[1] The case holding that the above sales contract constitutes a high-priced purchase of assets subject to the avoidance of wrongful calculation under the former Corporate Tax Act, where the corporation completed the construction of housing site at the corporate expense on the land owned by the representative director, which is a controlling shareholder, and purchased land

[2] The case holding that the market price at the time of a sales contract under Article 16-2 of the former Enforcement Rule of the Corporate Tax Act is the amount assessed by an appraisal corporation excluded from land price increase due to construction work at the time of the above contract, where the corporation completed the construction work for site preparation at the corporate expense and purchased land based on the current status of the purchase

[1] The case holding that the above sales contract constitutes the high-priced purchase of assets subject to the avoidance of wrongful calculation under the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), since it is an abnormal act, not a reasonable business form, since the land price increase due to the housing site creation work belongs to the representative director, where a corporation purchased the above land by determining the sale price based on the current status after completing the housing site preparation work at the expense of the corporation for the land owned by the representative director and the controlling stockholder

[2] The case holding that the market price at the time of sales contract under Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Prime Minister No. 622 of March 29, 1997), where a corporation, the representative director of the corporation and the controlling shareholder, completed the construction of housing site at the expense of the corporation and purchased the above land by setting the sales price based on such current status, the amount assessed by the appraisal corporation excluded the increase in land price due to the construction of housing site as of

[1] Article 20 (see current Article 52) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 46 (2) 4 (see current Article 88 (1) 1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 1998) / [2] Article 20 (see current Article 52) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998), Article 46 (2) 4 (see current Article 88 (1) 1 of the former Enforcement Decree of the Corporate Tax Act), Article 46 (2) 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15797 of May 16, 198), Article 28-29 (2) of the former Enforcement Decree of the Corporate Tax Act (amended by Ordinance of the Prime Minister of the Prime Minister of Mar. 29, 29)

Heunwon Co., Ltd. (Attorney Kim Dong-dong, Counsel for the plaintiff-appellant)

Head of Chungcheong Tax Office

Cheongju District Court Decision 2003Guhap68 delivered on October 29, 2004

May 10, 2007

1. The part against the defendant among the judgment of the court of first instance is revoked, and the plaintiff's claim corresponding to that part is dismissed.

2. The plaintiff's appeal is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of KRW 2,595,147,220 on January 10, 200 against the Plaintiff shall be revoked.

2. Purport of appeal

A. The part against the plaintiff in the judgment of the court of first instance shall be revoked. The defendant's disposition of imposition of KRW 1,617,593,478 of the imposition of KRW 2,595,147,220 of the earned income tax belonging to the year 196 against the plaintiff on January 10, 202 shall be revoked.

B. Defendant: The part against the Defendant among the judgment of the first instance is revoked, and the Plaintiff’s claim corresponding to that part is dismissed.

1. Facts of recognition;

A. On November 29, 1994, in order to establish a research institute on November 29, 1994, the Plaintiff (former: He/she): (a) obtained the Plaintiff’s representative director and Nonparty 1, a major shareholder holding not less than 47/100 of the total number of issued and outstanding shares of the research institute, the approval for use of each land listed in the attached Table 1 (hereinafter “instant land”); (b) obtained the permission for diversion of reserved forest as to the land listed in Articles 14, 15 of the above list from the Maju-Gun on April 3, 1995; and (c) obtained the permission for diversion of farmland from the Governor of the Gyeonggi-do on June 22, 1995; and (d) disbursed KRW 200,938,390 as farmland diversion charges, etc. in the process.

B. On August 25, 1995, when the Plaintiff entered into a sales contract for the instant land with Nonparty 1, the Plaintiff agreed that the purchase price will be determined by the appraiser’s appraisal after the Plaintiff completed the relevant site development work (hereinafter “instant sales contract”).

C. Since then, the Plaintiff invested KRW 665,857,490 in the cost of civil construction and completed the site creation work, and then requested the State appraisal corporation to appraise the instant land. On May 9, 1996, the State’s appraisal corporation assessed the value of the instant land as KRW 500,770,000 per square meter on the basis of the fact that the current state was changed to the site as the construction work for constructing a new research institute was completed after obtaining permission for diversion of reserved forest and permission for diversion of farmland.

Accordingly, on May 12, 1996, the Plaintiff determined the sales price under the instant sales contract as KRW 8,70,000,000 (hereinafter “the sales price”). On June 5, 1996, the Plaintiff paid the remainder, excluding the amount already paid to Nonparty 1 as down payment and intermediate payment, to Nonparty 1, and completed the registration of ownership transfer on the instant land on the 19th of the same month.

