Evaluation of the value of donated property with a mortgage;

In assessing the value of donated property over which a mortgage has been established, where the right to collateral security is established with the amount higher than the actual value of the relevant land as the maximum debt amount, the taxpayer may assess the actual value as the value of donated property by proving the exceptional circumstances.

Special cases of appraisal of assets whose mortgage, etc. is created under Article 66 of the Inheritance Tax and Gift Tax Act

The defendant's disposition imposing gift tax of KRW 70,833,230 on the plaintiff on March 3, 2005 shall be revoked.

Costs of lawsuit shall be borne by the defendant.

1. On July 28, 2004, the Plaintiff: (a) donated the value of the instant land to 35,305,000 (33,094,600 + 2,210,400 won + 2,450 won) on the basis of the officially assessed individual land price; and (b) paid KRW 477,450 on the basis of the gift tax calculated on March 3, 2006, the Defendant assessed the value of the instant land as KRW 4400 million on the ground that the secured debt amount was set up in the future in ○○ Industry Co.,, Ltd. pursuant to Article 66 of the Inheritance Tax and Gift Tax Act and Article 63 of the Enforcement Decree of the same Act; and (c) assessed the value of the instant land as KRW 36,305,00 on the basis of the publicly assessed individual land price.

2. We examine the relevant provisions as stated in the separate sheet. Article 66 of the Inheritance Tax and Gift Tax Act and Article 63(1) of the Enforcement Decree of the same Act provide for the purpose of calculating a value close to the market price by supplementing the provisions of Article 60(1) that sets the market price principle with respect to the appraisal of donated property. In the event of setting the right to collateral security, it can be deemed that the maximum debt amount is determined within the actual price of the property, and there is a reasonable ground to view that it is equivalent to the actual price of the property, if the maximum debt amount is calculated within the actual price of the property, the actual maximum debt amount is determined within the scope of the transaction. Thus, if the right to collateral security is established with a higher amount than the actual price of the property, the taxpayer may exceptionally be exempted from the application of the above provision by proving such exceptional circumstances with the view of setting the maximum debt amount (see, e.g., Supreme Court Decision 91Nu2137, Mar. 23, 1993; the appraisal value of the property at issue No. 1 through No. 16, 120.

3. If so, the plaintiff's claim is reasonable, and it is so decided as per Disposition.

Relevant Provisions

Inheritance Tax and Gift Tax Act

Article 60. Principles, etc. of Appraisal

(1) The value of property on which an inheritance tax or a 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 6

(2) The market price under paragraph (1) shall be the price which is considered to be normal in the case of free trade between many and unspecified persons, and shall include the public auction price and appraisal price, and other things which are deemed to be the market price under the conditions

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

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

Article 61 Appraisal of Real Estate, etc.

(1) Real estate shall be appraised by the methods prescribed in one of the following subparagraphs:

1. Land:

The officially assessed individual land price under the Public Notice of Values and Appraisal of Real Estate Act (hereinafter referred to as the "officially assessed individual land price"): Provided, That the value of the land for which no officially assessed individual land price exists shall be the amount appraised by the method as determined by the Presidential Decree in consideration of the officially assessed individual land price of neighboring similar land, and with respect to the land in the area prescribed by the Presidential Decree

Article 66 (Special Cases concerning Appraisal of Properties whose Mortgages, etc. are Established:

Notwithstanding the provisions of Article 60, the value of the properties falling under any one of the following subparagraphs shall be the larger amount between the value assessed based on the amount of claims secured by the relevant properties under the conditions as prescribed by the Presidential Decree, and the value assessed under the provisions of Article

1. Property whose mortgage or pledge is settled;

2. Transferred property;

3. Property registered for lease on a deposit basis (including property leased in return for lease deposit);

Enforcement Decree of Inheritance Tax and Gift Tax Act

Article 63 (Appraisal of Properties for which Mortgage, etc. is Established

(1) The term “value appraised under the conditions as prescribed by the Presidential Decree” in Article 66 of the Act means the amount falling under one of the following subparagraphs:

1. The value of the property on which a mortgage (excluding joint mortgage and mortgage) is created, shall be the amount of the claim secured by the relevant property;

2. The value of the property on which a joint mortgage is created, shall be the amount of the claim secured by the property concerned, calculated proportionally by its value as of the base date of appraisal of the property jointly mortgaged

3. The value of assets on which the right to collateral security is created, shall be the amount of claims secured by the relevant assets as of the evaluation

4. The value of the pledged property and the property transferred for security shall be the amount of claims secured by the relevant property.

