[Judgment of the court below]

The director of Gwangju Tax Office

Gwangju District Court Decision 2009Guhap3644 Decided February 5, 2010

August 12, 2010

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The defendant's disposition of non-permission to pay the inheritance tax in kind on October 1, 2007 with respect to the shares indicated in the attached shares to the plaintiff on October 1, 20

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of the disposition;

A. The plaintiff is the deceased non-party 1 (hereinafter "the deceased"). On October 4, 2006, the deceased died on October 4, 2006 and succeeded to the property with the non-taxable property with the non-party 2, non-party 3, non-party 4, and non-party 5. The inheritor including the plaintiff et al. reported the amount of 27,5,222,006 won calculated by deducting the total amount of 1,251,204 won from the inherited property value of February 9, 2007 to the non-taxable property value of KRW 20,825,953,90,000,000,000 won including the value of donated property, 7,690,17,487,000 won including the value of donated property, 7,295,705,7034,70,7034,000 won.

B. On February 9, 2007, the Plaintiff paid 7,8666 won, which is part of the inheritance tax reported above to the Defendant, at the same time, and applied for payment in kind with the remaining inheritance tax as 287,601 share of non-listed shares issued by ○○○○ Co., Ltd. (hereinafter “instant shares”), which is an inherited property (25,368 won per share, totaling 7,295,862,168 won).

C. On July 2007, the Defendant conducted an inheritance tax investigation on the basis of the Plaintiff’s above report. As a result, the actual value of the inherited property is KRW 21,340,575,648 as a result of underreporting part of the inherited property or omitting part of the disposal property prior to the commencement of the inheritance, and the value of the real property and the securities among them is KRW 11,842,30,555 (=real property 4,706,680,555 + 7,765,620,000 + 7,765,620,000 + 7,295,870,034 won calculated the total tax amount payable by the deceased Nonparty 1’s heir, including the Plaintiff, as additional tax payment, and notified the deceased Nonparty 1’s heir, including the Plaintiff of the decision.

D. Meanwhile, on July 30, 2007, the defendant demanded to change the property paid in kind with real estate priority among inherited property, and on August 17, 2007, the plaintiff changed the property paid in kind to the land (total appraised value of 57,717,840 won) on five lots, other than 3,324 square meters in Chang-gu, Yyang-gun, Namyang-do and the land (total appraised value of 57,778 won, total sum of 7,238,146,956 won) and 270,302 shares of this case (total appraised value of 26,78 won per share).

E. On October 1, 2007, the Defendant calculated 14,505 shares out of 270,302 shares of this case (26,78 won per share, total of 3,869,54,890 won, total of 3,878 won, total of 3,869,54,890 won) and 73 of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19899, Feb. 28, 2007) and Article 73 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 19899, Feb. 28, 2007) as the amount of demand for payment in kind (the amount of inheritance tax on the value of real estate and securities) under Article 73 of the same Act (amended by Presidential Decree No. 19899, Feb. 28, 2007; hereinafter referred to as “the same shall apply) with respect to the remaining five shares, 3,389,37374,7570.7

F. On October 15, 2007, the Plaintiff appealed to the Tax Tribunal for a tax appeal, and the additional payment was permitted for 367 shares in this case upon the decision of the Tax Tribunal (hereinafter the Defendant’s refusal of payment in kind with respect to 125,430 shares in this case) (hereinafter the Defendant’s refusal of payment in kind with respect to 125,797 shares).

[Ground of recognition] Facts without dispute, Gap evidence 1 through 4, 6, 7, 8, Gap evidence 5-1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

1) The Plaintiff asserts that Article 73(1) of the Enforcement Decree of the Inheritance and Gift Tax Act, which is the basis for the Defendant’s refusal of payment in kind, is null and void beyond the delegation scope of Article 73 of the Inheritance and Gift Tax Act, which is the mother corporation, and that even if the above provision is valid, in the case of this case, where there is no other inherited property to pay inheritance tax because it has no inherited property having property value other than the stocks of this case and there is no other inherited property to pay inheritance tax, it shall be permitted to pay in kind without restriction on the amount of tax payable under Article 73(1) of the Enforcement Decree of the Inheritance and Gift Tax Act pursuant to Article 73(2) of the Enforcement Decree of the same Act, the disposition of rejection of payment in kind of the stocks

