[1] Whether Article 31(6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act is invalid as it goes beyond the scope of delegation by the parent law (affirmative)

[2] In a case where the main provision of the Enforcement Decree is null and void, whether the supplementary provision that allows the retroactive application of such provision becomes null and void (affirmative)

[1] Article 41 (1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7335 of Jan. 14, 2005) delegates only "the calculation of profits" to the Enforcement Decree on the premise that the largest shareholder, etc. obtained profits through transaction, such as gratuitous provision of property with a specific corporation. However, Article 31 (6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004) stipulates that "the profits acquired by the specific corporation shall be deemed as "the profits acquired by the shareholders, etc." and Article 41 (1) of the same Act provides that "the profits acquired by the specific corporation" shall be calculated as "the profits acquired by the shareholders, etc." and Article 31 (6) of the same Enforcement Decree shall be deemed as "the profits acquired by the shareholders, etc." if there is no actual profits. Thus, Article 31 (6) of the same Enforcement Decree shall be deemed as "the profits acquired by the shareholders, etc."

[2] Article 6 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004) provides that "the amended provisions of Article 31 (6) (excluding the matters concerning the standard for the amount of KRW 100 million among the same paragraph) shall apply from the portion of determination or rectification of gift tax after this Decree enters into force." Since Article 31 (6) of the Enforcement Decree of the same Act provides that the provisions of the same Enforcement Decree shall apply retroactively to the case where the fact of taxation requirements has been completed before the enforcement of the same Enforcement Decree is integrated with Article 31 (6) of the same Enforcement Decree, so long as the provisions of the same Enforcement Rule

[1] Article 41 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7335 of Jan. 14, 2005); Article 31 (6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004) / [2] Article 31 (6) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18627 of Dec. 31, 2004); Article 6 of the Addenda of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act

[1] Supreme Court en banc Decision 2006Du8648 Decided May 17, 2007 (Gong2007Sang, 916)

Plaintiff (Attorney Hong Jong-hee et al., Counsel for the plaintiff-appellant)

Head of Yongsan Tax Office

Seoul High Court Decision 2006Nu8923 delivered on November 9, 2006

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. As to the Plaintiff’s father’s abandonment of KRW 2,402,191 to Nonparty 2, a non-listed corporation whose largest shareholder had been accumulated for at least two years on April 4, 2002, the lower court determined that on November 1, 2004, the Defendant violated Article 31(6) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18177 of Dec. 30, 2003; hereinafter “amended Enforcement Decree”) by deeming that the Plaintiff was a person with a special relationship to have received profits from the non-listed corporation, and that it was effective on January 1, 2004, pursuant to Article 6 of the Addenda of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 18177 of Jan. 1, 2004; hereinafter “the amended Enforcement Decree”), and imposed gift tax by calculating the amount of the Plaintiff’s share in the Plaintiff’s stocks as deemed donation and imposing gift tax prior to its enforcement.

B. However, the judgment of the court below that Article 6 of the Addenda to the Enforcement Decree of the amended Act does not have validity because it violates the principle of non-sufficiency in tax statutes should be the premise that it is valid under Article 31 (6) of the amended Enforcement Decree, which is the provision of this Rule. Therefore, first of all, the decision of the court below is valid

Article 41(1) of the Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter "the amended Act") provides that "where a person in a special relationship with a shareholder or investor of a specific corporation obtains profits from a shareholder, etc. of the specific corporation through a transaction falling under any of the following subparagraphs, such as gratuitous provision of property or service with the specific corporation, the amount equivalent to such profits shall be deemed the value of donated property of the specific corporation, such as the shareholder, etc. of the specific corporation." [The content of this provision shall be deemed to be the value of donated property of the specific corporation at the time of the completion of the taxation requirement of this case (Article 41(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 6780, Dec. 18, 2002; hereinafter referred to as the "former Act") provides that the method of calculating profits shall be delegated to the Presidential Decree, and Article 31(6) of the Enforcement Decree of the amended by delegation shall be limited to the largest shareholder, etc.

