[1] Whether the purpose of gift tax avoidance is a requirement to levy gift tax under Article 41 of the former Inheritance Tax and Gift Tax Act, which is a provision on the deemed donation of profit through transaction with a specific corporation (negative)

[2] Whether the net asset value of the corporation can be calculated according to the market price appraisal value based on retroactive appraisal of real estate when assessing the net asset value of the corporation according to the supplementary appraisal method of unlisted stocks (affirmative)

[3] The method of calculating profits to a shareholder of a corporation in excess of liability when profits are deemed donated through transactions with a specific corporation

[4] The case holding that where a person with a special relationship with a stockholder of a certain corporation has exempted the liabilities to the corporation, so the value per stock of the corporation has increased to 1,924 won as (+) 2,40 won per stock of the corporation, the value per stock before the exemption of liabilities shall be deemed to be 0 won, and it is reasonable to calculate the value per share increased by the exemption of liabilities as 1,924

[1] The legal fiction of the provision of profits through transaction with a specific corporation under Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 1999) is a provision with respect to the profits that a person with a special relationship with a shareholder, etc. of a specific corporation divided into shareholders, etc. of the pertinent corporation by means of donation of property or exemption from debts to the pertinent corporation, etc., regardless of whether a person with a special relationship had a intent of donation, the pertinent amount equivalent to such profits shall be deemed to have been donated to the shareholders, etc. of the pertinent specific corporation from the person with a special relationship. Thus, the profits that the shareholders, etc. of the pertinent corporation

[2] The purpose of Article 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 198) is to assess the value of the unlisted stocks of a corporation by the supplementary evaluation method, and the purpose of Article 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998) is to assess the value of the real estate for the assessment of the net asset value by the method of the market price appraisal in order to reflect the reasonable market price as possible in the case of the assessment of the net asset value. Thus, in calculating the value of the real estate for the assessment of the

[3] Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 1999) provides that with respect to the calculation of profits deemed to have been donated to shareholders, etc. of a specific corporation pursuant to Article 31(5) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998), the amount equivalent to the value of donated assets or profits derived from exemption from debts (Article 15971 of the Enforcement Decree of the same Act) shall be calculated by multiplying the value of increased stocks or shares by the number of stocks, etc. of the relevant controlling shareholders, etc. In this context, it is reasonable to calculate the value of stocks, etc. for the purpose of calculating the market value of stocks, etc. by simply dividing the value of stocks, etc. before and after the increase in the value of stocks, etc. with respect to the increase in the value of stocks, etc., and the value of stocks, etc., which is an absolute value before and after increase in the increase in value of stocks.

[4] The case holding that in case where a person having a special relationship with a stockholder of a certain corporation has exempted the liabilities to the corporation, so that the value per stock of the corporation has increased to 1,924 won as (+) 2,40 won per share of the corporation, the value per share before the exemption of liabilities shall be deemed to be 0 won, and it is reasonable to calculate the value per share increased by the exemption of liabilities as 1,92

[1] Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 1999) / [2] Articles 60(3) and 63 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199); Articles 54 and 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998); Articles 41(1) and 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 199); Article 19(1)5 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 199; Presidential Decree No. 1951 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Act No. 19481 of Dec. 1697 of Dec. 197, , 197)

[2] Supreme Court Decision 90Nu8459 delivered on April 12, 1991 (Gong1991, 1398), Supreme Court Decision 95Nu18062, 18079 delivered on December 10, 1996 (Gong1997Sang, 413), Supreme Court Decision 96Nu18038 delivered on July 22, 1997 (Gong1997Ha, 2571), Supreme Court Decision 99Du8459 delivered on August 21, 2001 (Gong201Ha, 2097), Supreme Court Decision 9Du8459 delivered on August 21, 200 (Gong201Ha, 2097) (Gong2001Ha, 2097), Supreme Court Decision 2004Du374384 delivered on August 36, 204).

