Cho Jae-2017-China-312 (Law No. 17, 2017)

In order to obtain the farming inheritance deduction, the decedent and the farming successor should continue to engage directly in farming for more than two years before the commencement date of the inheritance.

In order to obtain the farming inheritance deduction, the decedent and the farming heir should engage directly in farming continuously for more than two years before the commencement date of the inheritance, and this must be proved positively by the heir.

Article 18 of the Inheritance Tax and Gift Tax Act; Article 16 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

2017Guhap69565 Revocation of Disposition of Levying Inheritance Tax

○ ○

○ Head of tax office

June 20, 2018

July 4, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 329,357,150 (including additional tax) against the Plaintiff on December 3, 2015 shall be revoked.

1. Details of the disposition;

A. The Plaintiff is the wife of the leap○○○, and as the leap○○ died on August 15, 2014, received inheritance from the deceased leap○○’s each land indicated in the separate sheet No. 1.

B. On September 17, 2014, the Plaintiff reported and paid KRW 68,790,160,000 to the Defendant on September 17, 2014, on the ground that the market value of each land listed in the separate sheet No. 1 in the separate sheet No. 1 exceeds KRW 500,000,000,000,000,000,000,000,

C. On December 3, 2015, the Defendant: (a) deemed that the Plaintiff did not directly cultivate the land of ○○○○○○○○-do, 7-3,516 square meters (hereinafter “instant land”); and (b) determined and notified KRW 340,862,410 of the inheritance tax calculated by denying the farming inheritance deduction (50 million) to the Plaintiff on December 3, 2015.

D. The Plaintiff filed an objection against the Defendant on February 29, 2016, and the Defendant, without recognizing it as to the farming inheritance deduction, corrected part of the taxable value of the inheritance tax, and decided and notified the Plaintiff of the reduction of KRW 11,505,260 on September 21, 2016 (i.e., reduced inheritance tax amount of KRW 329,357,150 (i.e., reduced inheritance tax amount of KRW 340,862,410 - KRW 11,505,260).

E. On December 12, 2016, the Plaintiff filed an appeal seeking revocation of the instant disposition with the Tax Tribunal, but the Tax Tribunal dismissed the Plaintiff’s appeal on July 17, 2017.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, 7, Eul evidence Nos. 1, 2 and 9 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The Plaintiff and ○○○ had been directly engaged in farming in the instant land two years prior to the commencement date of the inheritance due to the death of the deceased ○○○○○○, and the Plaintiff had been engaged in the farming business on the instant land after the inheritance commenced, and there was an inevitable reason to make it impossible for the Plaintiff to directly engage in farming. Therefore, the instant land constitutes the agricultural inherited property, which is stipulated to be deducted from the taxable value of inherited property pursuant to the relevant statutes. Nevertheless, the instant disposition should be revoked on the premise that the instant land does not constitute the inherited property.

B. Relevant statutes

Attached Form 2 shall be as shown in attached Table 2.

C. Determination

1) Article 18(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter the same) provides that the value of the property inherited shall be deducted from the taxable value of inherited property within the limit of 500 million won in the case of farming inheritance. Article 18(4) of the same Act provides that when applying the farming inheritance deduction, the requirements, etc. of decedents and inheritors are delegated to Presidential Decree. Accordingly, Article 16(2) and (3) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015; hereinafter the same) provides that in order to obtain the deduction of farming inheritance, the heir (hereinafter referred to as “heir farming property”) engaged in farming among heirs shall have been inherited, and (2) the decedent and the farming successor shall have been directly engaged in farming and have been living in the same Si/Gun/Gu, etc. as the location of the relevant agricultural property.

Meanwhile, the purport of the farming inheritance mutual aid is to support the economic activities of farmers by granting additional benefits on the premise that farming is continued, and to preserve the farmland that is the physical foundation of farming (see, e.g., Supreme Court Decision 2002Du844, Oct. 11, 2002). Thus, the heir who asserts that the decedent and the farming heir continued to engage in direct farming for two years prior to the commencement date of the inheritance should actively prove that they had been engaged in such direct farming, and in determining whether they have been engaged in direct farming, the standard should be whether they have been managed and cultivated under their own responsibility without being entrusted or lent to another person (see, e.g., Supreme Court Decision 88Nu1240, Dec. 12, 1989).

2) In light of the following facts or circumstances that can be acknowledged by comprehensively taking account of the following facts or circumstances based on the above legal principles, evidence as seen earlier, evidence as well as evidence Nos. 4, 6, 10, and evidence Nos. 3 through 8 as well as the overall purport of the pleadings, each statement of evidence Nos. 5, 11, which corresponds to the Plaintiff’s above assertion that the Plaintiff and Maap○○ was directly engaged in farming in the instant land from two years prior to the date of commencing the inheritance, are difficult to believe, and there is insufficient evidence to acknowledge the Plaintiff’s above assertion. Accordingly, the Plaintiff’s above assertion is without merit without any need to further examine the remaining requirements of the farming inheritance deduction.

The Defendant received rice subsidies each year from 2005 to 2008, but there was no room for receiving rice subsidies from 2009 to 2014, and the leap○○ was born on June 1, 1936 and did not directly engage in farming from 2009 to 2014.

