[1] In a case where Party A, who received a donation of land purchase fund between husband and wife, paid gift tax on the remaining amount after deducting the amount of spouse donation deduction, and Party B died after the death of Party B, and Party C became inheritor, the tax authority imposed inheritance tax on Party C, etc. by adding the entire amount of land purchase fund to the value of inherited property on the ground that the above donation was made to a person who is not an inheritor within five years before the commencement date of inheritance, the case holding that the judgment below erred in the misapprehension of legal principle that only the remainder after deducting the amount of spouse donation deduction should be added to the value of inherited property

[2] The meaning of "amount of gift tax on donated property added to inherited property" to be deducted from the amount of inheritance tax calculated under Article 28 (1) of the former Inheritance Tax and Gift Tax Act

[1] In a case where Party A, who received a donation of land purchase fund between husband and wife, paid gift tax on the remaining amount after deducting the amount of spouse donation deduction, and Party C died and his heir died thereafter, and the tax authority imposed inheritance tax on Party C, etc. by adding the entire amount of land purchase fund to the value of inherited property on the ground that the above donation was made to a person who is not an heir within five years before the commencing date of inheritance, the case holding that the judgment below erred in the misapprehension of legal principles, which held that the gift tax to be added to the deceased’s inherited property is land purchase fund itself, and its value should be added to the value of inherited property, even though the value is 469,200,000 won, which is the value at the time of donation.

[2] Article 28(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) provides that the amount of the gift tax (referring to the amount of the gift tax calculated on the pertinent donated property at the time of donation) that is added to the inherited property shall be deducted from the calculated amount of the inheritance tax. This provision provides that the value of the donated property shall be added to the value of the inherited property within a certain period from the date of commencing the inheritance. Thus, if the value of the donated property is added to the value of the inherited property, and without considering the gift tax, because the value of the donated property becomes the taxable value of the inherited property, it would result in double taxation of inheritance tax and gift tax on the same property or imposition of inheritance tax on non-taxable donated property, the amount of the gift tax under the above provision refers to the amount of the gift tax calculated on the assumption that it is subject to taxation

[1] Articles 13(1)2, 19(1), and 53(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007) / [2] Article 28(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828 of Dec. 31, 2007)

[2] Supreme Court Decision 77Nu304 delivered on June 12, 1979 (Gong1979, 12044)

Plaintiff 1 and one other (Law Firm Squa, Attorneys Kim Young-soo et al., Counsel for the plaintiff-appellant)

Head of Guro Tax Office

Seoul High Court Decision 2011Nu18962 decided December 2, 2011

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

The grounds of appeal are examined.

1. Article 13(1)2 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8828, Dec. 31, 2007; hereinafter “former Inheritance Tax Act”) provides that the value of property donated by an ancestor to a person other than his/her heir shall be added to the value of inherited property within five years before the commencing date of inheritance in cases where the taxable value of inherited property is calculated. This purpose is to maintain the equity of inheritance tax and gift tax in terms of tax burden by including the property donated by an ancestor before his/her birth in the taxable value of inherited property as much as possible, and to prevent any act to avoid the burden of inherited property by dividing and transferring the property subject to taxation of inherited property to any person other than his/her heir in a form similar to that of inheritance before the commencing of inheritance (see Supreme Court en banc Decision 93Nu8092, Sept. 28, 1993; 2005Hun-Ga4, Jul. 27, 2006).

2. According to the reasoning of the lower judgment, the lower court determined that: (a) the Plaintiff’s father Nonparty 1 donated KRW 469,200,000 for land purchase funds to Nonparty 2, who was the spouse as of October 31, 2005; (b) Nonparty 2 paid KRW 23,840,000, which was calculated by subtracting KRW 300,000,000 from the above donation amount as gift tax base; (c) Nonparty 1 and Nonparty 2 shared an agreement on November 16, 2006; (d) Nonparty 1 recognized the fact that the Plaintiffs succeeded to the inheritance on August 13, 2007; and (e) determined that the value of property to be added to the value of Nonparty 1’s inherited property pursuant to Article 13(1)2 of the former Inheritance Tax Act was calculated by subtracting KRW 300,000,000 from the above spouse’s gift tax deduction amount from the above land purchase amount; and (e) calculated as KRW 30000,2000.

3. According to the facts acknowledged by the court below, the property which the deceased donated to the preceding wife is 469,200,000 won of the above land purchase fund. According to the relevant statutes and the legal principles as seen earlier, in order to determine the taxable value of inherited property, the donated property to be added to the deceased’s inherited property is the above land purchase fund itself, and its value is 469,20,000 won, which is the value at the time of donation. Nevertheless, the court below held that only the remaining value after deducting 300,000,000 won of the spouse donation deduction amount from the above land purchase fund donated by the deceased should be added to the value of inherited property. The court below erred by misapprehending the legal principles as to “ donated property value” under Article 13(1)2 of the former Inheritance Tax Act, which affected the conclusion

4. Meanwhile, Article 28(1) of the former Inheritance Tax Act provides that the amount of gift tax (referring to the amount of gift tax calculated on the donated property at the time of donation) on donated property added to inherited property in the amount of inheritance tax calculated. This provision provides that the amount of gift tax on donated property (referring to the amount of gift tax on the donated property at the time of donation) shall be added to the value of inherited property within a certain period from the commencement date of inheritance. Since the value of donated property should be added to the value of inherited property, if the value of the donated property becomes the taxable value of inherited property, which is the basis of calculation of inheritance tax, would result in double taxation of inheritance tax and gift tax on the same property or imposition of inheritance tax on non-taxable donated property, and thus, the above provision provides that the amount of gift tax referred to in the above provision is an amount equivalent to the amount of gift tax calculated on the assumption that the donated property is subject to taxation or non-taxable donated property in the case of donated property (see Supreme Court Decision 7Nu304, Jun. 12, 1979).

5. Therefore, the part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the lower court for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)