D. However, the Defendant calculated the amount of KRW 2,015,631,050 [for land the land category of which is a site, the appraised value of KRW 50,00/m2 of the above country’s appraisal corporation, and for land the category of which is a dry field, KRW 119,675/m2, the average value of nearby dry field assessed by the Korea Appraisal Board and the Korea Appraisal Board at the time of May 3, 1996, KRW 119,675/m2, KRW 117,675/m2, and KRW 117,675/m2, and the amount of income calculated on September 28, 1995 by Nonparty 1, KRW 60, KRW 500, KRW 400, KRW 500, KRW 500, KRW 975, KRW 986, KRW 500, KRW 500, and KRW 985,000] on the ground that the Plaintiff purchased the land from Nonparty 1 and the same.

E. Meanwhile, in the process of securing a research institute’s site, the Plaintiff intended to purchase Nonparty 2’s land adjacent to the instant land, which is KRW 352-2,565 square meters ( around 776 square meters). At the time of June 1994, the Plaintiff determined to promptly purchase the said land at KRW 300,000 per square year and KRW 400,000 per square year, and KRW 1,800,000 per square year, and the said land owned by Nonparty 2 was categorized as the land category, and the said land was purchased at KRW 350,00 per square year. If the market price was converted to the future site, the Plaintiff purchased the said land at a rate of KRW 1,40,00 per square year, but determined to pay the balance after completing the construction site structure.

Accordingly, on June 11, 1994, the Plaintiff entered into a sales contract with Nonparty 2 with respect to the said land as KRW 271,60,000 ( KRW 105,887 per square meter, KRW 350,000 per square meter), and obtained the consent of Nonparty 2 to use the said land, and thereafter obtained the permission to divert farmland on June 22, 1995.

[Reasons for Recognition] In the absence of dispute, Gap evidence 1, 2, Gap evidence 3 through 6-1, 2, Gap evidence 13-1 through 27, Gap evidence 14-1 through 5, Eul evidence 1-1, 2, Eul evidence 2, 3, Eul evidence 4-1 through 7, Eul evidence 5-1, 2, Eul evidence 5-2, Eul evidence 8 through 10, Eul evidence 15 through 17, the testimony by the witness of the court of first instance or higher, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In light of the fact that the market price of the instant land at the time of the instant purchase and sale contract is unclear, and thus, the transaction price of the relevant land was set through an appraisal corporation’s appraisal in accordance with the relevant Acts and subordinate statutes. It is a normal transaction practice to reflect profits from the development, etc. of the relevant land on the market price. The neighboring land, which is subject to the conditions of the land and location, transacted over 5 to 10 times the officially assessed individual land price, and Nonparty 1 was planning to create the instant land as a site for a transfer of a house but concluded the instant sale and sale contract at the Plaintiff’s request that was in physical coloring the research institute’s site, the purchase price calculated based on the current status of the instant land was equivalent to the objective market price. Therefore, the adequate market price of the instant land should be 86,700,000,000 won for the instant purchase price, 86,795,833,204,120 won for the Plaintiff’s creation of a building site, 8050 or 806,060.6.

On the other hand, 2,015,631,050 won claimed by the Defendant as an adequate market price of the instant land is assessed in a manner that is not permitted under the relevant statutes, and it cannot be viewed as an adequate market price of the instant land because it does not reflect the benefits arising from the transaction cases or development, etc. of neighboring land.

Therefore, the instant disposition based on the premise that the said KRW 2,015,631,050 is an adequate market price of the instant land is unlawful.

B. Relevant statutes

Attached Form 2 shall be as listed in attached Table 2.

(c) Markets:

(1) The rejection of unfair calculation under Article 20 of the former Corporate Tax Act is a system which provides that a corporation unfairly evades or reduces tax burden by abusing all the forms of trade listed in each subparagraph of Article 46(2) of the former Enforcement Decree of the Corporate Tax Act without a reasonable method by a person having the authority to impose tax in a case where it is deemed that there is an income objectively and reasonably recognized by the method stipulated in the laws and regulations, and the determination of whether the transaction is reasonable should be made based on whether the transaction is abnormal in light of sound social norms and commercial practices (see, e.g., Supreme Court Decisions 95Nu18697, May 28, 1997; 2001Du7268, Sept. 4, 2002).

