Seoul Administrative Court-2017-Gu Partnership-6244 ( October 05, 2018)

The burden of proof of the market price of the shares of this case and the adequacy of the complementary assessment method

Special circumstances, such as where the value assessed by the supplementary evaluation method under the Inheritance Tax and Gift Tax Act is excessively excessive than the objective value of the inherited property, are the persons liable for tax payment who assert such special circumstances. Unless there are special circumstances in which transactions are made between many and unspecified persons, and the appraisal value of unlisted stocks is very exceptional that corresponds to the value formed by such transactions, the appraisal value of the unlisted stocks cannot

Article 60 of the Inheritance Tax and Gift Tax Act: The evaluation of unlisted stocks Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

2018Nu6850 Revocation of revocation of revocation of revocation of inheritance tax rectification

AAA 3 persons

AAAA Commissioner of the National Tax Service

oly 5, 2018

201.3.21

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

1. Details of the disposition;

The reasoning for this part of this Court is as follows: (a) in accordance with Article 8(2) of the Administrative Litigation Act and the text of Article 420 of the Civil Procedure Act, this part of the judgment of the court of first instance shall be cited, except for a case where the portion of 5.84 billion won (5.4 billion won) is written by "5 billion won (5.4.4 billion won)" under 2 pages of the judgment of the court of first instance.

2. Relevant statutes;

The reasons for this part are as follows, except for the addition of the following provisions to the "Related Acts and subordinate statutes" of the judgment of the court of first instance, so this part of the judgment of the court of first instance is identical to the entry of the corresponding part of the reasons for the judgment of the court of first instance. Thus, this is cited in accordance with Article 8(2) of

Enforcement Decree of the former Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 26069, Feb. 3, 2015)

Article 49 (Principles, etc. of Assessment)

(1) The term "those recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public sale price, appraisal price, etc. under Article 60 (2) of the Act means any of the following amounts verified in cases of sale, appraisal, expropriation, auction (referring to an auction under the Civil Execution Act; hereafter the same shall apply in this paragraph) or public sale (hereafter referred to as "sale, etc." in this Article) during a period not exceeding six months (three months in the case of donated property; hereafter the same shall apply in this paragraph) before or after the evaluation base date: Provided, That even during a period not exceeding two years before the evaluation base date, where sale, etc. occurs during the period not falling under any of the subparagraphs of paragraph (2) from the evaluation base date to the date falling under any of the following subparagraphs, if it is deemed that there are no special circumstances in view of the management status, lapse of hours, changes in surrounding environment, etc. of the company issuing stocks during the period not exceeding two years before the evaluation base date, the relevant price of the relevant sale

1. Where any transaction has occurred in connection with the relevant property, the transaction amount;

2. In cases where there exist the appraisal values appraised by a reliable appraisal institution prescribed by Ordinance of the Ministry of Strategy and Finance (hereinafter referred to as a "appraisal institution") with respect to the relevant property (excluding the properties prescribed in Article 63 (1) 1 of the Act), the average value of such appraisal values;

3. Where any fact of expropriation, auction or public auction exists with respect to the property concerned, the amount of compensation, the amount of auction or public auction;

3. Whether the instant disposition is lawful

A. Summary of the plaintiffs' assertion

1) The AA industry is a company that mainly engages in antenna manufacture and sales business. When BB, the main seller, was faced with a management crisis, the sales of BB was reduced rapidly since 2014, and a large amount of loss was incurred therefrom. Accordingly, the value of the instant shares fell rapidly in the business year 2014, which belongs to the commencement date of inheritance (the date of August 30, 2014).

2) Therefore, the value of the inherited property to the instant shares ought to be calculated by means of an appraisal at the market price as at the time of commencing the inheritance, reflecting the foregoing circumstances. The instant disposition, without following such procedures, assessed the value of the instant shares by supplementary assessment method, was unlawful.

3) Even if the value of the instant shares is assessed by applying Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “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 (amended by Presidential Decree No. 26069, Feb. 3, 2015; hereinafter the same), it is appropriate to weighted average of the net value of the instant shares and net asset value for three years retroactively from August 30, 2014, which is the date of commencing the inheritance, taking into account the circumstances under the foregoing paragraph (1). According to such method, the value per share of the instant shares becomes not more than 4,146 won initially reported by the Plaintiffs, but also KRW 713 won per share.

4) Nevertheless, the lower court did not fully reflect the net profit and loss amount from the commencement date of the business year 2014 ( January 1, 2014) to the commencement date of inheritance ( August 30, 2014), by applying the foregoing provision in formality the foregoing Enforcement Decree, based on the net profit and loss amount for the last three business years (2013, 2012, and 201). This goes against the market value principle under Article 60(1) of the former Inheritance Tax and Gift Tax Act. Accordingly, the Plaintiffs are obliged to pay inheritance tax beyond the market value of the instant shares, thereby going against the principle of satisfaction.

