Methods of calculating gains on transfer of assets inherited or donated;

In case of calculating gains on transfer of assets inherited or donated under the Income Tax Act based on the actual transaction value, since there is no actual transaction value of the assets at the time of acquisition, the appraised value under the Inheritance Tax and Gift Tax Act as of the evaluation

Article 97 (Calculation of Necessary Expenses for Capital Gains)

Article 163 of the Enforcement Decree of the Income Tax Act

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The defendant's rejection of a request for correction against the plaintiff on January 20, 2007 shall be revoked in accordance with Article 244,785,220 of the capital gains tax belonging to the year 2006.

1. Details of the disposition;

A. On October 27, 2003, the Plaintiff acquired and possessed ○○○○○○○○○○○○○○○○○ apartment 15-101 (hereinafter “instant apartment”) by inheritance, and transferred the instant apartment to KRW 2,40,00,000 on April 26, 2006, and on June 19, 2006, the transfer value was calculated on the basis of the standard market price, and the transfer value was calculated on June 19, 2006, the Plaintiff voluntarily reported and paid KRW 250,681,60 for the transfer income tax for the year 2006 on the basis of the standard market price.

B. On October 31, 2006, the Plaintiff filed a request for correction to the effect that the Plaintiff calculated the acquisition value pursuant to Article 163(9) main text of the Enforcement Decree of the Income Tax Act (hereinafter “instant provision”) and refund KRW 24,785,220, which is the difference between the amount already reported and the amount already paid, should be refunded, on January 20, 2007, and the Defendant rejected the Plaintiff’s request for correction on January 20, 2007.

C. On March 19, 2007, the Plaintiff appealed for a national tax trial, but was dismissed on June 12, 2007.

[Reasons for Recognition] Evidence Nos. 1 to 5, and the purport of the whole pleadings

2. The legality of the instant disposition

A. The plaintiff's assertion

The defendant asserts that the acquisition value should be calculated as the standard market price pursuant to the provisions of this case on the ground that the plaintiff acquired the apartment of this case by inheritance. However, since the provisions of this case are invalid as a provision without any ground to delegation to the mother law, which is not in violation of the principle of no taxation without law, the acquisition value of the apartment of this case should be calculated as the conversion value pursuant to Article 163 (12) of the Enforcement Decree of the Income Tax Act, the defendant'

B. Relevant statutes

○ Article 89 of the Income Tax Act

(1) No capital gains tax (hereinafter referred to as "capital gains tax") shall be levied on the following incomes:

3. Income accruing from transfer of such one house for one household as prescribed by the Presidential Decree (excluding expensive houses whose prices exceed the standard prescribed by the Presidential Decree) and the appurtenant land within the area calculated by multiplying the area of the land on which the building is built by the ratio as determined by region under the Presidential Decree (hereafter in this Article, referred to as the “land annexed to the house”);

○ Transfer Value of Article 96 of the Income Tax Act

(1) The transfer value of assets as prescribed in each subparagraph of Article 94 (1) shall be the actual transaction value between the transferor and transferee at the time of transfer of the relevant assets (hereinafter referred to as the "actual transaction value").

(2) Notwithstanding the provisions of paragraph (1), where assets provided for in Article 94 (1) 1 and 2 are transferred not later than December 31, 2006, their transfer value shall be based on the standard market price at the time of the transfer of relevant assets except for the case falling under any of the following subparagraphs:

1. Where the relevant assets fall under the standard for expensive houses under the provisions of Article 89 (1) 3 (including the land annexed thereto);

○ Article 97 of the Income Tax Act as necessary expenses

(1) In calculating gains on transfer of a resident, necessary expenses to be deducted from the transfer value shall be as follows:

1. Acquisition value:

(a) The actual transaction price required for the acquisition of assets under subparagraphs of Article 94 (1): Provided, That in cases falling under the main sentence of Article 96 (2), the standard market price at the time of acquisition of the relevant assets;

(b) In case of the text of item (a), where it is impossible to confirm the actual transaction value at the time of acquisition, the transaction example value, appraisal value or conversion value;

(5) Matters necessary for calculation of necessary expenses, such as the scope of actual transaction price required for acquisition and gift tax amount shall be prescribed by Presidential Decree.

