Early High Court Decision 2012J0674 (Law No. 1355, 27 May 2015)

No gift tax shall be imposed on free transactions of money, etc. between non-special parties.

The gift tax on money free of charge or on low interest loan shall not be levied on the transactions between unrelated parties, as the gift tax may be imposed only on the transactions between unrelated parties.

Donation of profits arising from money free loan, etc. under Article 41-4 of the Inheritance and Gift Tax Act

Suwon District Court 2015Guhap66241 Revocation of Disposition of Imposing Gift Tax

O KimO

OO Head of the tax office

oly 2016.18

oly 2015.10

1.1. On December 5, 2011, the Defendant revoked a disposition imposing gift tax (including additional tax) of KRW 22,837,217,060 in total, as stated in the item of the amount of gift tax in attached Table 1, on the Plaintiff on December 5, 201.

2. The costs of lawsuit are assessed against the defendant

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. From 2005 to 2010, the Plaintiff received approximately KRW 45 billion from MaximumO for the purpose of entrusting investment in exchange-traded derivatives, etc., KRW 85,750,220,195, and KRW 5,088,576,79,573 (hereinafter referred to as “the instant one money”) out of the money received from MaximumO, and KRW 85,750,220,195, and KRW 5,088,576,378, out of the money received from MaximumO, for the purpose of entrusting investment in exchange-traded derivatives, etc., the Plaintiff used KRW 90,838,796,573 (hereinafter referred to as “the instant one money”).

B. The Plaintiff: (a) from the largestB to the date of 2004, the Plaintiff borrowed interest of KRW 9 billion; (b) KRW 9.32 billion in total from around 2006; and (c) KRW 9.2 billion in total from around 2003 to around 2004; and (d) repaid the above borrowed amount with KRW 6.24 billion in total from 2003 to 2004; and (b) from around 2003 to 2003.5 billion in total, the Plaintiff borrowed the above borrowed amount with KRW 2.4 billion in total from 2.4 billion in total; and (c) from 2004 to 205 billion in total from 206 to 2005 to 206.5 billion in repayment without the agreement; and (d) from 2006 to 205.25 billion in repayment without the agreement.

C. On January 28, 2005, the Plaintiff paid 22.1 billion won as of January 28, 2006, including the sum of KRW 18.435 billion from the Ba, and KRW 3.665 million from the Ba (hereinafter “the instant three money”), with interest free of charge, on a fixed date as of January 28, 2006. On January 28, 2006, the due date was extended to March 31, 2006, and the interest rate for delay after the due date was set to three percent. On December 8, 2010, the Plaintiff repaid the said borrowed money and the damages for delay added to 3.25 billion won after April 1, 2006.

D. On December 5, 2011, the Defendant: (a) considered the interest calculated by applying the annual interest rate of 9% to each of the instant money and the difference between the interest actually paid by the Plaintiff as the value of donated property; and (b) determined and notified the Plaintiff on December 5, 201, the gift tax of KRW 22,837,217,060 (including additional taxes) in total as indicated in the item of the amount of gift tax in the attached disposition No. 1

E. On December 30, 201, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on December 30, 201, but the Tax Tribunal dismissed the Plaintiff’s appeal on May 27, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 2, 3, and 5, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The parties' assertion

(1) The plaintiff's assertion

Article 2 (3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 11130, Dec. 31, 201; hereinafter referred to as the "Act") is merely an abstract and comprehensive provision on the concept of donation, and thus, no gift tax may be levied accordingly.

In addition, Article 41-4 (1) of the Act provides that "a person who has a special relationship obtains a loan of at least KRW 100 million free of charge or at low interest," and Article 42 (1) 2 of the Act provides that "a person who has received a loan of at least KRW 100 million free of charge or at low interest" shall be subject to taxation. Therefore, in relation to "a loan of each of the money of this case from a person who is not in a special relationship with another person free of charge or at low interest, gift

Moreover, there is no fact that the Plaintiff was exempted from the obligation to the agreed interest portion on the instant 1 money from the leastO or the leastA, and there is no reason to impose gift tax pursuant to Article 36 of the Act.

(2) The defendant's assertion

With respect to the lending of each of the instant funds, the gift tax may be imposed pursuant to Articles 41-4(1), 42(1)2, and 2(3) of the Act, and even if it is impossible to impose gift tax based on each of the instant funds in household affairs, the Plaintiff may be deemed to have been exempted from the interest rate equivalent to the higher interest rate out of the interest rate on one-year term deposit in commercial banks or the CD interest rate in commercial banks. Thus, pursuant to Article 36 of the Act, gift tax from debt exemption may be imposed.

B. Relevant statutes

Attached Form 2 shall be as listed in attached Table 2.

C. Determination

(1) Whether Article 41-4(1) of the Act can be the legal basis for the instant disposition

Article 41-4 (1) of the Act provides that the amount calculated by multiplying the amount of loan by the appropriate interest rate in cases where the loan was given at a rate lower than the reasonable interest rate, and the amount obtained by subtracting the amount equivalent to the interest actually paid from the amount calculated by multiplying the amount of loan by the appropriate interest rate shall be deemed the value of donated property to the person who has received the loan. Thus, between the Plaintiff and the Plaintiff, the leastO, the largestA, the BB, the LA, the LA, the LA, and the DamageA, the special relationship prescribed in Articles 31-7 (1) and 19 (2) of the Enforcement Decree of the Act is not established, and therefore, the gift tax shall not be imposed pursuant to Article 41-4 (1) of the Act with respect to the loan of each of the instant money.

