Plaintiff 1 and one other (Law Firm Ilung, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

The director of the tax office.

December 18, 2014

1. On August 20, 2013, the Defendant’s imposition of gift tax of KRW 38,590,810 on each of the Plaintiffs shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The text is as follows (the date of August 23, 2013 stated in the purport of the claim seems to be a clerical error in August 20, 2013).

1. Details of the disposition;

A. On June 14, 2012, the Plaintiffs’ mother Nonparty entered into two inheritance-type immediate pension insurance contracts with Samsung Life Insurance Co., Ltd. (hereinafter “Tsung Life Insurance Co., Ltd.”) and two policyholders, the insured, pension beneficiaries, and maturity beneficiaries themselves, and immediately paid KRW 600 million for each insurance premium (attached Table 1) (hereinafter “instant insurance 1-1,” “instant insurance 1-2”), and on the same day, the respective insurance contracts are as listed in [Attachment 1], and the KD Life Insurance Co., Ltd. (hereinafter “KD Life”) and the policyholders, the insured, pension beneficiaries, and maturity beneficiaries, immediately paid KRW 300 million for each insurance contract (attached Table 2]. Each insurance contract is as listed in Table 2, “instant insurance 2-1,” and “instant insurance 2-2,” and both insurance policies are as follows.

The principal shall be received at the expiration of 1.3 (Undividend 1 omitted) pension insurance without delay, 1.1 (Plaintiff 1) insurance of 1.94.000 (Contract Number 2 omitted) - monthly pension payment of KRW 600 million for 10 years, monthly pension payment of KRW 1,94,000 (Plaintiff 2) insurance of KRW 1,944,000 (Plaintiff 2) - at the expiration of 10 years.

KDB Life Pension Insurance (Contract No. 3 omitted), 1,011,890 won (Plaintiff 1) insurance (Contract No. 4 omitted) - Insurance 1,011,890 won (Contract No. 4 omitted), monthly pension payment of 300 million won, monthly pension payment of 300 million won,000 won, monthly pension payment of 10 years, - 2-2 (Plaintiff 2) (Plaintiff 2) with the maturity of 10 years.

B. On July 3, 2012, the Nonparty changed the policyholder, pension beneficiary and maturity beneficiary of the instant insurance 1-1 to Plaintiff 1, and the policyholder, pension beneficiary and maturity beneficiary of the instant insurance 1-2 to Plaintiff 2, respectively. On July 19, 2012, the Nonparty changed the policyholder, pension beneficiary and maturity beneficiary of the instant insurance 2-1 to Plaintiff 1 and the policyholder, pension beneficiary and maturity beneficiary of the instant insurance 2-2 to Plaintiff 2, respectively.

C. On September 7, 2012, the Plaintiffs: (a) deemed that the Nonparty received a donation of the right to receive a regular payment (hereinafter referred to as “right to receive a regular payment”) as prescribed by Article 65(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “Gift”) and the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”); and (b) assessed the value of each of the instant insurance as KRW 781,724,842, respectively, and reported each of them to KRW 174,165,707, respectively.

D. As a result of the investigation against the Plaintiffs, the director of the Seoul Regional Tax Office determined that the “change of the policyholder and beneficiary” regarding each of the insurance of this case prior to the commencement of the pension was identical to the donation of KRW 900 million to the Plaintiffs respectively, and that the economic substance thereof was the same, and notified the Defendant that he should levy gift tax respectively on KRW 118,275,158, the difference between KRW 900 and the above KRW 781,724,842. The Defendant decided and notified the Plaintiffs of KRW 38,590,810, each of the gift tax on August 20, 2013 (hereinafter “each of the dispositions of this case”).

E. On November 6, 2013, the Plaintiffs appealed against each of the instant dispositions and filed an appeal with the Tax Tribunal, but dismissed on May 13, 2014, the Plaintiffs appealed and filed the instant lawsuit on August 7, 2014.

[Ground for Recognition: Facts without dispute, Gap evidence 1 through 3, Eul evidence 1, purport of whole pleadings]

2. The assertion and judgment

A. The plaintiffs' assertion

The Plaintiffs should be deemed to have received the right to receive payment from the Nonparty for the ten-year period of 10 years through each insurance contract of this case. In fact, the Plaintiffs are receiving a fixed amount monthly amount from Samsung Bio-resources and KB Bio-resources. Nevertheless, the Defendant deemed that the Plaintiffs received a lump sum payment of KRW 900 million from the Nonparty respectively, and thus, issued each disposition of this case. This is unlawful.