(B) The Plaintiff received subsidies for rice around 2015 and 2016, and there was no record of receiving subsidies for rice prior to the commencement of the inheritance due to the death of the deceased leap○○○. From 2012 to 2014, the Plaintiff received a total of 255 times (=53 times in 2012 + 160 times in 2013 + 42 times in 2014) from the hospital, and it is difficult to recognize that the Plaintiff, who was not healthy, had directly cultivated the instant land since 2 years prior to the commencement of the inheritance.

The Plaintiff and leap○○○ directly engaged in farming in the instant land from around 2010 to 2014 cannot at all verify the possession details of agricultural machinery, or the purchase details of tax-free petroleum, compost, fertilizer, agrochemical, etc., and the Plaintiff did not submit any specific data on the above details.

The instant land is considerably larger than 36,516 square meters, and if the Plaintiff and leap○○ directly cultivated the instant land, it would have earned a considerable amount of income. However, the Plaintiff and leap○○○ from around 2009 to 2014 cannot be entirely confirmed the amount of income from farming.

3. Conclusion

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

2

Relevant statutes

(1) The former Inheritance Tax and Gift Tax Act (Amended by Act No. 13557, Dec. 15, 2015)

Article 18 (Basic Deductions)

(1) Where inheritance commences due to the death of a resident or a nonresident, 200 million won shall be deducted from the taxable value of inherited property (hereinafter referred to as "basic deduction").

(2) Where inheritance commences due to the death of a resident, any of the following amounts shall be deducted from the taxable value of inherited property:

2. Succession to farming [including farming, fishing, and forest; hereafter the same shall apply in this Article]: The value of the inherited farming property (where the value exceeds 500 million won, it shall be limited to 500 million won);

(4) In applying paragraph (2), the scope of inheritance of a family business and farming inheritance, such as the requirements of the ancestor and the heir, the method of application in cases where shares, etc. are inherited, and other necessary matters shall be prescribed by

(5) Where an heir, who has received the deduction under the subparagraphs of paragraph (2), falls under any of the following subparagraphs within ten years (five years, in cases falling under subparagraph 2) from the date the inheritance commences (five years, in cases falling under subparagraph 1 (d), the last day of the business year in which the inheritance commences), an amount calculated by multiplying the amount deducted under paragraph (2) by the rate prescribed by Presidential Decree, taking into consideration the period until the relevant date, shall be included in the taxable value

2. Where the successor either disposes of the inherited property subject to the deduction following succession to or deduction for farming (hereinafter referred to as "inherited property for farming") or is no longer engaged in farming after having received the deduction following succession to farming under paragraph (2) 2.

(1) Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015)

Article 16 (Succession to Farming)

(1) "Inheritance to farming" in Article 18 (2) through (5) of the Act means inheritance of all of the following property (hereafter in this Article, referred to as "property inherited to farming"), among the inherited property, by a decedent who engages in farming (including farming, fishing, and forest; hereafter the same shall apply in this Article):

1. A farming governed by the Income Tax Act: Any of the following inherited property used by an ancestor for farming two years before the date the inheritance commences:

(a) Farmland defined in subparagraph 1 (a) of Article 2 of the Farmland Act;

(2) In the application of paragraph (1), an ancestor means a person who has been directly engaged in farming for two years before the date inheritance commences and falls under any of the following subparagraphs:

1. Agriculture to which the Income Tax Act applies: Any of the following persons:

(a) A Si (including an administrative city under Article 15 (2) of the Special Act on the Establishment of Jeju Special Self-Governing Province and the Development of Free International City; hereafter the same shall apply in this Article), Gun or Gu (referring to an autonomous Gu; hereafter the same shall apply in this Article) adjacent thereto, a Si/Gun/Gu, or a person who resides within 20 kilometers in a straight line from the farmland, etc. in which farmland, grassland, or forest land (hereafter referred to as "farmland, etc." in this Article) is located;

(b) A Si/Gun/Gu adjacent to the place of shipment of a fishing vessel or the coast close to a fishing ground, or a person who resides within 20 kilometers in a straight line from the place of shipment or the coast;

(3) In the application of paragraph (1), a successor engaged in farming means a person who is 18 years of age or older as of the date the inheritance commences, and a person who has been directly engaged in farming before two years before the date the inheritance commences, and a person who falls under any of the following subparagraphs and a successor

1. A farming to which the Income Tax Act applies: A person shall reside in any area provided for in any item of paragraph (2) 1;

(4) "Justifiable grounds prescribed by Presidential Decree" in the main sentence of Article 18 (5) of the Act means any of the following grounds:

7. Cases similar to subparagraphs 1 through 6, where any inevitable reason prescribed by Ordinance of the Ministry of Strategy and Finance exists.

(1) Enforcement Regulations of the former Inheritance Tax and Gift Tax Act (Amended by Ordinance of the Ministry of Strategy and Finance No. 557, Mar. 21, 2016)

Article 6 (Grounds for Non-Collection of Inheritance Tax)

"Inevitable reasons prescribed by Ordinance of the Ministry of Strategy and Finance" in Article 6 (Reasons for Not Collecting Inheritance Tax) (Article 15 (6) 2 (c) of the Decree and Article 16 (4) 7 of the Decree means cases where a successor is unable to engage directly in family business or agriculture, livestock industry, forestry and fishery due to the performance of his duty of military service, medical treatment of diseases, school attendance circumstances, etc. under the provisions of Acts: Provided, That this shall not apply to cases where the successor is not engaged directly in family business or farming after the completion of such inevitable reasons.