In cases where a public-service corporation, etc. fails to use the property contributed to it for the public interest project, etc. within three years from the date on which such inevitable cause ceases to exist, or where it is determined that the property contributed cannot be used for the public interest project, etc. before the lapse of three years from the date on which such inevitable cause ceases to exist, whether gift tax may be levied by applying Article 48(2)1 of

The legislative purport of Article 48 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter the same) is to not include property contributed to a public-service corporation, etc. in the taxable value of donated property under the condition that the public-service corporation, etc. should use the property or operating income for the purpose of contributing to the property in question, in order to prevent the abuse of the property as a means of tax evasion or propagation through a public-service prior to the public-service project and an unlawful act of contribution to property. In addition, the proviso of Article 48(2)1 of the Inheritance Tax and Gift Tax Act provides that, in order to accomplish the legislative purpose as above, the tax authority may request the public-service corporation, etc. to submit a report under the provisions of paragraph (5) to the head of the tax office having jurisdiction over the place of tax payment along with the submission of the report. In full view of these points, it is reasonable to view that the property contributed by the public-service corporation, etc. is not directly used within three years after the date of contribution, unless there are unavoidable reasons for the second three years.

Article 48(1), (2)1, and (5) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 38(3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22042, Feb. 18, 2010);

Supreme Court Decision 2007Du26711 Decided May 27, 2010 (Gong2010Ha, 1283)

Medical Corporations Yeongdeungpo Medical Foundation (Attorney Kim Sung-sung, Counsel for defendant-appellee)

North Daegu Tax Office (Attorney Kim Jin-kin, Counsel for the defendant-appellant)

Daegu High Court Decision 2010Nu2464 decided May 13, 2011

The judgment below is reversed, and the case is remanded to the Daegu High Court.

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

1. The main sentence of Article 48(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter "the Inheritance Tax Act") provides that "the value of property contributed by a public-service corporation, etc. shall not be included in the taxable value of donated property." Paragraph (2) of the same Article provides that "Where the public-service corporation, etc. to which the property is contributed pursuant to the provisions of paragraph (1) falls under any of the following subparagraphs 1 through 4 and 5, the head of a tax office, etc. shall be deemed to have been donated by the public-service corporation, etc., and the gift tax shall be levied immediately on the donated property immediately." The main sentence of subparagraph 1 provides that "where it is difficult to use the donated property for direct public-service business, etc. (including cases where it is managed for profit-making business or profit-making business for which it is difficult to use it for a long time, etc.)" and the proviso of Article 28(1) of the former Inheritance Tax Act provides that "the person shall be delegated by Presidential Decree No. 318.".

The legislative purpose of Article 48(2)1 of the Inheritance and Gift Tax Act is not to include property contributed to a public corporation, etc. in the taxable value of donated property under the conditions that the public corporation, etc. should use the pertinent property or operating income for the purpose of contributing property in order to prevent abuse of the means of tax evasion or inheritance by preceding and changing property contributions for public projects (see, e.g., Supreme Court Decision 2007Du26711, May 27, 2010). In addition, the proviso to Article 48(2)1 of the Inheritance and Gift Tax Act provides that, in order to accomplish the legislative purpose as above, the tax authority may request the public corporation, etc. to submit a report under the provisions of paragraph (5) to the head of the district tax office having jurisdiction over the place of tax payment along with the submission of a report on whether to implement the said conditions. In full view of these points, it is reasonable to deem that the property contributed was not directly used for public projects within three years after the date of receiving the property directly from the date of such contribution to the public interest corporation, etc.

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

(1) The Plaintiff is a medical corporation that obtained permission for establishment on January 1, 1992. The Plaintiff received contributions from the Nonparty, etc. to establish a medical institution, and then obtained authorization for an implementation plan for an urban planning facility project (general medical facility) from the Daegu Metropolitan City Mayor. However, the establishment of a medical institution was delayed due to the following reasons: (a) the scale of urban planning facility project is reduced as part of the project site is incorporated into a neighboring lone Housing Site Development Zone; and (b) the consultation for purchasing real estate owned

(2) Accordingly, the Plaintiff, from January 1, 1994 to May 5, 1994, was recognized as “the time limit for the establishment of medical institutions and the time limit for the use of contributed property” on a two-year basis, but did not establish medical institutions until January 6, 2004, which is the final time limit.

(3) After that, the Daegu Metropolitan City Mayor did not establish a medical institution, and the procedure was conducted to revoke the permission for establishment of a medical corporation against the Plaintiff. The Plaintiff was suspended the revocation of the permission for establishment of a medical corporation by promising the Daegu Metropolitan City Mayor to start construction work until May 29, 2004.

(4) However, the Plaintiff failed to commence construction works until May 29, 2004 because the problems such as the purchase of real estate owned by others and the raising of funds for construction works have not been resolved.

(5) On May 29, 2004, the Plaintiff passed a resolution for voluntary dissolution at the board of directors, and notified this fact to the Daegu Metropolitan City Mayor, and on May 31, 2004, the Daegu Metropolitan City Mayor revoked the permission to establish a medical corporation for the Plaintiff.

3. Examining these facts in light of the legal principles as seen earlier, even if there is room to view that, until May 29, 2004, the Plaintiff had been granted a grace period for the revocation of the permission for establishment of a medical corporation by the Daegu Metropolitan City Mayor upon promising to start the construction work, it constitutes “the case where the competent Minister, etc. recognizes that there are unavoidable reasons for not using the contributed property directly for the public interest business, etc.” subject to the gift tax exemption under the proviso of Article 48(2)1 of the Inheritance and Gift Tax Act and Article 38(3) of the Enforcement Decree of the Inheritance and Gift Tax Act, since the medical corporation for the Plaintiff was revoked the permission for establishment of the medical corporation for the Plaintiff on May 31, 2004, it is confirmed that the Plaintiff cannot use each of the instant land directly for the public interest business, etc., and as long as it is difficult to view that there are special circumstances not attributable to the Plaintiff, each of the instant land is subject to gift tax under Article 4

Nevertheless, under the premise that the competent Minister or a person delegated with his authority is excluded from the gift tax subject to Article 48(2)1 of the Inheritance and Gift Tax Act, in cases where the property contributed by a public-service corporation is used for a direct public-service business, etc., the lower court determined that even if the medical corporation for the establishment of the Plaintiff was revoked on May 31, 2004, and thus, it became final that the Plaintiff cannot use each of the instant land for a direct public-service business, etc., and thus, the gift tax cannot be imposed by applying Article 48(2)1 of the Inheritance and Gift Tax Act to each of the instant land, even if it became final and conclusive that the Plaintiff could not use it for a direct public-service business, etc., by extending the period of use of the property subject to gift tax until May 29, 2004. In so doing, the lower court erred by misapprehending the legal doctrine on the gift tax subject to Article 48(2)1 of the Inheritance and Gift Tax Act, thereby adversely affecting the conclusion of the judgment.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)