2) As to this, the Defendant asserts that Article 73(1) of the Enforcement Decree of the Inheritance and Gift Act, which is the basis of the provisional disposition of refusal of payment in kind, is lawful and effective within the scope of delegation of the Inheritance and Gift Act, and Article 73(2) of the Enforcement Decree of the Inheritance and Gift Act cannot be applied to the stocks of this case which are the basis of the provisional disposition of refusal of payment in kind, as it is possible to divide them, and that the provisional disposition of this case is a legitimate disposition made within the scope of discretion in light of the purport of the system of payment in kind, such as convenience for taxpayers

B. Relevant statutes

【Inheritance Tax and Gift Tax Act (amended by Act No. 8139 of Dec. 30, 2006)

Article 73 (Payment in Kind)

(1) Where the value of real estate and securities exceeds 1/2 of the value of the relevant property among property inherited or donated and the amount of tax paid by inheritance tax or gift tax exceeds 10 million won, the head of the district tax office having jurisdiction over the place of tax payment may permit a payment in kind only for the real estate and securities upon request of the person liable for tax payment, as prescribed by Presidential Decree: Provided, That where it is deemed inappropriate to manage and dispose

(2) The scope of securities which may be paid in kind, procedures for payment in kind where management or disposition is deemed inappropriate shall be prescribed by Presidential Decree.

(1) Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 19899, Feb. 28, 2007)

Article 73 (Scope of Claim for Payment in Kind)

(1) The amount of tax payable which can be claimed to pay in kind pursuant to the provisions of Article 73 of the Act shall not exceed the amount of tax paid on the value of the real estate or securities which are the inherited or donated property concerned (including the relevant real estate and securities which are the objects of donation based on the presumption of donation or deemed donation provided for in Articles 44 through 45-2 of the Act; hereafter in this Article, Articles 74 and 75, the same shall apply).

(2) Where there is no value suitable for paying the payable tax amount under paragraph (1) from among the inherited or donated real estate and securities, the head of a tax office may permit the payment in kind for the payable tax amount in excess of the relevant payable tax amount, notwithstanding the provisions of paragraph (1).

Article 74 (Scope, etc. of Property that may be Used for Payment in Kind)

(1) Real estate and securities that can be appropriated for payment in kind under Article 73 of the Act shall be as follows:

1. Real estate located in Korea;

2. State bonds, public bonds, stock certificates, bonds or securities issued by a domestic corporation and other securities prescribed by the Ordinance of the Ministry of Finance and Economy: Provided, That this shall not apply to those listed on the Korea Stock Exchange and stock certificates falling under Article 53, but where no other inheritance or donated property exists, and where the disposal is restricted pursuant to the Securities and Exchange Act as of the day preceding the date of issuance of the notice of permission for payment in

C. Determination

(i) requirements for permission for payment in kind of inheritance tax and payment in kind;

A) As an exception to the principle of payment in kind, the payment in kind refers to the payment in kind of property other than money in lieu of payment in money, as an exception to the principle of payment in money. In today’s monetary economy develops, in principle, the payment of taxes should be in cash. However, in inheritance tax or gift tax on property with a large amount of tax and where a considerable period of time is required for the disposal of real estate, if the amount of tax is dismissed without exception to the principle of payment in cash, then the taxpayer becomes a taxpayer’s difficulty. Therefore, the tax payer’s difficulty is reduced, and at the same time, the tax payment system is adopted to facilitate the securing of revenue (see Constitutional Court Decision 2006Hun-Ba49, May 31, 2007). Moreover, the Inheritance and Gift Act allows payment in annual installments by relaxing the principle of payment in kind, taking into account the foregoing circumstances that may make it difficult for the taxpayer’s physical

B) In full view of the provisions of the above related Acts and subordinate statutes, the head of a tax office shall, on the premise that a taxpayer makes a lawful application, allow the taxpayer to pay in kind the value of real estate and securities among inherited property in excess of 1/2 of the value of inherited property, and the amount of tax paid by inheritance tax exceeds 10 million won, and (3) the amount of tax paid by inheritance tax is limited to the real estate and securities in question, and (5) the amount of inheritance tax for which a payment in kind may be made in kind may not exceed the inheritance tax amount on the value of the real estate and securities which are inherited property, but the head of a tax office may allow the payment in kind in excess if he/she