(b) Related statutes;

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) In full view of the details of the disposition and the purport of the evidence examined earlier, the terms and conditions of each of the instant insurance contracts are as follows.

(1) The company may modify the following matters with its consent. (3) The amount of the insurance proceeds for each insurance contract of the following 1 year may be changed with its consent on the 3th anniversary of the termination date of the insurance contract (it shall be limited to the amount of the insurance proceeds for the first time before the termination date of the contract). (1) The company may terminate the insurance proceeds for the first time after the termination date of the contract (it shall be limited to the amount of the insurance proceeds for the first time before the termination date of the contract). (2) The amount of the insurance proceeds for the first time after the termination date of the contract (it shall be limited to the amount of the insurance proceeds for the first time before the termination date of the contract. (3) The insurance proceeds for the first time after the termination date of the contract (it shall be limited to the amount of the insurance proceeds for the first time before the termination date of the contract) may be paid to the beneficiary of the insurance (it shall be limited to the amount of the insurance proceeds for the first time before the termination date of the contract.

(1) The contractor may modify the following matters with his/her consent of the company. (2) The contractor may change the content of the insurance contract to the amount of the insurance proceeds at the time of his/her choice by 1: 3% of the total amount of the insurance proceeds (the amount of the insurance proceeds shall be determined on the 1st anniversary of the termination date of the contract). If the contractor changes the amount of the insurance proceeds (the amount of the insurance proceeds shall be determined on the 3th anniversary of the termination date of the contract) and the amount of the insurance proceeds (the amount of the insurance proceeds shall be determined on the 1st anniversary of the termination date of the contract: Provided, That if the contractor changes the amount of the insurance proceeds (the amount of the insurance proceeds shall be determined on the 1st anniversary of the termination date of the contract) and the amount of the insurance proceeds shall be determined on the 3th anniversary of the total amount of the insurance proceeds (the amount of the insurance proceeds shall be determined on the 1st anniversary of the termination date of the contract).

2) As of July 3, 2012 of the instant insurance 1-1 and 1-2, the refund for cancellation as of July 3, 2012 is KRW 546,487,681, respectively, and the refund for cancellation as of July 19, 2012 of the instant insurance 2-1, 2-2-2 is KRW 286,048,336, respectively (a total amount is KRW 832,536,017, respectively, for each Plaintiff).

(d) Markets:

1) Appraisal of rights under an insurance contract

A) Article 31(1) of the Inheritance and Gift Tax Act provides that “The donated property shall include all things having economic value which can be converted into money with property belonging to the donee (Article 1); all rights having property value (Article 2); and all economic benefits which can be converted into money (Article 30).” Article 60 provides that “The value of property on which gift tax is levied under this Act shall conform to the market price as of the date of donation (Article 1). Where it is difficult to calculate the market price where a free transaction takes place between many and unspecified persons (Article 2). The market price shall be the value assessed by the method prescribed in Articles 61 through 65, taking into account the type, scale, transaction circumstances, etc. of the relevant property; Article 65(1) provides that “The value of property assessed in accordance with the method prescribed in Ordinance of the Ministry of Strategy and Finance shall be deemed the market price (Article 65(1)); Article 60(1) of the Enforcement Decree of the Inheritance and Gift Tax Act shall be calculated based on the name, substance and substance of the relevant rights or other rights determined by Presidential Decree.”

B) In light of the above legal provisions, examining the instant case’s return, and considering the following circumstances, the “market price of each of the instant insurance” is reasonable to regard the “market price of each of the instant insurance” as the refund upon its cancellation.

① Article 60(2) of the Inheritance and Gift Tax Act provides for the definition of market price under the Inheritance and Gift Tax Act as an alternative to the case where it is difficult to compute a market price pursuant to Article 60(3) of the Inheritance and Gift Tax Act, and Articles 61 through 65 of the Inheritance and Gift Tax Act provide for the method of reasonably estimating a market price. In full view of the fact that Article 60(3) of the Inheritance and Gift Tax Act provides for the method of calculating the value of property on which gift tax is levied, the value assessed by the method provided for in Articles 61 through 65 of the Inheritance and Gift Tax Act pursuant to Article 60(3) of the Inheritance and Gift Tax Act constitutes the market price (see Supreme Court Decision 2012Du3200, Jun. 14, 2012).

(2) Since an insurance contract takes effect by conclusion, it may be terminated, rights under the insurance contract shall be acquired even if it can be terminated.

