In assessing the value per share of unlisted stocks pursuant to the former Inheritance Tax and Gift Tax Act and subordinate statutes, whether the net value per share of the stocks as of the base date of appraisal is incidental to the net value of the stocks as of the base date of appraisal (negative)

Article 63(1)1(c) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998); Articles 54(1), 55(1), 56(3), and 58(2) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998)

Plaintiff (Law Firm Sejong, Attorneys Jeon Jeon-soo et al., Counsel for the plaintiff-appellant)

Daegu Tax Office (Attorney Park Jin-jin, Counsel for defendant-appellant)

Daegu High Court Decision 2002Nu2117 delivered on April 1, 2005

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

We examine the grounds of appeal.

1. Article 63(1)1 (c) and Article 54(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582, Dec. 28, 1998); Article 63(1)1 (c) and Article 54(1) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 15971, Dec. 31, 1998; hereinafter “former Enforcement Decree”) provides that the value of non-listed stocks per share per net asset value (total issued value of the relevant corporation ± total issued value) and net profit and loss value per share ± (the average interest rate determined by Ordinance of the Prime Minister in consideration of the average interest rate formed in financial markets) shall be an average of the net asset value of the relevant corporation as of the base date of appraisal; Article 55(1) of the former Enforcement Decree provides that the net asset value of the relevant corporation shall be calculated by subtracting liabilities from the appraised value of the relevant corporation as of the base date of appraisal; Article 58(2) of the former Enforcement Decree shall not be calculated from the net value of assets 98(1).

2. In assessing the value per share of the instant shares by supplementary evaluation methods under Article 54(1) of the former Enforcement Decree, the lower court acknowledged the facts as indicated in its reasoning based on the adopted evidence. The lower court determined that the net asset value per share of Nonparty 1 (the net asset value per share of Nonparty 1 was 7 billion won - as of December 31, 1998 - as of March 31, 1999, the net asset value per share of Nonparty 4 billion won was 5 billion won, and the net asset value per share of Nonparty 1 was 4 billion won in total as of December 31, 1998 - the net asset value of Nonparty 4 billion won was 5 billion won in total as of March 31, 199, and the net asset value of Nonparty 1’s stock was 4 billion won in total as of June 13, 1996, and 7 billion won in total as of June 30, 199.

3. Examining the reasoning of the judgment below in light of the relevant statutes and the records, the judgment of the court below that deeming the debt amount of the non-party credit cooperative at the time of title trust of the stocks of this case exceeds its asset and that the net asset value per share is incidental to its net asset value. Thus, there is no error of law such as misunderstanding of legal principles as to the evaluation of net asset value

However, unlike the net asset value of the corporation as of the base date of appraisal, the net value of stocks is calculated by the weighted average amount of net profit and loss for the last three years in terms of corporate profit and loss in terms of corporate profit and loss, which is calculated by deducting liabilities from the net asset value of the corporation as of the base date of appraisal, and the two are different elements and methods of assessment. Thus, it cannot be readily concluded that the net asset value per share of stocks as of the base date of appraisal is incidental to the net asset value per share.

Nevertheless, the court below did not conduct any deliberation on the weighted average amount of net profit and loss of the non-party credit cooperative for the last three years, and held that the net profit and loss per share of the non-party credit cooperative at the time of the title trust of this case is incidental to the net asset value per share of the non-party credit cooperative at the time of the title trust of this case, and held that the value per share of the non-party credit cooperative of this case is "0 won" as the value per share of the non-party credit cooperative of this case is a violation of law by misunderstanding the legal principles on the evaluation of non-listed

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)