Plaintiff 1 and two others (Attorney Hong Hong-soo, Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

August 27, 2009

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

The Defendant’s imposition of KRW 110,271,01 and penalty tax of KRW 24,328,430 and penalty tax of KRW 110,267,770 and penalty tax of KRW 30,14,30 on May 1, 208 against Plaintiff 1 and 2, and the imposition of KRW 110,267,770 and penalty tax of KRW 30,14,300 against Plaintiff 3 are revoked.

1. Details of the disposition;

A. The Plaintiff’s mother owned the non-party’s ownership transfer registration (each co-ownership share : 1/3) based on donation to the Plaintiffs on April 29, 2005, which was the 2,327 square meters in Daegu-gu (number 1 omitted).

B. On July 11, 2005, the Plaintiffs reported KRW 58,342,020, respectively, to the Defendant as gift tax on the first real estate on July 1, 2005, and paid the said gift tax on the 25th of the same month. On October 17, 2005, the Defendant decided to authorize the reporting of the said gift tax by Plaintiff 3 on November 14, 2005.

C. On October 6, 2005, the Nonparty and the Plaintiffs cancelled the donation contract for the first real estate on the ground that the subject matter of donation was not the first real estate but the building on the ground thereof, and the registration of cancellation of the transfer of ownership was completed on October 18, 2005 on the ground that the transfer of ownership was registered by mistake.

D. On May 1, 2006, the Plaintiffs entered into a share donation contract with the Nonparty on the building (number 2 omitted) of the same Dong (number 3 omitted) of 336.5 square meters and the building of reinforced concrete building on both the above and above ground (hereinafter collectively referred to as “second real estate”) with respect to the non-party’s share transfer registration (each co-ownership share : 1/3) on the ground of the above donation on the 3th of the same month.

E. On July 11, 2006, the Plaintiffs reported and paid KRW 2,913,912 as gift tax on the 2nd real estate, which is premised on the absence of gift tax on the 1st real estate, the Plaintiffs deducts KRW 58,342,020 already paid by the Plaintiffs from the tax amount calculated based only on the value of the 2nd real estate without adding up the gift tax on the 1st real estate.

F. On May 1, 2008, the Defendant calculated the tax amount calculated by adding the value of the second real estate to the value of the first real estate pursuant to Article 47(2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9269, Dec. 26, 2008; hereinafter “Act”) on the ground that the first real estate was donated within 10 years prior to the date of the second real estate donation and does not constitute donated property. After deducting the tax amount of KRW 58,342,020, which was already paid by the Plaintiffs as gift tax of the first real estate, the Defendant imposed a gift tax, such as the purport of the claim, on the Plaintiffs (hereinafter “instant disposition”).

[Reasons for Recognition] Facts without dispute, Gap 1 and 4 evidence, Eul 1 and 9 evidence (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

(1) Whether the aggregate taxation is lawful

Since the registration of transfer of ownership in the name of the plaintiffs as to the real estate 1 was made by mistake and the registration of cancellation of transfer of ownership has been made before the imposition of gift tax based on the above donation was made, the plaintiffs should be deemed not to have been donated the real estate 1 from the beginning. Nevertheless, on the premise that the plaintiffs donated the real estate 1, the disposition of this case, which decided the tax amount by adding the value of the

(2) Whether there is a defect in the notification procedure

In the notice of tax payment of this case, the basis for calculation of the tax base (the total amount of taxable value of gift tax and its details, etc.) under Article 77 of the Act and Article 79 of the Enforcement Decree of the same Act are not stated or attached to the calculation statement. In particular, the imposition of additional tax is unlawful as it is not stated in the notice of tax payment, even though the nature of the imposition of principal tax is different from that of the disposition imposing additional tax, the said notice of

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) Whether the aggregate taxation is lawful

(A) Article 31(4) of the Act provides that "in cases where the property donated after donation (excluding money) is returned within the reporting deadline under Article 68 by an agreement between the parties concerned, it shall be deemed that there was no donation from the beginning: Provided, That this shall not apply in cases where a tax base and tax amount are determined pursuant to Article 76 before the return, except in cases where a tax obligation already established is determined pursuant to the provisions of Article 76 before the return." This is based on the purport that a gift tax obligation is not affected by the cancellation of an agreement for the benefit of taxpayers, but it is exceptionally acknowledged the retroactive effect of the termination of agreement only within the reporting deadline of the gift tax for the benefit of taxpayers. In detail, once the gift tax liability becomes effective after the execution of the donation contract, the return of donated property by an agreement is made after three months from the date of donation, i.e., the return does not affect the tax liability already established by the return, and thus, the effect of imposition of gift tax can not be asserted even if the gift tax was not imposed by the Constitutional Court at that time.

