Cho High Court Decision 201Do3525 ( November 24, 2011)

The calculation of the value of donated property shall not be deemed an objective and reasonable method.

It cannot be deemed that calculating the value of donated property is based on objective and reasonable methods, and it is unlawful against predictability or taxation, contrary to the predictability or equity, by increasing the value of donated property only when it is subject to gift tax by gratuitously transferring or contributing the profits equivalent to the difference between the value of stocks and the value of stocks before the donation of real estate

2012Guhap4739 Revocation of Disposition of Imposition of Gift Tax

DistrictAAA

The Director of Gangnam District Office

March 29, 2013

May 24, 2013

1. The Defendant’s disposition of imposing gift tax of KRW 000 (including additional tax of KRW 000) against the Plaintiff on July 1, 2011 shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the plaintiff, and the remainder by the defendant.

The disposition of imposition of gift tax of KRW 000 (including additional tax of KRW 000) against the Plaintiff on July 1, 2011 is revoked.

1. Details of the disposition;

A. At the time of January 2006, the branchB held 5,000 shares (10% of the total number of shares issued) issued by the CC Building Business Co., Ltd. (DDDDD notification Co., Ltd. on January 20, 2010; hereinafter “instant company”).

B. On February 27, 2006, the branchB transferred 4,182 shares (83.64% of the total number of issued shares, hereinafter referred to as "the shares of this case") of the company to 8 persons including the plaintiff, etc. (hereinafter referred to as "the plaintiff, etc.") who is a person with a special relationship with the branchB at its face value at its face value at its 00 won per share." (C. DoE, which is a group of branchBB, donated to the company of this case on February 28, 2006 the building of 00,000,000,0000, 112 square meters and 3 stories above ground (hereinafter referred to as "the real property of this case") and completed the ownership transfer registration in the name of the company of this case on March 3, 2006, the company of this case included 000,000 won in the gross income for 00,000 won for the profits of this case.

E. The director of the Seoul Regional Tax Office imposed capital gains tax on DoB, the transferor, by applying the provision that is an unfair calculation book for non-listed stocks according to the transfer at a low price among the related parties with respect to the transfer of the instant shares, and considering the difference between the transfer value of the instant shares and the value calculated by the supplementary evaluation method of the instant shares as a donation profit from the transfer at a low price, and imposed gift tax on the Plaintiff Y, the transferee, and on the steam value of the Plaintiff’s shares due to the gift of the instant real estate by the instant company, deeming that the Plaintiff received the gift from DoE, and notified the Defendant of taxation data by applying Articles 2(3) and 42(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 206; hereinafter “the Inheritance Tax and Gift Tax Act”).

F. Accordingly, on July 1, 201, the Defendant notified the Plaintiff of the gift tax amounting to KRW 000 (including additional tax of KRW 000, and hereinafter referred to as "the first gift tax imposition disposition of this case") regarding the transfer of the instant stocks, and notified each of the decisions on KRW 000 (including additional tax of KRW 000, and hereinafter referred to as "the imposition disposition of gift tax of this case") regarding the gift of the instant real estate.

G. On September 23, 2011, the Plaintiff appealed to the Tax Tribunal, and was dismissed on November 24, 2011.

[Based on Recognition] The facts without dispute, Gap evidence 1 through 3, evidence 16 (including each number, hereinafter the same shall apply), and Eul evidence 1 to 4, and the purport of the whole pleadings

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

A. The plaintiff's assertion

1) The imposition of gift tax No. 1 of this case

The imposition of gift tax on the Plaintiff, who is a transferee, of the stocks, is based on the double taxation on the difference between the market price and the actual transaction price, and the imposition of gift tax on the 1st gift tax in this case is unlawful.

2) Imposition of gift tax No. 2 of the instant case

The instant disposition of gift tax No. 2 is unlawful for the following reasons.

(A) taxation based on Article 2(3) of the Act;

Article 2 (3) of the Act is a confirmatory provision on the concept of donation and does not stipulate the calculation method, etc. of the value of donated property 1. Therefore, imposing gift tax based on these provisions is contrary to the principle of no taxation without law.

B) a taxation based on Article 42(1)3 of the Act;

The gift of the real estate of this case does not fall under the "transfer of business" under Article 42 (1) 3 of the Act and "transfer of business", and the company of this case is a corporation with deficits, and Article 41 (1) 1 of the Act applies to the gift of this case to the company of this case. Thus, the imposition of gift tax of this case 2 of the gift tax is illegal.

C) Taxation on unrealized benefits

The imposition of gift tax of this case was conducted on unrealized gain, such as increase in stock value, and in order to impose unrealized gain, it should be resolved at a corner of the issue of fair and accurate measuring the gain subject to taxation, and establishing supplementary regulations on decline in asset value. Nevertheless, the Defendant’s imposition of gift tax by deeming the increase in stock value, which is unrealized gain, as a taxable gainS, as a result of no resolution of such preemptive issue, is contrary to the principle of excessive prohibition under the Constitution.

