Early High Court Decision 2014J 1570 (No. 21, 2014)

actual transaction value means the actual amount agreed upon at the time of actual transaction or transaction;

In the calculation of gains on transfer, the actual transaction value as a basis for the calculation of gains on transfer refers to the actual transaction price or the amount actually agreed for the payment at the time of the transaction, and in the case of onerous donation to which the donee takes over the donor's obligation, the amount of such obligation is difficult to regard as the transaction price corresponding to the part to be deemed a transfer of

Article 96 of the Income Tax Act

Incheon District Court 2014Guhap319444 Disposition rejecting a request for capital gains tax rectification

○ ○

○○ Head of tax office

April 28, 2015

June 16, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The defendant's rejection disposition against the plaintiff on October 0, 000 shall be revoked.

1. Details of the disposition;

(a) Acquisition of ownership;

On October 0, 000, the Plaintiff and its children completed the registration of ownership transfer for each of 0/0 shares out of 0/0 of 00 square meters and above-ground buildings with 000 square meters and above-ground buildings (hereinafter “instant real estate”).

(b) Transfer of equity and onerous donation;

1) On October 0, 000, the Plaintiff completed the registration of ownership transfer for 0/0 shares out of the instant real estate to ○○ on the ground of sale.

2) At the time, the registration of the establishment of a right to collateral security or a right to lease on a deposit basis was completed as listed below with respect to the instant real estate. On October 0, 000, the Plaintiff and ○○○○○ was leased part of the instant real estate with the deposit amount of KRW 00 million from October 00 to October 000, 000. The Plaintiff was the Plaintiff’s loan obligation of KRW 00 million against the Plaintiff’s ○○○ Bank (hereinafter “○○ Bank”) secured by the registration of the establishment of a right to lease on a deposit basis set forth below 0 and 000,000 won out of the total repayment obligation of KRW 00,000,000,000,000 won, and the Plaintiff’s loan obligation of KRW 00,000,000,000,000,000 won out of the total repayment obligation of KRW 1 and 2,000,000,00 won.

3) Accordingly, on October 00, 000, between the Plaintiff and ○○ Bank, the Plaintiff and ○○ entered into an agreement with ○○ Bank to assume the obligation of KRW 00 million with a discharge of the Plaintiff’s obligation to the Plaintiff’s ○○ Bank. On October 00, 000, ○○ returned the security deposit amount of KRW 00 billion to ○○○○○ in Korea.

(c) Reporting and paying capital gains tax and gift tax;

1) On October 00, 000, the Plaintiff reported and paid KRW 00,000,000 as transfer income tax for 00,000,000,000 on the basis of the standard market price after calculating the transfer margin with the transfer value of the above transfer value of KRW 00,000,000, which was converted into the standard market price.

2) Meanwhile, on the same day, ○○ evaluated the value of donated property to the Defendant as the standard market price of KRW 0,000,000 at the time of donation, and reported and paid KRW 00,000,000 for the amount calculated by deducting the amount of debt from the amount of KRW 00,000,000.

(d) Application for rectification of capital gains tax;

1) On October 00, 000, the Plaintiff filed a request for correction to the effect that the amount of capital gains tax shall be reduced to KRW 00,000,000,000, calculated by applying the actual transaction value of the instant real estate as acquisition value, on the ground that the actual transaction value of the instant real estate was confirmed at the time of acquisition by the Defendant.

2) On October 0, 000, the Defendant rendered a disposition rejecting the above claim for correction (hereinafter “instant disposition”) on the ground that the sum of the Plaintiff’s obligations that ○○ agreed to take over is not the actual transaction value, and that the acquisition value should also be calculated based on the standard market price as long as the Plaintiff calculated and reported the instant real estate as the standard market price.

3) The plaintiff was dissatisfied with the disposition of this case and requested for adjudication on October 0, 000, but the Tax Tribunal dismissed it on October 00, 000.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) In light of the principle of substantial taxation under the Framework Act on National Taxes and Article 97(1)1 of the Income Tax Act (amended by Act No. 12030, Aug. 13, 2013; hereinafter the same shall apply), and Article 159(1) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24697, Aug. 27, 2013; hereinafter the same shall apply), gains on transfer of onerous donation shall, in principle, be calculated on the basis of actual transaction values.

2) In the instant case, the Plaintiff acquired the instant real estate with Lee ○, I, as well as the Plaintiff, KRW 000,000,000,000,000,000 multiplied by the ratio of the amount of debts, out of the amount of the Plaintiff’s share at the time of acquisition, as the acquisition of the said real estate, is KRW 00,000,000,000,000,000,000,000,000,0000,000,0000,000,0000,000,0000,000,000

3) Therefore, the instant disposition that did not regard the transfer value as the sum of the Plaintiff’s obligations, which ○○, rather than evaluating the acquisition value as the actual transaction value in the instant onerous donation, is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

The transfer price for calculating capital gains shall be based on the actual transaction price pursuant to Article 96(1) of the Income Tax Act. However, the actual transaction price, which is the basis for calculating capital gains, refers to the actual transaction price, not the market price that reflects the objective exchange value, but the actual amount of money actually agreed for payment itself or at the time of transaction. In the case of onerous donation for which a donee who received a donor’s obligation as a donation of an asset takes over the donor’s obligation, the amount of such obligation cannot be deemed as the transaction price corresponding to the part to be deemed a transfer of the relevant donated asset or the whole donated asset itself or the price for payment (see, e.g., Supreme Court Decision 2006Du717

Therefore, in this case’s onerous donation, since the actual transaction value of the portion to be deemed a transfer cannot be deemed to be KRW 00,000,000,000,000,000 is not the actual transaction value at the time of acquisition of the obligation, the transaction example value, appraisal value, conversion value, etc. should be determined by the method of a decision of estimation investigation under Article 114(7) of the Income Tax Act. Thus, since there is no evidence to know the transaction example value, appraisal value, and conversion value, the transfer value of the portion to be deemed a transfer in this case’s onerous donation should be determined by the standard market price, and as long as the transfer value is based on the standard market price, the acquisition value should be determined by multiplying the standard market price at the time of acquisition by

Ultimately, the instant disposition, based on the premise that both the transfer value and acquisition value of the portion to be deemed a transfer should be calculated on the basis of the standard market price, is lawful, and the Plaintiff’s assertion is without merit.

3. Conclusion

If so, the plaintiff's claim is without merit and it is so decided as per Disposition.