[1] The meaning of “market price” under Article 60(1) of the former Inheritance Tax and Gift Tax Act

[2] The case holding that, in calculating the net asset value of a corporation in order to assess the value of the stocks subject to the "statement of wrongful calculation" under Article 52 of the Corporate Tax Act, the publicly notified price of the Hong Kong National Institute of Science and Technology for the right to use land in an industrial complex located in Hong Kong, held by its subsidiary of the corporation, is either an objective exchange price formed through a general and normal transaction for the right to use land, or an appraised price by an objective and reasonable method, which constitutes the "market price" under Article 60 (1) of the

[3] The case holding that, in calculating the net asset value of a corporation in order to evaluate the value of the stocks subject to the "disstatement of wrongful calculation" under Article 52 of the Corporate Tax Act, the supplementary evaluation method should be the expected value at the time of disposal, and it cannot be assessed by the book value of the corporation, because the method of supplementary evaluation is not expressly stipulated in the former Inheritance Tax and Gift Tax Act

[1] Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 2003); Article 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039 of Dec. 29, 200) / [2] Article 52 of the Corporate Tax Act; Articles 88(1)3 and 89(2)1 and 2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826 of Dec. 30, 202); Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010 of Dec. 30, 200); Article 20(1) of the former Enforcement Decree of the Corporate Tax Act (amended by Act No. 17829 of Dec. 30, 200; Presidential Decree No. 2581 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20139 of Dec. 170 of Dec. 97, , 2039)

[1] Supreme Court Decision 2005Du5574 decided Aug. 23, 2007 (Gong2007Ha, 1477)

Han-gu Branch Co., Ltd. (Law Firm Sejong, Attorneys Kim Sung-sung et al., Counsel for the plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2006Nu26525 decided July 24, 2007

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

The grounds of appeal are examined.

1. Article 52 of the Corporate Tax Act and Article 88(1)3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 17826, Dec. 30, 2002; hereinafter the same) provide that one of the related parties subject to the rejection of unfair act and calculation transfers assets to a person at a price lower than the market price. Article 89(2)1 and 2 of the former Enforcement Decree of the Corporate Tax Act provide that in applying Article 52 of the Corporate Tax Act, unlisted stocks whose market price is unclear shall be based on the value appraised by applying mutatis mutandis the provisions of Articles 61 through 64 of the Inheritance Tax and Gift Tax Act.

Meanwhile, Article 55(1) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 17039, Dec. 29, 2000; hereinafter the same) provides that "the net asset value of a corporation shall be the value subtracting liabilities from the value appraised by the assets of the corporation as of the base date of appraisal under Articles 60 through 66 of the Act as of the base date of appraisal." Article 60(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 7010, Dec. 30, 2003; hereinafter the same) provides that the value of the relevant assets shall be based on the "market price" as of the base date of appraisal. The "market price" in this context refers to the value deemed to be normal when a transaction takes place freely between many and unspecified persons, i.e., an objective exchange price formed through a normal transaction, and the market price includes the value assessed by objective and reasonable methods (see, e.g., Supreme Court Decision 2005Du54575, Aug. 23, 2007).

(1) According to the reasoning of the judgment below, the court below determined that the value of the non-party 2's shares of this case calculated on June 17, 199 the value of the non-party 2's 0 Hong Kong 2's shares of this case's 20 Hong Kong 2's 7- Hong Kong 2's 6-2's 7-2's 6-2's 20-2's 7-2's 20-6's 20-6's 20-6's 20-6's 20-6's 0-6's 0-6's 2's 0-6's 2's 20-6's 20-6's 2's 20-6's 20-6's 17-6's 20-6's 20-6's 200's 2's 20-6's 2's 1'

3. However, according to the facts duly established by the court below and records, the Hong Kong land system does not recognize private ownership of land and grants a right to use under a lease agreement. The Hong Kong National Institute of Science and Technology is a legal organization established by the Hong Kong Special Administrative Region, and is entering into a lease agreement with many and unspecified persons according to the publicly notified price while developing and managing the land in the United Nations Industrial Complex to which the land of this case belongs. The publicly notified price of the right to use land in the United Nations Industrial Complex as of June 1999 is about 1,90 Hong Kong per square meter. This is the price set at around December 12, 1998, which is about 15% of the existing price in consideration of the economic ties at that time. The United Nations Industrial Complex is about 94.8% leased at that time, and the price of the right to use land publicly notified by the Hong Kong National Institute of Science and Technology is an objective and 204.6% of the sale price of the land at that time from 200 to 264.6.7.64.

Nevertheless, the court below erred in holding that the publicly notified price of the Hong Kong Science & Technology Institute cannot be deemed as the market price for the land in the United Nations Industrial Complex to which the land of this case belongs, based on its stated reasoning.

However, Article 62 (1) of the former Inheritance Tax and Gift Tax Act provides that "The value of standing timber subject to the Act on Ships, Aircraft, Vehicles, Construction Machinery and Standing Timber shall be appraised according to the current base value prescribed by the Presidential Decree," and Article 62 (2) of the former Inheritance Tax and Gift Tax Act provides that "the value of goods, products, paintings, calligraphic works, curios, animal and other tangible property subject to ownership shall be appraised by the method prescribed by the Presidential Decree in consideration of the type, size, transaction circumstances, etc. of the relevant property," and Article 52 (2) 1 and 3 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "other tangible property not separately provided for by this Decree shall be appraised by the mutatis mutandis value anticipated to be acquired at the time of disposal of the relevant property." Since the method of supplementary evaluation is not explicitly provided for in the former Inheritance Tax and Gift Tax Act, the method of disposal shall be the expected value at the time of disposal, and it shall not be evaluated by the book value.

However, under the former Inheritance Tax and Gift Tax Act, which was enforced on February 25, 200 when the Plaintiff transferred the instant stocks to Nonparty 1, etc., the Defendant calculated the value of the instant mechanical equipment based on the book value; the Defendant assessed the instant mechanical equipment based on the materials appraised by Nonparty 2 accounting firm; Nonparty 2 accounting firm assessed the value of the instant mechanical equipment based on the materials assessed by Nonparty 2 accounting firm; on February 25, 2000, Nonparty 2 assessed not only the value of the instant mechanical equipment based on the book value on the premise that the value of the instant technological equipment at the time when the Plaintiff acquired from Concodian land was identical to the value of the instant technological equipment as of February 25, 200, on the basis that the value of the instant technological equipment was equal to that of the instant technological equipment as of February 25, 200, but also calculated based on the book value of the instant mechanical equipment based on the value exceeding the book value of the Hong Kong National Institute of Science and Technology as of February 25, 2005.

Therefore, the court below's determination that the notice price of the Hong Kong National Institute of Science and Technology cannot be viewed as the market price is erroneous. However, it is just in its conclusion that the disposition of this case is unlawful. In so doing, it did not err by misapprehending the legal principles as to the market price under the former Inheritance Tax and Gift Tax Act, as otherwise

4. 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 on the bench.

Justices Cha Han-sung (Presiding Justice)