The meaning of the actual transaction value which serves as the basis for calculating gains on transfer, and whether the appraisal value assessed by one certified public appraisal corporation falls under the appraisal value determined to substitute the “actual transaction value at the time of acquisition” under Article 97(1)1(b) of the Income Tax Act (negative)

Article 97 (1) 1 (b) of the Income Tax Act, Article 163 (12) and Article 176-2 (3) 2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 24356, Feb. 15, 2013)

Supreme Court Decision 2009Du19465 Decided February 10, 2011 (Gong2011Sang, 585)

Plaintiff (Law Firm Taewon, Attorneys Lee Jong-hoon et al., Counsel for the plaintiff-appellant)

The Director of the sericultural Tax Office

Seoul High Court Decision 2014Nu30 decided May 7, 2015

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

The grounds of appeal are examined.

1. Article 97 (1) 1 (b) of the Income Tax Act provides that "where the actual transaction value at the time of acquisition is not verifiable, the actual transaction value, which is one of the necessary expenses deducted from the transfer value in calculating gains, shall be determined by Presidential Decree, and where it is impossible to confirm the actual transaction value at the time of acquisition, the amount shall be determined by the transaction example, appraisal value, or conversion value. Article 163 (12) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013; hereinafter the same shall apply) provides that "the value of transaction example, appraisal value, or conversion value prescribed by Presidential Decree" in Article 97 (1) 1 (b) of the Act means the value stipulated in Article 176-2 (2) through (4). The main sentence of Article 176-2 (3) provides that "where the transfer value or acquisition value is estimated or corrected pursuant to Article 114 (7) of the Act, the appraisal value shall be determined within three months before or after the appraisal value:

Article 97(1)1(b) of the Income Tax Act and Article 163(12) of the Enforcement Decree of the Income Tax Act, which provide for the substitution of the actual transaction price at the time of acquisition in light of the following legal principles: (a) the actual transaction price, not the general market price that reflects the objective exchange value, but the actual transaction price itself or at the time of transaction (see, e.g., Supreme Court Decision 2009Du19465, Feb. 10, 201). In light of such legal principles and the language, content, and purport of the aforementioned provisions, it is interpreted that Article 97(1)1(b) of the Income Tax Act and Article 163(12) of the Enforcement Decree of the Income Tax Act, which provide for the substitution of the actual transaction price at the time of acquisition as well as the order of application thereof, are limited to the category of values that can replace the actual transaction price. Therefore, the appraisal price assessed by one appraisal corporation does not constitute the actual transaction price at the time of acquisition.

2. A. According to the reasoning of the lower judgment and the record, the Plaintiff was the owner of the land and the building on the land (hereinafter “instant real estate”). On or after July 28, 2001, the Plaintiff reported the acquisition value of KRW 291,650,230 calculated by adding the amount calculated by applying the instant appraisal value to some buildings excluded from appraisal by a financial institution at the time of acquisition (hereinafter “instant appraisal value”). The Plaintiff’s expropriation of the instant real estate from the Plaintiff on December 30, 201 at Kimpo-si, and the Plaintiff reported the acquisition value of KRW 1,50,000 calculated by applying each transfer income tax to the acquisition value of KRW 291,650,230 calculated by adding the amount calculated by applying the instant appraisal value to the land at Kimpo-si, Kimpo-si, and the expropriation value of KRW 1,097,607,000 to each transfer value.

Examining these facts in light of the aforementioned provisions and legal principles, the appraisal value of this case does not constitute “an appraisal by more than two appraisal corporations” under Articles 163(12) and 176-2(3)2 of the former Enforcement Decree of the Income Tax Act, and thus, it cannot be deemed that the appraisal value of this case constitutes the appraisal value determined to substitute “actual transaction value at the time of acquisition” under Article 97(1)1(b) of the Income Tax Act.

C. Nevertheless, the lower court erroneously presumed that the instant appraisal value falls under “appraisal value” under Article 97(1)1(b) of the Income Tax Act, and determined that the instant disposition that the Defendant imposed capital gains tax on the Plaintiff by deeming the converted value under the conversion method under the former Enforcement Decree of the Income Tax Act as the acquisition value of the instant real estate. In so determining, the lower court erred by misapprehending the legal doctrine on “appraisal value” under Article 97(1)1(b) of the Income Tax Act, thereby adversely affecting the conclusion of the judgment.

3. Therefore, without examining the remaining grounds of appeal, 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 Chang-suk (Presiding Justice)