Meanwhile, Article 46 (2) 4 of the former Enforcement Decree of the Corporate Tax Act stipulates that one of the causes of wrongful calculation that an investor purchases assets in excess of the market price from a related party, such as an investor, etc. The market price refers to an objective exchange value formed through a general and normal transaction, and where the market price is unclear, the appraisal corporation under the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Prime Minister No. 622, Mar. 29, 1997; hereinafter the same) shall be based on the appraised value by the appraisal corporation under the Act on Publication of Land Price and Evaluation of Land, etc. under Article 16-2 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Prime Minister, Mar. 29, 197; hereinafter the same)

(2) In the instant case, in full view of the following circumstances revealed in the above facts, i.e., Nonparty 1, the representative director of the Plaintiff Company, was obligated to faithfully perform duties so as not to undermine the company’s interests by taking advantage of its own position and, in the process of securing the research institute’s site, Nonparty 1’s previous and previous answers to the market price of surrounding land, including the instant land, at KRW 300,000 per square year, at KRW 1,30,000 per square year, site was traded at KRW 1,80,000 per square year, and at KRW 1,80,000 per square year, land category was purchased before and after land category was formed as a site, and at the same time, the market price of the instant land was increased rapidly, and thus, Nonparty 1 was obligated to faithfully perform duties so as not to cause harm to the company’s interests by taking advantage of its own position, and the Plaintiff’s construction of the research institute’s land should also be deemed to constitute an act of sale and sale of the instant land in violation of this case.

(3) Furthermore, since there is no evidence to acknowledge the objective exchange value of the instant land, which is a high-priced purchase basis, the market price is unclear as long as there is no evidence to acknowledge the objective exchange value of the instant land, an appraisal corporation under the Act on the Publication of Land Prices and Evaluation of Land, etc. pursuant to Article 16-2 of the former Enforcement Rule of the Corporate Tax Act shall be assessed according to the appraised value or according to the publicly assessed individual land price if there

However, according to the appraisal results of Gap evidence 7, the first instance court's 7, the second instance court's 10, the second instance court's 5th appraisal results, and the 190 won for the 6,94,760,000 won before the execution of a site creation work after the plaintiff's request on August 25, 1995, the value of the land in question is 6,94,760,00 won; 2. The first instance court's 6.5th appraisal results under the premise that the present value of each land in question is 1,930,80,000 won for the 6.5th 6th 6th 5th 6th 6th 6th 6th 195 and 96th 96th 6th 5th 196 6th 6th 60,000 won for the 1,936th 5th 60,000 won for the 2nd 95th 195th 6th 195th 6.

According to the above, the remaining appraised value, excluding the appraised value of the Japanese Appraisal Corporation, shall be assessed based on the state of being developed in the state of obtaining permission for diversion of reserved forest or permission for diversion of farmland or the state of being developed as a site for research institutes, and furthermore, in calculating the sale price of the land in this case as seen earlier, the price increase due to permission for diversion of reserved forest, permission for diversion of farmland, permission for diversion of farmland, construction for site creation, etc. Therefore, the remaining appraised value, excluding the appraised value of the Japanese Appraisal Corporation, shall not be deemed to be a justifiable appraisal price at the time of the sale contract for the land in this case. On the other hand, it is reasonable to view the appraisal value of the Japanese Appraisal Corporation as the appraised value assessed in an objective and reasonable manner by the Korea Appraisal Corporation under the Act on the Public Announcement of Land Prices and Appraisal of Land, Etc., under Article 16-2 of the former Enforcement Rule of the Corporate Tax Act, at the time of the sale contract in this case as of August 25, 1995.

Meanwhile, according to the Plaintiff’s statement 1, 2, 4, 5, and 6 of No. 12: (a) the Plaintiff purchased 280,000 square meters prior to 250,000 square meters prior to 196, July 4, 1996 from the Plaintiff; (b) 8,826 square meters prior to June 15, 1995; (c) 1,826 square meters prior to 1,46,863 square meters prior to 104,40,863 square meters prior to 104,40,40,000; and (d) 1,50,000 square meters prior to the conclusion of the instant sales contract; and (d) 1,50,000 square meters prior to 10,863 square meters prior to 24,000,000 square meters prior to 24,3636,000 square meters of forest and field; and (d)

(4) Therefore, deeming that the instant sales contract constitutes “when the Defendant purchased assets from an investor, etc. in excess of the market price” under Article 46(2)4 of the former Enforcement Decree of the Corporate Tax Act and thus is subject to the avoidance of wrongful calculation under Article 20 of the former Corporate Tax Act, the instant disposition that imposed the labor income tax is lawful after disposing of the difference between the sales price of KRW 2,015,631,050, which was the market price at the time of the instant sales contract and the sales price of KRW 1,930,80,000, as the bonus against Nonparty 1.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit. Since the judgment of the court of first instance is unfair with some different conclusions, the defendant's appeal shall be accepted, and the part against the defendant in the judgment of first instance shall be revoked and the plaintiff's appeal corresponding to that part shall be dismissed. It is so decided as per

Judges Kwon Soon-il (Presiding Judge)