[1] Whether each co-inheritors is jointly and severally liable to pay the inheritance tax of other co-inheritors within the scope of the property they received or are to receive (affirmative)

[2] In a case where a prior donation property is added to the “property received or to be received by a person,” which determined the limit of the heir’s duty to jointly pay the property in advance, whether the amount of gift tax imposed or to be paid corresponding thereto should be deducted (affirmative)

[1] Article 3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that an inheritor is obligated to pay inheritance tax according to the ratio of the property each has received or is to receive among inherited property. Paragraph (4) of the same Article provides that an inheritor is jointly and severally liable to pay inheritance tax within the limit of the property each has received or is to be received by the inheritor. Accordingly, each co-inheritors is jointly and severally liable to pay inheritance tax according to the ratio of the total value of inherited property calculated by calculating the total value of inherited property of the deceased to be the taxable value of inherited property by inheritance. As such, the co-inheritors are jointly and severally liable to pay inheritance tax of other co-inheritors, along with the inherent liability

As above, setting the duty to pay and jointly pay the heir’s own inheritance tax on the basis of the property received or to be received by the heir is intended to impose tax on the person who acquired the property gratuitously transferred due to the death of the decedent by taking into account the actual ability to pay taxes. Thus, inasmuch as Article 3(3) of the former Inheritance Tax Act provides that “the inherited property under paragraph (1) includes the donated property received by an heir or a testamentary donee added to inherited property pursuant to Article 13 of the former Inheritance Tax Act, the inherited property included in such inherited property constitutes “property received or to be received by an heir” under Article 3(4) of the former Inheritance Tax Act, which is the standard for determining the duty to jointly pay taxes by the heir.

[2] The former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) adds property in order to maintain the equity between inheritance tax and gift tax and to prevent an act unreasonably reducing the burden of inheritance tax by progressive tax rate. However, the provision of Article 28 that deducts a certain amount of gift tax on donated property from the amount of inheritance tax calculated to adjust it is unreasonable. As such, the difference in the time of prior donated property that the decedent donated to his/her heir is only the difference in the time of prior donated property, and the substance that the property is transferred free of charge between the parties is the same as that of general inheritance in order to achieve the purpose of taxation of special inheritance tax, it is reasonable to view that, if the property was added to the “property received or to be received by the heir,” the total amount of gift tax imposed or to be paid should be deducted from the actual amount of inheritance tax imposed by deducting the amount of gift tax imposed or to be paid by the heir’s share of the total amount of property acquired by inheritance tax from the actual amount of inheritance tax payable by inheritance tax. This doctrine applies.

[1] Article 3(1) (see current Article 3-2(1) and (4) (see current Article 3-2(3)) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010) / [2] Article 3(1) (see current Article 3-2(1) and (4) (see current Article 3-2(3)) of the former Inheritance Tax and Gift Tax Act (Amended by Act No. 9916, Jan. 1, 2010); Article 2-2(2) (see current Article 3(3)) of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (Amended by Presidential Decree No. 22579, Dec. 30, 2010)

[1] Supreme Court Order 2013S33 and 34 (Gong2013Ha, 352) dated June 24, 2013 / [2] Supreme Court Decision 77Nu304 decided June 12, 1979 (Gong1979, 12044) Supreme Court Decision 95Nu17250 decided May 31, 1996 (Gong196Ha, 2059) (Gong196Ha, 2059) Decided May 9, 2012 (Gong2012Sang, 1012)

Plaintiff (Law Firm Lee Li-EL, Attorneys Yoon Young-young et al., Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Supreme Court Decision 2014Du3471 Decided January 28, 2016

Seoul High Court Decision 2016Nu249 decided November 3, 2016

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

The grounds of appeal are examined.

1. Article 3(1) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010; hereinafter “former Inheritance Tax Act”) provides that an inheritor is obligated to pay inheritance tax according to the ratio of property each has received or is to be received among inherited property. Paragraph (4) thereof provides that an inheritor is jointly and severally liable to pay inheritance tax within the limit of property each has received or is to be received by the inheritor. Accordingly, each co-inheritors is jointly and severally liable to pay inheritance tax according to the ratio of property that he/she has received or is to pay, among the total amount of inheritance tax calculated by calculating the total value of inherited property of the deceased as the taxable value of inherited property of each co-inheritors (see, e.g., Supreme Court Order 2013Du3344, Jun. 24, 2013).

As above, setting the duty to pay and jointly pay the heir’s own inheritance tax on the basis of the property received or to be received by the heir is intended to impose taxes on the acquired property by taking into account the actual ability to pay taxes on the person who acquired the property that is gratuitously transferred upon the death of the decedent. Thus, inasmuch as Article 3(3) of the former Inheritance Tax and Gift Tax Act provides that “The inherited property under paragraph (1) includes the donated property received by the heir or testamentary donee who is added to inherited property pursuant to Article 13 of the former Inheritance Tax and Gift Tax Act” based on the standard for determining the duty to pay taxes on the inherited property, prior donated property included in such inherited property constitutes “property received or to be received by the heir” under paragraph (4) of the same

Meanwhile, in order to maintain equity in inheritance tax and gift tax and prevent an act of unfairly reducing the burden of inheritance tax by progressive tax rate, Article 28 of the former Inheritance Tax Act provides for the deduction of a certain amount of gift tax on donated property from the calculated amount of inheritance tax to adjust the same (see, e.g., Supreme Court Decision 2012Du720, May 9, 2012). In addition, inasmuch as the prior donated property donated by an ancestor to his/her heir is the same as the actual amount of property being treated equally as general inherited property in order to achieve the purpose of taxation special inheritance tax, it is reasonable to view that the amount of gift tax should be imposed on the heir who received or paid the amount of gift tax equivalent thereto, even if the amount of gift tax was added to the “property acquired or received by an heir” as set forth in the limit of the heir’s duty to jointly and severally liable for payment, thereby deducting the heir’s duty to actually and severally liable for the amount of gift tax from the total amount of inheritance tax to be imposed or paid by deducting the heir’s duty to be imposed by inheritance tax.

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. Although the Nonparty died on April 5, 2009, six persons, including the Plaintiff, who was his co-inheritors, did not report inheritance tax.

B. Accordingly, on July 6, 201, the Defendant served a tax payment notice on the Plaintiff on the aggregate of the value of the inherited property, and a list of the inheritance tax and the joint and several obligors, but notified the Plaintiff of only the total tax amount without any limit of the joint and several liability for payment.

C. On May 4, 2016, the Defendant corrected the amount of tax payable by the Plaintiff to KRW 294,798,802 (28.61%) and the Plaintiff’s amount of tax payable to the Plaintiff to KRW 609,178,792, and notified the Plaintiff of the amount of tax payable to the Plaintiff. In calculating the said amount, KRW 729,00,000 of the value of the property donated in advance by the Plaintiff was added to KRW 729,846,530, and accordingly, did not deduct the amount of gift tax payable by the Plaintiff.

3. Examining these facts in light of the legal principles as seen earlier, the Plaintiff is obligated to jointly pay within the scope of property received or to be received by the Plaintiff, and the Plaintiff’s amount of gift tax to be paid should also be deducted accordingly, although the Plaintiff’s prior donated property should be added thereto. Nevertheless, the lower court determined that the Defendant’s specific collection notice disposition was lawful without deducting the determined amount of gift tax on donated property as KRW 609,178,792, solely based on the grounds stated in its reasoning. In so determining, the lower court erred by misapprehending the legal doctrine on the limit of duty of joint payment of inheritance tax, thereby adversely affecting the conclusion of the judgment. The

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 Lee Ki-taik (Presiding Justice)