[1] The meaning of the actual transaction value, which serves as the basis for calculating gains on transfer, and whether the value assessed by the appraisal conducted retroactively at the time of acquisition constitutes the appraisal value that can substitute for the “actual transaction value at the time of acquisition” under Article 97(1)1(b) of the former Income Tax Act (negative)

[2] Whether Article 163(6) of the former Enforcement Decree of the Income Tax Act is invalid without delegation of this Act (negative), and whether it exceeds the delegation scope of Article 97(3)2 of the former Income Tax Act, or is null and void due to its violation of the substance over form principle (negative)

[1] In calculating gains on transfer, the term “actual transaction price as a basis for the calculation of gains on transfer” refers to an actual transaction price, not the market price that reflects the objective exchange value, but the actual transaction price itself or at the time of transaction. In light of such legal principles and Articles 97(1)1(b) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006; hereinafter the same shall apply) and Articles 163(12), 176-2(3)1, 2, and 3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008; hereinafter the same shall apply), the appraisal price as a substitute for the actual transaction price at the time of acquisition under Article 97(1)1(b) of the former Income Tax Act and Article 163(1)1(b) of the former Enforcement Decree of the Income Tax Act as well as the appraisal price at the time of acquisition.

[2] In light of the language and text and purport of Article 97(1) and (3) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same) and Article 163(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618, Feb. 22, 2008; hereinafter the same), Article 163(6) of the former Enforcement Decree of the Income Tax Act provides that “where the acquisition value is based on the transaction example at the time of acquisition of assets, appraisal value, or conversion value (hereinafter “sale price, etc.”), the amount to be added to necessary expenses can be deemed as having been based on Article 97(3)2 of the former Income Tax Act, which is based on which the scope of acquisition value cannot be determined based on Article 97(3)2 of the former Enforcement Decree of the Income Tax Act, and thus, it cannot be deemed that the transfer value of assets cannot be determined as necessary expenses at the time of acquisition.

[1] Article 97 (1) 1 (b) of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006); Article 163 (12) and Article 176-2 (3) 1, 2, and 3 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 20618, Feb. 22, 2008); Article 97 (1) 1, 2, and 4 (see current Article 97 (1) 1, 3), and (3) 1 (see current Article 97 (2) 1, 2, and 2 (see current Article 97 (2) 1, 2, and 2 of the Income Tax Act) of the former Enforcement Decree of the Income Tax Act (Amended by Act No. 8144, Dec. 30, 206); Article 16 (2) 1, 208 (see current Article 97 (2) 2) 1, 268) of the former Enforcement Decree of the Income Tax Act)

[1] Supreme Court Decision 2009Du19465 decided Feb. 10, 201 (Gong2011Sang, 585)

Plaintiff

The Director of Gangnam District Office

Seoul High Court Decision 2010Nu16129 decided September 9, 201

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. As to the acquisition value of the first and second sites of this case

A. Article 97(1)1(b) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same shall apply) provides that where the acquisition value, which is one of the necessary expenses to be deducted from the transfer value, is to be "actual transaction value required for acquisition" in calculating gains on transfer, if it is impossible to verify the actual transaction value at the time of such acquisition, it shall be based on the transaction example, appraisal value, or conversion value prescribed by the Presidential Decree. Article 163(12) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 20618, Feb. 22, 2008; hereinafter the same shall apply) provides that "as of the acquisition value before and after the date of acquisition, the sale value or conversion value of assets shall be limited to the value under Article 176-2(2) through (4) of the former Income Tax Act before and after the date of acquisition, the appraisal value or conversion value of assets shall be determined within three months after each appraisal value."

Article 97(1)1(b) of the former Income Tax Act and Article 163(12) of the Enforcement Decree of the former Income Tax Act, which provide for the substitution of the actual transaction price as at the time of acquisition in light of the aforementioned legal principles and the language, content, and purport of the aforementioned provisions, etc., the actual transaction price, which is the basis for calculating transfer margin, is not a general market price that reflects the objective exchange value, but an actual transaction price itself or at the time of transaction (see, e.g., Supreme Court Decision 2009Du19465, Feb. 10, 201). In light of such legal principles and the language, content, etc. of the aforementioned provisions, it is interpreted that Article 97(1)1(b) of the former Income Tax Act and Article 163(12) of the former Enforcement Decree of the Income Tax Act, which provide for the substitution of the actual transaction price at the time of acquisition as well as the application order and the type of value that can replace the actual transaction price.

