[1] Whether a national tax, etc. already paid and collected at the time of inheritance commencement is included in the “national tax, etc. imposed on, or to be paid by, the decedent” whose scope of succession is restricted under Article 24(1) of the former Framework Act on National Taxes (negative), and whether such collection may be viewed differently in cases where it was made by means of appropriation (negative)

[2] In a case where: (a) Company A reported and paid capital gains tax, etc. after re-transfer of the shares of Company B held by Company B; (b) Company B performed the capital reduction procedure for the said shares; (c) the tax authority subsequently revoked the said capital gains tax ex officio when deeming the capital gains of Company B as the dividend income; and (d) Company A died while the lawsuit was brought against the aforementioned disposition and became a sole heir, the case holding that: (a) if the tax authority appropriated the already paid tax amount to global income tax, the tax authority did not apply Article 24(1) of the former Framework Act on National Taxes to the extent that it appropriated

[1] The text and legislative purport of Article 24(1) of the former Framework Act on National Taxes (amended by Act No. 911 of Jan. 1, 2010) are to have the inheritor bear the liability to pay national taxes, etc. of the inheritee only within the scope of inherited property. The inheritee’s national taxes, etc., whose tax liability was established and finalized at the time of inheritance commencement, which had already been paid and collected, are not subject to additional payment and collection liability even if the inheritor succeeds to them, and if the inheritor does not succeed to them, the scope of succession is limited under Article 24(1) of the former Framework Act on National Taxes (amended by Act No. 911 of Jan. 1, 2010). In full view of the following, the term “national taxes, etc. imposed on, or to be paid by, the inheritee,” the scope of succession of which is limited under Article 24(1) of the former Framework Act on National Taxes, was established, but not yet determined, but not yet paid and collected.

[2] The case holding that in a case where Party B, who was killed in the first instance trial and took over the lawsuit, did not object to Article 24 (1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010) and Company B reported and paid the capital gains tax, etc. accordingly, after transferring the shares of Company B to Company B, and Company B performed the capital reduction procedure for the said shares by means of voluntary retirement through a special resolution of the provisional shareholders’ meeting, and subsequently the tax authority revoked the capital gains tax ex officio on the ground that the capital gains accrued from the transfer of the above shares were deemed as income, and Party C, who was dissatisfied with the disposition of global income tax, did not object to the disposition of global income tax, but did not object to Article 24 (1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010).

[1] Article 24(1) of the former Framework Act on National Taxes (Amended by Presidential Decree No. 22038, Feb. 18, 2010); Article 11(1) of the former Enforcement Decree of the Framework Act on National Taxes / [2] Article 24(1) of the former Framework Act on National Taxes (Amended by Presidential Decree No. 9911, Jan. 1, 2010); Articles 11(1) and 20 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 22038, Feb. 18, 2010); Article 341-2 of the Commercial Act; Article 17(2)1 of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006)

Plaintiff (Attorney Lee Im-soo et al., Counsel for the plaintiff-appellant)

The director of the Si Tax Office (Law Firm Rate, Attorney Kim Jae-in, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2008Nu2271 decided June 12, 2008

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 24(1) of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010) provides that the heir shall be liable to pay national taxes, surcharges, and expenses for disposition on default (hereinafter “national taxes, etc.”) imposed on, or to be paid by, the decedent within the limit of the property acquired by inheritance at the time of commencement of inheritance. Article 11(1) of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 22038, Feb. 18, 2010; hereinafter the same) provides that “property acquired by inheritance” refers to the total amount of assets acquired by inheritance and the amount calculated by deducting the inheritance tax imposed or to be paid by inheritance from the total amount of assets acquired by inheritance.”

(5) According to the reasoning of the judgment below, the court below determined that (i) the deceased non-party 1 (the deceased non-party 2)’s initial acquisition of 4,450 shares of 6.3% of the shares issued by the deceased non-party 2 (the non-party 1) was not entitled to the transfer income tax of 13,643,00,00 won on December 6, 2002 and the non-party 2’s transfer of 13,214,970 won to the non-party 10 and the non-party 2’s transfer income tax of 10,70,000 won on February 28, 203, and thus, (ii) the non-party 1 and the non-party 2 were entitled to the transfer income tax of 10,000 won on the non-party 2’s transfer income tax of 70,000 won on the non-party 10,000 won.

2. However, we cannot agree with the judgment of the court below for the following reasons.

In full view of the language and text of the instant restriction on succession, and the legislative purport thereof, the effect of the instant restriction on succession lies in having the inheritor bear the tax liability of the inheritee, such as national taxes, only within the scope of inherited property, and the national taxes, etc. of the inheritee, which were established and determined at the time of the commencement of succession, which were already paid and collected by the inheritor, are not subject to the burden of additional payment and collection, and if the inheritor does not succeed thereto, it would result in unreasonable consequences to refund them to the inheritor, if the inheritor does not succeed thereto, the scope of succession is limited under the instant restriction on succession. The term “national taxes, etc. imposed or payable by the decedents,” which is limited by the restriction on succession, refers to national taxes, etc., which are not yet determined or determined at the time of commencement of succession, but are not yet paid and collected, and national taxes, etc. which were already paid and collected by the inheritor

Therefore, in the event that the Defendant ex officio cancelled securities transaction tax of KRW 68,214,970 and capital gains tax of KRW 1,201,50,610 that was initially reported and paid by the Deceased and appropriated the tax amount to the global income tax of this case, if the total amount of liabilities, etc. exceeds the total amount of assets acquired by the Plaintiff as a result of inheritance, the Plaintiff shall not be subject to the instant restriction on succession to the extent appropriated, but shall succeed to

Nevertheless, without examining whether the global income tax of this case was appropriated by the already paid tax amount and the scope of its appropriated amount, the court below revoked the entire disposition of this case on the ground that there was no way to calculate the value of the property acquired by the plaintiff due to the plaintiff's inheritance on the premise that the entire global income tax of this case is subject to the restriction on succession of this case. In so determining, the court below erred by misapprehending the legal principles on the scope of application of the restriction on succession of this case, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The

3. 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 Lee Hong-hoon (Presiding Justice)