The burden of proof of the market value of the shares at issue and the adequacy of the complementary assessment method

The special circumstances, such as the value assessed by the supplementary evaluation method under the Inheritance Tax and Gift Tax Act is excessive compared to the objective value of the inherited property, and the value of the shares in this case is insufficient to deem that the value of the shares in this case is excessive compared to the objective value, and the disposition in this case is lawful on the ground that no evidence exists to deem that the pertinent corporation was dissolved merely due to the decrease in sales to

Article 54 of the Inheritance Tax and Gift Tax Act

2017Guhap6244 Disposition of revocation of refusal to correct inheritance tax

AAA3

AAAA Commissioner of the National Tax Service

October 5, 2018

1. All of the plaintiffs' claims are dismissed.

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

1. Details of the disposition;

A. The Plaintiffs are heirs of AA (Death on August 30, 2014). On March 2, 2015, the Plaintiffs reported a net value of 1.4 million won per share (hereinafter “instant shares”) of BBB stock companies (hereinafter “BB”) among inherited property under Articles 54(1) and 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”). Pursuant to Articles 54(1) and 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26069, Feb. 3, 2015; hereinafter “former Enforcement Decree of the Inheritance Tax and Gift Tax Act”), the net value per share [the weighted average amount of 2011, 2012, 2013) and net asset value per share 3 and 2.4 billion won per share (14 billion per share).

B. BB’s sales, operating, and net income were reduced from the 2014 business year to which the date of commencing the inheritance commences. BB was dissolved on March 28, 2016 by a resolution of the general meeting of shareholders, and the registration of the completion of liquidation was completed on December 1, 2016.

C. On April 29, 2016, the Plaintiffs filed a request for correction to the Defendant for refund of KRW 2,158,165,439 on the ground that the instant shares were assessed in excess due to the decline in sales due to the management difficulties of CCC, Inc. (hereinafter “CC”), which is the main sales office of BB, was not properly reflected. On June 29, 2016, the Defendant rejected the Plaintiffs’ request for correction on the ground that the instant shares were properly assessed (hereinafter “instant disposition”).

[Ground of recognition] Unsatisfy, Gap 1, 2, and 4 evidence, the purport of the whole pleadings

2. Relevant statutes;

It is as shown in the attached Form.

3. Determination on the defense prior to the merits

A. Summary of the defendant's assertion

BB’s reduction in sales in the business year 2014 constitutes an ex post facto cause, not a mere excessive tax base and tax amount, but an ex post facto cause arising after the date of commencing the inheritance. The ex post facto cause falls under the latter cause stipulated in Article 79 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax and Gift Tax Act”). The decrease in sales does not constitute ex post facto cause under Article 79 of the Inheritance Tax and Gift Tax Act. Therefore, the Plaintiffs’ claim for correction is unlawful, and the instant lawsuit disputing the disposition of refusal is also unlawful.

B. Determination

Articles 60(1) and 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter the same) provide that “the value of the property on which inheritance tax is levied shall be the market value on the date inheritance commences. Stocks not listed on the Exchange shall be appraised by the method prescribed by Presidential Decree, taking into account the assets and earnings, etc. of the relevant corporation.” Although a taxpayer files a return, the tax base and amount of tax shall be determined by the tax authority subsequent to the return (Article 67 and 76 of the Inheritance

The reason for filing a claim for correction by the Plaintiffs is that the value of inherited shares is excessive and unreasonable. In other words, even if the Plaintiffs asserted a decrease in sales of BBB after the date the inheritance commences, its main purpose is to report excessive tax base and tax amount related to the shares of this case in light of sales reduction. Therefore, it is reasonable to regard the Plaintiffs’ claim for correction as an ordinary claim for correction, and the Defendant’s defense on the premise that the claim for correction is filed due to the subsequent cause cannot be accepted.

4. Whether the instant disposition is lawful

A. Summary of the plaintiffs' assertion

BB is a company that mainly engages in manufacturing and selling business. As the CCC, the main seller, was faced with a management crisis, sales of the CCC has been rapidly decreased since 2014, and there have been a lot of losses.

According to Articles 54(1) and 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, the net value of the profit and loss shall be calculated based on the amount of net profit and loss for the last three years, i.e., the amount of net profit and loss for the business year 2013, 2012, and 201. However, as the business performance for the business year 2014 has rapidly deteriorated, the amount of net profit and loss from the commencement date of the business year 2014 to the commencement date of the business (the evaluation date) shall also be reflected. If the net profit and loss value for the three years retroactively from the commencement date of the business year 2014 to the weighted average of net asset value

B. Determination

1) Article 60(1) and (2) of the former Inheritance Tax and Gift Tax Act provides that “The value of an asset on which the inheritance tax is levied shall be the market value as of the date on which the inheritance commences. The market value shall be the value generally recognized to be constituted if a transaction is made freely between many and unspecified persons.” Article 60(3) provides that “where it is difficult to compute the market value, the value assessed by the methods prescribed in Articles 61 through 65 in consideration of the type, scale, transaction circumstances, etc. of the relevant asset shall be deemed the market value.” Article 63(1)1(c) provides that “The stocks not listed on the Exchange shall be appraised by the methods prescribed by Presidential Decree, considering the relevant corporation’