Furthermore, Article 41-4(1) of the Act provides that, by excluding transactions, such as lending of money free of charge, between persons without a special relationship, from subject to gift tax, gift tax shall not be imposed on the profits earned by a borrower from such transactions (see Supreme Court Decision 2014Du40722, Dec. 23, 2015). Therefore, it is reasonable to deem that gift tax may not be imposed on the lending of money of this case by analogy of Article 41-4(1) of the Act (the defendant asserts that Article 31-9 of the Enforcement Decree of the Act shall apply mutatis mutandis, but the determination on the lending of money is the same as that on the application or analogical application of Article 41-4(1) of the Act).

(2) Whether Article 42(1)2 of the Act can be the legal basis for the instant disposition

As to the donation of profits from the free use and lending of real estate and money under Articles 37(1) and 41-4(1)1 of the Act, each provision concerning the donation of profits from the free use of the remaining property, excluding real estate and money, and separate provision concerning the donation of profits from the free provision of services under Article 42(1)1 of the Act regarding the donation of profits from the free provision of services under Article 42(1)2 of the Act, the donation of profits from the free use of property is separate from the donation of profits from the provision of services. In light of the fact that Article 41-4(1) of the Act separately prescribes the donation of profits from the free provision of services, the profits from the appropriate interest rate due to the free lending of money under Article 42(1)2 of the Act does not constitute "the profits from the provision of services without compensation" (see, e.g., Supreme Court Decision 2014Du37924, Oct. 15, 2015).

(3) Whether Article 2(3) of the Act can be the legal basis for the instant disposition

In light of the fact that the comprehensive taxation system of gift tax is introduced in order to cope with it in advance, and the comprehensive taxation system of gift tax is introduced in Article 2(3) of the Act, and the former regulations on the calculation of gift tax (Article 32 through 42) are uniformly converted into the former regulations on the calculation of gift tax (hereinafter referred to as "the regulations on the calculation of gift tax"), in principle, if a transaction or act constitutes the concept of gift stipulated in Article 2(3) of the Act, it shall be deemed that gift tax may be levied pursuant to Article 2(1) of the Act. However, in order to ensure predictability of taxpayers and promote the stability of tax relations, if the individual regulation on the assessment of gift tax regulates a transaction or act of specific type, which only limits the transaction or act to be subject to gift tax, and the scope of taxation can be seen as setting the scope and limit of gift tax by restricting the scope of taxation of gift tax, even if the transaction or act excluded from the scope of taxation or scope of gift tax among the transaction or act regulated by the regulations on the calculation of individual value conforms to the concept of gift tax (see, 2013.

In light of the above, Article 41-4(1) of the Act shall be deemed to have set the limit of not imposing gift tax on the profits earned by a borrower from such transaction, by excluding transaction, such as lending of money, from the subject of gift tax, among persons without a special relationship. Thus, gift tax may not be imposed on such profits on the ground of Article 2(3) of the Act, unless there are special circumstances, such as where a separate provision exists as a gift tax is subject to gift tax, etc. (see, e.g., Supreme Court Decision 2014Du37924, Oct. 15, 2015). Accordingly, gift tax under Article 2(3) of the Act may not be imposed on the profits earned by the Plaintiff from lending of each of the instant funds.

(4) Whether Article 36 of the Act can be the legal basis for the instant disposition

According to Gap evidence No. 1, it is recognized that the plaintiff and MaO entered into a monetary loan agreement (hereinafter referred to as the "agreement of this case") with regard to the money of this case on March 7, 2011, with "when the time of return by MaOO was requested by MaO or when the investment agreement between the plaintiff and MaO was terminated," and as of the date of use, "the interest rate is higher between the interest rate of a commercial bank with a maturity of one-year term deposit in commercial banks and the interest rate of three-month CD interest rates in commercial banks."

The Defendant’s assertion related to this is that the instant monetary amount, other than the purpose of investment, was a loan, and there was a verbal agreement such as the instant agreement between the Plaintiff, MaO, and Ma. However, the Plaintiff does not have any interest paid only once in relation to this, and the OO and MaA were urged to pay interest or intended to realize their rights. Thus, it can be deemed that there was an implied agreement between the Plaintiff, OO, and MaA on the exemption of interest at the time of payment of each interest with respect to the instant monetary amount, and thus, gift tax may be imposed on the exemption of liability with respect to the portion of interest pursuant to Article 36 of the Act.

The following circumstances revealed in the above facts, i.e., (i) the Plaintiff, the leastO, and the leastAA appear to have been continuously engaged in a transaction. However, it appears difficult to present an individual implied agreement on the exemption from interest on individual investment, which occurred in the process of making and withdrawing investments more than a few times; and (ii) if the instant one money constitutes a loan, the Plaintiff and the leastO entered into the instant agreement in writing after the date of the last lease, which appears to be evidence to the contrary that there was an implied agreement on exemption from interest; (iii) the Defendant did not present specific arguments on the point of time of exemption from interest; and (iv) the point of time stated in the list of donations in attached Table 1 is based on the individual payment date, and thus, it cannot be the same as the date of exemption from interest under the concept of the Plaintiff, unlike the Plaintiff, and there is no other evidence to prove that there was no agreement on the exemption from interest under the premise that all the requirements of exemption from interest were presented.

(5) Sub-decisions

Therefore, gift tax under Articles 2(3), 41-4(1) and 42(1)2 of the Act cannot be imposed on the lending of each of the instant funds, and gift tax under Article 36 of the Act cannot be imposed on the exemption of partial payment of interest on the instant one, on the grounds that the taxation requirement is not proven, and thus, the prior disposition on the different premise is unlawful.

3. Conclusion

If so, the plaintiff's claim is reasonable and acceptable.