B. The respective appraisal values of the instant land Nos. 1 and 2 are based on retroactive appraisal, and thus cannot be deemed as the appraisal values that can substitute the “actual transaction price at the time of acquisition” under Article 97(1)1(b) of the former Income Tax Act. In light of such legal principles, the lower court did not err by misapprehending the legal doctrine on the appraisal values that can substitute the actual transaction price at the time of acquisition, contrary to what is alleged in the grounds of appeal.

Supreme Court Decision 2010Du8751 Decided September 30, 2010 cited in the ground of appeal is different from the case and it is inappropriate to invoke the case in this case.

2. As to the transfer cost of the first and second sites and buildings of this case

A. Article 97 (1) of the former Income Tax Act provides for "acquisition value" in subparagraph 1 of the necessary expenses deductible from the transfer value when calculating gains from transfer of assets with the transfer value of assets, "capital expenditure, etc. prescribed by the Presidential Decree" in subparagraph 2, and "transfer expenses, etc. prescribed by the Presidential Decree" in subparagraph 4, and Article 97 (3) of the former Income Tax Act provides that where the acquisition value is based on the actual transaction value required for the acquisition of assets in subparagraph 1, the amount calculated by adding the amount under paragraph (1) 2 and 4 to the value thereof at the time of acquisition of assets, and where the acquisition value is based on subparagraph 2 to the acquisition value at the time of acquisition of assets, the amount calculated by adding the amount prescribed by the Presidential Decree to the value thereof at the time of acquisition, appraisal value, and conversion value (hereinafter "sale example value, etc.") 】 (Article 97 (3) 2 of the former Income Tax Act) 】 (Article 163 (6) of the former Enforcement Decree of the Income Tax Act provides for "the amount prescribed in subparagraph 1 or 4 of subparagraph 9 of the same Article:

In light of the language and purport of the above provisions, Article 163(6) of the former Enforcement Decree of the Income Tax Act provides that “where the acquisition value is calculated by transaction example, etc. at the time of acquisition of assets, the amount to be added to necessary expenses” shall not be deemed as the provision for invalidation without delegation by the parent law, which is based on Article 97(3)2 of the former Income Tax Act, which is delegated by the Presidential Decree. In addition, Article 97(3)2 of the former Income Tax Act provides that the acquisition value shall be calculated by transaction example, etc. when it is impossible to verify the actual transaction value at the time of acquisition of assets, and it is difficult to determine the acquisition value by calculating the actual transaction example, etc., taking into account that the taxpayer’s capital expenditure or transfer expense is deducted from necessary expenses without confirming whether it is actually paid, it is reasonable to allow the taxpayer to deduct the estimated amount from the estimated amount based on a specific standard, and thus, it cannot be deemed that the acquisition value is invalid by exceeding the scope of the actual transaction value deduction from the capital expense or transfer value.

B. As long as the acquisition value cannot be confirmed at the time of acquiring the Plaintiff’s share except for the portion of housing subject to non-taxation of capital gains tax (hereinafter “Plaintiff’s share”) among the instant lands Nos. 1, 2 and buildings, the lower court determined that the necessary expenses may not be additionally deducted even if the Plaintiff’s share among the instant lands No. 1, 2 and buildings, and that the acquisition value should be based on the conversion value pursuant to Article 97(3)2 of the former Income Tax Act, only the amount calculated by adding the estimated deduction amount calculated by the formula under Article 163(6)1 and 2(b) of the Enforcement Decree of the Income Tax Act to the conversion value pursuant to Article 97(3)2 of the former Income Tax Act.

Such determination by the court below is based on the above legal principles, and there is no error in the misapprehension of legal principles as to the limit of delegated legislation, substance over form principle, or the scope of necessary expenses deducted from gains from transfer.

