Cho Jae-2016-China-2341 (2016.01)

When family business inheritance deduction is applicable, the detailed statement of the property of the family business shall be submitted within the deadline of tax base return.

The deduction for inheritance of a family business shall not apply unless the submission of detailed statement of the property of the family business and documents evidencing the facts of inheritance of a family business is made by the deadline

Article 18 Basic Deductions of Inheritance Tax and Gift Tax Act

Article 67 of the Inheritance Tax and Gift Tax Act

2016Guhap50618 Revocation of Disposition of Revocation of Inheritance Tax Imposition

AA

BB Director of the Tax Office

August 17, 2017

September 14, 2017

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The imposition of inheritance tax against the plaintiff on April 1, 2016 by the defendant shall be revoked.

1. Details of the disposition;

A. On September 18, 200, CCC (hereinafter “CCC”) established DD Industry Co., Ltd. (hereinafter “CCC”) and operated the instant family business as the representative director for about 13 years, and died on October 30, 2013.

B. The heir, including the Plaintiff, who is an infant of the inheritee, following the death of the decedent (hereinafter referred to as “the heir of this case”), filed an inheritance tax return with the Defendant on January 16, 2014, and voluntarily paid KRW 107,005,680 by June 12, 2014. The details of the Plaintiff’s inherited property submitted at the time of the said report were written as non-listed shares, 59,780 shares issued by the family business company of this case (hereinafter referred to as “existing shares”).

C. Meanwhile, as a result of the FF director’s investigation of the transfer of shares of the instant family business company, 34,120 shares issued by the instant family business company under the name of GG or HH were found to have been held by the decedent by stealing another’s name. The FF director notified the instant family business company on December 16, 2015 that the said shares 34,120 shares of the instant company (hereinafter “the instant borrowed shares”) would be included in the inherited property by the actual owner of the shares, and thus, the instant borrowed shares would also be determined by inheritance tax.

D. Accordingly, the instant heir’s inheritance of all 93,90 shares (77% of the shares issued by the instant family business company, including the instant borrowed-name shares) as well as the instant existing shares. On January 4, 2016, EE filed an application for the deduction of inheritance tax under Article 18(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 12168, Jan. 1, 2014; hereinafter “former Inheritance Tax and Gift Tax Act”) and Article 15 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”) by omitting the instant borrowed-name shares from the inherited property at the time of the tax base return of inheritance tax as of January 16, 2014; and thus, the inheritance tax base and tax amount calculated by applying the deduction of inheritance tax to the Defendant; hereinafter “16008”).

E. On February 11, 2016, the Defendant rejected the Plaintiff’s filing of a return on February 11, 2016 on the grounds that the deduction for inheritance of a family business cannot be applied, since the Plaintiff did not file a return on the inherited property including the instant borrowed stocks.

F. On April 1, 2016, the Defendant: (a) determined inheritance tax as KRW 215,277,377 by including the instant tea stocks in the inherited property; and (b) added additional tax to KRW 27,835,538; and (c) notified the Plaintiff to pay KRW 118,895,200, including the already paid tax amount of KRW 107,005,680, and to pay the remaining KRW 124,217,710 of the inheritance tax (hereinafter “instant disposition”).

G. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on June 24, 2016, but the Tax Tribunal dismissed the Plaintiff’s appeal on September 1, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 12, 14, 20 evidence (if there are provisional numbers, including each number; hereinafter the same shall apply), Eul evidence 1 through 3, 5 through 7, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) After the death of the inheritee, the Plaintiff acquired 77% of the shares issued by the instant family business company, including the instant borrowed shares, from the decedent, and met all the requirements for family business deduction under Article 15 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, namely, ① is 18 years or older as of the date of commencing the inheritance, ② is to be engaged in the family business continuously before two years have elapsed since the date of commencing the inheritance, ③ all of the pertinent family business was inherited, and was appointed as an executive by the deadline for filing the inheritance tax base, and was appointed as the representative director within two years from the date of filing the inheritance tax return.

Therefore, the Defendant’s disposition of this case is unlawful since it did not apply even though the Plaintiff satisfied all the requirements for deduction of family business succession and the ESE of the inheritee applied for deduction of family business succession with the instant claim for rectification.

2) Even if the Plaintiff had submitted the documents for deduction of inheritance of a family business at the latest, the deduction of inheritance of a family business regarding the existing shares of this case, which the Plaintiff originally reported as inherited property, is recognized. Therefore, the part of the previous shares out of the instant disposition is unlawful.

B. Defendant’s assertion

1) Since the Plaintiff did not file an application for deduction of inheritance of a family business by the deadline for filing the inheritance tax base under Article 15(11) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the instant disposition that did not apply is lawful

2) The Plaintiff failed to meet the requirements of “a person engaged in a family business continuously for two years before the commencement date of inheritance” or “a person who succeeds to the entire family business by the deadline for filing the inheritance tax base” among the requirements for deduction of family business under Article 15 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act.

