Method of determining transfer margin under the Income Tax Act

In full view of the purport of Articles 23(4) and 45(1)1 of the Income Tax Act, and Article 170(1) and (4)1 of the Enforcement Decree of the same Act, the transfer value and acquisition value determined on capital gains shall, in principle, be based on the standard market price, but where the actual transaction price at the time of transfer or acquisition is confirmed in transactions with the State, a local government or other corporations, other than those with a corporation, if the actual transaction price at the time of transfer or acquisition is confirmed through a report or verification, the transfer margin shall be determined based on the actual transaction price, and only if it is not confirmed, the transaction with a corporation shall be determined based on the actual transaction price and the standard market price.

Articles 23(2), 23(4), 24(4), 45(1)1 of the Income Tax Act, Article 170(1), 170(4)1 of the Enforcement Decree of the Income Tax Act, Article 170(4)3 of the same Act

Supreme Court Decision 86Nu752 Decided February 24, 1987 87Nu767 Decided April 11, 1989

Plaintiff-Appellant Kim Jong-chul et al., Counsel for the plaintiff-appellant

The director of the tax office.

Seoul High Court Decision 87Gu614 delivered on December 29, 1987

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

We examine the grounds of appeal.

The court below held that the disposition of this case was unlawful on the ground that the acquisition price acquired by the plaintiff from the above subsidiary company, a corporation, under each of the provisions of Articles 23 (4) and 45 (1) 1 of the Income Tax Act, and Article 170 (4) 1 and 3 of the Enforcement Decree of the Enforcement Decree of the Income Tax Act, was based on the actual transaction price, since it was confirmed that the actual transaction price at the time of the report submitted by the plaintiff pursuant to the provisions of Articles 95 and 10 of the Income Tax Act was the actual transaction price at the time of transfer under the provisions of Article 10 of the Enforcement Decree of the Income Tax Act, since the transfer price at the time of the report under the provisions of Articles 10 and 95 (4) 3 of the Enforcement Decree of the Income Tax Act was confirmed to be the actual transaction price at the time of transfer, and the acquisition price was determined based on the standard market price.

In full view of the purport of each provision of Articles 23(4) and 45(1)1 of the Income Tax Act, and Article 170(1) and (4)1 of the Enforcement Decree of the same Act, in principle, the transfer value and acquisition value determined on capital gains shall be based on the standard market price. However, in case where the actual transaction price at the time of transfer or acquisition is confirmed in transactions with the State, a local government or other corporations, other than a transaction with a corporation, if the actual transaction price at the time of transfer or acquisition is confirmed by means of a report or verification, the transfer margin shall be determined on the basis of the actual transaction price, and only if it is not confirmed, the transaction party with a corporation shall be determined on the basis of the standard market price (see Supreme Court Decision 86Nu752, Feb. 24, 1987; Supreme Court Decision 87Nu76767, Apr. 11, 1989).

The court below erred in the misapprehension of legal principles as to capital gains, and thus, reversed the part against the defendant among the judgment below, and remanded this part of the case to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Yong-dong (Presiding Justice)