Plaintiff 1 and one other (Law Firm LLC, Attorneys Kim Myeong-in, Counsel for the plaintiff-appellant)

Head of Seogju Tax Office

June 11, 2015

Gwangju District Court Decision 2014Guhap11564 Decided January 15, 2015

1. The defendant's appeal is dismissed.

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

1. Purport of claim

The Defendant’s imposition of KRW 752,437,880 on July 6, 2012 and KRW 800,235,050 on gift tax in 2006 against Plaintiff 1 and KRW 800,235,050 on gift tax in 2007, and the imposition of KRW 752,437,880 on gift tax in 2006 on July 9, 2012 by designating Plaintiff 2 as a joint and several tax obligor shall be revoked, respectively.

2. Purport of appeal

The part of the judgment of the court of first instance against the defendant shall be revoked. The plaintiffs' claims corresponding to the above revocation shall be dismissed.

1. Scope of the judgment of this court;

As of July 6, 2012, Plaintiff 1 revoked the imposition disposition of gift tax in 2006 and 2007, Plaintiff 2 sought revocation of the imposition disposition of gift tax in 2006 and 2007. The court of first instance revoked the imposition disposition of gift tax in 2006 and the imposition disposition of gift tax in 2007 against the Plaintiffs, and dismissed each of the above imposition disposition of gift tax in 2006 and the remaining claims. Since only the Defendant appealed, the subject of adjudication in this court is limited to whether the amount exceeding KRW 740,348,142 of the imposition disposition of gift tax in 206 and the imposition disposition of gift tax in 207 against the Plaintiffs is legitimate.

2. Basic facts

A. On September 28, 2006, Plaintiff 2 trusted to the deceased Nonparty the title trust of 162,00 shares of Esteex Co., Ltd. and 62,000 shares of the same company on December 14, 2007 (hereinafter “instant shares”). The said Nonparty died on May 28, 2010, and Plaintiff 1 is the sole heir of the Nonparty.

B. The Defendant: (a) deemed that Plaintiff 1 succeeded to the donee’s tax liability due to inheritance pursuant to the provision on deemed donation of title trust under Article 45-2 of the Inheritance Tax and Gift Tax Act in relation to the title trust of the instant shares; and (b) notified Plaintiff 1 of the determination and notification of KRW 752,437,80 of the gift tax of July 6, 2012 and KRW 800,235,050 of the gift tax of 2007 (hereinafter “instant first disposition”); and (c) Plaintiff 1 was liable to pay tax within the scope of the inherited property value; (d) according to the Defendant’s calculation, Plaintiff 1 notified Plaintiff 1 that the inherited property value is KRW 740,348,142.

C. In addition, the Defendant deemed that Plaintiff 2, as a donor, is jointly and severally liable with Plaintiff 1 to pay the gift tax. On July 9, 2012, the Defendant issued a notice of joint and several tax liability designation and the notice of tax payment of KRW 752,437,80 of the gift tax in 2006, and KRW 800,235,050 of the gift tax in 207 (hereinafter “instant second disposition,” and “each of the instant dispositions,” respectively.

D. Plaintiff 1 filed an appeal with each Tax Tribunal on September 18, 2012, and Plaintiff 2 filed an appeal on September 17, 2012, but the Tax Tribunal dismissed all the appeals filed by the Plaintiffs on June 27, 2014.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 3, Eul evidence 1 (including each number), the purport of whole pleadings

3. The parties' arguments and relevant statutes;

A. Summary of the plaintiffs' assertion

1) Plaintiff 1

Before the death of the Nonparty, the Defendant: (a) determined and notified gift tax to Plaintiff 1, the inheritor, after the Nonparty died; and (b) the inheritor may impose a tax liability only within the scope of inherited property; (c) accordingly, the amount of gift tax that may be imposed on Plaintiff 1 shall be limited to inherited property KRW 740,348,142. Nevertheless, the Defendant determined and notified the amount of gift tax in excess of the amount of gift tax, which is unlawful.

2) Plaintiff 2

A) The duty to jointly and severally pay can be established after the determination of the original duty to pay taxes. However, inasmuch as it is no longer possible for the Nonparty to determine the gift tax on the donee due to the death of the non-party where the original duty to pay the gift tax was not determined due to the non-party’s failure to impose the gift tax on the non-party, the Defendant imposed joint and several liability on the donor 2. As such, the instant disposition was unlawful.

B) Even if the donee’s obligation to jointly pay Plaintiff 2 can be established through the gift tax determination procedure against the donee’s heir, the donee’s obligation is finalized at the time of the disposition of tax imposition. The amount of tax payable against Plaintiff 1 is limited to KRW 740,348,142, which is the value of inherited property, and thus, the amount of tax payable by Plaintiff 2 cannot exceed the above KRW 740,348,142.

B. Summary of the defendant's assertion

1) The tax liability imposed on a donee was already established at the time of donation pursuant to Article 21(1)3 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014; hereinafter the same), and the tax liability established as such was succeeded by Plaintiff 1 by inheritance. However, only the said tax liability is limited to Plaintiff 1’s inherited property.

2) The abstract gift tax liability that was already established in 2006 and 2007 for donee and donor was determined as specific tax liability at the time of each disposition of this case through the procedure to determine the gift tax against Plaintiff 1. However, in the case of Plaintiff 2, unlike Plaintiff 1, there is no ground provision to reduce the amount of tax for which gift tax liability has already been established. Therefore, it is necessary to pay the full amount determined and notified as above.

