In cases where the sum of the amount of gift tax and capital gains tax of a donee is less than the capital gains tax calculated by deeming that the donor directly transfers the gift tax, and where such gift is to reduce the capital gains tax unjustly, whether the donor may be deemed to have directly transferred the property by applying Article 101(2) of the former Income Tax Act (affirmative)

The purpose of Article 101(2) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008; hereinafter the same) is to deny the transfer of gift through the form of donation in order to avoid the transfer income tax and impose the transfer income tax on the donor who is the actual income. Thus, in cases where the sum of the amount of gift tax and the transfer income tax on the donee is less than the transfer income tax calculated by deeming that the donor directly transfers the gift and the transfer income tax are less than the transfer income tax calculated by deeming that the donor directly transfers the gift, and where the donation is to reduce the transfer income tax unjustly, the donor may be deemed to have directly transferred the relevant asset by applying Article 1

Article 101 (2) and (4) (see current Article 101 (5)) of the former Income Tax Act (Amended by Act No. 9270, Dec. 26, 2008); Article 98 (1) 1 (see current Article 98 (1)) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010)

Supreme Court Decision 97Nu13979 Delivered on November 25, 1997

Plaintiff

Samsung Head of Samsung Tax Office

Seoul High Court Decision 2012Nu29709 decided August 9, 2013

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

The grounds of appeal are examined.

1. Article 101(2) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008; hereinafter the same) provides that “If a person who received a donation of an asset from a resident and a person with a special relationship donates the asset (excluding the case of a spouse subject to Article 97(4)) to a person who received a donation of the asset to another person within five years from the donation date, the donor shall be deemed to have transferred the asset directly to the other person,” and Article 98(1)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034 of Feb. 18, 2010) upon delegation of Article 98(5) of the same Act provides that “the relative of the relevant resident” as one of the specially related persons.

The purpose of Article 101(2) of the former Income Tax Act is to deny the transfer of assets through the form of donation in order to avoid capital gains tax and impose capital gains tax on the donor who is the actual income (see, e.g., Supreme Court Decision 97Nu13979, Nov. 25, 1997). Thus, in cases where the sum of the amount of gift tax and capital gains tax on the donee is less than the capital gains tax calculated on the direct transfer of the donor, the donor may be deemed to have directly transferred his assets in accordance with Article 101(2) of the former Income Tax Act in cases where the donation is for the purpose of unreasonably reducing capital gains tax and the transfer income tax is reverted to the donor.

2. Comprehensively taking account of the adopted evidence, the lower court determined that the Plaintiff’s disposal of the instant house was lawful in view of the following facts: (a) on December 7, 2005, the Plaintiff donated the instant house to Nonparty 1, who was son on December 7, 2005, and transferred it to Nonparty 2 on August 20, 2010, within five years from the donation date; (b) Nonparty 1, a donee, reported and paid KRW 8,100,000 to Nonparty 1, but did not consider the transfer income tax as non-taxation for one household; and (c) the transfer income tax calculated by deeming the Plaintiff as the case of direct transfer of the instant house to the Plaintiff was 46,890,63 causes, etc.; and (d) on the ground that the Plaintiff’s sale price of the instant house was 250,000,000,000 won to the Plaintiff’s account via an account in the name of Nonparty 1; (d) the Plaintiff’s disposal and disposal of the instant house could not be applied to Nonparty 1.

Upon examining the records in light of the above provisions and legal principles, the court below's fact-finding and judgment are just, and there are no errors in violation of the principle of free evaluation of evidence against logical and empirical rules or misunderstanding of legal principles as to Article 101 (2) of the former Income Tax Act, as alleged in the grounds of appeal.

3. 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 Park Poe-dae (Presiding Justice)