The requirements for the deduction for succession to farming should be directly engaged in farming, so it cannot be deemed that direct farming has been engaged in the business.

An inheritor has run a business for 18 years, and there is no objective evidence to recognize that the inheritor and the Plaintiff produced or sold agricultural products, and it cannot be deemed that he directly engaged in farming because the inheritor and the Plaintiff did not return agricultural income at all.

Daejeon District Court 2016Guhap101890 Revocation of Disposition of Imposing Inheritance Tax

-00

00. Head of tax office

oly 2016.106

December 15, 2016

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 179,502,70 of inheritance tax against the Plaintiff on July 1, 2015 is revoked.

1. Details of the disposition;

A. The Plaintiff’s husband died on November 14, 2013.

B. On May 31, 2014, the Plaintiff filed an inheritance tax return with the purport of deducting KRW 500,000,000 from the taxable value of inherited property on the ground that the property of Song JT is solely inherited, and constitutes the inheritance of farming to the Defendant.

C. From April 13, 2015 to May 20, 2015, the Defendant determined that: (a) as a result of the inheritance tax investigation of Song JT, the requirements for the inheritance deduction were not satisfied; and (b) the financial property was omitted; and (c) accordingly, on July 1, 2015, the Defendant determined to the Plaintiff that the amount of KRW 179,502,70 (i.e., the total determined tax amount of KRW 257,019,135 - the paid tax amount of KRW 77,516,430, and less than KRW 10).

The disposition of inheritance tax (hereinafter referred to as "the disposition of this case") was made.

D. On December 7, 2015, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal (Seoul High Court 2015Da5803) on December 7, 2015, but was dismissed on March 16, 2016.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, 13, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Song JT was engaged in dry field farming, landscaping growing, and died of full-time farming. Even after the death of Song JT, the Plaintiff was also a farmer. On the other hand, even after the death of Song JT, a person who actually operates a gas station registered under the name of Song JT (hereinafter referred to as the “gas station in this case”) is not Song JT, but a YH (which between Song JT and the Plaintiff). Therefore, the Song JT and the Plaintiff did not meet the requirements for farming mutual-aid inheritance under Article 18 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 12168, Jan. 1, 2014; hereinafter referred to as the “former Act”), Article 16 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014; hereinafter referred to as the “former Enforcement Decree”). Nevertheless, the disposition in this case was unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) The Plaintiff inherited the following farmland from Song JT.

2) The project history of Song JT is as listed in the table 1 below, and the import declaration is as listed in the table 2 below.

3) The Plaintiff’s business records are as follows.

4) The business records of Song JT and the Plaintiff are as follows.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 2 through 4, 6, 11, 13, Eul evidence Nos. 2 through 4, and 9 (including branch numbers), video, and the purport of the whole pleadings

D. Determination

1) Article 18(2) of the former Act provides that the value of the property inherited in farming shall be deducted from the taxable value of inherited property within the limit of 500 million won in the case of succession to farming. Article 18(4) of the same Act provides that the requirements of the decedent and the heir shall be prescribed by Presidential Decree when the deduction for succession to farming is applied. Accordingly, Article 16(1) of the former Enforcement Decree provides that "the inheritance of farming refers to the inheritance of the heir who is engaged in farming, such as farmland, etc. under the Farmland Act, and the heir who is engaged in farming, among the heirs" under Article 18(2) through (5) of the former Enforcement Decree provides that "in the application of Article 18(2) of the former Act, the decedent shall fall under the case where the decedent has been engaged in direct farming for two years before the date the inheritance commences, and in the application of Article 18(3) of the same Act, the heir engaged in farming shall be at least 18 years old as of the date the inheritance commences

2) The purport of the farming inheritance mutual aid is to support the economic activities of farmers, while preserving the farmland, which is the physical foundation for farming, by granting the benefits of additional deduction more than that of the general public on the premise that farming is continued. Thus, the heir who asserts that the decedent and the heir have been engaged in farming continuously for two years prior to the commencement date of the inheritance should prove that the decedent and the heir have continued to engage in farming. As long as the farming heir are directly engaged in farming, it constitutes a case where the farming heir are concurrently engaged in other occupation, but it does not constitute an indirect management of farming under the pretext of other occupation (see Supreme Court Decision 2002Du844, Oct. 11, 2002).

3) Comprehensively taking account of the aforementioned facts and the following facts admitted by the evidence, the Plaintiff, both Song TT and its heir, cannot be deemed to have been engaged in direct farming continuously before two years prior to the commencement date of the inheritance, and thus, it cannot be deemed that the requirements for farming inheritance deduction have been met. Therefore, the Plaintiff’s above assertion is without merit.

A) Although Song JT owned farmland, it did not return agricultural income at all; ② there is no objective evidence to acknowledge that Song JT produced or sold agricultural products (or landscape trees); ③ Song JT registered its business such as gas station business, real estate rental business from around 2005 to 2013,860,000 won (=171,68,000 won + 10,000 won + 100,000 won). In light of the fact that Song JT filed a return on the total of income arising from gas station business and lease business from around 2005 to 2013, it is insufficient to recognize that Song JT had been directly engaged in farming since 2 years prior to the date of commencing the inheritance; and there is no evidence to find otherwise.