③ By changing the Nonparty to a policyholder, the Plaintiffs succeeded to and acquired the rights and obligations under the insurance contract, such as termination of the contract and the right to cancel and cancel the contract, the right to claim for termination refund, the right to designate and change the beneficiary, the right to claim for a loan of insurance contract, the obligation to notify when an insured event occurs, and the right to receive the premium upon the occurrence of the insurance accident. In accordance with the terms and conditions of each insurance contract of the instant case, the Plaintiffs acquired the right to refund the premium and the right to receive the installment fund

④ Under Article 65(1) of the Inheritance Tax and Gift Tax Act and Article 60 subparag. 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the market price of the right to refund insurance premiums can be assessed as “an adequate value taking into account the facts constituting the contents of conditions as of the base date of appraisal based on the value of future rights, the certainty of conditions, and all other circumstances,” in light of the fact that the contract can receive a refund for termination when the contract is terminated according to the terms and conditions of each insurance contract in the instant case.

On the other hand, the right to receive the periodical fund is assessed according to Article 65 of the Inheritance and Gift Tax Act and Article 62 of the Enforcement Decree of the Inheritance and Gift Tax Act, and the market price is lower than the market price of the right to refund the premium as seen above.

(5) If so, it is necessary to assess the rights of each insurance contract of this case by either the market price of the right to refund insurance premiums or the market price of the right to receive payment.

Even if an insurance contract is established and the contract becomes effective, the insurance claim is not an abstract right before the occurrence of the insurance accident, but can exercise its right from that time after the occurrence of the insurance accident (see Supreme Court Decision 2007Da19624, Nov. 13, 2008). Thus, the right of the policyholder to the insurance contract is an abstract insurance claim (in the case of a pension insurance, the "date of the payment of insurance premium" shall be deemed an insurance accident for which specific insurance claims occur) which is within the scope of the right to refund insurance premium and the judgment of the court below. The supplementary method is applied when it is impossible to calculate the price of the insurance contract traded by many and unspecified persons. Thus, it is reasonable to select the party whose market price is equal to the market price. However, the market price of the right to refund insurance premium is determined as the amount to be paid under the terms and conditions at the time of termination, such as the remaining period or amount determined by Ordinance of the Ministry of Strategy and Finance pursuant to Article 62 of the Enforcement Decree of the Inheritance and Gift Tax Act.

C) The Defendant asserts to the effect that there is no difference between “the Plaintiff’s acquisition of the right under each insurance contract of this case” and “the direct donation of KRW 900 million to the Plaintiffs,” respectively, and that the substance of each insurance contract of this case should be deemed to have been donated to the Plaintiffs respectively. However, as seen earlier, the tax base of gift tax should be calculated based on the market price of the donated property at the time of donation, as well as the amount of insurance money of KRW 900 million paid by the Nonparty to Samsung Bio-resources and KDB life as well as the net insurance money of KRW 900 million paid by the Nonparty to the beneficiaries to the beneficiaries of the insurance contract (i.e., “project cost,” which consists of design company’s allowance, sales promotion expenses, store operation expenses, and employee benefits, etc.) to attract and manage the insurance contract. The additional insurance premium of this case, which is not net insurance premium, shall not be deemed to have been directly reverted to the Plaintiffs (i.e., termination refund in this country).

2) All revocation of each of the dispositions of this case

A) In a lawsuit seeking the revocation of a taxation disposition, the subject matter of adjudication is whether the tax base and the tax amount notified by the tax authority exist objectively. In a case where the tax base and the tax amount recognized by the disposition are excessive compared to the legitimate tax base and the tax amount, the disposition of imposition is unlawful only to the extent exceeding the legitimate tax base and the tax amount (see Supreme Court Decision 88Nu6504, Mar. 28, 1989).

B) Therefore, each of the instant dispositions is lawful only to the extent that the value of the donated property is assessed as the above KRW 832,536,017 for each of the plaintiffs (total sum of the refund for termination by an insurance company based on the time each donation was made). Since the exceeding part is unlawful, each of the instant dispositions should be revoked. However, since the materials submitted by the defendant alone cannot calculate a reasonable tax amount of KRW 832,536,017 at the value of donated property, each of the instant dispositions should be revoked in all of the instant dispositions.

3. Conclusion

If so, the plaintiffs' claims are reasonable, and it is decided as per Disposition.

[Attachment]

Judges Kim Jong-jin (Presiding Judge)

Judges are unable to sign and seal by transfer of voluntary scrap metal.