[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 674 won (+674 won) due to the exemption of liabilities to the corporation, the value per stock before the exemption of liabilities shall be 0 won, and it shall be calculated as 674 won per share due to the exemption of liabilities

[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 (Gong2001Ha, 2097), Supreme Court Decision 2003Du1073 delivered on October 15, 2004 / [3] Supreme Court Decision 2003Du4749 delivered on November 28, 2003

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

head of Sung Dong Tax Office

Seoul High Court Decision 2003Nu2610 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 a shareholder, etc. of a specific corporation, etc. to the shareholders, etc. of the relevant corporation by donation of property or exemption from obligations to the relevant corporation, the amount equivalent to the profit shall be deemed to have been donated to the shareholders, etc. of the relevant specific corporation, regardless of whether the person having a special relationship had a intention of donation, regardless of whether there was a intention of donation, the amount equivalent to the profit shall be deemed to have been donated to the shareholders, etc. of the relevant specific corporation to the person having a special relationship with the Plaintiff, who is the shareholders of the Signers Co., Ltd. (hereinafter “Nonindicted Company”). As established by the court below, such profit shall be subject to gift tax under the above provision, regardless of the purpose of avoiding gift

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 (+674 won per share before the debt exemption of this case is incidental (-). Since the value per share before the debt exemption of this case is an incidental (-), it is just to calculate the increased value per share due to the debt exemption of this case as 674 won, and 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 value of deemed donation of this case

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)