In cases where a truster’s joint and several liability for gift tax was established by meeting the taxation requirements of deemed gift of a nominal trust property, whether the matters pertaining to the title trustee did not affect the truster’s joint and several liability for gift tax even before the tax liability becomes final and conclusive due to taxation (affirmative in principle), and whether the same applies in cases where the title trustee died and his/her heir succeeds to the scope of inherited

In full view of the contents and structure of Articles 4(1) and (5), and 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”), Articles 3 and 25-2 of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007); Article 423 of the Civil Act; the amendment history and legislative intent of Article 4 of the former Inheritance Tax and Gift Tax Act; and the legislative intent of Article 4 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”), insofar as a title truster’s joint and several liability to pay gift taxes is established upon meeting the taxation requirements of nominal trust property, even before such taxation becomes final, matters concerning the title truster’s joint and several liability to pay gift taxes does not affect the title trustee’s gift tax, and even if the title trustee’s heir dies dies dies’s inheritance.

Article 4(1) (see current Article 4-2(1) and (3), and Article 45-2(2) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 916, Jan. 1, 2010); Article 4(5) (see current Article 4-2(5)3 and 4); Article 45-2(1) of the former Framework Act on National Taxes (Amended by Act No. 8830, Dec. 31, 2007); Articles 3 and 25-2 of the former Framework Act on National Taxes; Articles 416, 419, 421, and 423 of the Civil Act

Plaintiff 1 and one other (Law Firm LLC, Attorneys So-young et al., Counsel for the plaintiff-appellant)

Head of Seogju Tax Office

Gwangju High Court Decision 2015Nu5183 decided July 16, 2015

The part of the judgment of the court below against the defendant against the plaintiff 2 is reversed, and that part of the case is remanded to the Gwangju High Court. The appeal against the plaintiff 1 is dismissed. The costs of appeal between the plaintiff 1 and the defendant are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of any statement in the supplemental appellate brief not timely filed).

1. As to the ground of appeal against the plaintiff 2

A. The main text of Article 45-2(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that “where the actual owner and the nominal owner are different with respect to any property (excluding land and buildings) requiring a registration, etc. for the transfer or exercise of any right, the value of the property shall be deemed to have been donated to the actual owner on the date when it was registered, etc. as the nominal owner notwithstanding Article 14 of the Framework Act on National Taxes.” Article 4(5) provides that “In such a case, unlike the ordinary donation, the donor shall be jointly and severally liable for payment with the donee even if it is difficult to secure a tax claim against the donee as to the gift,

Meanwhile, Article 25-2 of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same) provides that “The provisions of Articles 413 through 416, 419, 421, 423, and 425 through 427 of the Civil Act shall apply mutatis mutandis to the obligation to jointly and severally pay national taxes, surcharges, and expenses for disposition on default under this Act or other tax-related Acts,” and Article 423 of the Civil Act applied mutatis mutandis as above provides that “the provisions of Article 416 of the Civil Act shall apply mutatis mutandis to the obligation to jointly and severally pay national taxes, surcharges, and expenses for disposition on default.” Article 3 of the former Framework Act on National Taxes shall take precedence over the application of the Framework Act on National Taxes in cases where there are no special provisions on joint and several tax-related obligations.

Generally, a person liable to pay gift tax is a donee who takes over the pertinent property, and the donor’s obligation to pay gift tax is subordinate to the donee’s obligation to pay tax. Therefore, a donor’s joint and several tax liability should be deemed joint and several liability after the donee’s obligation to pay tax becomes final and conclusive (see, e.g., Supreme Court Decisions 91Nu12813, Feb. 25, 1992; 94Nu3698, Sept. 13, 1994). On the other hand, Article 45-2(1) of the former Inheritance Tax and Gift Tax Act provides that, as an exception to the substance over form principle to prevent the act of title trust for the purpose of tax avoidance, the gift tax is deemed as donated property from the actual owner to the title holder, and thus, it is difficult to deem that the former Inheritance Tax and Gift Tax Act excludes the title truster’s obligation to pay gift tax under the latter part of Article 2 of the Framework Act on National Taxes, even if the title truster does not have an obligation to pay gift tax.

