Where calculating the taxable value of donated property of a re-donation pursuant to Article 31-3 of the former Inheritance Tax Act, whether the taxable value of the donated property of the previous donated property whose exclusion period expires (negative)

Article 31-3 of the former Inheritance Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996; hereinafter “former Act”); Articles 47(2), 58(1), and 1, 2, 6, and 13 of the Addenda (wholly amended by Act No. 5196; hereinafter the same shall apply) of the Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193); in addition to the language and purport of Articles 1, 2, 6, and 13 of the former Inheritance Tax Act and the history of the amendment thereof, if a separate taxation requirement is established for each item of gift; thus, in order to impose a gift tax at a different time, it shall be separately imposed on the gift tax at the expiration of the previous taxable value subject to imposition of the gift tax (Article 31-3 of the former Act; Articles 47(2) and 58(1) of the amended Act, which is one of the following grounds for exclusion from the imposition period of gift tax at the expiration of the previous taxable value of gift tax (hereinafter referred to 10.).

Meanwhile, Article 58(1) of the amended Act and Article 6 of the Addenda to the amended Act for the purpose of fair taxation, prevention of tax avoidance, etc. (hereinafter “Additional Provisions”) stipulate not only the value of donated property shall be added to the taxable value of the previous donated property, but also the amount of the gift tax on the previous donated property shall not be deducted from the calculated tax amount. The purport of these provisions is that the tax liability for donated property has been established because the taxation requirements of the previous donated property and the previous donated property have already been completed before the amended Act enters into force, and even if the tax authority is unable to add the donated property to the taxable value of the previous donated property after the expiration of the exclusion period of imposition of gift tax at the time of the determination of imposition of gift tax, if the tax authority intends to impose gift tax after the revised Act enters into force, it is not allowed to impose gift tax on the previous donated property for which no gift tax may be levied. Rather, even if the tax authority decides to impose gift tax after the enforcement of the amended Act, it shall not be applied to the previous donated property under Article 13 of the Addenda to the amended Act.

Article 31-3 of the former Inheritance Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996; see Articles 47(2) and 58(1) of the current Inheritance Tax and Gift Tax Act); Articles 47(2) and 58(1) of the Inheritance Tax and Gift Tax Act; Articles 1, 2, 6, and 13 of the Addenda (Amended by Act No. 9911, Dec. 30, 1996); Article 26 subparag. 2 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 201)

Plaintiff (Law Firm LLC, Attorneys Jeong Il-sung et al., Counsel for the plaintiff-appellant)

Gangwon-gu Director of the District Office

Seoul High Court Decision 2013Nu6598 decided October 16, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 31-3 of the former Inheritance Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996; hereinafter “former Act”) provides that “When the total sum of the donated values received from the same person within five years prior to the pertinent donation exceeds KRW 10,000,00,000, gift tax shall be imposed by adding up the donated value, but the gift tax shall be imposed by deducting the amount paid or payable from the assessed amount of gift tax.”

Meanwhile, the Inheritance Tax and Gift Tax Act (wholly amended by Act No. 5193, Dec. 30, 1996; hereinafter “the amended Act”) provides that “where the aggregate of donated property received from the same person within five years before the date of the pertinent donation is at least 10,000 won, such value shall be added to the taxable value of donated property, but the amount of the gift tax paid or to be paid for the added donated property shall be deducted from the taxable value of donated property.” In addition, the proviso of Article 58(1) provides that “However, this shall not apply where a gift tax is not levied on donated property after the expiration of the period prescribed in Article 26-2(1)4 of the Framework Act on National Taxes on donated property” (Article 58(1) of the Addenda of the amended Act, which is the first provision on donated property to be added to the taxable value of donated property after the expiration of the period prescribed in Article 16(1)1 of the amended Act (Article 16 of the Addenda of the amended Act).”

2. In addition to the language, purport, and amendment history of these provisions, ① in a case where multiple donations take place at different timing as separate taxation requirements for each individual gift act, taxation should also be separately imposed; however, Articles 31-3, 47(2), and 58(1) of the former Act prevent a reduction of the amount of gift tax due to divisional donation by cumulative taxation of multiple donations received from the same person; and avoid double taxation by deducting the amount of gift tax calculated from the calculated amount of gift tax on the previous donation; ② Article 26 subparag. 2 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010) provides that “when national taxes are imposed within the period for which national taxes can be imposed, and national taxes cannot be imposed after the expiration of the period for imposition of national taxes, it shall be interpreted that the previous provision on the taxable value of gift should not be affected by the expiration of the period for exclusion of gift tax on the previous gift under Article 3 of the former Framework Act, notwithstanding the expiration of the period for exclusion of gift tax.

Meanwhile, as seen earlier, Article 58(1) of the amended Act and the provisions of the Addenda of this case provide that even if the exclusion period for gift tax on the previous donation expires, the value of donated property shall not be added to the taxable value of the previous donation, and the amount of gift tax on the previous donation shall not be deducted from the calculated tax amount. The purport of these provisions is that the tax liability for gift tax has already been completed prior to the enforcement of the amended Act, and the tax authority established the obligation to pay gift tax on the previous donation. In a case where the tax authority is unable to add the donated property to the taxable value of the previous donation at the time when the exclusion period for imposition of gift tax expires and the decision to impose gift tax on the previous donation after the enforcement of the amended Act, if the tax authority intends to impose gift tax after adding it to the taxable value of the next donation and without deducting the amount of tax. Rather, even if the tax authority decides to impose gift tax after the enforcement of the amended Act, it shall not be allowed to impose gift tax on the previous donation that was not subject to gift tax.

3. In this case, the Plaintiff: (a) received a bearer claim amounting to KRW 985,440,455 in total from his father in 1995; and (b) received a bearer claim amounting to KRW 655,255,912 on April 27, 1996; and (c) was liable to pay the tax on the second donation before the enforcement of the amended Act; (b) the lower court determined that Article 58(1) of the amended Act applies under the instant supplementary provision, deeming that Article 58(1) of the amended Act applies to the case where the period for exclusion of gift tax on the previous donation at the time of the enforcement of the amended Act, and that the Defendant calculated the amount of gift tax calculated by adding the amount of gift tax for the year 1995 donated to the taxable value of the gift at the expiration of the exclusion period by applying Article 58(1) of the amended Act on August 222, 2011 to the taxable value of the gift in 1996. However, it erred the judgment by misapprehending the legal principles on the scope of application.

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)