C) The instant shares are shares issued by ○○○○○ Company, an unlisted corporation. The Plaintiff’s inherited property, which consists of 11,842,30,55 won, which is the value of real estate and securities, exceeds 10,670,287,824 won (=21,340,575,648 won ± 2) which is more than 10,000 won, and the inheritance tax amount exceeds 10,000 won, taking into account the overall arguments in writing in evidence No. 12, it is difficult to determine that the Plaintiff’s shareholder’s share ratio (2.5%), Nonparty 2 (2.5%) of which is an unlisted corporation, and Nonparty 6 (25%) of which is the Plaintiff’s share share ratio, and it is difficult to determine that the Plaintiff’s acquisition of shares, which falls under the above portion of the Plaintiff’s total number of shares issued by the Plaintiff, could not be seen as satisfying the requirements for permission for payment in kind, and that the Plaintiff’s share payment in kind is difficult to 2736.

2) Whether Article 73(1) of the Enforcement Decree of the Inheritance and Gift Act is valid

A) Article 38 of the Constitution provides that “All citizens shall be liable to pay taxes as prescribed by Act,” and Article 59 provides that “types and rates of taxes shall be determined by Act.” This principle of no taxation without the law adopts the principle of no taxation without the law. Such principle of no taxation without the law means that the National Assembly, which is a representative body of the citizens, shall be stipulated by the law enacted by the National Assembly, and the relevant law should be strictly construed and applied in its enforcement, and that the expansion or analogical application of administrative convenience is not allowed. As such, it violates the principle of no taxation without the law to stipulate matters concerning taxation requirements, etc. by administrative legislation such as orders or rules without the delegation of the law, or to provide an interpretation provision that makes it possible and expanded the contents of the law without the permission of the law (see, e.g., Supreme Court en banc Decision 2006Du8648, May 17, 2007). Therefore, expanding taxation requirements provided by the mother

B) However, as seen earlier, Article 73(1) of the Inheritance and Gift Tax Act provides that where the value of real estate and securities among inherited property exceeds 1/2 of the value of the relevant property and the inheritance tax amount payable exceeds 10 million won, the payment in kind may be permitted only for the relevant real estate and securities upon request of a taxpayer under the conditions as prescribed by the Presidential Decree. Article 73(2) of the same Act provides that “where the scope of securities that can be paid in kind, management and disposition are inappropriate, or other necessary matters concerning the procedure for payment in kind are prescribed by the Presidential Decree,” and does not expressly delegate the scope of the payable tax amount that may be claimed in kind (the scope of the claim in kind) to the Enforcement Decree, but Article 73(1) of the Enforcement Decree of the same Act does not explicitly delegate the scope of the payable tax amount that can be claimed in kind to the “tax amount that can be claimed in kind” to the value of real estate or securities that is the relevant inherited property. It is against the purport of the delegation system of Article 73(1) of the Inheritance Act.

3) Purport of relevant statutes and current status of inherited property of this case

A) The purport of Article 73(1) of the Enforcement Decree of the Inheritance and Gift Act

Meanwhile, even if Article 73(1) of the Enforcement Decree of the Inheritance and Gift Tax Act is valid on the basis of the provision that “limited to the relevant real estate and securities” under Article 73(1) of the Enforcement Decree of the Inheritance and Gift Tax Act, Article 73(1) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that ① the amount of inheritance tax payable on the value of real estate and securities, which is an “property legally able to be paid in kind,” shall be paid in kind, and ② the amount of tax payable on inherited property, other than the property legally able to be paid in kind, shall be paid in cash, and it shall be deemed that the provision on the premise that it is possible to pay the amount of inheritance tax that is not paid in kind by converting the “property, other than the property legally

Therefore, even in the case of this case where there is no inherited property to pay inheritance tax due to the realization of real value of real estate and securities other than real estate and securities that can be paid in kind, it is in violation of the basic purport of the above Article. In the case of “property that can be paid in kind under the law” as stated in the stocks of this case, it is not permissible to limit the payment in kind in case where it is difficult to find the method of payment in kind due to actual realization in addition to the payment in kind.