In full view of the contents and structure of these provisions, and the legislative history, legislative purport, etc. of Article 4 of the former Inheritance and Gift Tax Act, inasmuch as a title truster’s joint and several liability for gift tax has been established by meeting the taxation requirements of deemed donation of nominal trust property, even if such liability for tax payment is not determined by a taxation disposition, matters concerning the title trustee do not affect the title truster’s joint and several liability for gift tax, except in cases falling under Articles 416, 419, and 421 of the Civil Act, and it does not change even if the title trustee died and his/her heir succeeded to the gift tax liability of the title trustee within the scope of

B. The lower court acknowledged the following facts based on evidence.

1) On September 28, 2006, Plaintiff 2 held title trust with the deceased Nonparty (hereinafter “the deceased”) on the aggregate of 100,000 shares issued by Esteex Co., Ltd. and 62,00 shares issued on December 14, 2007 (hereinafter “instant shares”). As the deceased died on May 28, 2010, Plaintiff 1 solely succeeded to the deceased’s property.

2) On July 6, 2012, the Defendant: (a) notified Plaintiff 1 of KRW 752,437,880 of the gift tax in 2006 and KRW 800,235,050 of the gift tax in 2007; and (b) notified Plaintiff 1 of the value of inherited property as KRW 740,348,142 of the gift tax in 2006.

3) In addition, the Defendant: (a) deemed that Plaintiff 2 was jointly and severally liable with Plaintiff 1 as a title truster to pay the gift tax; (b) on July 9, 2012, the Defendant served Plaintiff 2 with the notice of designation of joint and several tax liability; (c) KRW 752,437,880 for the gift tax year 2006; and (d) KRW 800,235,050 for the gift tax year 20

C. Examining these facts in light of the legal principles as seen earlier, even if Plaintiff 1, the inheritor of the deceased’s death, succeeded to his gift tax liability within the limit of KRW 740,348,142, which is inherited property, pursuant to Article 24(1) of the former Framework Act on National Taxes, the Plaintiff 2’s joint and several liability for gift tax arising from the title trust of the shares of this case does not affect any effect

Nevertheless, the lower court determined that: (a) the title truster’s joint tax liability based on the constructive gift of the nominal trust property was unlawful, on the erroneous premise that the title truster’s tax liability of the title trustee, who is the principal taxpayer, was determined as a tax assessment; and (b) the Plaintiff 1’s tax liability of gift tax became final and conclusive within the limit of KRW 740,348,142, which is inherited property; (c) thus, the amount exceeding KRW 740,348,142, out of KRW 752,437,80, and KRW 800,235,050, which is the amount exceeding KRW 207,00,000, is illegal. In so determining, the lower court erred by misapprehending the legal doctrine on the joint tax liability of gift tax of the title truster based on the constructive gift of the nominal trust property, thereby affecting the conclusion of the judgment.

2. As to the ground of appeal against the plaintiff 1

For reasons indicated in its reasoning, the lower court determined that the imposition of gift tax of KRW 740,348,142 in excess of the imposition of gift tax of KRW 752,437,880 against Plaintiff 1 and KRW 800,235,050 in 207 was unlawful, on the grounds that the Defendant may only determine and notify Plaintiff 1 of gift tax within the scope of inherited property.

Examining the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on the succession to tax liability due to inheritance and the duty payment notice, contrary to what is alleged in the grounds of appeal

3. Conclusion

Therefore, the part of the judgment below against the defendant against the plaintiff 2 is reversed, and that part of the case is remanded to the court below for a new trial and determination. The appeal against the plaintiff 1 is dismissed, and the costs of appeal between the plaintiff 1 and the defendant are assessed against the defendant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)