(b) Fact of recognition;

The reasoning for this part of this Court is that the entry of the corresponding part of the judgment of the first instance (from five to seven pages) is the same as that of the entry (from five to four pages) in the corresponding part of the reasoning of the judgment of the first instance (However, the term "this part of this case's entry" shall be deleted, and "(a), (b), (c), (d), (e) the term "1, (2), (3), (4), and (5)"), Article 8 (2) of the Administrative Litigation Act, the main sentence of Article 420 of the Civil Procedure Act shall be cited.

C. 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 normally deemed to be established if a transaction is made freely between many and unspecified persons.” Article 60(3) provides that “if it is difficult to calculate 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 pertinent asset shall be deemed to be 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 in consideration

As can be seen, while the former Inheritance Tax and Gift Tax Act provides that the method of evaluating inherited property shall be based on the objective exchange value, and where it is difficult to calculate the market value, the method of evaluating the value of the inherited property shall be deemed the market value. Therefore, the calculation of the value of the inherited property of unlisted stocks based on the supplementary evaluation method stipulated under Article 63 of the former Inheritance Tax and Gift Tax Act is limited to the case where it is difficult to calculate the market value as of the date of commencing the inheritance, and the tax authority bears the burden of proving that it is difficult to calculate the market value. Here, the “market value” refers to the objective exchange value formed through ordinary transactions, and even unlisted stocks are traded in the vicinity of the date of commencing the inheritance, and where it is deemed that the transaction value properly reflects the objective exchange value, such transaction value may be deemed the market value at the time of commencing the inheritance (see Supreme Court Decision 80Nu522, Feb. 9, 1982). However, if not, the market value can be calculated based on the supplementary evaluation method under Article 63(1)1)3(c.

2) Whether the appraisal price of the instant shares falls under the market price

As to the instant shares, there is no dispute between the Plaintiffs and the Defendant regarding the fact that no objective exchange price has been formed through a normal transaction because the shares were traded, expropriated, sold, or sold within six months before or after the commencement date of the inheritance.

The plaintiffs asserts that the appraisal value of the shares of this case may constitute the market price.

In this regard, Article 49(1)2 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act explicitly excludes the appraisal value of non-listed stocks which are the property stipulated in Article 63(1)1 of the former Inheritance Tax and Gift Tax Act from the value recognized as the market price under the latter part of Article 6(2) of the same Act.

① The purport of the foregoing provision is to unify the method of appraisal of unlisted stocks with the supplementary method prescribed by the Enforcement Decree of the Inheritance Tax and Gift Tax Act in order to prevent the occurrence of a result contrary to the principle of equity in taxation by calculating various appraisal values depending on the different appraisal methods for unlisted stocks. ② In the case of unlisted stocks, the transaction between many and unspecified persons is not performed, and thus, it is difficult to derive the market price under the former part of Article 60(2) of the former Inheritance Tax and Gift Tax Act, barring any special circumstance, the appraised value of unlisted stocks cannot be deemed as the market price under Article 60(2) of the former Inheritance Tax and Gift Tax Act (see Supreme Court Decision 2008Du1849, May 13,

Therefore, in the case of unlisted stocks, there are special circumstances where a transaction takes place between many unspecified persons, and the appraisal value is not recognized as the market price unless the appraisal value is very exceptional in accordance with the value formed through such transaction. The Plaintiff’s assertion in this part is without merit.

(iii) the value of shares by supplementary assessment methods;

A) According to the above, the shares of this case constitute cases where it is difficult to calculate the market price because there is no sale price, appraisal price, expropriation price, auction price, or public sale price which can be assessed as the market price. Therefore, the value of the shares of this case can be assessed in accordance with Article 54(1) and (2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act as delegated by Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act.

The above Enforcement Decree provides that the net profit and loss value per share calculated by the "interest rate determined and publicly notified by the Minister of Strategy and Finance taking into account the rate on distribution of corporate bonds with three years maturity maturity which are guaranteed by financial institutions" ± The net asset value per share and the net asset value per share calculated by the "net asset value of the relevant corporation" ± total number of issued and outstanding stocks, respectively. Of them, the "average average amount of net profit and loss per share for the latest three years" ± (the average amount of net profit and loss per share for the business year which becomes one year before the base date of appraisal 】 】 3) + (3) + (the net profit and loss per share for the business year which becomes two years before the base date of appraisal x 2) + (Article 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act) ±6" ± (Article 56(3) of the Enforcement Decree of the same Act), and the number of stocks for each business year shall be calculated in accordance with the formula (Article 56(3) of the same paragraph).