B) The purport of Article 73(2) of the Enforcement Decree of the Inheritance and Gift Act

(1) In addition, Article 73(2) of the Enforcement Decree of the Inheritance and Gift Tax Act provides that where “the current status of property which is able to pay in kind” is inappropriate to pay the tax amount under Article 73(1) of the Enforcement Decree of the same Act, it shall be permitted to allow the taxpayer to pay in kind without being limited to Article 73(1) of the same Act so as to reduce the difficulty of the taxpayer due to unreasonable realization of property which is able to pay in kind in the inheritance tax by allowing the payment in kind. In this case, where “property other than the property legally able to pay in kind” is considerably difficult to fully pay inheritance tax due to the “property other than the property which is able to pay in kind, and it is difficult to find ways to fully pay inheritance tax due to substantial realization

(2) Furthermore, even if Article 73(2) of the Enforcement Decree of the Inheritance and Gift Act provides, as alleged by the Defendant, that the tax adjustment within the permissible scope of payment in kind is not possible due to such reasons as restriction on division, etc., “division restriction” should be interpreted to include not only physical division but also economic division restriction. Thus, it should be determined not only whether the property subject to payment in kind can be physically divided, but also whether the economic value of the divided portion is maintained as it is if divided.

In the instant case, it seems that it would be difficult to liquidate the instant shares in the situation where the Defendant already granted payment in kind to ○○○○’s shares in 160,675 shares (40.16%) among the shares of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ KRW 67.5% of shares, thereby making it easy to sell the instant shares or dispose of the real estate owned by a corporation.

C) Actual status, etc. of the inherited property of this case

(1) Facts of recognition

(A) The inherited property of this case consists of (1) real estate equivalent to KRW 4,521,359,01; (2) membership rights equivalent to KRW 45,93,00; (3) deposit equivalent to KRW 1,266,783,196; and (4) the shares of this case equivalent to KRW 7,765,620; (5), ⑤ loans equivalent to KRW 7,55,558,897 to ○○○○○ and Dolyang Golf; and (6) prior donated property equivalent to KRW 8,079,04,144.

(B) Among the real estate which is a property legally able to pay in kind, the remaining real estate other than the above five parcels, which the Defendant permitted to pay in kind, is the land with no real value of the property, and there is no real value of the property, such as 17 parcels in the Musan Do Park Site, Dansan 4 lots, 8 parcels in co-owned land, roads, graveyards, and 24 lots in which the right to lease on a deposit basis or the right to collateral security was created before

(C) Most of the deposits are 1170 million won, which is 1.17 billion won before the commencement of the inheritance, and thus, it is impossible to recover the deposit in fact because the pledge has been established as security for obligations

(D) ○○○○○○ was established in 1965 as “△△△△△△△△△△△△” in 1980, and had a newspaper and broadcasting business transferred to another company due to the consolidation of media in 1980, and had a real estate leasing business carried out a major business. However, since 1989, the capital was completely locked by recording the business loss and net loss and net loss for about 20 years since 198 (limited to the disposal of △ Building, which was owned in 2002, and making a flexible net profit by disposing of △△ Building, which was owned in 2002). Since 1998, ○○○○ was a company that had maintained the beer with the personal funds of 5.3 billion won or more from the deceased and maintained the beer. The assets held in 2003 after 203 are only “△△△△△△△△△△△△△△△△△△△△△” located in (number 2 omitted).

(E) As seen earlier, KRW 5,305,58,897 of the deceased’s loans to ○○○○○○ was provided to continue to maintain the company with a business loss, and the deceased explicitly expressed his/her intent to donate the above loans to ○○○○○○○○○○ for the rehabilitation of ○○○○○○○○○○○○○○, on June 2004, and the heir expressed his/her intention to waive the above loans several times during the pleadings of the instant case (based on the foregoing decision by the Tax Tribunal, the Defendant also investigated that the aforementioned loans cannot be collected as a de facto deficit corporation since several years ago).

