Where inheritance tax is levied on the status of an insurance contract attributable to the decedent, the method of calculating the value thereof.

The property belonging to the decedent and having property value that can be converted into money is included in the inherited property. The value calculation is based on the market price as of the commencement date of the inheritance. However, in a case where the market price of the inherited property is not freely traded between many and unspecified persons, and there is no provision for valuation of value, and it is difficult to calculate immediately the market price thereof, it is bound to impose inheritance tax on the basis of the amount that is the highest value of the property value of the inherited property. While there is no appropriate method for immediately assessing the status of an insurance contract that belongs to the decedent under the insurance contract, there is no appropriate method for immediately assessing the market price thereof. On the other hand, barring any special circumstance, the monetary value of various rights under the insurance contract, such as various refunds that can be paid by cancelling the insurance contract or withdrawing the subscription at the time of the commencement of the inheritance, and if

Articles 7(1) and 60(1), (2), and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013);

Plaintiff 1 and one other (LLC, Kim & Lee LLC, Attorneys Yu-type et al., Counsel for the plaintiff-appellant)

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2014Nu72059 decided July 10, 2015

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Article 7(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “Inheritance Tax Act”) provides that the inherited property subject to taxation of inheritance includes all things having economic value convertible into money and all de facto or de facto rights having property value. Article 60(1) of the same Act declares the principle of market value by requiring the value of the property subject to inheritance to be calculated according to the market price as of the commencement date of inheritance. Article 60(2) of the same Act provides that “The market price is ordinarily established where it is difficult to calculate the market price in applying paragraph (1).” Paragraph (3) provides that “Where it is difficult to calculate the market price, the value assessed by the method prescribed in Articles 61 through 65 shall be deemed the market price considering the type, size, transaction circumstances, etc. of the relevant property.”

Therefore, property belonging to the decedent and having property value that can be converted into money is included in the inherited property, and the calculation of the value thereof shall be based on the market value as of the commencement date of the inheritance. However, in a case where the market value of the inherited property is not freely traded between many and unspecified persons, and there is no other provision for valuation of the value thereof, and thus it is impossible to promptly calculate the market value of the inherited property, it shall be subject to taxation on the basis of the amount most appropriate for the value of the property value of the relevant inherited property. While there is no appropriate method for immediately assessing the market value of the insurance contract to which the decedent belongs, there is no adequate method for calculating the market value of the insurance contract to which the decedent belongs, such as the termination of the insurance contract at the time of the commencement of the inheritance, and all refunds that can be paid by the withdrawal of the subscription, and if such rights are incompatible, the highest of the value of such rights

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. On May 30, 2012 and June 5, 2012, Nonparty 1 concluded two immediate pension insurance contracts with Nonparty 1, the insured Nonparty 1, the Plaintiff 1, the insurance premium of KRW 540,000,000, and the immediate pension insurance contract with KRW 500,000,000. On June 4, 2012 and June 5, 2012, Nonparty 1 entered into two immediate pension insurance contracts with the contractor and the beneficiary as Nonparty 1, the insured as Plaintiff 2, the insurance premium of KRW 500,00,000, respectively (hereinafter “instant immediate pension insurance”), and acquired the right under the insurance contract by paying all the insurance premium of KRW 2,040,000 (hereinafter “instant immediate pension insurance”).

B. As Nonparty 1 died on June 18, 2012, Nonparty 2, his spouse, and the Plaintiffs, who were Nonparty 2, inherited Nonparty 1’s property, including the right under the instant immediate pension insurance contract.

C. On December 5, 2012, the Plaintiffs assessed the value of inherited property as KRW 1,466,223,468 of the Inheritance Tax and Gift Tax Act by deeming that the right to the instant immediate pension insurance contract falls under the right to receive a regular payment under Article 65(1) of the Inheritance Tax and Gift Tax Act and Article 62 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”), and filed a report thereon.

D. On November 1, 2013, the Defendant: (a) assessed the value of the instant immediate pension insurance premium of KRW 2,040,000,000, which is the paid-in premium; (b) accordingly, assessed the amount of the instant immediate pension insurance premium of KRW 540,781,690, which is the difference in the amount of the inheritance tax reported by the Plaintiffs; and (c) issued the instant disposition that separately determines and notifies the Plaintiffs of the difference in the amount of the inheritance tax reported by the Plaintiffs.

3. Examining these facts in light of the aforementioned provisions and legal principles, the following circumstances are revealed.

A. The Plaintiffs’ immediate annuity insurance in this case inherited is not freely traded among many and unspecified persons, and there is no other provision that evaluates the value of the immediate annuity in itself, and there is no appropriate method of calculating the market price immediately. Meanwhile, since the instant immediate annuity insurance is not the insurance money received by the Plaintiffs due to Nonparty 1’s death, Article 8(1) of the Inheritance Tax and Gift Tax Act, which is a provision on the insurance money of life insurance received due to the death of the inheritee, is not applicable.

B. According to the terms and conditions of the immediate annuity insurance in this case, the Plaintiffs were entitled to withdraw the subscription or terminate the contract and receive the right to receive the refund of the premium. Under the terms and conditions of the immediate annuity insurance in this case, the policy holder is entitled to receive the refund of the premium calculated according to the predetermined calculation method and terminate the contract at any time within 15 days from the date of subscription, and terminate the contract before the contract is terminated. Therefore, where inheritance commences within the period of cancellation of subscription, it is reasonable to view that the amount of the right to refund the premium of the immediate annuity insurance in this case is the total amount of the premium paid, and where inheritance commences after the commencement of inheritance, it is equivalent to the amount of the termination refund calculated according to the terms and conditions, and the Plaintiffs did not acquire the right to receive the refund of the premium, because they did not actually withdraw the subscription of the immediate

C. Meanwhile, while maintaining the instant immediate pension insurance, the Plaintiffs also acquired the status of receiving a life fund before the commencement of the pension, and the status of receiving a life annuity after the commencement of the pension. However, according to the terms and conditions, “life fund shall be effective on the corresponding day of each month or each year’s insurance contract,” and “the insured shall live on the corresponding day of each year’s pension” as an insured event respectively, and “the amount of the life pension shall be payable only after the occurrence of such an insured event.” As such, the amount of the life fund or life pension shall be linked with the interest rate changed on the basis of the pertinent day. As such, it cannot be seen as the value of the Plaintiffs’ inherited property at the time of commencing the inheritance. Based on the amount that can be received in the future at the time of commencing the inheritance, it cannot be seen as the amount calculated by applying Article 62 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act based on the amount that can be received in the year to which the inheritance date commences

4. In full view of these circumstances, it is reasonable to view that the value of the premium refund at the time of commencing the inheritance is the most appropriate amount to the property value of the right under the instant immediate pension insurance contract, which is the Plaintiffs’ inherited property

The court below determined that the disposition of this case was lawful on the ground that the value of the immediate pension insurance of this case ought to be deemed as the amount equivalent to the insurance premium originally paid by Nonparty 1. However, the court below erred by misapprehending the legal principles on the assessment of value of immediate pension insurance of this case. However, the court of first instance revoked part of the disposition of this case within the extent that the period of withdrawal of an application has not expired as of the date of commencing the inheritance among the immediate pension insurance of this case, and that the period of withdrawal of an application has already expired, within the scope exceeding the amount of inheritance tax calculated on the basis of the total amount of the insurance premium paid and the amount equivalent to the amount of the refund for termination. The court below affirmed the first instance court’

5. Therefore, all appeals are 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 on the bench.

Justices Jo Hee-de (Presiding Justice)