Methods of calculating transfer margin and principle of substantial taxation under the current Income Tax Act;

Articles 23(4) and 45(1)1 of the Income Tax Act (amended by Act No. 3576, Dec. 21, 1982); Article 170(4)3 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 10977, Dec. 31, 1982); and Article 170(4)3 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 10977, Dec. 31, 1982) shall be interpreted to the effect that in the case of transfer of assets, in calculating the transfer margin, the standard market value was converted from the existing actual transaction value principle; thus, in the case of transfer of assets, the transfer margin shall be calculated based on the actual transfer and acquisition value when evidential documents are submitted to verify the actual transaction value in making the preliminary return on transfer margin or the final return on tax base of assets. However, the transfer margin shall be calculated based on the standard market price

Articles 23(4) and 45(1)1 of the Income Tax Act (amended by Act No. 3576, Dec. 21, 1982); Article 170(4)3 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 10977, Dec. 31, 1982)

Supreme Court Decision 85Nu847 delivered on March 11, 1986 and 86Nu86 delivered on October 14, 1986

Plaintiff

Head of the tax office

Seoul High Court Decision 85Gu628 delivered on February 21, 1986

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

The grounds of appeal are examined.

1. According to the reasoning of the judgment below, in light of the principle of substantial taxation under Article 14(2) of the Framework Act on National Taxes or Article 7(2) of the Income Tax Act, the court below determined that the transfer margin under the standard market price cannot exceed the scope of the actual transaction price (no income exists in this case) and revoked the defendant's disposition of imposition of transfer margin based on the standard market price, which was calculated based on the standard market price, by calculating the transfer margin under Article 23(4) of the Income Tax Act, on December 28, 1983, when the plaintiff acquired 32,00,000 underground prices at the time of original adjudication on September 4, 1982, but transferred 32,00,000 won to the non-party.

2. However, according to Articles 23(4) and 45(1)1 of the Income Tax Act, which was amended by Act No. 3576, Dec. 21, 1982 at the time of the transfer of this case, the transfer value and acquisition value, which form the basis for calculating gains on transfer of assets, shall, in principle, be based on the standard market price, and only exceptional cases as determined by the Presidential Decree, shall be based on the actual market price. Article 170(4)3 of the Enforcement Decree of the same Act, as amended on December 31, 1982, provides, “Where the transferor can verify the actual transaction value at the time of acquisition and transfer by documentary evidence submitted pursuant to Article 95 or 100 (final Return on Gains on Transfer of Assets) of the same Act, one of the actual transaction values is determined on the basis of the actual transaction value. Since each of the above amended provisions, in calculating gains on transfer, it is interpreted to the effect that the substance over form principle was converted from the existing standard market price, and thus, it can not be confirmed by the actual transaction value.

Unlike the above opinion, the court below held that the transfer margin based on the standard market price cannot exceed the scope of income based on the actual transaction price even in case where the plaintiff calculated the transfer margin on the basis of the standard market price because the plaintiff did not make the preliminary return of transfer margin and the final return of the tax base shall be deemed to have committed an error of law by misunderstanding the legal principles of

3. Therefore, the judgment of the court below shall be reversed and the case shall be remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yoon Il-young (Presiding Justice)