Plaintiff (Attorney Yoon In-bok, Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

November 15, 2005

Seoul Administrative Court Decision 2004Gudan5419 decided Oct. 27, 2004

1. Revocation of a judgment of the first instance;

The Defendant’s refusal to correct the amount of tax base at KRW 363,163,463 among a disposition to reject an application for rectification of capital gains tax against the Plaintiff on October 7, 2003 (the rectification of the amount of KRW 466,742,874 as the amount of KRW 361,61,624) is revoked.

2. The total costs of the lawsuit shall be borne by the defendant.

It is the same as the disposition (the plaintiff sought the revocation of a disposition rejecting a request for correction in the original text, and the plaintiff only sought the revocation of the part rejecting a reduction of tax base in KRW 363,163,463 among them in the original trial, and reduced the purport of claim).

1. Determination on this safety defense

A. The defendant's assertion

The purpose of the correction claim system under the Framework Act on National Taxes is to correct the cases where the reported amount exceeds the tax base and tax amount to be reported under the tax law, or is to correct the deficiencies or tax amount to be reported under the tax law. However, the Plaintiff filed a tax base return in accordance with the tax law, and subsequently filed the correction claim in this case on the ground that the above law is contrary to the superior law. This does not constitute the grounds for correction claim under the Framework Act on National Taxes. Therefore, even if the Defendant rejected the Plaintiff’s correction claim for which the right to request correction is not recognized, it cannot be deemed a rejection disposition subject to appeal

B. Determination

Article 45-2 of the Framework Act on National Taxes recognizes the right to claim for the determination or correction of the tax base and amount of the national tax originally reported in certain cases to a person who has filed a tax base return within the statutory period of return, and Article 45-2 of the Framework Act on National Taxes provides that the tax base and amount of the tax recorded in the tax base return exceeds the tax base and amount to be reported under the tax law, among

As seen in this case’s decision on the merits, the Plaintiff, while making a preliminary return on the transfer income tax by making the transfer value and acquisition value as the actual transaction value within the statutory return period pursuant to the relevant provisions of the Income Tax Act, calculated the actual transaction value of the acquisition value pursuant to Article 163(9) of the Enforcement Decree of the Income Tax Act, by asserting that the said provisions were null and void, and then again calculated the acquisition value pursuant to Article 163(12) of the Enforcement Decree of the Income Tax Act, and sought correction of the tax base and tax amount based thereon. Thus, this constitutes grounds for filing a correction claim under the Framework Act on National Taxes, on the premise

Therefore, the defendant's rejection after examining the plaintiff's claim for correction of this case constitutes a rejection disposition subject to appeal, so the defendant's main defense of safety is without merit.

2. Judgment on the merits

(a) Details of the disposition;

On August 4, 1998, the Plaintiff is a non-resident who does not live in the Republic of Korea and has no domicile in the Republic of Korea. The Plaintiff donated 369-1 Hyundai Apartment 25, 174.96 square meters (hereinafter “instant real estate”) from his father on August 4, 1998, to non-party 2 on August 20, 2003, transferred this amount to non-party 2 at KRW 95,000,000. On August 7, 2003, the Plaintiff filed a preliminary return of transfer income tax with the transfer value at the time of conversion of the above actual transaction value into the transfer value under Article 163(9) of the Enforcement Decree of the Income Tax and Gift Tax Act, and filed a return of the acquisition value at the time of conversion into the transfer value as the assessment value under Article 60 of the Inheritance Tax and Gift Tax Act as the assessment value under Article 163(1) of the Enforcement Decree of the Income Tax Act, but the amount calculated as the acquisition value calculated as the above tax base of the Defendant 16.36.

[Reasons for Recognition] Evidence No. 1-2, Evidence No. 2-2, Evidence No. 2-4, the purport of the whole pleadings

B. Relevant statutes

It is as shown in the attached Form.

C. Whether the instant disposition is lawful

(1) The parties' assertion

With respect to the Defendant’s assertion that the instant disposition is lawful in light of the details of disposition and relevant laws and regulations, where the Plaintiff is unable to know the actual transaction value at the time of acquisition as a gift under relevant Acts and subordinate statutes, the transfer margin of donated assets shall be calculated by applying the acquisition value pursuant to Article 97(1)1 (c) of the Income Tax Act as the transaction example value, appraisal value, or conversion value. Article 163(9) of the Enforcement Decree of the Income Tax Act (hereinafter “the instant provision”) is contrary to the principle of no taxation without the law as there is no specific ground for delegation in the mother law, and it cannot be recognized as effective against the basic purport of the Income Tax Act on the calculation of transfer margin, the principle of substantial taxation, and the principle of excessive prohibition. Thus, the Defendant asserted that the instant disposition was unlawful,

(2) Determination

(A) The principle of no taxation without the law is a law enacted by the National Assembly, which is a representative organ of the people, and provides for tax requirements and procedures for imposition and collection, and strictly interpret and apply them in the enforcement thereof, and the expanded interpretation or analogical application of administrative convenience is not allowed. Thus, it is against the principle of no taxation without the law to provide for the matters concerning tax requirements and procedures for imposition and collection, or to provide for the interpretation provision without the delegation of the law by the administrative legislation, such as order or rule, or by analogy

(B) Article 96(1) of the former Income Tax Act (amended by Act No. 7006, Dec. 30, 2003; hereinafter the same shall apply) provides that the transfer value of land or building shall be the standard market value at the time of the transfer of the relevant asset: Provided, That this is limited to expensive houses which meet the standard for expensive houses under the provisions of subparagraph 3 of Article 98 of the Act (hereinafter referred to as high-priced houses). As above, in the case of this case, the real value at the time of transfer falls under the expensive houses under the above provisions, 95 million won at the time of transfer (hereinafter referred to as the "high-priced house"), Article 97(1) of the Act provides that the transfer value which is one of the necessary expenses to be deducted from the transfer value in the calculation of gains from transfer shall be the standard market value at the time of acquisition of the relevant land or building, and in the case of a high-priced house, the transfer value at the time of inheritance or the actual transaction value at the time of transfer shall be separately determined by Presidential Decree No. 136.

