[1] The method of calculating the transfer value of assets in case of expropriation under the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects

[2] Whether the transfer value shall be calculated at the market price of things other than money by applying Article 24(2) of the former Income Tax Act mutatis mutandis to the case of importing things other than money such as money in return for expropriation under the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects (negative)

[1] Since the transfer of assets subject to transfer income tax under the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects falls under the transfer of assets subject to transfer income tax, in case of expropriation, the transfer value of the relevant assets shall be calculated based on the actual transaction value, namely, the actual transaction price, the actual transaction price in itself or at the time of the transaction, and in case where it is impossible to recognize or confirm the actual transaction value, it shall be calculated based on

[2] Article 24 of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009; hereinafter “Income Tax Act”) provides that the total amount of gross income on global income and retirement income shall be calculated based on the total amount received or received during the pertinent year (paragraph (1)). In the case of imports other than money, the amount of income shall be calculated based on the market price at the time of the transaction (paragraph (2). Article 118 of the Income Tax Act provides that the amount of income shall be calculated based on the market price at the time of the transaction (Article 24 (2) of the Income Tax Act). However, in the case of expropriation, as long as the transfer value of the pertinent asset shall be calculated based on the actual transaction price or standard market price, the transfer value of assets other than money such as compensation bonds shall not be calculated as the market

[1] Articles 96 and 114 (7) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) / [2] Articles 24 (1) and (2), and 118 of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009)

[1] Supreme Court Decision 95Nu13890 delivered on December 22, 1995 (Gong1996Sang, 607)

Plaintiff

Head of Yeongdeungpo Tax Office

Seoul High Court Decision 2010Nu636 decided July 23, 2010

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

The grounds of appeal are examined.

1. In principle, the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter “Income Tax”) shall be calculated based on the actual transaction value between the transferor and the transferee at the time of the transfer of assets (hereinafter “actual transaction value”), and in exceptional cases, it shall be calculated based on the standard market value at the time of the transfer of the relevant assets (Article 96): Provided, That in cases where the transfer value is based on the actual transaction value and where it is impossible to recognize or confirm the actual transaction value at the time of the transfer of the relevant assets by books or other documentary evidence due to the reasons prescribed by the Presidential Decree, the transfer value shall be determined or corrected based on the transaction example, appraisal value, or standard market value (Article 114(7)).

Since the transfer of assets subject to the transfer income tax for the purpose of use under the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects falls under the transfer of assets subject to the transfer income tax for the purpose of use (see Supreme Court Decision 95Nu13890, Dec. 22, 1995, etc.). In the case of expropriation, the transfer value of the relevant assets shall be calculated based on the actual transaction value, namely, the actual transaction price, that is, on the basis of the actual transaction price in itself or at the time of the transaction, and where it is impossible to recognize

Meanwhile, Article 24 of the Income Tax Act provides that the total amount of gross income on global income and retirement income shall be calculated on the basis of the total amount received or received during the pertinent year (Article 1(1)), and that in the case of imports other than money, it shall be calculated on the basis of the market price, i.e., the value at the time of the transaction (Article 118(2)). However, in the case of expropriation, as long as the transfer value of the pertinent assets should be calculated on the basis of the actual transaction price or the standard market price, the transfer value of the relevant assets shall not be calculated on the basis of the actual transaction price or the standard market price.

2. According to the reasoning of the judgment below, after consultation with the Korea Land Corporation to transfer the instant land owned by the Plaintiff in KRW 1,058,729,100, the Plaintiff received compensation claims of KRW 338,729,100 in cash and KRW 720,00,00 in face value as compensation agreed from the Korea Land Corporation. In light of the aforementioned legal principles, in light of the above legal principles, the transfer value of the instant land should be deemed KRW 1,058,729,100, the actual agreed amount in return for the actual transaction price or the payment at the time of the transaction.

Nevertheless, on the premise that Article 24 (2) of the Income Tax Act applies mutatis mutandis to the calculation of the transfer value for this expropriation, the lower court held that the instant disposition rejecting the Plaintiff’s claim for correction was unlawful on the ground that the transfer value of the instant land is KRW 1,029,906,276, which is the sum obtained by deducting the loss from the face value of compensation bonds less the loss of KRW 28,82,824, from the transfer value, was the transfer value of the instant land. In so doing, the lower court erred by misapprehending the legal doctrine on the method of calculating the transfer value applied to the case of expropriation, thereby adversely affecting the conclusion of the judgment. The Defendant’s ground of appeal pointing this out is with merit.

3. Therefore, without further proceeding to decide on the remaining grounds of appeal, 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 Sang-hoon (Presiding Justice)