Whether the value of net profit and loss per share can be calculated on the basis of the weighted average amount of net profit and loss per share for the last three years as stipulated in Article 56(1)1 of the Enforcement Decree of the former Inheritance Tax and Gift Tax Act in cases where any ground provided for in each subparagraph of Article 17-3(1) of the Enforcement Rule of the same Act exists (negative in principle), and whether the same applies to cases where the value of Article 56(1)2 of the Enforcement Decree of the same Act is not calculated or the value of subparagraph 2 does not meet the requirements applicable (affirmative)

If there are grounds provided for in each subparagraph of Article 17-3(1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 20 of Apr. 30, 2008), barring special circumstances, the net value per share cannot be calculated based on the weighted average amount of net profits and losses for the preceding three years per share under Article 56(1)1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621 of Feb. 22, 2008; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”), and further, the value under Article 17-3(1)2 of the same Act (amended by Ordinance of the Ministry of Strategy and Finance No. 20 of Apr. 30, 2008) is not calculated or the value under subparagraph 2 cannot be applied because it fails to meet the requirements to apply subparagraph 1, it is unreasonable to apply subparagraph 2 to the value under subparagraph 1, and in such case, it can be assessed only the net asset value of the former Act.

Articles 54(4) and 56(1)1 and 2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 20621, Feb. 22, 2008); Article 17-3(1) of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (Amended by Ordinance of the Ministry of Strategy and Finance No. 20, Apr. 30, 2008);

Supreme Court Decision 2010Du26988 Decided April 26, 2012 (Gong2012Sang, 900)

Plaintiff (Attorney Choi Young-chul et al., Counsel for the plaintiff-appellant)

Head of Mapo Tax Office

Seoul High Court Decision 2011Nu11732 decided November 10, 201

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 20621, Feb. 22, 2008; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) provides that the weighted average amount of net profit and loss for the preceding three years per share of unlisted stocks shall be “the weighted average amount of net profit and loss for the preceding three years per share” as provided in subparagraph 1 (hereinafter “value of subparagraph 1”), but where the relevant corporation is deemed unreasonable to calculate the value of subparagraph 1 due to such reasons as an abnormal increase in the amount of net profit and loss for the preceding three years due to a temporary contingency case, the value stipulated in subparagraph 2 of the same paragraph (hereinafter “value of subparagraph 2”) shall be deemed as the net amount for the latest three years calculated on the basis of delegation by the authority of Article 17(1)3 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 20621, Apr. 30, 2008).

Therefore, barring any special circumstance, the net profit and loss value per share cannot be calculated on the basis of the value of subparagraph 1, and furthermore, even if the value of subparagraph 2 is not calculated or it is not possible to apply the value of subparagraph 2 because it does not meet the requirements to apply the value of subparagraph 1, it is unreasonable to apply the value of subparagraph 1. In such a case, it may be assessed by applying the objective and reasonable method among the supplementary assessment methods under Article 54(4) of the Enforcement Decree of the Inheritance and Gift Tax Act, which allows only the net asset value to be assessed (see Supreme Court Decision 2010Du26988, Apr. 26, 2012, etc.).

2. According to the reasoning of the lower judgment and evidence duly admitted, ① the global culture company, the unlisted corporation (hereinafter “instant company”) calculated the weighted average value of KRW 10,00 per share on December 21, 1998; KRW 50,000 per share; and KRW 30,00 per share on May 10, 205; ② the Nonparty, who was a shareholder of the instant company, calculated the net value of KRW 30,00 per share with the net value of KRW 10 per share on December 10, 200, based on the weighted average value of KRW 10,000 per share (hereinafter “the instant net value of KRW 30,00 per share”); and ③ the net value of KRW 12,00 per share (hereinafter “the instant shares”) calculated on December 10, 205, based on the net value of KRW 30,000 per share (the instant net value of KRW 16,000 per share); and ③ the Defendant received the instant net value of shares from the Nonparty 28.

3. Examining these facts in light of the aforementioned provisions and legal principles, it is clear that the instant company’s offering of new stocks prior to the date of acquisition of the Plaintiff’s offering of new stocks prior to the date of appraisal base date constitutes “the case of capital increase during the period from the starting date of the business year which falls on the day before the base date of appraisal base date to the base date of appraisal” among the grounds stipulated in Article 17-3(1)3 of the Enforcement Rule of the Inheritance Tax and Gift Tax Act. In addition, considering the scale of the instant offering of new stocks and the value of the newly issued stocks, it is difficult to view that the net profit and loss per share of the instant company’s stocks after the offering of new stocks is maintained the same as the previous one after the acquisition of new stocks, as it is, calculated the weighted average amount of net profit and loss per share of the pertinent business year prior to the offering of new stocks, and considered it as net profit and loss per share after the offering of this case as it does not reflect at all the increase of the total number of stocks issued and the changes in the amount of net profit and loss per share.

4. Nevertheless, the lower court determined otherwise, on the ground that the Defendant’s assessment of net profit and loss per share of the instant shares based on the value under subparagraph 1 is lawful, on the grounds that the Plaintiff failed to meet the requirements prescribed in Article 56(1)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act due to the Plaintiff’s low-price acquisition of the instant shares, and thus, the net profit and loss per share of the instant shares cannot be calculated by dividing the net profit and loss per share of the instant shares by the total number of issued stocks for the pertinent business year, and the net profit and loss per share of the instant shares is calculated by dividing the net profit and loss per share of the instant shares during the pertinent business year by the total number of issued stocks during the pertinent business year, which did not contribute at all to realizing the net profit and loss per share during the pertinent business year, without adding up

Therefore, the judgment of the court below is erroneous in the misapprehension of legal principles as to the supplementary evaluation method of unlisted stocks, which affected the conclusion of the judgment, and the ground of appeal assigning this error is with merit.

5. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)