The method of assessing unlisted stocks is to calculate the net profit and loss value per share of each business year prior to the base date of appraisal in order to assess unlisted stocks, which are one of the elements of calculating the market price difficult to understand, by weighted averageing the net profit and loss value per share of each business year for three years prior to the base date of appraisal. However, the method of evaluating unlisted stocks is difficult to sufficiently reflect the current status of profit and loss in the relevant business year. However, in order to ensure consistency in the interpretation and application of tax laws and regulations, it is inevitable in legislative technology, and ② it is prepared separately to supplement unreasonable outcomes in accordance with the uniform application of the above method of assessment under Article 56(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (see Supreme Court Decision 2010Du12378, May 24, 2012); ③ It is reasonable to calculate the calculation method by granting the weight close to the base date of appraisal; ④ When considering the net profit and loss in the business year to which the base date of appraisal belongs, it cannot be deemed unreasonable to include the above net profit and loss per 2014.

B) The Plaintiff asserts that since the value of the instant unlisted stocks has decreased at the time of commencing the inheritance, the instant shares should be assessed by weighted average of net asset value for three years retroactively from the date of commencing the inheritance. In light of the following circumstances, the Plaintiff’s above assertion is not acceptable.

(1) The assessment of the value of the shares of this case by considering the net profit and loss amount of the business year to which the date of commencing the inheritance belongs is contrary to the principle of no taxation without law under the Constitution, which does not allow a expanded interpretation or analogical interpretation of tax laws.

(2) The business year under Article 56(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act defines the "one fiscal period for which the income of the corporation is calculated" under Article 1(5) of the Corporate Tax Act, and the business year reported by the AA industry is "1.1 or 12.31." However, when the settlement of accounts is adjusted to the commencement date of the inheritance, if the settlement date is adjusted to the commencement date of the inheritance, it is unreasonable to adjust the profit and loss for the business year to which the profit and loss accrue. In other words, according to the Plaintiff's opinion, it cannot be ruled out that the possibility of the adjustment of profit and loss, such as where the sales is exceeded to the time of death of the decedent after the commencement of the inheritance or the sales

(3) In light of the following circumstances, the value of the instant shares did not decline at the time the AA industry had experienced a sudden managerial difficulties since 2014, and thus, the value of the instant shares did not decline.

① From the sales revenue of the AA industry, BB, which accounts for 36.97% in 201, 32.19% in 2012, and 27.64% in 2013, experienced business difficulties since 2013. Accordingly, it can be seen that the ratio of sales to BB in the AA industry was 0.04% in 2014, and 0.63% in 2015, and that managerial difficulties of BB had a certain impact on the sales revenue of the AA industry.

However, the AA industry had a sales office other than BB, and the ratio of sales other than BB out of total sales reaches 63.03% in 201, 67.81% in 2012, 72.36% in 2013, and 89.96% in 2014. AA industry produced a mobile phone antenna other than a mobile phone antenna supplied to BB, and had production facilities and research institutes for this purpose.

② Therefore, it cannot be readily concluded that the AA industry was soon scheduled to close its business within a prompt time due to the management difficulties of BB, and that only the decrease in sales of BB led to dissolution.

The mere fact that BB, a sales partner of the AA industry at the time of commencing the inheritance, had experienced managerial difficulties is insufficient to deem that the value of the instant shares at the time of commencing the inheritance was lowered, or that the value per share of the instant shares assessed by the method prescribed by the law is excessively high to the extent unreasonable compared to the objective value.

③ The following circumstances asserted by the Plaintiffs in this Court: (a) the HA industry was paid only KRW 21,368,347 out of the rehabilitation claim 521,751,179, which was held by BB around November 2015; (b) the rehabilitation claim 741,720,542 against B as bad debt amount around January 2016; and (c) the Plaintiff suffered loss due to the destruction of the manufacturing facilities, including the antenna and gold type supplied to BB around November 2015; and (d) the Plaintiff incurred loss due to the destruction of the manufacturing facilities, including the machinery and equipment for the manufacture of the said antenna, etc., which was more than one year after the date of commencing the inheritance of the instant case, and shall not be considered in the calculation of the stock value of the instant case as circumstances after November 2015.

4) Sub-committee

In this case where there is no data to calculate the market price of the shares of this case, the Defendant’s evaluation of the value of the shares of this case pursuant to 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 is reasonable and reasonable, and the result is not contrary to the market price principle under Article 60(1) of the former Inheritance Tax and Gift Tax Act or contrary to the principle of ability to pay. The instant disposition rejecting the Plaintiffs’ request for correction

4. Conclusion

Since all of the plaintiffs' claims are without merit, the judgment of the court of first instance is just in conclusion. The plaintiffs' appeals are dismissed as they are without merit.