5. The value of property registered for lease on a deposit basis (where lease is made in return for lease deposit, the lease deposit).

(2) In appraising the properties under subparagraph 1 of Article 66 of the Act under each subparagraph of paragraph (1), if the maximum debt amount of the collateral security established on the relevant property is less than the amount of the collateral, the amount shall be the maximum debt amount, and if there is a guarantee by a credit guarantee agency as prescribed by the Ordinance of the Ministry of Finance and Economy other than the physical collateral created on the relevant property, the amount obtained by subtracting the amount guaranteed by the relevant credit guarantee agency from the amount of the collateral security, and if the same property is composed of a

[Documents Number] National Trial 2005bu2843 (Law No. 15, 2006)

I dismiss the appeal.

1. Summary of disposition;

A. On July 28, 2004, the claimant filed for the registration of ownership transfer in the name of the claimant on the ground of donation of 00 ○○○ and 1100-51 square meters of a building site owned by the claimant, and assessed the controversial land as a publicly assessed individual land price and paid gift tax.

B. On March 7, 2005, the disposition agency assessed 400 million won of the maximum debt amount of the right to collateral security established on the land at issue as donated property and notified the claimant of the determination of 70,83,230 won of the gift tax on July 28, 2004.

C. On April 29, 2005, the claimant appealed and filed an appeal on July 22, 2005.

2. Opinions of the claimant and disposition agency;

A. The claimant's assertion

The maximum maximum amount of 400 million won set up on the land at issue shall be deemed to have been set up on a voluntary basis in preparation for the return of the product by the ○○○○ Company upon the need for the internal regulations of the said corporation, and the disposition imposing gift tax on the property without the balance of the secured claim is unreasonable.

(b) Opinions of disposition agencies;

Since ○○○ Co., Ltd. established a collateral security of KRW 400 million for the purpose of preserving the credit account receivable from ○○○ Co., Ltd., the seller, it is reasonable to assess the gift tax as the amount of the claim secured by the gift tax and assess it as the amount of the claim secured by

3. Hearing and determination

(a) Points in dispute;

The validity of the disposition imposed by evaluating the maximum amount of the collateral security established on the land at issue as the donation price on the transfer of ownership of the land due to donation.

(b) Related statutes;

(1) In case where, on the donation date, there is donated property falling under one of the following subparagraphs as of the donation date due to a third party donation (excluding a donation becoming effective upon the death of a donor; hereinafter the same shall apply), gift tax shall be levied, pursuant to this Act, on such donated property:

1. Where a person to whom property has been donated (hereinafter referred to as " donee") is a resident (including a non-profit corporation, the head office or main office of which is located in Korea; hereafter the same shall apply in this paragraph and Articles 54 and 59), all of the donated property, as a donation, by the

(2) The value of property subject to inheritance tax or gift tax under this Act, such as the principle of appraisal under Article 60 of the Inheritance Tax and Gift Tax Act, shall be the market value as of the date of commencing the inheritance or the date of donation (hereinafter referred to as the “date of appraisal”). In this case, the value appraised by the method of appraisal under Article 63 (1) 1 (a) and (b) (excluding a case falling under the provisions of Article 63

(2) The market price under paragraph (1) shall be the price which is generally accepted in cases of free trade between many and unspecified persons and shall include the price which is recognized as the market price under conditions prescribed by Presidential Decree, such as the expropriation and public auction price and appraisal

(3) In applying paragraph (1), where it is difficult to compute the market price, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, scale, 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.