(d) double taxation;

The instant company has already made no corporate tax as to the donation of the instant real estate, and the Plaintiff bears the dividend income tax when receiving dividends from the instant company, and the transfer income tax when transferring the instant stocks. Nevertheless, the Defendant’s flag that imposed gift tax on the Plaintiff in relation to the donation of the instant real estate violates Article 2(2) of the Act prohibiting double taxation against the same taxable object.

E) Violation of the principle of equality

Taxing authorities impose gift tax on shareholders only when stocks are supplied as a gratuitous transaction of a juristic person, and when stocks are supplied as a commercial transaction of a juristic person, no gift tax is imposed on shareholders, and both parties increase the value of stocks in the transaction of a juristic person without a shareholder’s property contribution, so economic substance is the same. Therefore, imposing gift tax only when stocks increase by free transaction without reasonable grounds is contrary to the principle of equality.

F) Violation of imposition of penalty tax

Even if the second gift tax imposition disposition (this part on this case) was lawful, the Defendant authoritatively interpreted that the gift tax is not imposed on the matters similar to the gift of the real estate of this case several times from March 2006, and the Plaintiff trusted the gift of this case and did not pay the gift tax on March 2006, and thus, it constitutes a case where the Plaintiff violated the Plaintiff’s duty to report the gift tax of this case, and thus, the penalty tax imposition disposition of the second gift tax of this case constitutes unlawful.

B. Relevant statutes

As shown in the attached Form.

C. Determination on the imposition of gift tax No. 1 of this case

1) Since gift tax and capital gains tax vary between the conditions, timing, and taxpayers for the establishment of tax liability and each other, in cases where the tax authority imposes a tax by collapse, it shall be determined independently in accordance with the respective taxation requirements, and if both are all the taxation requirements, it shall not be possible to impose only one tax unless there is a special provision excluding double application. Article 2(2) of the Inheritance Tax and Gift Tax Act provides that when income tax is imposed on a donee under the Income Tax Act on the donated donated property under Article 2(2) of the Inheritance Tax and Gift Tax Act, the gift tax shall not be imposed on the donee. However, in light of the language and content thereof and the nature of the gift tax as a supplement of income tax, in cases where gift tax is imposed on the donee, it does not fall under a special provision excluding double application of capital gains tax and gift tax (see, e.g., Supreme Court Decisions 98Du830, Sept. 21, 199; 200Du12458, May 13, 2003).

2) As seen earlier, with respect to the transfer of the Company’s shares at low price by the branchB to Plaintiff Y, the Defendant imposed gift tax on the difference between the actual transfer value of the shares and the value assessed by the supplementary assessment method of the Company’s shares on the Plaintiff, etc., while imposing transfer income tax on the branchB by using the assessed value as the transfer value.

3) Examining these facts in light of the above legal principles, the imposition of gift tax 1 and the imposition of capital gains tax on the branchB in the case ofj cannot be deemed to constitute double taxation, and it cannot be deemed that the imposition of gift tax in the case of this case violates Article 2(2) of the Act. Accordingly, this part of the Plaintiff’s assertion is without merit.

D. Determination on the imposition of gift tax No. 2 of this case

(i) taxation based on Article 2(3) of the Act;

A) Introduction and purport of the complete comprehensive gift taxation

The former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter referred to as the "former Act") borrowed the concept of donation under the Civil Act that one of the parties expresses his/her intent to confer property to the other party without compensation and the other party approves it. However, the concept of donation does not have any way to prevent any phenomenon in which gift tax avoidance and inheritance by transfer of property beyond the form of donation under the Civil Act was made through transfer of property beyond the form of donation under the Civil Act, so the tax authorities, even though not included in the concept of donation under the Civil Act, arrange the type that the transfer of property was made without compensation, and explain the method of calculating the type of donation and that gift tax can be imposed on it (Article 32 through 42 of the former Act). In addition, the concept of donation and the concept of donation donation under the Civil Act was not set up in 00 or 30 years prior to the introduction of the new provision on the presumption of donation under the Civil Act, and the concept of donation under the comprehensive method of donation.

B) Contents of the complete comprehensive gift tax

Article 2 (3) of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003) stipulates that "the title of the act or transaction - the transfer of tangible or intangible property without compensation to another person in a direct or indirect manner which can calculate economic value regardless of its form, purpose, etc. - the transfer of tangible or intangible property without compensation to a third person or the increase of the value of another person's property by contribution shall be considered as "donation", and even if the method of transfer is not used, the case where the value of the other person's property increases as a gift under tax law shall be subject to an excessive portion of the gift tax. Accordingly, there are various regulations stipulated in Articles 32 through 42 of the former Act, and the transfer or increase of value of the property arising from such type of transaction shall be included in the concept of donation under Article 2 (3) of the Inheritance Tax and Gift Tax Act."

