Plaintiff

The Director of the Pacific District Office

March 17, 2006

Seoul Administrative Court Decision 2005Gudan2127 decided June 27, 2005

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. The costs of the lawsuit shall be borne by both the first and second instances.

1. Purport of claim

The Defendant’s disposition of imposition of capital gains tax of KRW 79,862,800 for the Plaintiff on March 2, 2004 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of the disposition;

The same shall apply to the corresponding parts of the judgment of the first instance.

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

(A) The area where each apartment of this case is located is publicly announced as real estate speculation area, and the transfer gains should be calculated by applying the transfer value and acquisition value based on the actual transaction value to the transfer of real estate located in the speculative area. Therefore, in calculating the transfer gains on the portion deemed a transfer in respect of each apartment of this case’s onerous donation, the transfer value shall be the “amount equivalent to the obligations assumed by the donee” and the acquisition value shall be calculated by multiplying the “actual acquisition value” by the “ratio occupied by the amount of debts equivalent to the amount of debts in the amount of the donation”.

(B) Even if the transfer value and acquisition value are to be calculated based on the standard market price in the calculation of the gains on the transfer of the part to be deemed a transfer in respect of the onerous donation of each apartment of this case, the transfer income tax calculated based on the standard market price cannot exceed the scope of the gains on transfer based on the actual transaction price. However, as the Defendant’s calculation of transfer income tax calculated based on the standard market price for the portion to be deemed a transfer in respect of the onerous donation of each apartment of this case exceeds the transfer gains of 41,356,349 won based on the actual transaction price, the difference should be revoked.

(2) The defendant's assertion

In the calculation of gains on transfer where a real estate in an speculative area is transferred, both the transfer value and the acquisition value shall be based on the actual transaction value. However, in the case of calculating gains on transfer on the part deemed a transfer in onerous donation, there is no actual transaction value at the time of donation, so the transfer value is bound to be based on the standard market price, and so long as the transfer value is calculated based on the standard market price, the acquisition value shall also be calculated based on the standard market price. Therefore, it is lawful for the Defendant to calculate gains on transfer after calculating the transfer value and the acquisition value on the portion deemed a transfer in respect of onerous donation for each apartment of this case by the “standard market price at the time

B. Relevant statutes

Attached Form (2) is as listed in Annex 2.

C. Determination

(1) As to the first argument

Article 88 (1) of the former Income Tax Act (amended by Act No. 7006 of Dec. 20, 2003; hereinafter the "Act") provides that "transfer" means that an asset is actually transferred for price due to sale, exchange, investment in kind in a corporation, etc., regardless of any registration or enrollment concerning the asset. In this case, where a donee takes over an obligation of a donor in an onerous donation (excluding the case falling under the main sentence of Article 47 (3) of the Inheritance Tax and Gift Tax Act), the portion equivalent to the amount of such obligation in the donation amount shall be considered as the actual transfer for price of the asset. Thus, in this case, the non-party 1 and the non-party 2 takes over the obligation of 250,000,000 won from the plaintiff and each of the plaintiff takes over the obligation of 250,000,000 won from the real estate amount of the real estate in this case, it shall be deemed that the above donation is a onerous donation.

According to Article 100 (1) of the Act, in calculating gains on transfer, if the transfer value is based on the actual market price, the acquisition value shall also be based on the actual market price, and if the transfer value is based on the standard market price, the acquisition value shall also be based on the standard market price. Article 159 of the Enforcement Decree of the Act provides that in calculating gains on transfer of the portions to be deemed a transfer, its acquisition value and transfer value shall be calculated by multiplying the value of the relevant assets under Articles 96 and 97 (1) 1 of the Act by the ratio occupied by the portions equivalent to the amount of debts to the value of the relevant assets under Articles 96 and 97 (1) 1 of the Act. Articles 96 (1) and 97 (1) of the Act provide that in principle, the transfer value and transfer value in the transfer of land and buildings shall be based on the standard market price: Provided, That in cases where the transferor makes a report on the actual market price at the time of transfer and acquisition by keeping evidential documents within the date of determination of transfer income tax base and tax amount, or where the actual transaction price is likely to increase.

The purpose of Article 88 of the Act and Article 159 of the Enforcement Decree of the Act is to determine the ratio (B/A) occupied by the debts (B/A) acquired in the transfer value (B/A) in calculating the transfer income tax in the case of onerous donation, and then to determine the transfer value (transfer value - acquisition value) multiplied by the said ratio as the transfer income tax, and to impose the transfer income tax.

In addition, when calculating the transfer value according to the actual transaction price, not the standard market price, the actual transaction price, which is the basis for calculating the transfer margin, is not the general market price that reflects the objective exchange value, but the actual transaction price itself or at the time of the transaction (see Supreme Court Decision 97Nu6629, Feb. 9, 199, etc.). It is difficult to regard the burden in the onerous donation as the transaction price corresponding to the entire donated property in question or the price for its payment, and it is difficult to consider this concept in the onerous gift. Therefore, in this case, even in this case, the plaintiff asserted that the total amount of the debt taken over by Nonparty 1 and Nonparty 2 as the actual transaction price at the time of transfer, but it can be said that the above debt amount is the "actual transfer price" under the latter part of Article 88 (1) of the Act, but it cannot be viewed as the actual transaction price.

If so, the part of the transfer of the onerous donation as referred to in Article 159 of the Enforcement Decree of the Act is equivalent to the amount of the obligation among the amount of the donation, and the amount of the donation cannot be considered as the standard market price because it falls under the case where it is impossible to confirm the actual transaction price pursuant to Article 114(5) of the Act. Thus, the transfer price shall be the amount calculated by multiplying the standard market price by the ratio of the amount of the obligation to the amount of the above donation (B/A). If the transfer price is calculated by the standard market price at the time of transfer, the acquisition price shall be calculated by the standard market price pursuant to Article 100(1) of the Act.(In the case of the above calculation method, the transfer price at the time of the onerous donation is always the same as the amount of the obligation, but this is only the result of the above calculation formula, and the above transfer price

Therefore, the instant disposition that calculated capital gains tax based on the standard market price at the time of transfer and acquisition is legitimate, and the Plaintiff’s first argument is without merit.

(2) As to the second argument

In case where transfer margin is to be calculated on the basis of the standard market price, the tax amount calculated on the basis thereof shall not exceed the scope of transfer margin based on the actual market price, and the transfer margin calculated on the basis of the standard market price shall not exceed the actual transfer value (Supreme Court Decision 96Nu860 delivered on February 11, 1997), but the transfer margin based on the actual transaction price cannot be calculated on the basis of the actual transaction price as determined in paragraph (1) above, since there is no actual transaction price due to the partial donation of this case (see Supreme Court Decision 96Nu860 delivered on February 11, 1997). Therefore, the transfer margin based on the actual transaction price cannot be included, and the transfer margin calculated on the basis of the standard market price [281,294,452 = 50,00,000 won [transfer value] - 218,705,548 won (acquisition value)] does not exceed the actual transfer price (5

3. Conclusion

Therefore, the judgment of the first instance court, which has different conclusions, is unfair, so it is revoked, and the plaintiff's claim is dismissed. It is so decided as per Disposition.

Judges Kim Jong-soo (Presiding Judge)