Article 38 of the Constitution provides that "All citizens shall be liable to pay taxes under the conditions as prescribed by Act," and Article 59 provides that "types and rates of taxes shall be determined by Act." This principle adopts the principle of no taxation without the law. Such principle means that taxation requirements, etc. shall be prescribed by the Act enacted by the National Assembly, which is a representative organ of the people, and shall be strictly interpreted and applied in the enforcement of the Act, and the extension or analogical application of administrative convenience shall not be permitted. Thus, it violates the principle of no taxation without the law to provide for matters concerning taxation requirements, etc. by administrative legislation, such as orders or rules, without the delegation of the Act, or to provide for the interpretation provisions that interpret or expand the contents prescribed by the Act without the permission of the Act (see Supreme Court en banc Decision 2006Du8648, May 17,

Article 41 (6) of the amended Act delegates only "the calculation of profits" to the Enforcement Decree on the premise that the largest shareholder, etc. has obtained profits through transactions such as gratuitous provision of property with a specific corporation. However, Article 31 (6) of the amended Enforcement Decree provides that "the profits earned by a specific corporation shall be deemed to be "the profits earned by the shareholders, etc." and Article 41 (1) of the amended Enforcement Decree provides that "the profits earned by the shareholders, etc." shall be deemed to be "the profits earned by the specific corporation" and the profits gained by the specific corporation shall be excluded from the subject of gift tax unless the shareholders, etc. have actually gained profits. However, Article 31 (6) of the amended Enforcement Decree provides that if a specific corporation has provided property free of charge, etc., the shareholders, etc. shall be deemed to have obtained profits by itself, and therefore, Article 31 (6) of the amended Enforcement Decree shall be deemed to be null and void as it goes against the purport of Article 41 (1) and (2) of the amended Act.

On the other hand, Article 6 of the Addenda of the amended Enforcement Decree provides that "the provisions of Article 31 (6) (excluding the provisions concerning the standard of 100 million won in the same paragraph) shall apply from the portion of the decision or rectification of gift tax after this Decree enters into force," so that the provisions of the above amended Enforcement Decree shall apply retroactively to the fact that the tax requirement has been completed prior to the enforcement of the amended Enforcement Decree, which is integrated with Article 31 (6) of the amended Enforcement Decree, and as long as the provisions of the main provision of the above amended Enforcement Decree are null and void, the above Addenda provisions shall also be deemed null and void.

C. In light of the aforementioned legal principles and records, the court below erred in its conclusion that Article 6 of the Addenda to the Enforcement Decree of the amended Enforcement Decree is invalid on the premise that Article 31(6) of the Enforcement Decree of the amended Enforcement Decree is valid, and thus, it is reasonable to conclude that Article 31(6) of the Enforcement Decree of the amended Enforcement Decree should be applied before the amendment in this case. Thus, the above error of the court below did not affect the conclusion of the judgment, and it does not constitute an error of

2. Regarding ground of appeal No. 2

Article 31(6) of the former Enforcement Decree prior to the amendment provides that "the value per stock or equity shares increased shall be calculated by multiplying "the number of stocks or equity shares increased" by the number of relevant largest shareholders, etc. due to the value of donated stocks or profits derived from exemption from debts (paragraph 1). In this context, "the value per stock of stocks, etc. increased" should be calculated by comparing the value of stocks, etc. before and after the gift transaction. In this case, where it is difficult to calculate the market value in order to calculate the value of stocks, etc., the value of the property shall be calculated by comparing the value of stocks, etc. before and after the gift transaction. In this case, the interpretation of Article 63(1)1 (c) of the former Enforcement Decree prior to the amendment, and Article 54 of the former Enforcement Decree of the former Enforcement Decree, if the value per share is calculated based on the supplementary method of assessment, and it is reasonable to view that there is no value per share increase in the value of stocks, etc. before and after the donation, etc. as 200 per share value per share.

The court below found the fact that the value per share before and after the debt exemption of the non-party 2 was an incidental method as a result of the supplementary evaluation of the non-party 2's non-listed stocks as a supplementary evaluation method, and determined that there is no profit of deemed donation that the plaintiff obtained from the debt exemption of the deceased non-party 1 as a result of the above legal principles, and therefore, the ground of appeal

3. Conclusion

Therefore, the appeal is 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.

Chief Justice Kim Young-ran (Presiding Justice)