Where gift tax is imposed on the status of an insurance contract transferred to the donee by the donor, the method of calculating the value.

Articles 31(1) and 60(1), (2), and (3) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 11609, Jan. 1, 2013);

Plaintiff (Law Firm Dokdo, Attorneys Kwon Yong-moo et al., Counsel for the plaintiff-appellant)

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2015Nu45986 decided November 6, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

1. The grounds of appeal are examined ex officio prior to the examination.

According to the records, on October 10, 2016, after the filing of the instant appeal, the Defendant was aware of the fact that the Defendant issued a decision of correction to revoke ex officio the part exceeding KRW 35,213,137 of the instant disposition. As such, the part of the instant lawsuit, which was revoked as above (hereinafter “the part of the Defendant’s ex officio revocation”), was seeking revocation of a disposition that had not been extinguished, and thus, became unlawful.

2. We examine the grounds of appeal as to the remainder other than the defendant's ex officio revocation.

A. Article 31(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11609, Jan. 1, 2013; hereinafter “Gift”) provides that donated property subject to gift tax includes all things having economic value convertible into money and all de facto or de facto rights having property value. Article 60(1) of the same Act declares the principle of market value by requiring the value of the property subject to gift tax to be valued at the market price as of the date of donation. Article 60(2) of the same Act provides that “Where it is difficult to calculate the market price in applying paragraph (1), the value assessed by the method prescribed in Articles 61 through 65 shall be considered as the market price in consideration of the type, size, transaction circumstances, etc. of the pertinent property.”

Therefore, property belonging to the donee and of property value that can be converted into money is included in the donated property, and its value shall be calculated according to the market price as of the date of donation. However, if no donated property is freely traded among many and unspecified persons, and there is no other provision for valuation of its value, and thus its market price cannot be calculated immediately, it shall be imposed on the basis of the amount most appropriate for the property value of the pertinent donated property. In a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market price of the relevant insurance contract. On the other hand, in a case where the status of a donor under an insurance contract transferred to the donee constitutes donated property, there is no appropriate method for immediately assessing the market price of the relevant donated property. On the other hand, when the insurance contract is terminated at the time of donation or the subscription is maintained at the time of donation, the monetary value of the various rights recognized in the status of the relevant insurance contract, such as refund money or various insurance money

B. Review of the reasoning of the lower judgment and the record reveals the following facts.

1) On October 9, 2012, the Plaintiff’s outer mother Nonparty 1 entered into an immediate pension insurance contract consisting of KRW 500,000,000,000 for temporary payment of insurance premium to Nonparty 2 (hereinafter “instant immediate pension insurance contract”), and paid KRW 500,00,000 for the same day.

2) On October 25, 2012, Nonparty 1 changed the policyholders and beneficiaries of the instant immediate pension insurance to the Plaintiff.

3) On November 26, 2012, the Plaintiff deemed that the instant immediate pension insurance constitutes the right to receive a regular payment under Article 65(1) of the Inheritance Tax and Gift Tax Act and Article 62 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 26960, Feb. 5, 2016; hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”), and reported and paid gift tax by evaluating the value of donated property as KRW 343,989,210.

4) On February 1, 2014, the Defendant: (a) deemed that the Plaintiff was changed to the policyholder and beneficiary status of the immediate pension insurance of this case before the commencement of the pension was substantially the same as the donation of KRW 500,000,000; and (b) determined and notified the amount of gift tax calculated on the basis of the donation and the amount of tax reported and paid by the Plaintiff.

C. Examining these facts in light of the legal principles as seen earlier, the following circumstances are revealed.

1) The position of policyholders and beneficiaries of the instant immediate annuity insurance is not freely traded among many and unspecified persons, and there is no provision that evaluates their value, and there is no way to calculate the market price immediately.

2) The Plaintiff becomes a policyholder and beneficiary of the instant immediate pension insurance, and acquired the right to immediately terminate the instant immediate pension insurance and refund the premium. According to the terms and conditions, the policyholder is entitled to terminate the instant immediate pension insurance at any time before the contract terminates and receive a refund for termination calculated in accordance with the predetermined calculation method. Therefore, it is reasonable to deem the value of the right to claim the premium upon termination of the instant immediate pension insurance as the amount equivalent to the refund for termination calculated in accordance with the terms and conditions. The Plaintiff did not acquire such right on the ground that the Plaintiff did not actually terminate the instant immediate pension insurance at the time of donation, or that the value should not be calculated otherwise.

3) Meanwhile, while maintaining the instant immediate pension insurance, the Plaintiff also acquired the status to receive a monthly survivors’ pension while meeting the requirements for the payment of insurance proceeds. However, the amount of the survivors’ pension is linked to the variable interest rate, so it is difficult to find out whether to receive a survivors’ pension in the future at the time of the donation, and the exact amount thereof, and even if the value is estimated by applying Article 62 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act based on the amount of a survivors’ pension that can be received in the year of donation, it cannot be deemed as the value of the donated property received by the Plaintiff, insofar as the value is less than the value of the right to receive a premium upon termination of the instant immediate pension insurance, which is incompatible with the foregoing.

D. In full view of these circumstances, it is reasonable to view that the amount equivalent to the termination refund calculated according to the terms and conditions of the immediate annuity insurance of this case is the amount that corresponds to the property value of the policyholders and beneficiaries of the immediate annuity insurance of this case.

Nevertheless, the lower court determined otherwise, that the instant disposition was lawful by deeming the amount equivalent to the insurance premium for the immediate annuity insurance paid by Nonparty 1 as the value of donated property. In so doing, it erred by misapprehending the legal doctrine on the value of donated property of rights under an insurance contract, which affected the conclusion of the judgment. Meanwhile, as seen earlier, the Defendant revoked ex officio the part exceeding KRW 35,213,137 of the instant disposition in the final appeal. As such, the lower court, after further proceeding to additionally examine the reasonable tax amount based on the amount equivalent to the refund for termination calculated according to the terms and conditions of the immediate annuity insurance contract, pointed out that it is necessary to determine

3. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jae-hyung (Presiding Justice)