Plaintiff (Law Firm Song-dong, Attorney Han-young et al., Counsel for plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 2003Nu2566 delivered on April 7, 2004

All appeals are dismissed. The costs of appeal are assessed against each party.

We examine the grounds of appeal.

1. Plaintiff’s ground of appeal

A. Regarding ground of appeal No. 1

The provision on the constructive donation of profit through transaction with a specific corporation under Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6048 of Dec. 28, 1999; hereinafter “the Act”) is the legal fiction that, with respect to the profit distributed by a person having a special relationship with the shareholders, etc. of the specific corporation by donation of property or exemption from debts to the relevant corporation, the amount equivalent to such profit shall be deemed to have been donated to the shareholders, etc. of the specific corporation, regardless of whether the person having a special relationship with him/her had a intention of donation. In the records, as long as the judgment of the court below became final that Nonparty 1 and 2, who are the shareholders of the non-party corporation (hereinafter “non-party corporation”) in a special relationship with the Plaintiff, obtained profit by exempting the debt of this case against the non-party corporation, such profit shall be subject to gift tax under the above provision, regardless of the purpose of avoiding gift tax.

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the application of Article 41 of the Act as otherwise alleged in the ground of appeal.

B. Regarding ground of appeal No. 2

Article 55 (1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971, Dec. 31, 1998; hereinafter “Enforcement Decree”) provides that “The net asset value under the provisions of Article 54 (1) of the Enforcement Decree shall be the value calculated by subtracting liabilities from the value appraised by the assets of the relevant corporation as of the base date of appraisal. In this case, such appraisal may be based on a reliable appraisal institution’s market value statement as prescribed by Ordinance of the Prime Minister.” The purport of the above provision is that the market value appraisal method may be used to properly reflect the net asset value as possible in assessing the net asset value. Thus, in calculating the real estate value for the net asset value, if the market value assessed by an appraisal institution with a public trust under this provision has been appraised in an objective and reasonable manner, it cannot be deemed unlawful to calculate the net asset value (see, e.g., Supreme Court Decisions 9Du489, Aug. 21, 2001; 2005Du394894.197.

In light of the above legal principles and records, in assessing the value of the non-party company's stocks per share by supplementary valuation methods, it is reasonable that the Korea Appraisal Board calculated the net asset value according to the assessed value retroactively at the time of the exemption from the debt of this case, as it assessed the value of the non-party company's real estate and machinery to calculate the net asset value of the non-party company's stocks per share, which serves as the basis of such assessment, according to the assessed value retroactively at the time of exemption from the debt

2. As to the Defendant’s ground of appeal

Article 31(5) of the Enforcement Decree provides that, with respect to the calculation of profits deemed a donation by a shareholder, etc. of a specific corporation pursuant to the provision of Article 41(1) of the Act, the value per share of stocks or equity shares increased shall be calculated by multiplying the number of stocks, etc. of the relevant controlling shareholder, etc. due to the amount equivalent to the value of donated stocks or profits derived from exemption from debts (paragraph 1). In this context, it is reasonable to compute the value of stocks, etc. of the increased stocks, etc. by the comparison of the value of stocks, etc. before and after the transaction of donation, etc. In this case, where it is difficult to calculate the market value in calculating the value of stocks, etc., it is reasonable to view that there is no value per share of stocks, etc. before and after the transaction such as donation, etc., and it is reasonable to view that there is no value per share increase in the value of stocks, etc. of 20 per share because of the increase in the value of stocks, etc. of 10 per share, 30 per share.

In light of the above legal principles and records, the court below recognized the fact that the value of the non-party company's stocks per share increased from (-) 2,440 won to (+1,924 won per share before the debt exemption of this case is incidental to the value of the non-party company's stocks. Since the value per share before the debt exemption of this case is incidental to (-), it is just to calculate the increased value per share due to the debt exemption of this case as 1,924 won. There is no error in the misapprehension of legal principles as to the legislative purport of Article 41 of the Act and the calculation of the

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Nung-hwan (Presiding Justice)