3. As to the acquisition value of the instant building parts

A. Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following facts.

(1) On March 8, 2006, the Plaintiff and the Nonparty transferred the instant land and building Nos. 1, 2, and 4.5 billion won in total, to A.S.com. The sales contract was drafted at the time, stating the sales price of the instant land Nos. 1 and 2 as KRW 2.5 billion, and the sales price of the instant building as KRW 2 billion in total.

(2) Among the total purchase price of the above 4.5 billion won, the Defendant calculated the actual transfer price of the Nos. 1 and 2 of this case in proportion to the standard market price, etc. pursuant to Article 100(2) of the former Income Tax Act, on the ground that the distinction between the purchase price of the building and the purchase price of the building, and calculated the actual transfer price of the Plaintiff’s shares in the first and second sites of this case (=2,240,958,919 + KRW 956,04,000 + KRW 956,047,275,00). The acquisition price of the Plaintiff’s shares in the first and second sites of this case was 852,539,270,000 won, which is the conversion price at the time of acquisition on the ground that it cannot be confirmed that the actual transaction price at the time of the acquisition on the building of this case was 1.60,000 won, the acquisition price of the Plaintiff’s shares in this case was 381, 31536,5381,585

B. As to this, the lower court held that (1) the sales contract, etc. submitted by the taxpayer as documentary evidence is presumed to have been prepared in accordance with the terms of the contract between the parties, barring any special circumstance, and there are other special circumstances. However, the evidence submitted by the Defendant alone cannot be deemed as having any special circumstances, such as that the sales contract was actually prepared differently from the actual transaction price. Therefore, it is reasonable to view the real transfer value of the first, second and second sites of this case as the entry of the sales contract of this case, KRW 2.5 billion, and the building of this case as KRW 2.00 million, unlike the Defendant’s recognition, the reasonable transfer value of the Plaintiff’s share among the first, second sites and buildings of this case was KRW 3,204,08,697 (i) KRW 1,2 sites of this case, KRW 1,545,908,398, and KRW 1,680,000,000).

Then, the lower court determined that: (a) insofar as the transfer value of the Plaintiff’s share in the land and building Nos. 1, 204, 088, 697 is higher than the Defendant’s calculated value of KRW 3,197,006,194; and (b) the acquisition value of the Plaintiff’s share in the land and building Nos. 1, 253,931,324 in total exceeds the acquisition value of the Plaintiff’s share in the aggregate of KRW 1,693,870,955 in total calculated by the Defendant; (c) on the ground that the acquisition value of the Plaintiff’s share in the land and building Nos. 1, 204, 08, 697 in total exceeds the converted value of the Plaintiff’s share in the building; and (d) the tax amount calculated by the Defendant exceeds the estimated acquisition value of the Plaintiff’s share in the building of this case, the lower court determined legitimate imposition of capital gains tax to the extent of KRW 1,2531,51,29,294,25.

C. The allegation in the grounds of appeal on this part is that the court below erred in calculating gains on transfer without reflecting the transfer cost actually disbursed by estimating the acquisition value of the Plaintiff’s share among the buildings in this case at the conversion price not based on the actual transaction price.

However, in light of the reasoning of the judgment below and the record, where the transfer margin of the Plaintiff’s share in the building of this case is calculated based on the actual transaction value, the acquisition value shall not be the above 1.6 billion won of the Plaintiff’s assertion, but the above 841,331,685 won recognized by the Defendant. Thus, the sum of the acquisition value of the Plaintiff’s share in the land and building of this case 1,429,452,023 won (=58,120,338 won conversion value of the part of the land 1,288,120,380 + 841,331,685 won for the new construction of the building of this case) calculated by the Defendant is merely 1,693,870,95 won for the total acquisition value of the building of this case, 264,418,932 won (=1,693,87050,955 won - 1,429,2300 won).

Therefore, this part of the ground of appeal cannot be accepted as it does not affect the conclusion of the judgment.

4. Conclusion

Therefore, the appeal is 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 Shin (Presiding Justice)