In applying the main sentence of Article 48(2)1 of the former Inheritance Tax and Gift Tax Act that stipulates that where the property contributed by a public-service corporation, etc. is not used for any purpose other than the purpose of direct public-interest projects, etc. or is not used for a direct public-service project within three years from the date of receiving the contribution, gift tax shall be imposed on the property contributed to the public-service corporation, etc.

Article 48 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 10411, Dec. 27, 2010; hereinafter “Inheritance Tax Act”) provides that the value of property contributed by a public-service corporation, etc. shall not be included in the taxable value of donated property. In the main text of Article 48(1)1 of the former Inheritance Tax and Gift Tax Act, where the property contributed by the public-service corporation, etc. is not used for any purpose other than directly for the public-service business, etc. or directly for the public-service business within three years from the date of its use or contribution, the value prescribed by the Presidential Decree shall be deemed as donated by the public-service corporation, etc. and the gift tax shall be levied immediately on such property. Article 40(1)1(b) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The value of property deemed a donation pursuant to the delegation of Article 48(2) of

Article 48(1) of the Inheritance and Gift Tax Act does not include property contributed to a public-service corporation, etc. in the taxable value of donated property under the condition that such property shall be used for the purpose of contribution to the pertinent property or its operating income. In addition, Article 48(2) of the Inheritance and Gift Tax Act provides that gift tax shall be imposed at the time when the property is contributed by the public-service corporation, etc., and Article 48(2) of the Inheritance and Gift Tax Act provides that gift tax shall be imposed when certain grounds prescribed in each of the following subparagraphs arise for post-management. The subject of gift tax is not the first contributed property by the public-service corporation, etc., but the “value determined by the Presidential Decree” deemed as the donation in the event a cause prescribed in the following subparagraphs arises. In full view of the language, structure, purpose, etc. of such provisions, when the main sentence of Article 48(2)1 of the Inheritance and Gift Tax Act is applied, the base date of appraisal of donated property shall be deemed the time of deeming the donation as the donation by a public-service, etc.

Articles 48(1), 48(2)1, and 60(1) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 10411, Dec. 27, 2010); Article 40(1)1(b) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

Local Foundation (Law Firm Masung, Attorneys Shin Jong-sung et al., Counsel for defendant-appellant)

Head of Seocho Tax Office (Law Firm Barun, Attorneys Park Jae-min, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Nu68319 decided August 13, 2015

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. Article 48 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 10411, Dec. 27, 2010; hereinafter “Gift”) provides that the value of property contributed by a public-service corporation, etc. shall not be included in the taxable value of donated property. In the main text of Article 48(1)1 of the former Inheritance Tax and Gift Tax Act, where the property contributed by the public-service corporation, etc. is not used for any purpose other than directly for the public-service business, etc. or directly for the public-service business within three years from the date of receiving the contribution, the value prescribed by the Presidential Decree shall be deemed a donation by the public-service corporation, etc. and the gift tax shall be levied immediately on the property. Article 40(1)1(b) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The value of property deemed a donation pursuant to the delegation of Article 48(2) of the Inheritance Tax

Article 48(1) of the Inheritance and Gift Tax Act does not include property contributed to a public-service corporation, etc. in the taxable value of donated property under the condition that such property should be used for the purpose of contribution to the property. In addition, Article 48(2) of the Inheritance and Gift Tax Act provides that gift tax shall be imposed at the time when a public-service corporation, etc. receives a contribution of the property. In addition, Article 48(2) of the Inheritance and Gift Tax Act provides that gift tax shall be imposed at the time of the receipt of the contribution of the property. The subject of gift tax is not the first contribution of the public-service corporation, etc., but the “value prescribed by Presidential Decree” deemed as a donation in the event a cause prescribed in any of the following subparagraphs arises. In full view of the language, structure, and purport of such provision, the standard date of appraisal of donated property shall be deemed the point of time when the said provision is deemed as a donation by a public-service corporation, etc. after receiving the contribution of the property. Such interpretation accords with the former part of Article 60(1) of the Inheritance Tax Act.

2. According to the reasoning of the lower judgment and the record, the Plaintiff is an incorporated foundation established for public interest projects and completed the registration of ownership transfer on June 8, 2007 with respect to each of the instant land from the Nonparty on the grounds of donation made on May 17, 2007 by the Nonparty. The Defendant calculated the tax base on the grounds that the Plaintiff was not used directly for public interest projects, etc. within three years from the date of receiving each of the instant land contribution, and determined and notified the gift tax to the Plaintiff on February 13, 2013 (hereinafter “instant disposition”).

Examining these facts in light of the legal principles as seen earlier, since the Plaintiff did not use each of the instant land for the purpose of public interest within three years after receiving the contribution, and only at that time, causes for imposing gift tax under the main sentence of Article 48(2)1 of the Inheritance and Gift Tax Act have occurred, the value of each of the instant land shall also be assessed as at the time when the said causes for taxation have occurred.

Nevertheless, the lower court determined otherwise by deeming that the Plaintiff should evaluate the value of donated property on the basis of the date on which the registration of ownership transfer was completed with respect to each of the instant land, and determined that the part exceeding the tax amount calculated according to the above standard was unlawful. In so determining, the lower court erred by misapprehending the legal doctrine on the basis date for calculating the value of donated property under the main sentence of Article 48(2)1 of the Inheritance and Gift

3. Therefore, without examining the remaining grounds of appeal, the part against the defendant among the judgment below is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)