Daejeon District Court 2008Guhap4550 (O. 24, 2009)

Seoul High Court Decision 2008-0251 ( October 01, 2008)

Evaluation of wrongful acts following a low-price transfer;

In the case of transferring assets to a related party at a price lower than the market price, it constitutes an unfair act.

The contents of the decision shall be the same as attached.

1. The plaintiff's appeal is dismissed.

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

Purport of claim and appeal

The judgment of the first instance shall be revoked. The defendant's disposition of imposition of KRW 33,147,690 against the plaintiff on January 11, 2008 shall be revoked.

1. Details of the disposition;

A. On December 27, 2006, the Plaintiff sold the total amount of KRW 295,00,000,000,000 for 347-15,204, and 320.84,000 square meters for the above 3-story housing owned by the Plaintiff (hereinafter referred to as “the above 1st house”) to ○○○○○○○○-dong, 347-15, and 320.84 square meters for the above 297-5 site and 187.3 square meters for the above 3-story, and 321.3 square meters for the above 3-story housing area (hereinafter referred to as “the above 2nd house and housing”; hereinafter referred to as “each of the instant real estate”). On January 31, 2007, the Plaintiff filed a report on the transfer amount of KRW 295,00,000,000 for the above 308,23086.

B. As to the Plaintiff on January 11, 2008, the Defendant: (a) deemed that the Plaintiff’s above transaction constituted a case where the burden of capital gains was reduced unfairly due to the transaction with a specially related person under Article 101(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter the same shall apply); (b) calculated the total amount of KRW 417,00,000 of the individual housing price in the year 2006 for each of the instant real estate as the transfer value; and (c) calculated the total amount of the determined tax by using the standard market price at the time of acquisition of each of the instant real estate as the acquisition value; and (d) imposed KRW 33,147,690, which

C. On February 27, 2008, the Plaintiff filed a request for review to the Board of Audit and Inspection, and the Board of Audit and Inspection dismissed the Plaintiff’s request for review on October 1, 2008.

[Reasons for Recognition]

The facts without dispute, Gap evidence No. 1, 2, 2, 3, Gap evidence No. 4-1, 2, Eul evidence No. 1, 3-3, Eul evidence No. 4-1 through 3, Eul evidence No. 4-1 through 3, Eul evidence No. 5, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Although the Plaintiff intended to sell each of the instant real estate, there was no person intending to purchase each of the instant real estate at KRW 340,000,000,000, and eventually, the Plaintiff sold the instant real estate at KRW 295,000,000 in total. The sale price should be calculated based on the amount of KRW 340,00,00,00,00, which is the total market price of each of the instant real estate in light of the overall real estate transaction at the time, the location and status of each of the instant real estate, the transaction price of neighboring housing (○○○○○○○-dong 347-13, hereinafter “347-13 housing”)’s transaction price, etc., even though the said transaction did not fall under a lower price than the market price, the instant disposition was unlawful, even if the provisions on the avoidance of wrongful calculation under the former Income Tax Act are applicable.

(b) relevant statutes;

The entries in the attached statutes are as follows.

(c) Fact of recognition;

(1) The details of the transfer value and acquisition value of each of the instant real estate reported to the Defendant at the time of reporting and paying the transfer income tax for the year 2006 due to the transfer of each of the instant real estate are as follows:

(2) The individual housing price (based on April 30, 2006) of each of the instant real estate based on the former Act on the Construction and Appraisal of Real Estate (amended by Act No. 8409, Apr. 27, 2007) is KRW 212,00,000, and the second housing of this case is KRW 205,00,000.

(3) There is no transaction value or appraisal, expropriation, and auction price due to the sale of each real estate of this case within 6 months before or after the date of concluding the sales contract on each real estate of this case.

(4) A house located in ○○○○○○○-dong 347-7 (hereinafter “347-7 house1”) was similar to the instant first house, location, and studio, etc., and was sold around 230,000,000 around May 2005.

(5) 347-13 Housing is similar to each of the instant real estate and its location and size, etc., and sold around May 10, 2009.

[Reasons for Recognition]

Facts without dispute, Gap evidence 11-1, 2, Eul evidence 2-1, 2-2, Eul evidence 3-1 through 3, Eul evidence 4-1 through 3, and the purport of the whole pleadings.

D. Determination

(1) Whether it constitutes a case in which the tax burden has been unjustly reduced

Article 101 (1) of the former Income Tax Act, and the head of tax office having jurisdiction over the place of tax payment shall have capital gains.

In a case where it is deemed that an act or calculation has reduced the tax burden on the pertinent income unjustly due to the transaction with the resident in a special relationship, the income amount for the pertinent year may be calculated regardless of the resident’s act or accounting. Here, the denial of unfair act and calculation means that the resident’s act or calculation can be calculated regardless of the normal economic person’s act or accounting. In a case where the resident’s transaction with the specially related person is deemed to have avoided or reduced the tax burden by abusing all the forms of transaction listed in each subparagraph of Article 98(2) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890, Feb. 28, 2007; hereinafter the same shall apply) without using the reasonable method of the ordinary economic person’s transaction with the person with a special relationship, it is deemed that the person with a taxation authority denies or reduced the tax burden by using the forms of transaction as stipulated in each subparagraph of Article 98(2) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 1985, Feb. 28, 20000).

Meanwhile, according to Articles 98 and 167 of the former Enforcement Decree of the Income Tax Act, if the land, etc. is transferred at a price lower than the market price with a related party such as his/her relative, etc., the transfer price shall be calculated by deeming that the tax burden on the capital gains is unreasonably reduced. The market price here shall be determined by the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter the same shall apply) and the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 200; hereinafter the same shall apply) mutatis mutandis to the 30th appraisal and sale price of the real estate at the market price of each of the above 10th appraisal and sale prices of the real estate at the market price of each of the above 10th appraisal and sale prices of the real estate at the market price of each of the above 4th appraisal and sale prices of the real estate.

(2) The market price applied to the applicant of the wrongful calculation of the instant case

As seen earlier, in applying the provision regarding wrongful calculation, the Defendant’s disposal of KRW 417,00,000, the aggregate amount of individual housing prices in the Dongsan of this case, shall be deemed as the transfer value, and the disposition of this case imposing capital gains tax on the Plaintiff is lawful. As such, the Defendant’s assertion that the transfer value should be calculated on the basis of KRW 340,00,000, the aggregate amount of market prices of each real estate of this case is also without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is justified, and it is so decided as per Disposition by the plaintiff.