(F) The Syang Golfland, the Plaintiff’s share of 78.48%, is a company established with capital of KRW 400 million around October 200, and the deceased has been continuously supported with KRW 2.25 billion due to a cumulative loss for several years. On October 18, 2005, prior to the commencement of the inheritance, the Plaintiff borrowed the entire Plaintiff’s share of KRW 8 billion as collateral and expanded the amount of the Plaintiff’s share to the 39 holes golf course operated for 9 holes. However, in 2008 and 2009, it is difficult to operate the said golf course to the extent that it could not pay the corporate tax on the basis of the extension of payment period by receiving a disposition for extension of payment period.

(G) On the other hand, after the commencement of the inheritance, the inheritors collected KRW 950 million from the above loans from the Seoyang Golfland, and used them as global income tax, transfer income tax, gift tax, and acquisition of inherited property for the registration of inheritance, registration tax, additional subsidies for the prevention of bankruptcy of 000,000 won for the deceased, the deceased's repayment of debts such as the deceased's bonds, repayment of interest on inherited debts, and non-party 2's living expenses, who is the deceased's spouse. As seen above, the inheritors renounced the remainder of the loans of KRW 1.3 billion, in fact, because the business losses of the Seoyang Golf continue to be recovered.

(h) On the other hand, the deceased held 9.5% of the shares in Gwangju Daily, who was transferred the newspaper business by ○○○○, continued to provide personal funds for compensating for losses for the existence of the company due to the aggravation of management conditions. The above support funds were appropriated as the shareholders and executive loans of Gwangju Japanese History’s account books until January 1, 2002, giving up his claim amounting to KRW 5 billion of the subsidy up to January 1, 2002, and thereafter, the amount of personal funds additionally provided was included in the above prior donation property by selling the credit to the large shareholders’ house on October 11, 2003.

(E) Among the proprietary property of the Plaintiff or Nonparty 2, real estate has already been subject to a right to collateral security or a right to lease on a deposit basis, or has no property value, and the shares of the Plaintiff in the Myang Golfland have already been provided as collateral for debts and it is difficult to obtain additional loans. The Defendant also taken measures to seize the above proprietary property (the remainder of the heir except the Plaintiff and Nonparty 2 has no proprietary property).

[Reasons for Recognition] Unsatisfy Facts, Gap evidence 3, 6 through 19, 21 through 23, Eul evidence 1 through 3, and 6 (including each number), the purport of the whole pleadings and arguments

(2) According to the above facts, in addition to paying the shares in kind, it appears that there is no inherited property and proprietary property of the heir, including the plaintiff, in order to pay the remaining inheritance tax that has not been permitted to pay in kind (According to the above decision of the Tax Tribunal, it appears that the defendant also recognized that the property that can pay inheritance tax, after investigating the current status of inherited property as above, does not belong to the non-listed stocks of ○○○○, including the above real estate and the shares of this case, which has been permitted to pay in kind). Furthermore, after the defendant became the large shareholder of ○○○○ upon the permission of the payment in kind of the shares in this case, it would be the most clear method of collecting inheritance tax where it is possible to sell ○○ building, which is the only asset owned by ○○○○○○ through a special resolution, and appropriate the price is appropriated for inheritance tax (or, however, the plaintiff including the plaintiff has expressed

4) Sub-committee

Therefore, the rejection of the payment in kind in this case is erroneous in the misapprehension of discretionary authority by misunderstanding the purport of the payment in kind system prior to the above and the legislative intent of the related Acts and subordinate statutes, thereby denying the payment in kind of the stocks of this case which meet the requirements for payment in kind (On the other hand, even if the scope of the permission for payment in kind should be limited as argued by the defendant, the "paid tax amount" under Article 73 (1) of the Enforcement Decree of the Inheritance and Gift Act shall be interpreted as the amount increased according to the value of real estate and securities which are the property subject to payment in kind. In such interpretation, the maximum amount of payment in kind exceeds 5,738,941,801 won, which is 3,893,370,730 won claimed by the defendant, so it is argued that the defendant has made an error in calculating the limit of payment in kind. However, the above assertion is not accepted as it is difficult to view that the defendant has an error in calculating the limit of payment in kind by multiplying the value of real estate and inherited property.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed, and it is so decided as per Disposition.

[Attachment]

Judges Donsung (Presiding Judge) Notarial decoration