price in consideration of the type, size, transaction circumstances, etc. of the pertinent property.” Meanwhile, Article 34(1) of the same Act provides that the amount equivalent to the amount of insurance money shall be determined as the scope of application in cases where an insured risk occurs between the beneficiary and the beneficiary.”

Therefore, property belonging to the donee and of property value that can be converted into money is included in the donated property, and its value shall be calculated according to the market price as of the date of donation. However, if no donated property is freely traded among many and unspecified persons, and there is no other provision for valuation of its value, and thus its market price cannot be calculated immediately, it shall be imposed on the basis of the amount most appropriate for the property value of the pertinent donated property. In a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market price of the relevant insurance contract. On the other hand, in a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market price of the relevant donated property. On the other hand, when the insurance contract is terminated at the time of donation or the subscription is maintained at the time of donation, the monetary value of the various rights recognized in the status of the relevant insurance contract, such as refund money or various insurance money

B. 1) The lower court acknowledged the following facts based on the reasoning of the first instance judgment or the admitted evidence.

① On December 28, 2010, Nonparty 1 entered into two immediate pension insurance contracts with Nonparty 1, the policy holder and the beneficiary Nonparty 1, the insured Nonparty 2, the mother of Plaintiff 1 and Plaintiff 2, and the lump-sum payment of insurance premium of KRW 1,150,000,000. On the same day, Nonparty 1 entered into two immediate pension insurance contracts with Nonparty 1, the policy holder and the beneficiary as Nonparty 3, the insured as Nonparty 3, the mother of Plaintiff 3 and Plaintiff 4, and two immediate pension insurance contracts with the lump-sum payment of KRW 1,00,000 (hereinafter collectively referred to as “instant immediate pension insurance contracts”). The insurance premium was paid in full immediately after entering into the contract.

② On January 10, 201, Nonparty 1 changed the policyholder and beneficiary to Plaintiff 1 and Plaintiff 2 as to one immediate pension insurance for which the amount of lump-sum payment of the instant immediate pension insurance is KRW 1,150,000,000. On the same day, Nonparty 1 changed the policyholder and beneficiary to Plaintiff 3 and Plaintiff 4 as to one immediate pension insurance for which the remainder of the lump-sum payment is 1,00,000,000, respectively.

③ On March 29, 2013, the Plaintiffs deemed that the instant immediate pension insurance constituted the right to receive regular payments under Article 65(1) of the Inheritance Tax and Gift Tax Act and Article 62 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”), and reported and paid gift tax by evaluating the value of donated property to Plaintiffs 1 and 2 as KRW 842,706,838, respectively, and KRW 712,150,105, respectively.

④ According to the result of the gift tax investigation conducted by the director of Seoul Regional Tax Office around November 2013, the Defendants issued the instant disposition imposing the gift tax (including additional tax) calculated on the basis of the fact that: (a) the Plaintiffs received from Nonparty 1 the status of the contractor of the instant immediate pension insurance prior to the date of commencing the pension; and (b) the gift tax equivalent to the difference between the amount of the gift tax reported and paid by the Plaintiffs.

2) Next, the lower court determined that the disposition of this case’s immediate pension insurance amount is lawful, taking into account (i) Nonparty 1’s change of the contractor of the instant immediate pension insurance to the Plaintiffs, thereby succeeding to various rights and obligations under the terms and conditions of the instant immediate pension insurance contract; (ii) the right to refund insurance premium under the instant immediate pension insurance contract and the right to receive payment under the terms and conditions of the instant immediate pension insurance are acquired accordingly; and (iii) the value of the right to refund insurance premium under the instant immediate pension insurance was the total amount of paid-in insurance premium, which is the amount that can be refunded by the cancellation of subscription, given that the period of cancellation of subscription was not expired at the time of donation of the instant immediate pension insurance contract; (iii) the market price of the right to refund insurance premium assessed by the Plaintiffs is lower than that of the right to receive payment; and (iv) while the market price of the right to receive payment of the instant immediate pension amount is not determined as the amount determined as the amount of payment of the premium due to the cancellation of subscription.

C. Inasmuch as there is no provision that evaluates the value of a policyholder and beneficiary of the instant immediate pension insurance is freely traded between many and unspecified persons, there is no way to calculate the market price immediately. The Plaintiffs: (a) obtained the right to withdraw subscription of the instant immediate pension insurance and to receive the premium; and (b) according to the terms and conditions, the policyholder can receive the total amount of the premium paid without any restriction during the withdrawal period; (c) it is reasonable to deem that the value of the right to receive the instant immediate pension insurance is equal to the total amount of the paid-in premium that can be refunded by withdrawing subscription; (d) the Plaintiffs did not actually withdraw subscription of the instant immediate pension insurance at the date of donation; and (e) even if the withdrawal period of withdrawal of subscription was more than that of the instant immediate pension insurance, the Plaintiffs did not acquire the right to receive the benefits every month without maintaining the instant immediate pension insurance; (e) the Plaintiffs also acquired the status to receive the benefits, but the right to receive the benefits can not be determined by applying any change in the interest rate and value of the pertinent immediate pension at the time of donation payment.

Meanwhile, Article 34(1) of the Inheritance and Gift Tax Act does not apply to this case where the status of a contractor and a beneficiary of an immediate pension insurance transferred, and the Supreme Court Decision 2010Du5493 Decided June 24, 2010 cited as the grounds of appeal is not appropriate to make the case different from this case.

Therefore, the lower court’s determination that the instant disposition was lawful by deeming the amount equivalent to the instant immediate pension insurance premium, which is the value of the right to refund insurance premium due to the cancellation of order of the immediate pension insurance, as the value of policyholders and beneficiaries of the instant immediate pension insurance. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the timing of donation and the appraisal

2. As to the assertion of misapprehension of legal principles as to the principle of retroactive taxation prohibition

For the reasons indicated in its holding, the lower court determined that it is difficult to view that a taxation practice has been formed that the assessment of the value of donated property would depend on the assessment method of the right to receive the periodical pension when changing the policyholder and beneficiary of the immediate pension insurance to the extent sufficient to expect the general

In light of the relevant legal principles and records, the above determination by the court below is just, and there is no error by misapprehending the legal principles on the principle of prohibition of retroactive taxation.

3. As to the assertion of misapprehension of legal principles as to legitimate grounds for exempting additional tax

The lower court, on the grounds indicated in its reasoning, determined that it is difficult to view the Plaintiffs’ justifiable grounds for failing to properly perform their duty to pay gift tax.

In light of the relevant legal principles and records, the above determination by the court below is just, and there is no error in the misapprehension of legal principles as to legitimate grounds for exempting from penalty tax.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jae-hyung (Presiding Justice)