C) Whether gift tax may be imposed pursuant to Article 2(3) of the Act

① As such, in order to impose gift tax on the transfer or increase in value of various forms of assets that the legislators seem unpredicted, the concept of gift by complete comprehensive taxation has been introduced under Article 2(3) of the Act, and ② accordingly, the existing provisions on deemed donation have been changed to the calculation point of the value of donated property, and in any case, the existing provisions on deemed donation have been changed to the calculation point of the value of donated property, and thus, it appears to be the intention of enhancing predictability as to whether the concept of gift is covered in a modified donation model and suggest the method of calculating the specific value of donated property in any case (limited to the cases where the existing provisions on deemed donation are listed in the relevant provisions, not the example provisions on deemed donation, and only the cases where the existing provisions on deemed donation are listed in the relevant provisions, the existence of Article 2(3) of the Act has not been taken place) and Article 2(3) of the Act has been comprehensively defined as above, and Article 2(3) of the Act provides that if it is possible to impose gift tax on the donated property of another person, it shall be subject to Article 2(3).

D) Sub-determination

NAE transferred to the Plaintiff significant interest in the increase in the value of the shares of the instant company by gifting the instant real estate to the instant company, and it constitutes “donation” as stipulated in Article 2(3) of the Act, and this part of the Plaintiff’s assertion is without merit.

(ii) taxation based on Article 42(1)3 of the Act;

A) The meaning of the provision for calculating donated property

Article 2(3) of the Act only provides for the taxable object subject to the application of the "total comprehensive taxation principle", and does not provide for the method of calculating the value of donated property acquired through the donation. This seems to be due to the impossibility of the legislative form of the "total taxation principle of gift tax" with respect to various and new types of gift without the form of donation under the Civil Act. As seen earlier, the legislators introduced the complete comprehensive taxation principle of gift tax; expand the scope of taxation other than gift tax; while expanding the scope of taxation other than gift tax; and when calculating the value of donated property (the tax base is calculated based thereon) under the title of the "Calculation of Value of Gift Property" in Section 2 of Chapter 3 of the Act, the existing individual donation provision (Articles 32 through 42 of the former Act) is converted to the example provision concerning the calculation of the value of donated property; in light of the background of the introduction of the comprehensive taxation principle, and the legislative intent of the example, it cannot be seen that the specific taxation method and the scope of taxation can not be seen as violating the legal scope of individual donation or taxation.

B) Relationship under Articles 41(1)1 and 42(1)3 of the Act

In addition to donations under Articles 33 through 41, 41-3 through 41-5, and Articles 44 and 45, Article 42(1) of the Act provides that "if profits falling under any of the following subparagraphs, other than donations under Articles 33 through 41, 41-3 through 41-5, are gains above the standard prescribed by Presidential Decree, such profits shall be deemed the value of donated property of the person who has acquired such profits." In addition, Article 43(1) of the Inheritance Tax and Gift Tax Act amended by Act No. 10411 of December 27, 2010, amended by Act No. 10411 of the Inheritance Tax and Gift Tax Act, Article 33 through 39, Articles 139-2, 39-3, 40, and 41-3 through 41-5, Article 42(1) of the Act shall not apply to 14(1) of the Act, and Article 42(1)14(1) of the Act shall not apply to any selective donations.

C) Whether it is in direct use under Article 41(1)1 of the Act

Article 41 (1) 1 of the Act provides that a person who has a special relationship with a stockholder of a corporation (hereinafter referred to as a "specific corporation") who has losses, or is under suspension or closure of business, with property free of charge to the specific corporation, the amount equivalent to such profits shall be deemed as the value of property donated to the stockholder of the specific corporation concerned, and Article 31 (1) 1 of the Enforcement Decree of the Act (amended by Presidential Decree No. 1989 of Feb. 28, 2007, and hereinafter referred to as "specified corporation") provides that if such person gains profits from the stockholder of the specific corporation, the amount equivalent to such profits shall be deemed as the value of property donated to the stockholder of the specific corporation, and that the amount of losses carried forward of the corporation shall be deemed as 0 years old and under Article 18 (1) 1 of the Enforcement Decree of the Corporate Tax Act (excluding Association-registered corporations under the Securities and Exchange Act), and that the corporation shall be 10 years old and under Article 41 (1) 1 of the Act shall be deemed as losses carried forward in the year before the donation.

Therefore, as long as Article 41(1)1 of the Act should apply to the donation of the real estate of this case, Article 42(1)3 of the Act, which is a supplementary provision, cannot be applied. Thus, the imposition of gift tax of this case on different premise is unlawful without any need to further examine the remainder of the plaintiff's assertion.

3. Conclusion

If so, the plaintiff's claim of this case is accepted within the above scope of recognition, and the other claim is dismissed as it is without merit. It is so decided as per Disposition.