(3) For the purpose of Article 49 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the term "those recognized as the market price under conditions prescribed by Presidential Decree, such as expropriated or public auction price, and appraised price" in Article 60 (2) of the Act means the value confirmed pursuant to one of the following subparagraphs in cases of sale, appraisal, expropriation, or public auction (referring to an auction under the Civil Execution Act; hereafter the same shall apply in this paragraph) or public auction (hereafter referred to as "sale, etc." in this paragraph) within six months (three months in the case of donated property; hereafter referred to as the "evaluation period" in this paragraph) before or after the evaluation base date: Provided, That even if there are sale, etc. during a period that does not fall under any evaluation period, the value of relevant sale, etc. may be included in the value under one of the following subparagraphs after consultation by the Evaluation Deliberative Committee referred to in Article 56-2 (2):

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not apply where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship provided for in Article 26 (4);

(4) An appraisal of real estate under Article 61 of the Inheritance Tax and Gift Tax Act:

The officially assessed individual land price under the Act on the Public Notice of Land Price and the Evaluation of Land, etc. (hereinafter referred to as the “officially assessed individual land price”): Provided, That the value of the land which has no publicly assessed individual land price, shall be the amount assessed by the superintendent of the competent tax office by the method as determined by the Presidential Decree in consideration of the publicly assessed individual land price of neighboring similar land

(5) Notwithstanding the provisions of Article 60, the value of the property falling under any of the following subparagraphs, which is the value of the property assessed under the conditions as prescribed by the Presidential Decree on the basis of the amount of claims secured by such property and the value assessed under the provisions of Article 60, which is larger, shall be the value of such property:

1. Property whose mortgage or pledge is settled;

(1) For the purpose of Article 66 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the term “value appraised as prescribed by the Presidential Decree” means:

3. The value of assets on which the right to collateral security is created, shall be the amount of claims secured by the relevant assets as of the evaluation

(2) In appraising the properties under subparagraph 1 of Article 66 of the Act under each subparagraph of paragraph (1), if the maximum debt amount of the collateral security established on the relevant property is less than the maximum debt amount of the collateral security, the amount shall be the maximum debt amount; if there exists a guarantee by a credit guarantee agency as prescribed by the Ordinance of the Ministry of Finance and Economy other than the physical collateral created on the relevant property, the amount obtained by subtracting the amount guaranteed by the relevant credit guarantee agency from the secured debt amount; and if the same property is secured by a large

C. Facts and determination

(1) On July 28, 2004, the claimant filed for the registration of ownership transfer in the name of the claimant on the ground of donation from the claimant's ○○○○○○○○, and assessed and paid the gift tax as KRW 33,094,60, the officially assessed individual land price. The disposition agency assessed 400,000,000, the maximum debt amount established on the basis of the land at ○○○ Stock Company as the donation amount and notified the determination of the gift tax is confirmed based on the review data of the disposition agency.

(2) The claimant asserts that the disposition imposing gift tax is unfair because the maximum debt amount created by the ○○○○ Company as collateral with the land at issue is deemed to have been created voluntarily as collateral for the internal necessity of the corporation’s internal provision, and there is no balance of the secured claim, and thus, the disposition imposing gift tax is unreasonable.

(A) According to the copy of the register of the land at issue, the claimant's ○○○○ made a donation on July 28, 2004. On July 31, 1999, on the part of the debtor, the ○○○○○ corporation established the right to collateral security of 80 million won with the maximum debt amount as the debtor, and on November 6, 2003, the ○○○ corporation established the right to collateral security of 400 million won with the maximum debt amount as the debtor.

(B) On July 28, 2004, according to the contents of ○○ Stock Company's notice to the disposition authority ( February 27, 2005), it is confirmed that the amount of credit to ○○○○ Stock Company's ○○○○○ is KRW 1,200,106,202, and the total amount of credit establishment for the debtor is KRW 860,000,000, and KRW 400,000,000,000,0000,

(C) Under Article 66 of the Inheritance Tax and Gift Tax Act, the property whose mortgage is created shall be assessed as the larger amount between the amount of the claim secured by the pertinent property and the market price (if the market price cannot be calculated, by the supplementary assessment method), notwithstanding the provisions of Article 60 of the said Act. In this case, it is reasonable to assess the larger amount between the amount assessed as the publicly assessed individual land price of the pertinent land and the maximum amount of the debt secured by the key land as the donation value.

Therefore, it is judged that the disposition imposed by evaluating 400 million won as the donation amount, which is set up as security of the land at issue, is justifiable.

4. Conclusion

This case's request for a trial is without merit, so it is decided as ordered in accordance with Articles 81 and 65(1)2 of the Framework Act on National Taxes.