3) The meaning of “joint and several liability” under Article 4(5) of the Inheritance Tax and Gift Tax Act shall be governed by the provisions and interpretation on joint and several liability under the Civil Act, and the ground arising with respect to Plaintiff Plaintiff Plaintiff 1 shall be interpreted not to have an effect on Plaintiff 2. If such interpretation is not made, the legislative intent of the joint and several liability pursuant to the constructive gift of trust property under Articles 45-2(1) and 4(5) of the Inheritance Tax and Gift Tax Act is unreasonable.

C. Relevant statutes

It is as shown in the attached Form.

4. Whether each of the dispositions of this case is legitimate

A. As to the first disposition of this case

1) Article 24(1) of the former Framework Act on National Taxes provides that an inheritor is obligated to pay national taxes, surcharges, and expenses for disposition on default imposed on, or to be paid by, the inheritee within the scope of inherited property. The purport of the above provision is that an inheritor succeeds to the liability to pay national taxes, etc. of the inheritee within the scope of inherited property. The inheritor succeeds to the entire amount of the inheritee’s national taxes, etc., but does not mean that the tax authority is able to collect taxes from the inheritor within the scope of inherited property (see Supreme Court Decision 90Nu7395 delivered on April 23, 191). Accordingly, in this case, Plaintiff 1, the inheritor, is obligated to pay the gift tax within the scope of KRW 740,348,142, which is inherited property, to the Nonparty, who is the inheritee, within the scope of inherited property. Thus, the Defendant can only determine and notify the gift tax to Plaintiff 1 within the scope of the total amount of inherited property to be imposed.

2) However, as seen earlier, the gift tax in 2006 decided and notified in the Disposition No. 1 of this case is KRW 752,437,880, and KRW 800,235,050 for the gift tax in 2007 and KRW 740,348,142 for the property inherited by inheritance. Tax obligations are legal obligations established under the provisions of law, and the parties cannot arbitrarily determine their contents, etc. In addition, the legal principles on legal appropriation of performance under Articles 477 through 479 of the Civil Act do not apply as they are from the appropriation of tax claims, considering that tax obligations are legal relations under the public law, and the legal principles on legal appropriation of performance under Articles 477 through 479 of the Civil Act do not apply in the appropriation of tax claims. In light of the fact that even if a person liable for preferential payment of gift tax is recognized, it cannot be deemed unlawful even if a person liable for preferential payment is recognized (see Supreme Court Decision 2005Da18468, Dec. 14, 2006).

3) Therefore, Plaintiff 1 is obligated to pay gift tax within the scope of KRW 740,348,142 out of KRW 752,437,880 of the gift tax in 2006. Therefore, the imposition of KRW 800,235,050 of the gift tax in 206 and the imposition of KRW 800,235,050 of the gift tax in 207 should be revoked illegally.

B. As to the second disposition of this case

1) First, in relation to the occurrence of Plaintiff 2’s joint liability for payment, as seen earlier, the Defendant did not impose gift tax on the Nonparty, who is the donee until the Non-Party’s death, and as a result, the primary liability for payment was not finalized. In such a situation, the donor could not be held jointly liable for payment. However, after the Non-Party’s death, Plaintiff 2 was jointly and severally liable with Plaintiff 1, the inheritor of the donee, upon the determination and notice of gift tax pursuant to Article 24(1) (Succession to Tax Liability due to Inheritance) of the former Framework Act.

2) Next, we examine the scope of Plaintiff 2’s joint and several liability.

A) Article 45-2(1) of the Inheritance Tax and Gift Tax Act provides that the title truster shall be deemed the owner of the title truster in order to punish the tax avoidance through the title trust, and the title truster shall be deemed to have been entitled to impose gift tax by deeming the title trust as a gift, even if he/she could have selected other means, such as imposing income tax on the income accrued from the title truster from the title trust property or imposing penalty surcharge, etc. on the title truster. In interpreting the aforementioned provision and Article 4(5) of the Inheritance Tax and Gift Tax Act, it is reasonable to deem that the principal taxpayer is the title trustee deemed to have received the gift. The donor’s joint liability for payment by the donor under Article 4(5) of the Inheritance Tax and Gift Tax Act is the joint liability for payment after the tax liability of the person who received the gift becomes final and conclusive by taxation (see Supreme Court Decision 91Nu12813, Feb. 25, 192,

B) However, gift tax is a taxation method, which is determined only by the determination of the tax base and tax amount, and the tax liability is established specifically by such determination. As seen earlier, the amount of tax that the Defendant may impose on Plaintiff 1 shall be limited to KRW 740,348,142 of the value of inherited property of KRW 752,437,880 of the gift tax in 2006, which is limited to the amount of KRW 740,348,142 of the gift tax in the year of 2006, and as such, Plaintiff 1’s tax liability was determined by the instant disposition No. 1 of this case, the amount of joint payment obligation borne by Plaintiff 2 shall not exceed KRW 740,348,142 of the gift tax in

Therefore, the imposition disposition of KRW 740,348,142 in excess of KRW 752,437,880 in the imposition disposition of KRW 2006 and KRW 800,235,050 in the imposition disposition of KRW 740,348,142 in the imposition disposition of KRW 752,437,880 in the year 2006 should be revoked as it is unlawful. The defendant's assertion that the first disposition in this case is legitimate on the premise that all of the first disposition in this case is legitimate is liable to jointly pay the total amount of the amount of the gift tax in 2006 and 207

5. Conclusion

Therefore, the plaintiffs' claim of this case is justified within the above scope of recognition, and the remaining claims are dismissed as it is without merit. Since the judgment of the court of first instance is just in this conclusion, the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Park Byung-il (Presiding Judge)