In cases where the transfer value is calculated based on the actual transaction value at the time of transfer of assets inherited or donated, whether applying the officially assessed individual land price, which serves as the tax base for inheritance tax or gift tax, is against Article 100(1) of the former Income Tax Act, in cases where the transfer value is calculated based on the actual transaction value at the time of acquisition (negative)

Articles 94(1), 96(1), 97(1)1(a)(b), (5), and 100(1) of the former Income Tax Act (Amended by Act No. 9270, Dec. 26, 2008); Article 163(9) of the Enforcement Decree of the Income Tax Act

Plaintiff (Law Firm Future, Attorneys Lee Jae-chul et al., Counsel for plaintiff-appellant)

Head of Changwon Tax Office

Busan High Court (Chowon) Decision 2011Nu696 decided February 2, 2012

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

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

According to Articles 96(1) and 97(1)1(a)(b) of the former Income Tax Act (amended by Act No. 9270, Dec. 26, 2008; hereinafter the same), the transfer value of assets under the provisions of each subparagraph of Article 94(1) of the same Act shall be based on the actual transaction value as at the time of transfer, and where the acquisition value shall be based on the actual transaction value required for the acquisition of the assets, and where it is impossible to confirm the actual transaction value at the time of acquisition, the amount calculated by applying in sequence the transaction value, appraisal value, or conversion value as prescribed by the Presidential Decree may be the acquisition value. Meanwhile, Article 97(5) of the former 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 and the calculation of gift tax amount, shall be prescribed by the Presidential Decree.” Article 163(9) of the Enforcement Decree of the Income Tax Act provides, “The gift tax or gift tax (excluding donations under the provisions of Articles 33 through 42).

In light of the contents and purport of the above provisions, in case where the transferred assets are general assets other than the assets inherited or donated, and the acquisition value cannot be confirmed in the application of the acquisition value, the acquisition value may be calculated based on the transaction example, appraisal value, or conversion value as prescribed by the Presidential Decree. In the case of the assets inherited or donated, there is no actual transaction value required for the acquisition. Accordingly, in the case of the assets inherited or donated under the main sentence of Article 163(9) of the former Enforcement Decree of the Income Tax Act, the value assessed pursuant to the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or donation shall be considered as the actual transaction value required for the acquisition.

Therefore, the main text of Article 163(9) of the former Enforcement Decree of the Income Tax Act is a provision based on Article 97(5) of the former Income Tax Act, which delegates necessary matters concerning the calculation of necessary expenses such as “the scope of actual transaction price required for acquisition” to be prescribed by the Presidential Decree, and cannot be deemed as an invalid provision without delegation of the parent law (see Supreme Court Decision 2006Du1326, Oct. 26, 2007, etc.).

In addition, in cases where assets inherited or donated are transferred, the value corresponding to the tax base of the inheritance tax or gift tax (referring to 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 donation) may prevent tax evasion or double taxation only when the transfer value is recognized as necessary expenses of the relevant assets and the transfer value exceeds the above value. As seen earlier, in cases of assets inherited or donated, separate provisions on the actual transaction value required for acquisition are established under Article 163(9) of the former Enforcement Decree of the Income Tax Act, which is delegated by Article 97(5) of the former Enforcement Decree of the Income Tax Act, based on the lack of the actual transaction value required for such acquisition, and in calculating gains on transfer of assets inherited or donated, where the transfer value is based on the actual transaction value at the time of transfer at the time of acquisition, the officially assessed individual land price, which is the tax base of the inheritance tax or gift tax, shall apply to the land whose market value is difficult to be calculated as of the date of commencing an inheritance or donation, and if the transfer value is determined unlawful against the standard market price.

In the same purport, the court below is justified in applying the value assessed according to the officially assessed individual land price corresponding to the inheritance tax base based on the actual transaction value at the time of acquisition in calculating gains on transfer of each land of this case under the main sentence of Article 163 (9) of the former Enforcement Decree of the Income Tax Act. In so doing, the court below did not err by misapprehending the legal principles on the application of acquisition value or the calculation of gains on transfer of assets inherited or donated in calculating gains on transfer

2. Regarding ground of appeal No. 2

In light of the records, the court below's determination that each of the above lands constitutes a non-business land under Article 104-3 (1) of the former Income Tax Act on the grounds that it is reasonable to view the actual status of the land 1 and 2 of this case as a commercial land or a miscellaneous land different from that entered in the register, as stated in its reasoning, is justifiable. In so doing, the court below did not err by misapprehending the legal principles on "non-business land" under the former Income Tax Act, or by misapprehending the legal principles

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 on the bench.

Justices Ko Young-han (Presiding Justice)