[1] Where there is no reasonable ground to believe the transaction price at a reasonable price that reflects the objective exchange value, and there is an objective reason to deem that the transferee’s acquisition of the property at a reasonable market price was an abnormal transaction price from a reasonable economic person, whether there is a “justifiable reason for transaction practice” under Article 35(2) of the former Inheritance Tax and Gift Tax Act (affirmative)

[2] The burden of proving that “no justifiable ground exists in light of transaction practice” among the requirements for imposing gift tax under Article 35(2) of the former Inheritance Tax and Gift Tax Act (=the taxation authority)

[1] Article 35(2) of the former Inheritance and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 26(6) and (7) of the former Enforcement Decree of the Inheritance and Gift Tax Act (Amended by Presidential Decree No. 22042, Feb. 18, 2010) / [2] Article 35(2) of the former Inheritance and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010)

[1] Supreme Court Decision 2013Du5081 Decided August 23, 2013 (Gong2013Ha, 1731) / [2] Supreme Court Decision 2011Du22075 Decided December 22, 2011 (Gong2012Sang, 194)

Plaintiff 1 and two others (Bae, Kim & Lee LLC, Attorneys Kang Han-han et al., Counsel for the plaintiff-appellant)

Head of Yongsan District Tax Office and one other

Seoul High Court Decision 2011Nu34209 decided August 31, 2012

All appeals are dismissed. The costs of appeal are assessed against the Defendants.

The grounds of appeal are examined.

1. Article 35(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “the Act”) provides that where a property is transferred to a person other than a specially related person at a price substantially higher than the market price without justifiable grounds in light of transaction practices, the transferor of the property shall be presumed to have received a donation of the amount equivalent to the difference between the price and the market price, and the amount equivalent to profits prescribed by the Presidential Decree shall be deemed to be the value of the property donated to the person who acquired such profits. Article 26(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010; hereinafter “Enforcement Decree”) upon delegation, provides that “Where the market price differs by at least 30/100 of the market price” and Article 35(7) of the same Act provides that “The difference between the market price and the profits prescribed by the Presidential Decree shall be deducted from the market price.”

The legislative purport of the foregoing provision, etc. lies in: (a) where profits equivalent to the difference between the price and the market price are actually transferred without compensation through abnormal methods manipulating the transaction price for the benefit of the transaction partner; (b) thereby coping with and promoting fair taxation by imposing gift tax on the profits earned by the transaction partner. However, in the trades between unrelated parties, the difference between the price and the market price is generally different; (c) it is difficult to deem that the difference was donated to the transaction partner solely on the basis that there exists a difference between the price and the market price; and (d) Article 35(2) of the Act adds the taxation requirement, “any transaction between unrelated parties should have no justifiable reason in light of

In full view of these facts, it is reasonable to view that there was a reasonable ground to believe that the parties to the transaction, who transferred or acquired property at a higher price, had a reasonable reason to believe the transaction price at a normal price that reflects the objective exchange value, and, even if there was no such reason, there was an objective reason not to deem that the transferee’s acquisition of property at a reasonable transaction price was an abnormal reason from a reasonable economic person’s perspective (see Supreme Court Decision 2013Du5081, Aug. 23, 2013).

Meanwhile, in order for taxation to be lawful pursuant to Article 35(2) of the Act, the tax authority should prove not only that the transferor transferred the property at a significantly higher price than the market price to an unrelated party, but also that there is no justifiable reason for transaction practice (see Supreme Court Decision 2011Du22075, Dec. 22, 2011).

2. The court below held that the non-party 1 and the non-party 2's 70 billion won of the company's 70 billion won of the company's 70 billion won of the company's 40 billion won of the company's 70 billion won of the company's 70 billion won of the company's 1 and the non-party 2's 70 billion won of the company's 400 billion won of the company's 70 billion won of the company's 700 billion won of the company's 9. The court below decided that the non-party 1 and the non-party 2 were not entitled to 9 billion won of the company's 70 billion won of the company's 9 billion won of the company's 700 billion won of the company's 9. The non-party 1 and the non-party 4 and the non-party 5's 700 billion won of the company's 700 billion won of the company's 9.

In light of the aforementioned legal principles and records, the above judgment of the court below is just and acceptable. Contrary to the allegations in the grounds of appeal, the court below did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the concept of “justifiable cause in light of trade practice” or the legal principles as to the burden of proof

3. Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jo Hee-de (Presiding Justice)