C. Relevant statutes

The entries in the attached Table-related statutes are as follows.

D. Determination

1) Article 18(3) of the former Inheritance Tax and Gift Tax Act provides that an heir who has received a family business shall submit the documents evidencing that the heir falls under the inheritance business to the head of the district tax office having jurisdiction over the place of tax payment pursuant to Article 67 of the former Inheritance Tax and Gift Tax Act. Article 67 of the former Inheritance Tax and Gift Tax Act provides that an heir liable for the payment of inheritance shall file a report on the taxable value and tax base of the inheritance to the head of the district tax office having jurisdiction over the place of tax payment within six months from the end of the month in which the inheritance falls the date of commencing the inheritance, and shall attach documents evidencing the type, quantity, appraised value, division of property, and all kinds of deductions necessary for calculating the tax base of inheritance tax. In addition, Article 18(11) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that a person who intends to obtain a deduction from a family business pursuant to

In light of the above provisions of the former Inheritance Tax and Gift Tax Act, a person who wishes to obtain an inheritance tax deduction pursuant to Article 18(2)1 of the former Inheritance Tax and Gift Tax Act shall submit to the head of the tax office having jurisdiction over the place of tax payment the documents to prove that the person falls under the inheritance tax by the deadline for filing a return on the tax base of the inheritance tax under Article 67 of the former Inheritance Tax and Gift Tax Act. In cases where the reporter did not submit the inheritance tax deduction documents by the deadline for filing a return on

As to the instant case, since the Defendant died on October 30, 2013, the Plaintiff’s filing deadline for the return of the Plaintiff’s inheritance tax base under Article 67(1) of the former Inheritance Tax and Gift Tax Act was April 30, 2014, which was six months after the end of the month in which the decedent died, the Plaintiff did not submit the documents pertaining to the deduction for family business (the Plaintiff intentionally filed a tax return excluding the instant borrowed stocks from inherited property) to the Defendant until then (the Plaintiff filed a tax base return excluding the instant borrowed stocks intentionally), and the Defendant’s wife EEE included the instant borrowed stocks in the inherited property and applied for the deduction for the inheritance of a family business to the Defendant, as the date on which the Defendant filed the instant request for the rectification of the inheritance of a family business.

Therefore, so long as the Plaintiff did not submit the documents to deduct family business to the Plaintiff within the period of return of the inheritance tax base, the instant disposition is legitimate for the Defendant without deducting the Plaintiff from the inheritance tax base (the purport of the former Inheritance Tax and Gift Tax Act provides for special cases for the deduction of family business in relation to the succession to family business is to provide taxation support on the succession to a specific family business so as to maintain the honor of the small and medium enterprises belonging to the family business and promote economic vitality on the premise of the continuation of the family business, and to protect the company belonging to the family business. In light of the relationship between the deceased and the deceased, the size of the family business with the deceased, and the date of preparation of the share acquisition agreement on the instant borrowed stocks between GG and HH, who were the holders of the instant borrowed stocks, were well aware that the actual owners of the instant borrowed stocks were the deceased, but did not know that the Plaintiff did not exercise the Plaintiff’s shareholder’s rights at the time of the instant tax return, the Plaintiff’s assertion that the Plaintiff was in violation of the purport of the Plaintiff’s inheritance succession.

2) In addition, according to the facts of prior recognition, the Plaintiff did not submit to the Defendant the documents for deduction of family business in respect of the existing shares of this case for which the Plaintiff reported to the Defendant as inherited property, and thus, the Plaintiff’s assertion that the Defendant’s disposition of this case was unlawful at least for the existing shares.

3) Meanwhile, in light of the purport of the deduction for inheritance of a family business as seen earlier, in determining whether a successor was directly engaged in the family business, the court must comprehensively consider the importance and proportion of the successor's occupation and position in the operation of the family business, the position externally used, the degree and receipt of remuneration of the successor, the type and type of the other business, the relationship with the other business and the family business, and the circumstances in which the successor had been engaged in the family business when the successor was engaged in any other business than the family business. However, the evidence submitted by the plaintiff is insufficient to recognize that the plaintiff had been directly engaged in the family business for 2 years prior to the commencement date of the inheritance inheritance deduction to the extent that it conforms to the purport of the deduction for inheritance of a family business, and it is difficult to deem that the plaintiff satisfied the requirements of the deduction for inheritance of a family business of this part [the plaintiff was admitted as evidence (Evidence No. 18), the payment details (Evidence No. 23), and the fact confirmation (Evidence No. 25, 27).

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.