According to this, the transfer value and acquisition value shall be calculated based on the actual transaction value in the calculation of the transfer value of the same high-priced house as the real estate in this case. In general, when the actual transaction value of the acquisition value is not confirmed, the transfer value and acquisition value shall be calculated based on the actual transaction value, the estimated investigation method (in case where there is an example of sale of assets identical or similar to the relevant assets within 3 months before and after the date of acquisition, that value shall be the average value of the appraisal value in case there is an appraisal value which is evaluated by 2 or more appraisal corporations on the relevant assets within 3 months before and after the date of acquisition), the conversion value (in case of an appraisal value, the amount calculated by multiplying the standard market value at the time of transfer at the time of acquisition by the ratio of the market value at the time of transfer at the time of transfer at the time of transfer at the time of transfer at the time of inheritance or donation), the market value (in case of an inheritance or donation, the actual market value at the date of commencing the inheritance tax and Gift Tax Act is ordinarily established, and in case where there is no appraisal value or market value of the relevant property for two or public sale value.

As above, the provision of this case is a real estate inherited or donated and it is difficult to calculate the market price at the time of acquisition without calculating the actual acquisition price by conversion price (in other cases, if the actual acquisition price is known at the time of transfer even if the actual acquisition price is unknown, the acquisition price can be calculated at least by conversion price). This does not coincide with the provisions of Article 97 (1) 1 (c) of the Act, which provides that the actual transaction price at the time of transfer is not verified if the actual acquisition price at the time of transfer is not determined by transaction example, appraisal price or conversion price, and cannot be seen as grounds for delegation to the Enforcement Decree so that the concept of actual transaction price can be defined by expanding the concept of the actual transaction price at the same time.

(C) In light of the fact that Article 176-2(3) of the Enforcement Decree of the Act stipulating “where the actual transaction price cannot be confirmed” under Article 97(1)1(c) of the Act provides for “the actual transaction example value, appraisal value or conversion value as prescribed by the Presidential Decree”, the Defendant asserts that the above provision’s transaction example, appraisal value or conversion value is merely an example, and therefore, the above provision’s transaction example value, appraisal value or conversion value is presumed to be one of the calculation methods where the actual transaction price cannot be confirmed under the above Enforcement Decree.

However, in case where the transfer value or acquisition value is not recognized or confirmed at the time of transfer or acquisition of the relevant asset by the account book or other documentary evidence due to the prescribed reasons, the provisions of the above Enforcement Decree provides for the method of estimation investigation, appraisal value, conversion value, and standard market value according to delegation of Article 114(5) of the Income Tax Act so that the transfer value or acquisition value may be determined or corrected by the estimation investigation method, appraisal value, conversion value, or standard market value, as prescribed by the Presidential Decree. In the calculation of transfer margin, if the transfer value is based on the actual market value, the acquisition value shall be based on the actual market value, and if the transfer value is based on the standard market price, the acquisition value shall be based on the standard market price under the provisions of Article 114(5) of the Income Tax Act that provides for the so-called "the standard market price, appraisal value, and conversion value, and the acquisition value shall be based on the standard market price, and in case where the standard market price is applied to the transfer value, the acquisition value shall be calculated based on the standard market price.

In other words, the defendant asserts to the effect that the acquisition value is not contrary to Article 97 (1) 1 (c) of the Act or the provision of this case to allow taxpayers to deduct the value appraised under the provisions of the Inheritance Tax and Gift Tax Act from the actual transaction value at the time of acquisition, because there is no actual transaction value due to the lack of the payment of the acquisition value at the time of acquisition. Thus, in case where the acquisition value is the actual transaction value, in principle, the acquisition value shall be equal to that at the time of acquisition, but if the transfer value is to be equal to the actual transaction value, the transfer value shall be equal to that at the time of acquisition. Thus, in calculating the acquisition value, it does not constitute a violation of Article 97 (1) 1 (c) of the Act or an extension of the concept of the actual transaction value under the Act, since the acquisition value is deducted from the transfer value as one of the necessary expenses. Thus, the acquisition value of the property acquired without compensation, such as the gift or inherited property, and thus, there is no problem as alleged by the defendant.

(D) In this regard, Article 163 (9) of the Enforcement Decree which provides for the actual transaction price at the time of the acquisition of inherited or donated assets does not coincide with the provisions of the Income Tax Act as the mother corporation does not have any basis for delegation under the Income Tax Act, and thus, it can be deemed null and void. Thus, in calculating the transfer margin of the real estate of this case, the actual transaction price at the time of acquisition shall be based on the conversion price as asserted by the Plaintiff under Article 97 (1) 1 (c) of the Act and Article 163 (12) of the Enforcement Decree of the Income Tax Act, as argued by the Plaintiff, although the standard market price at the time of transfer, which is the basis for calculating the conversion price, is 722,50,000 won, and the tax base of the transfer income tax of this case is 363,163,463 won, and there is no dispute between the parties, thus refusing to rectify the tax base of this case as 363,163,463 won.

3. Conclusion

Thus, the plaintiff's claim seeking the revocation of the part of the disposition of this case which rejected to correct the tax base of 363,163,463 won is justified. The judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance is revoked, and it is so decided as per Disposition by cancelling the corresponding part of the disposition of this case.

Judges Kim Jin-jin (Presiding Judge)