Where a low-price transfer of land is denied as a wrongful calculation method, the method of calculating transfer margin of special surtax.

If a corporation transfers a parcel of land to a related party and its transfer value and acquisition value are clear, such transfer is not an exceptional case for calculating gains on transfer based on the standard market price, but also a case for which both the transfer value and acquisition value should be based on the actual transaction price. If the transfer of the above parcel of land is unjustly reduced due to the transfer to a related party below the market price, the transfer price shall be calculated based on the market price instead of the actual transaction price.

Article 59-2(3) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994); Article 124-2(7) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994); Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Prime Minister No. 622 of Mar. 29, 1997); Article 5(2)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 14469 of Dec. 31, 1994) (see current Article 61(1)1 of the Inheritance Tax and Gift Tax Act)

Seowon Construction Co., Ltd. (Attorney Lee Jae-il, Counsel for the plaintiff-appellant)

Head of Seocho Tax Office

Seoul High Court Decision 96Gu24967 delivered on October 10, 1997

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

1. According to Article 59-2 (3) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994), the transfer value and acquisition value, which are the tax base of special surtax, shall be calculated based on the actual market price. However, in cases where both the transfer value and acquisition value are unclear or either of them is unclear, the transfer value and acquisition value shall be determined based on the standard market price. Meanwhile, under Article 124-2 (7) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14468 of Dec. 31, 1994), Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Prime Minister No. 622 of Mar. 29, 1997), Article 5 (2) 1 of the former Enforcement Decree of the Inheritance Tax Act (amended by Presidential Decree No. 1469 of Dec. 31, 1994), if the market price of the land is found to be reduced or below the market price.

2. On May 8, 1991, the lower court determined that the Plaintiff Company’s acquisition value of the instant land from the non-party corporation on February 26, 1992, transferred KRW 667,613 per square meter to the non-party representative director as an investor of the Plaintiff Company on February 26, 1992, and that there is no transfer margin upon deducting KRW 571,000 per square meter, which is the acquisition value, from the tax base return for the business year 192. The Defendant deemed that the Plaintiff Company’s transfer of the instant land to the non-party in a special relationship with the Plaintiff Company was unjustly reduced tax burden due to the Plaintiff Company’s transfer price below the market price. The acquisition value was calculated based on the officially assessed individual land price under the Enforcement Decree of the Corporate Tax Act, on the ground that the transfer value of the instant land was lower than the actual market price calculated based on the transaction price reported by the Plaintiff Company’s acquisition value at the time of the transfer of the instant land at least 90 square meters.

3. However, even based on the reasoning of the lower judgment, the Plaintiff Company transferred the instant land at KRW 667,613 per square meter, and thus, it cannot be said that the actual transfer value is unclear (However, since the transfer value of the instant land is KRW 703,664,076, the said value per square meter appears to be 665,089,000). Therefore, the transfer of the instant land constitutes the case where the transfer value and acquisition value should be based on the actual transaction value, not on the exceptional cases where calculating gains on transfer based on the standard market price, but on the principle that both the transfer value and acquisition value should be based on the actual transaction value. If the tax burden is unjustly reduced due to the transfer to a person with a special relationship, such as the lower court’s determination, if it falls under a case where the transfer of the instant land is unjustly reduced due

Therefore, even though there was no error in the defendant's measures to calculate the transfer margin of this case in accordance with the above method, the court below judged that the defendant's calculation of transfer margin was illegal on the grounds of its stated reasoning, such as applying Article 124-2 (9) of the Enforcement Decree of the Corporate Tax Act, which did not apply to the defendant. This constitutes an unlawful act of misunderstanding the legal principles on calculation of the special surtax

4. Therefore, the part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the lower court. It is so decided as per Disposition.

Justices Park Jong-chul (Presiding Justice)