(B) As to the instant case, inasmuch as the Plaintiffs completed the registration of ownership transfer on April 29, 2005 on the first real estate due to donation, and thereafter returned the first real estate on October 19, 2005 by completing the registration of ownership transfer pursuant to an agreement with the Nonparty on October 19, 2005, the deadline for filing the registration of ownership transfer, the Plaintiffs’ assertion on this part shall not be accepted, regardless of whether the Defendant’s disposition of gift tax was issued until the time of return, the return cannot be deemed to have never existed from the beginning.

(C) As to this, the Plaintiffs asserted to the effect that Article 31(4) of the Act does not apply to the first real estate since the registration of transfer of ownership was cancelled under the names of the Plaintiffs due to error in application, not the cancellation of the agreement, but the invalid registration of transfer of ownership. However, in order to cancel the transfer of ownership as to the first real estate, the certificate of cancellation and the certificate of certification (Evidence A2-2-4) prepared between the Plaintiffs and the Nonparty are stipulated to the effect that the contract for the first real estate shall be cancelled and the ownership shall be returned to the Nonparty by mutual agreement. The Plaintiffs’ assertion itself does not mean that the contract for the first real estate shall not be deemed null and void from the beginning, and it is concluded that the agreement between the Plaintiffs and the Nonparty was made to retroactively invalidate the donation contract and reinstate the ownership of the first real estate after the donation contract, and even in this case, the above assertion by the Plaintiffs shall not be accepted in light of the legal principles on the limitation of retroactive effect of such agreement.

(2) Whether there is a defect in the notification procedure

(A) Article 77 of the Act and Article 79 of the Enforcement Decree of the same Act provide that the head of a tax office, etc. shall notify the donee of the tax base and tax amount determined by the report or investigation, and shall notify the donee of the tax base and tax amount by specifying the grounds for calculation of the tax base and tax amount. This purport is to ensure fairness in tax administration by excluding a person, prudent and reasonable disposition pursuant to the principle of no taxation without law, and at the same time, to ensure the taxpayer’s convenience in the determination of whether to object and filing an

(B) In full view of the following circumstances with respect to the instant case, the Plaintiffs’ assertion on this part cannot be accepted since there is any defect in the notification procedure of the instant disposition.

① Although the notice of tax payment of the instant disposition is not accompanied by the tax base of gift tax and the statement of calculation of the amount of tax stipulated in the Regulations on the Management of Property Tax, the said Act and subordinate statutes stipulate that the notice of tax payment shall be given by attaching the tax base and calculation statement of the amount of tax to the tax payment notice (amended by the Inheritance Tax and Gift Tax Act, Act No. 5193, Dec. 30, 1996); Articles 34-7 and 25-2 of the former Inheritance Tax Act (amended by the Enforcement Decree of the Inheritance Tax and Gift Tax Act, Act No. 15093, Dec. 31, 1996); Articles 42(1) and 19(1) of the Enforcement Decree of the same Act (amended by the Enforcement Decree of the Inheritance Tax and Gift Tax Act, No.

② The notice of tax payment of this case includes not only the notified tax but also the amount of principal tax and additional tax. In addition, the tax base and tax rate of the principal tax, and the calculated tax amount are also indicated (No. 1 through 3). The basis for calculation of the tax base and tax amount are specified.

③ Furthermore, prior to the instant disposition, the Defendant notified the Plaintiffs of the gift value, tax base, calculated tax amount, and anticipated tax amount of the second real estate, as the Plaintiffs reported the tax base by omitting adding up the value of the first real estate donated by the same person within 10 years, through the notice of tax investigation results and the notice of taxation (No. B. 8-1 to 3).

④ In the notice of tax payment of this case, the amount of the principal tax and the amount of the penalty tax are separately stated, but the tax base of the principal tax is clearly stated. However, as seen earlier, Article 16 of the Addenda to the Framework Act on National Taxes (amended by Act No. 8139, Dec. 30, 2006); Article 78(1) and (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139, Dec. 30, 2006); Article 80(1) and (4) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 19899, Feb. 28, 2007); and Article 80(1) and (4) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 19899, Feb. 28, 2007) specifically stipulate

(3) Sub-decisions

Therefore, the disposition of this case is lawful (However, although the amount of tax paid below the plaintiffs, the period until the notification date, and the tax rate are identical, the defendant calculated the additional tax under Article 78 (2) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006) against the plaintiffs at the time of the disposition of this case, and calculated the additional tax against the plaintiff 1 and 2 less than the plaintiff 3 due to an error in the calculation, but since the additional tax against the plaintiff 3 is lawful, it does not constitute an unlawful disposition of this case because the additional tax against the plaintiff 1 and 2 was calculated as less amount than the plaintiff 3).

3. Conclusion

Therefore, the plaintiffs' claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

[Attachment]

Judges Park Jong-dae (Presiding Judge)