Article 156 of the Enforcement Decree of the Income Tax Act

(1) The term “high-priced house the value of which exceeds the standard determined by the Presidential Decree” in Article 89 (1) 3 of the Act means that the sum of the actual transaction values at the time of transfer of a house and its appurtenant land (where a part of a house is transferred, it refers to the amount calculated by dividing the sum of the actual transaction values by the ratio occupied

Article 163 of the Enforcement Decree of the Income Tax Act: Necessary expenses for transferred assets

(9) In the application of the provisions of the text of Article 97 (1) 1 (a) of the Act to the assets received by inheritance or donation (excluding the donation under the provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act), the value appraised under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation shall be considered as the actual transaction value at the time of acquisition: Provided, That in the following

(12) The term “business example amount, appraisal value or conversion value prescribed by the Presidential Decree” in Article 97 (1) 1 (b) of the Act means the value provided in the provisions of Article 176-2 (2) through (4).

Article 176-2 Estimation and Revision of the Enforcement Decree of the Income Tax Act

(2) The term “acquisition price converted by the method prescribed by the Presidential Decree” in Article 114 (5) of the Act means the acquisition price converted by the method in the following subparagraphs:

2. In cases of the rights to acquire the land, buildings and real estate under Article 96 (1) and (2) 1 through 9 of the Act (the provisions of subparagraph 6 shall apply only to the assets acquired before a fictitious acquisition date under paragraph (4)), the amount calculated by the following formula:

The actual transaction price at the time of transfer, and the standard market price at the acquisition

Paragraph 3 (1) 1 transaction example X------------- any of the following cases:

Standard market price at the time of transfer (Article 164 (8)) of the same paragraph or the appraisal price at the time of transfer

(2) in the case of paragraph (1).

[Standard Market Price at Time]

(3) In case where the transfer value or acquisition value is estimated, determined or revised under Article 114 (5) of the Act, the method falling under each of the following subparagraphs shall be applied in sequential order: Provided, That in case where the transaction example under subparagraph 1 or the appraisal value under subparagraph 2 is deemed to be objectively unreasonable and unjust, etc. in view of the amount, etc. accruing from the transaction with the related parties under Article

1. In case where there are transaction examples of assets bearing the identity or similarity with the relevant assets (excluding stocks, etc. of stock-listed corporations or KOSDAQ-listed corporations) within 3 months before and after the date of transfer or acquisition respectively, such value;

2. Where there exist the appraisal values which are appraised by two or more certified public appraisal corporations on the relevant assets (excluding stocks, etc.) within three months before and after the date of transfer or acquisition respectively, and deemed to bear credibility (limited to those whose standard date of appraisal is within three months before and after the date of transfer or acquisition respectively), the average value of such appraisal

3. Acquisition price converted under paragraph (2); and

4. The standard market price;

C. Whether the provision of this case is lawful

According to Article 96 (1) and (2) 1 of the Income Tax Act and Article 97 (1) (a) (main sentence) and (b) of the same Act, where the transferred assets fall under expensive houses, etc., the transfer value and acquisition value shall be calculated based on the actual transaction value. In this case, if it is impossible to confirm the actual transaction value at the time of acquisition, the amount calculated by applying in sequence the transaction example value, appraisal value or conversion value as prescribed by the Presidential Decree may be deemed the acquisition value. Article 97 (5) of the Income Tax Act provides that "the necessary matters concerning the calculation of necessary expenses such as the scope of the actual transaction value required for acquisition, the calculation of the gift tax amount equivalent to the gift tax shall be determined by the Presidential Decree." In applying the provisions of the main sentence of Article 97 (1) 1 (a) of the Act to the assets received by inheritance or donation (excluding the donation under the provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act), it shall be deemed the actual transaction value at the time of acquisition."

In full view of the purport of the above provisions, in case where the transfer income is to be calculated based on the actual transaction value in accordance with the main sentence of Article 97 (1) 1 (a) of the Income Tax Act because the assets other than the assets inherited or donated fall under a high-priced house, etc., if it is impossible to verify the actual transaction value required for such acquisition, it shall be calculated based on the transaction example value, appraisal value, or conversion value prescribed by the Presidential Decree. However, in case where the assets inherited or donated fall under a high-priced house, etc. and should be calculated based on the actual transaction value at the time of acquisition pursuant to the main sentence of Article 97 (1) (a) of the Income Tax Act, it is necessary to establish separate provisions as to the actual transaction value at the time of acquisition because there is no actual transaction value at the time of acquisition. Accordingly, in case of the assets inherited or donated under the provision of this case, it shall be deemed that the value assessed by the inheritance tax or gift tax law as of the date of inheritance commencement or donation exceeds the scope of transfer value under Article 97 (5) of the Income Tax Act.

3. Conclusion

Therefore, the plaintiff's claim disputing the illegality of the disposition of this case on the premise that the provision of this case is null and void is dismissed as it is without merit. It is so decided as per Disposition.