Seoul High Court 2011Nu36700 (Law No. 11 December 2012)

Seocho 2010west 1631 (2010.08.02)

The cancellation of gift agreement constitutes a disguised act for the purpose of reducing capital gains tax, and thus it is legitimate to consider donee as transferor.

In light of the fact that a contract with a donee as a transferor is concluded and that it is difficult to find a reasonable reason to cancel the contract of donation in the situation where both the transfer proceeds are paid, and it is difficult to recognize that the transfer proceeds actually accrue to the donor, the cancellation of the contract of donation constitutes the most act performed without substance for the purpose

2012Du12112 Revocation of disposition of imposing capital gains tax

Republic of Korea, AAA and one other

Head of the Do Tax Office

Seoul High Court Decision 2011Nu36700 Decided May 11, 2012

October 11, 2012

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

The grounds of appeal are examined.

Article 101 (2) of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) and Article 98 (1) 1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007) provide that in cases where a resident donated an asset to his/her relatives to reduce his/her income tax on capital gains in an unjust manner and the donee transfers the asset again to another person within three years from the date of donation, the donor shall be deemed to have directly transferred the asset. According to the reasoning of the judgment below and the evidence duly admitted by the court below, according to the reasoning

① The fact that, with respect to each one-third portion of the forest of this case owned byCC on December 28, 2005, each registration for transfer of ownership has been made on the ground of donation on the same day in the name of the plaintiffs, their grandchildren and their motherB;

② On September 29, 2006, the NA entered into a sales contract to purchase the instant forest in 000 won after consultation with the NAE by the Plaintiffs. The sales contract was entered into by the Plaintiffs and ParkB as the seller, and the PE was entered as the representative of the Plaintiffs, respectively;

③ Thereafter, on October 27, 2006, EE received 132.5 million won of the remainder of the transfer price from JeonD, and the receipt also includes the Plaintiffs and ParkB as the seller; and the Plaintiff’s and ParkB affixed their seals;

④ However, as a special agreement, the above sales contract contains the content that “the seller shall cancel the donation and transfer the registration toCC by making the registration to the buyer,” and the phrase “repreparation of the sales contract”. On October 27, 2006, the sales contract was prepared separately on October 25, 2006, which was made at the request of EE to the seller and made at the request of CC as the seller, and on October 27, 2006, the contract was made by CC, the plaintiffs, and ParkB to cancel the gift contract on the forest of this case.

⑤ Accordingly, on November 7, 2006, the registration of cancellation of ownership transfer registration under the names of the plaintiffs and ParkB with respect to each one-third portion of the forest of this case was completed, and on the same day, the registration of transfer of ownership in the name of JeonD has been completed with respect to the forest of this case;

⑤ Meanwhile, since January 2006, the Republic of Korea had been hospitalized in a hospital from around 2006 to around 2006. From around 2006, the fact that from around 2006, a person was unable to suffer from a verbal disability, and that he/she died on February 8, 2007;

7) In the event that the gift contract betweenCC and ParkB regarding the instant forest was terminated by agreement and the sales contract between the Plaintiffs, and ParkB was concluded, the sum of the amount of the tax calculated by adding the gift tax and the capital gains tax ofCC is equivalent to KRW 000, and the amount of the capital gains tax calculated by deeming the case the Plaintiffs and ParkB directly transfers is equivalent to KRW 00,00.

In such facts and circumstances, in the event that the sales contract with the plaintiffs and ParkB was already concluded and the sales contract with the plaintiffs and ParkB was fully paid for the transfer price, it is difficult to find a reasonable ground to conclude a new sales contract with the plaintiffs, the plaintiffs, and ParkB by rescinding the donation contract for the forest land of this case and entering into a new sales contract with the seller at the time of entering into the contract. While 1/2 of the transfer price of forest land of this case was used for the repayment of the obligation with the amount of 1/2 of the transfer price of forest land of this case as the debtor, the above obligation is the secured obligation of the right to collateral security established in the forest of this

Furthermore, examining the circumstances in light of the aforementioned statutes, such as the fact that it is difficult to recognize that the instant forest proceeds were actually attributed toCC because objective data on the usage of the remaining transfer proceeds were not submitted, and that it is difficult to recognize that the instant forest proceeds were actually attributed toCC, the termination of the agreement on donation contract betweenCC, the Plaintiffs, and ParkB is reasonable to deem that the instant forest proceeds were the most act performed without substance for the

Therefore, the disposition of imposition of the transfer income tax in this case, which reported the plaintiffs as the transferor of the forest of this case, is lawful. Nevertheless, the court below did not regard the plaintiffs as the transferor of the forest of this case on the ground that the cancellation of the agreement on donation between the plaintiffs and Park B does not constitute the act of pretending to be the act, or that the transfer price of the forest of this case is difficult to be deemed to have been actually reverted to the plaintiffs. Accordingly, the court below determined that the disposition of imposition of the transfer income tax in this case against the plaintiffs was unlawful. In so doing, the court below erred

Therefore, 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.