B) 1) Since it cannot be deemed that Song JT was engaged in farming at the time when it was alive, the premise of the Plaintiff’s assertion that the Plaintiff engaged in assistance and farming cannot be acknowledged, ② the Plaintiff did not return agricultural income at all, ③ there is no objective evidence to recognize that the Plaintiff produced or sold agricultural products (or landscape trees) and the testimony of Han JS by itself is insufficient to recognize that the Plaintiff had been engaged in direct farming since two years prior to the commencement date of the inheritance of Song JT, and there is no other evidence to prove otherwise.

C) Rather, the period of operation of the gas station of this case, the registration of which was made under the name of Song JT, has reached about 18 years, and considering that the income from the gas station business and the real estate rental business of Song JT reaches a considerable amount of money for a long time, the main revenue sources of Song JT and the Plaintiff seems to have been by the operation of the gas station of this case and the lease of real estate.

D) The Plaintiff asserts that the actual operator of the gas station of this case is SSH, but it is difficult to accept the Plaintiff’s above assertion in light of the following: (i) SSH was operating a rest area business from October 10, 199 to March 31, 2001; (ii) SSH, one of its own seat carrying stations business; and (iii) SSH, one of whose real estate leasing business, has been operating under the name of Song JT; and (iii) there is no details of transfer of the revenue or income of the gas station of this case operated in the name of Song JT and reported income from Song JT from the fact that it was in fact operating the gas station of this case, it is difficult to accept the Plaintiff’s above assertion; and even if SongSH was assumed that it actually operating the gas station of this case, it cannot be said that it was immediately engaged in farming to the extent that it falls under the requirements for farming inheritance deduction.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Relevant statutes

○ former Inheritance Tax and Gift Tax Act (Amended by Act No. 12168, Jan. 1, 2014)

Article 18 (Basic Deductions)

(2) Where inheritance commences due to the death of a resident, in any of the following cases:

The following amounts shall be deducted from the taxable value of inherited property:

2. Succession to farming [including farming, livestock, fishery, and forestry; hereafter the same shall apply in this Article]: The value of the inherited farming property ( his/her price);

Where the amount exceeds 500 million won, 500 million won shall be the ceiling)

(3) The heir who inherited a family business or inherited a farming business shall certify that the heir falls under inheritance to the family business or inheritance to the farming business.

Each document shall be submitted to the head of the tax office having jurisdiction over the place of tax payment under Article 67.

(4) In the application of paragraph (2), requirements of the decedent and the heir, methods of application, etc. in cases of inheritance of stocks, etc.

The scope of inheritance for business and inheritance for farming, and other necessary matters shall be prescribed by Presidential Decree.

○ Enforcement Decree of the former Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 25195, Feb. 21, 2014)

Article 16 (Succession to Farming)

(1) Succession to farming in the provisions of Article 18 (2) through (5) of the Act means farming by a decedent (axid, English and fishery).

Any of the following, among inherited property, engaged in a forest (including a forest; hereafter the same shall apply in this Article):

(b) All the property falling under the category of the property for farming (hereafter in this Article, referred to as the "property for farming") among the successors;

(b) The term "he heir" means the heir inherited.

1. Farming to which the Income Tax Act applies: Any of the following inherited property, which is a prize:

Assets used by the successor for farming two years before the commencement date of the inheritance;

(a) Farmland under subparagraph 1 (a) of Article 2 of the Farmland Act;

(2) In the application of paragraph (1), an ancestor has been directly engaged in farming for two years before the date inheritance commences.

Any of the following persons:

1. Agriculture to which the Income Tax Act applies: Any of the following persons:

(a) A Si (the Jeju Special Self-Governing Province) in which farmland, grassland and forest land (hereafter in this Article, referred to as "farmland, etc.") are located;

An administrative city under Article 15 (2) of the Special Act on the Establishment of Free International City and the Development of Free International City shall be included in the administrative city;

The same shall apply to this Article), Gun and Gu (referring to an autonomous Gu; hereafter the same shall apply in this Article), and Si/Gun/Gu or Gu adjacent thereto.

Persons who reside within 20 kilometers in a straight line from farmland, etc.

any area in which it can be directly managed shall be included.

(3) In the application of paragraph (1), a successor engaged in farming shall be at least 18 years old as of the date the inheritance commences, and a person who has been directly engaged in farming before two years before the date the inheritance commences, falling under

Persons who engage in farming, fishing, and forestry as determined by Ordinance of the Ministry of Strategy and Finance.

1. A farming to which the Income Tax Act applies: A person shall reside in any area provided for in any item of paragraph (2) 1;

(5) Those who intend to obtain deduction pursuant to Article 18 (2) 2 of the Act shall be detailed statement of farming and inherited property and planning and finance.

Documents evidencing succession to farming prescribed by Ordinance of the Ministry shall be submitted to the head of the district tax office having jurisdiction over the place of tax payment along with a return of inheritance tax base.