[1] Whether gift tax and capital gains tax can be imposed together (affirmative with qualification)

[2] In assessing the value of unlisted stocks, the person who bears the burden of proof for obligations outside the balance sheet (=taxpayer) and the scope of liabilities deducted from the value of assets

[3] The case reversing and returning the judgment of the court below on the ground of incomplete hearing as to whether the debts outside the country (paid debt) are deducted from the asset value of the pertinent stock company in assessing the value of unlisted stocks

[1] Gift tax and capital gains tax vary between the requirements, timing, and taxpayers for the establishment of tax liability. In imposing each tax, the tax authority should make an independent determination in accordance with the substance of each taxation requirement. If the tax authority meets all the requirements of the above provisions, only one taxation can be made unless there is a special provision excluding overlapping application.

[2] The tax authority has the burden of proving the legality of disposition and the existence of taxation requirements in a lawsuit seeking revocation on the grounds of illegality of taxation. Thus, in assessing the value of unlisted stocks under Article 5 (6) 1 (b) and (c) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 15193, Dec. 31, 1996) at the time of the transfer of unlisted stocks, the tax authority has the burden of proving the net asset value, which serves as the basis for determining the amount of income of capital gains tax, in principle. However, in calculating the net asset value of the corporation as of the date of transfer, the fact that there is an additional debt not included in the balance sheet of the corporation at the time of the date of transfer falls under exceptional grounds in determining the amount of capital gains tax, the burden of proving such special grounds belongs to the taxpayer. In addition, in calculating the net asset value of unlisted stocks, the obligation deducted from the asset value should be ultimately borne and performed by the company.

[3] The case reversing and returning the judgment of the court below on the ground of incomplete hearing as to whether the debts abroad (paid debt) are the debts deducted from the asset value of the pertinent stock company in assessing the value of unlisted stocks

[1] Article 101(1) of the former Income Tax Act (amended by Act No. 6051 of Dec. 28, 1999); Article 98(1)1 and (2) and Article 167(3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 15191 of Dec. 31, 1996); Article 29-3(3) (see current Article 2(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5193 of Dec. 30, 199); Article 34-2(1) (see current Article 35(1)1 of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193 of Dec. 31, 1996); Article 98(1)3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15193 of Dec. 16, 1996) / [2(1) of the current Enforcement Decree of the Inheritance Tax Act]

[1] Supreme Court Decision 98Du11830 delivered on September 21, 199 (Gong1999Ha, 2256)/ [2] Supreme Court Decision 83Nu410 delivered on December 13, 1983 (Gong1984, 206) Supreme Court Decision 85Nu760 delivered on March 11, 1986 (Gong1986, 650) Supreme Court Decision 87Nu20 delivered on May 12, 1987 (Gong1987, 19009, 196Nu4294 delivered on June 27, 1989 (Gong1989, 1175). Supreme Court Decision 209Nu9794 delivered on May 24, 1991 (Gong1989, 1975).

[Judgment of the court below]

head of Dongjak-gu Tax Office

Seoul High Court Decision 2002Nu6585 delivered on November 6, 2002

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

We examine the grounds of appeal.

1. The judgment of the court below

According to the reasoning of the judgment below, the court below held that the non-party company's total debt amounting to KRW 14,631,721,00 is illegal on December 30, 195, on the ground that the non-party company's debt amounting to KRW 14,631,721,00 as of December 30, 1995, calculated the net asset value of the non-party company's debt amounting to be deducted from the asset value of the non-party company's asset value, and at the same time, imposed gift tax on the non-party who is the transferor in accordance with the deemed donation provision on the non-party as to the non-party who is the transferor, was not allowed against the principle of substantial taxation or the principle of fair taxation. Thus, the court below assessed the non-party company's debt amounting to KRW 5,109,227,320,92,439,67, etc. of this case as of December 30, 1995.

2. The judgment of this Court

A. As to whether the measure imposing the transfer income tax of this case constitutes double taxation

Gift tax and transfer income tax vary between the requirements for establishing tax liability, timing, and taxpayers. Thus, in imposing each tax, the tax authority shall independently make a decision in accordance with the substance of each taxation requirement. If all the requirements of the above provisions are satisfied, only one taxation can be made unless there are special provisions excluding overlapping application (see Supreme Court Decision 98Du11830 delivered on September 21, 199).

Nevertheless, the lower court determined that the Defendant’s imposition of gift tax on the Nonparty at the same time with respect to the share transaction of this case was unlawful against the principle of substantial taxation or the principle of fair taxation. It erred by misapprehending the legal doctrine on the nature of gift tax and transfer income tax, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

B. As to whether the appraisal of the value of the instant shares is unlawful

In a lawsuit seeking revocation on the grounds of illegality of taxation, the tax authority has the burden of proving the legality of disposition and the existence of taxation requirements. Thus, in the case of the transfer of unlisted stocks, the tax authority has the burden of proving net asset value, which serves as the basis for determining the amount of income of capital gains tax, in principle, in assessing the value of unlisted stocks under Article 5 (6) 1 (b) and (c) of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 15193, Dec. 31, 1996); however, in calculating the net asset value of the relevant corporation as of the date of transfer, the fact that there are non-performing debts not appropriated on the balance sheet of the relevant corporation falls under exceptional reasons in determining the amount of capital gains tax, and the burden of proving such special reasons falls under the taxpayer (see Supreme Court Decisions 91Nu10909, Oct. 28, 199; 94Nu58169, Oct. 194; 298Nu94, etc.).

According to the records, as of December 30, 1995, the non-party company obtained a loan of KRW 3,817,00,000 for operating funds from the Industrial Bank of Korea, and KRW 1,982,942,00 for facilities funds. The payment guarantee was granted to the non-party company within the limit of KRW 8,831,778,00 for operating funds. Of the funds borrowed as operating funds, the funds included KRW 897,00,000 for discount notes. The non-party company did not honor the non-party company on May 14, 1998, but the Industrial Bank of Korea was not performing its guarantee obligation to pay to the non-party company until July 19, 196, the date of stock transfer.

In order to deduct non-party company's debt from calculating the net asset value of the non-party company at the time of the transfer of shares, the court below should have deliberated on the possibility of payment of the non-party company's debt and confirmed whether the non-party company's debt under the above payment guarantee debt, whether the non-party company failed to perform its principal debt and actually incurred its reimbursement liability, whether the above discounted bill was issued by the non-party company's financing bill or the commercial bill at the third party's expense, and if so, whether the above non-party company's debt under the above discounted bill is a debt for which the non-party company's obligation is clearly

Nevertheless, the court below held that the total amount of the debt owed to the Industrial Bank of Korea of the non-party company including the above indemnity and discount amount should be deducted from the value of the non-party company's assets without examining the above matters. It is erroneous in the misapprehension of legal principles as to the scope of the debt to be deducted from the value of the non-party company's assets in calculating the net asset value of the non-party company, or the failure to exhaust all deliberations, which affected the conclusion of the judgment. The ground for appeal

3. Therefore, 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 Seo-sung (Presiding Justice)