[1] Meaning of “market price” under Article 60(1) of the Inheritance Tax and Gift Tax Act, and whether the transaction value in the case where shares issued by a company are transferred along with the right of management can be deemed as the market price of such shares (negative)

[2] In the case of the provisional payment of shares, whether the company has a claim equivalent to the share price against the shareholders (affirmative)

[3] The case holding that where shares are transferred with management rights, the transfer value calculated by the company without including the most paid-in bonds to shareholders in its assets cannot be deemed as the market price of the shares of the company as an objective exchange price, and it cannot be deemed as the basis for determining whether the appraised value of the shares of the company is appropriate

[4] In assessing the value of unlisted stocks under the Inheritance Tax and Gift Tax Act, the burden of proving whether it is an irrecoverable claim excluded from the net asset value of the corporation (=taxpayer)

[1] According to Article 60(1) of the Inheritance Tax and Gift Tax Act, the value of a property on which a gift tax is levied shall be the market price as of the date of donation, and such “market price” shall refer to the objective exchange price formed through normal transactions in principle, and in order to be deemed as the market price at the time of donation, the transaction price shall be objectively deemed as reflecting the general and normal exchange value. If a company’s shares issued are transferred along with the right of management, the transaction price shall not be deemed as the general market price reflecting the objective exchange value when only shares are transferred.

[2] In a case where a director and a shareholder of a stock company borrowed money from a third party and received the refund of the paid-in capital from the paying bank, and repaid it to a third party, the company may be deemed to have lent the most of the paid-in capital to shareholders or directors free of charge, or may be deemed to have paid the paid-in capital by shareholders with temporary loans.

[3] The case holding that where shares are transferred with management rights, the transfer value calculated by the company without including the most paid-in bonds to shareholders in its assets cannot be deemed the market price as an objective exchange price for the shares of the company, and it cannot be deemed as the basis for determining whether the appraised value of the shares of the company is appropriate

[4] In assessing the value of non-listed stocks, which are donated property, according to the supplementary assessment method stipulated in Articles 60(3) and 63(1)1(c) of the Inheritance Tax and Gift Tax Act, and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 198), the net asset value of the corporation at the time of donation cannot be included in the amount of non-listed stocks, which is one of the calculation elements, as of the date of donation. However, since the impossibility of collecting a claim falls under an exceptional cause in the decision of taxable amount of gift taxes, the burden of proof for such special reason is attributable to the taxpayer.

[1] Article 60 (1) of the Inheritance Tax and Gift Tax Act / [2] Article 295 of the Commercial Act / [3] Article 60 (1) of the Inheritance Tax and Gift Tax Act / [3] Article 60 (1) of the Inheritance Tax and Gift Tax Act / [4] Articles 60 (3) and 63 (1) 1 (c) of the Inheritance Tax and Gift Tax Act, Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998), Article 26 of the Administrative Litigation Act / [liability]

[1] Supreme Court Decision 80Nu543 decided Feb. 23, 1982 (Gong1982, 386), Supreme Court Decision 97Nu10765 decided Jul. 10, 198 (Gong1998Ha, 2154), Supreme Court Decision 99Du2505 decided Feb. 11, 200 (Gong200Sang, 730), Supreme Court Decision 2001Du9394 decided Jun. 13, 2003 (Gong203Ha, 1545) / [2] Supreme Court Decision 82Nu522 decided May 24, 1983 (Gong1983, 1025), Supreme Court Decision 9Du13849 decided Nov. 29, 1984; Supreme Court Decision 2001Du938495 decided Apr. 38, 1975)

Plaintiff

Intervenor joining the Plaintiff (Attorney Lee Jae-soo, Counsel for the intervenor joining the Plaintiff)

Head of Nowon Tax Office

Seoul High Court Decision 2003Nu19359 delivered on May 18, 2005

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. According to Article 60(1) of the Inheritance Tax and Gift Tax Act, the value of property on which gift tax is levied is based on the market price as of the date of donation, and such “market price” means an objective exchange price formed through normal transactions in principle, and in order to be deemed the market price at the time of donation, there must be circumstances to view that the transaction price objectively reflects the general and normal exchange price (see, e.g., Supreme Court Decisions 97Nu10765, Jul. 10, 198; 99Du2505, Feb. 11, 200; 99Du2505, Feb. 23, 198; 201Du54394, Jun. 13, 2003; 208Nu3984, Jun. 13, 2003; or 31, etc.).

According to the reasoning of the judgment below and the records, the intervenor borrowed the plaintiff's name on November 23, 1998 and took over the shares of the non-party company on two occasions on the 25th of the same month and the 26th of the same month, and borrowed the shares by borrowing KRW 2.9 billion from others for the purpose of making a disguised payment of the shares, and then withdrawing the amount of payment. The total amount of the bonds, including the amount of the claim related to the non-party company as stated in the balance sheet at the end of the 1998 year, exceeds 3 billion won in total, and thereafter the plaintiff's intervenor transferred the shares of the non-party company to the non-party company as 40 million won in total, including the civil engineering and construction license as a shareholder of the non-party company, the non-party company's transfer contract is just in terms of the market price of the non-party company's shares, and the transaction price of the non-party company's transfer contract cannot be seen as the market price of the non-party company's shares.

2. In the case of a lump sum payment, prior to the fact that the company is deemed to have lent the largest amount of money to its shareholders or directors without compensation, or that it can be deemed to have paid the stock price to shareholders with a temporary loan as the amount of the paid-in capital. In the case of a lump sum payment, according to the supplementary evaluation method stipulated in Articles 60(3) and 63(1)1(c) of the Inheritance Tax and Gift Tax Act, and Article 54 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 198), the net asset value of the corporation at the time of donation, which is one of the factors for calculation, cannot be included in the net asset value of the corporation at the time of donation. However, since the impossibility of collecting a bond constitutes an exceptional reason in the decision of taxable amount of gift taxes, the burden of proof for such special reason is disputed (see Supreme Court Decision 94Nu9719, Mar. 14, 1995).

In applying the legal principle as seen earlier to the facts in the instant case where the Intervenor borrowed money from other persons and borrowed the most advanced payment, the non-party company may be deemed to have lent the most advanced payment to the Intervenor or paid the stock price in subrogation for the Intervenor for the Plaintiff. In this case where there is no proof that the Plaintiff’s Intervenor, a nominal borrower, was insolvent at the time when the presumption of donation based on the title trust was made, it is reasonable to deem that the loan claim or the check-up claim against the Intervenor of the non-party company against the Plaintiff’s Intervenor is included in the net asset value of the non-party company. Therefore, the judgment of the court below to the same effect is justifiable, and there is no error by misapprehending the legal principle as to the supplementary method of assessment of the non-listed shares, or by violating the principle of substantial taxation

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Hong-hoon (Presiding Justice)