As can be seen, while the former Inheritance Tax and Gift Tax Act provides that the method of evaluation of inherited property shall be based on the objective exchange value, and where it is difficult to calculate the market value, the method of evaluation shall be deemed the market value. In addition, since inheritance tax is a tax to be based on the value of inherited property acquired by inheritance, it is unlawful to impose inheritance tax on the basis of the assessed value, if there are special circumstances, such as that the value evaluated by the method of evaluation as prescribed by the Acts and subordinate statutes is excessive than the objective value of the inherited property, considering the fact that the property should be assessed in an objective and reasonable manner. Meanwhile, Article 60(3) of the former Inheritance Tax and Gift Tax Act provides that the assessed value by the method of evaluation as prescribed by the Acts and subordinate statutes shall be deemed the market value, and thus, special circumstances, such as

2) In full view of the contents of evidence Nos. 4, 5, 6, 15, and 20 and the purport of the entire pleadings, the following facts can be acknowledged:

A) The CCC, the sales office of BB, was undergoing the workout program on March 5, 2014, and was decided by the court on August 19, 2014. Around March 13, 2014, the audit report (Evidence A-5-1) on the CCC financial statements prepared on or before December 31, 2013, stated that the company’s current debt amounting to KRW 2,74,400,000,000,000 per fiscal year ending on December 31, 2013 and KRW 6,27.27.24,00,000 as of the date of the financial statements that “the company’s total debt amounting to KRW 47,80,000,000,000,000,000,000,000 won is more than the total debt amount of the company as of March 5, 2014.”

An audit report (Evidence A 5-2) on the CCC financial statements prepared around March 30, 2015, stated as "the business loss of KRW 153.66 billion and the net net loss of KRW 256.457 million during the reporting period that ends on December 31, 2014, exceed KRW 693.46 billion as of the end of the reporting period, and the total debt exceeds KRW 727.9 billion as of the end of the reporting period, and the total debt exceeds KRW 7,279.20 million. This situation is stated as "I raise an objection to the ability to continue the company as a continuing company."

B) The sales, operating, and net income of BB have decreased from the 2014 business year to which the date of commencing the inheritance belongs, as described below:

(unit:,000 won)

Classification

2011

2012

2013

2014

2015

Sales

12,592,870

13,482,109

12,395,500

9,191,072

5,645,156

Operating Income

1,397,160

1,135,083

1,218,712

-1,658,869

-864,560

net income

1,301,547

198,373

193,503

-14,923,350

-1,625,137

(C) The ratio occupied by CCC out of the sales revenue of BB is 36.97% in 201, 32.19% in 2012, 27.64% in 2013, 10.04% in 2014, and 0.63% in 2015.

(D) BB notified the Customer of the suspension of its business on July 29, 2015, and around October 2015, BB sold land, buildings, movable property, and facilities at the seat of its head office (******Gu******** the Dong)), and sold its business property from August 11, 2015 to November 4, 2015. BB terminated the lease contract on an office and research institute at * on November 2015 and removed the facilities.

E) BB was dissolved by a resolution of the general meeting of shareholders on March 28, 2016, and the registration of the completion of liquidation was completed on December 1, 2016.

3) In full view of the facts and the purport of the entire pleadings as seen earlier, it is insufficient to view the value of the instant shares assessed under Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act and Articles 54(1) and 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act as excessive compared to the objective value of the instant shares. Therefore, the instant disposition based on the premise that the instant shares were appropriately assessed is lawful.

A) On March 2, 2015, the Plaintiffs reported inheritance tax amounting to KRW 43,042,892,51 (including land, listed stocks, deposits, etc.) and KRW 9,621,091,42, including the appraised value of the instant shares, KRW 5.84 billion. On December 30, 2015, the Defendant revised part of the details reported by the Plaintiffs (such as golf-related membership rights, loans, etc., general bonds, and mutual aid obligations) and imposed inheritance tax amounting to KRW 7,769,183 (including additional tax) on the Plaintiffs.

The Plaintiffs did not raise an objection or present an opinion to the effect that the value of the instant shares is unreasonable when they reported inheritance tax as above or when they received additional inheritance tax from the Defendant.

The plaintiffs asserted that the shares of this case were reported at a price appraised pursuant to Articles 54(1) and 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act due to concerns over the burden of additional tax at the time of filing an inheritance tax return. However, the plaintiffs' above assertion is difficult in light of the following: (a) the tax base and tax amount reported by the plaintiffs in relation to the shares of this case are considerably large; (b) if BBB was made a sudden increase in sales from 2014 due to CCC's managerial deterioration; and (c) the sales reduction was difficult to operate any longer due to the increase in sales, the plaintiffs were fully aware of the circumstances at the time of filing an inheritance tax return; (b) BBB discontinued its business before the additional inheritance tax is levied on the plaintiffs; and (c) even if the plaintiffs were subject to the additional inheritance tax, it is difficult to understand that they did

On April 29, 2016, after BB made a resolution of dissolution, the Plaintiffs filed a request for correction to the effect that it is unreasonable to assess the shares of this case pursuant to Articles 54(1) and 56(1) of the former Inheritance and Gift Tax Act.

B) BB has a sales office other than CCC. Of the total sales revenue of BB, the ratio of sales revenue other than CCC reaches 63.03% in 201, 67.8% in 2012, and 72.36% in 2013. BBB produced************, etc. for this purpose.

Of the sales revenue of BB, CCC, which took up 36.97% in 201, 32.19% in 2012, and 27.64% in 2013, has business difficulties since 2013. Accordingly, the sales revenue of BBC from 2014 to 0.04% in 2014, and 0.63% in 2015, and the CCC’s managerial difficulties had an impact on BBB’s sales. However, there is no evidence to deem BBB was dissolved solely due to a decrease in sales revenue of CCC without considering other circumstances, such as market situation.

5. Conclusion

All of the plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.