[1] Legislative intent and application requirements of the provision of wrongful calculation under the Income Tax Act

[2] The meaning of the "market price" under Article 111 (2) 1 of the former Enforcement Decree of the Income Tax Act, and whether the appraisal price of a reliable appraisal institution can be seen as the market price above (affirmative)

[3] Whether new data should be submitted (affirmative) and whether the grounds for disposition should be exchanged and changed (affirmative)

[4] In a case where there are several appraisals contrary to the same facts, whether a court may employ either one of the appraisal or recognize facts based on only a part of the one appraisal (affirmative with qualification)

[5] Whether Article 170 (8) of the former Enforcement Decree of the Income Tax Act is invalid without delegation of the parent law (negative)

[6] Where Article 55 (1) of the former Income Tax Act applies, the standard for calculating the transfer value (=market price) and the meaning of "market price" under Article 170 (8) of the Enforcement Decree of the same Act

[7] The standard time for determining whether the calculation constitutes a wrongful calculation, and whether it is unreasonable to regard the standard time for calculating transfer margin differently after denying the wrongful calculation (negative)

[1] Article 55 (1) of the former Income Tax Act (amended by Act No. 4163 of Dec. 30, 1989) provides that "the calculation panel of wrongful calculation" means that the resident's act or calculation is consistent with objective facts and is legally effective and lawful, and it is accurate calculation in the account. However, where such act or calculation is a transaction between related parties and a type of transaction which unreasonably reduces an objective tax burden such as low-price transfer, it is the legislative purpose of the government to deny it under the tax law and calculate the amount of income by the method as prescribed by the law and the law. Thus, the wrongful calculation method can be deemed as a normal transaction between related parties, and it can be deemed that the tax burden has been unjustly reduced because the transaction between related parties cannot be deemed as a reasonable transaction in light of social norms and customs.

[2] Article 111 (2) 1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 12877 of Dec. 30, 1989) provides as the basis for the low-price transfer, which is the denial of wrongful calculation, means, in principle, an objective exchange price formed through normal transactions. However, this concept includes an amount evaluated in an objective and reasonable manner, and the appraisal price of a reliable appraisal institution can be seen as the market price. Thus, if there is such appraisal price, the appraisal price should be determined on the basis of the appraisal price prior to other appraisal methods.

[3] Since the subject matter of a taxation revocation lawsuit is objective existence of the tax amount determined by the tax authority, the tax authority may submit new data that can support the legitimacy of the tax base or tax amount recognized in the pertinent disposition, or exchange and change the reasons within the scope that maintains the identity of the disposition, and it does not necessarily mean that the tax authority can determine the legitimacy of the disposition only by the data at the time of the disposition or claim only the reasons for the disposition.

[4] If an appraisal requires special knowledge and experience in determining certain matters, it is nothing more than the use of such knowledge and experience as a means to assist the appraisal, so long as there are several different appraisals as to the same facts, and there is no evidence to prove that one of them is erroneous, even if a court employs any one of the appraisal or recognized facts based on only a part of the appraisal, it shall not be deemed unlawful unless it violates the rules of experience or logic.

[5] In a transaction with a related party under each subparagraph of Article 111(2) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 12877 of Dec. 30, 1989), if it is deemed that the tax burden has been unjustly reduced due to the acquisition of land, etc. in excess of the market price or the transfer of land below the market price, Article 170(8) of the same Enforcement Decree which provides that the acquisition price or the transfer price shall be calculated at the market price shall not be deemed as a provision on the basis of Article 55(1) of the former Income Tax Act (amended by Presidential Decree No. 4163 of Dec. 30, 1989) which provides that the acquisition price or

[6] Where Article 55 (1) of the former Income Tax Act (amended by Act No. 4163 of Dec. 30, 1989) applies because the act of transfer of assets by a resident with capital gains is deemed to reduce the tax burden on capital gains by transfer of assets with a special relation with the resident, the transfer value shall be calculated based on the market price pursuant to Article 170 (8) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 12877 of Dec. 30, 1989) and shall not be calculated based on the standard market price, and the "market price" under Article 170 (8) of the same Enforcement Decree refers to the objective exchange value formed through a normal transaction in principle, but if it is difficult to verify such market price, the value appraised in an objective and reasonable manner may also be deemed to be the market price.

[7] The standard time for determining whether a transaction constitutes wrongful calculation is the result of considering the purpose of the system as the date of the conclusion of the transaction contract, i.e., the date of the transaction contract. The standard time for calculating transfer margin is the result of the tax authority’s denial of the standard time for applying the general principle on the acquisition and transfer time as there is no special provision on the standard time applicable in the case of calculating transfer margin by itself, and the two are different from the reason for the choice, and thus the two are not unreasonable.

[1] Article 5 (1) (see current Article 41) of the former Income Tax Act (amended by Act No. 4163 of Dec. 30, 1989) / [2] Article 5 (1) (see current Article 41) of the former Income Tax Act (amended by Act No. 4163 of Dec. 30, 1989), Article 11 (2) 1 (see current Article 98 (2) 1) of the former Income Tax Act (amended by Presidential Decree No. 1287 of Dec. 30, 1989) / [3] Article 19 of the former Income Tax Act / [4] Article 187 of the Civil Procedure Act, Article 8 (2) and Article 27 (1) of the former Income Tax Act (amended by Act No. 4163 of Dec. 16, 1989) / [5] Article 19 of the former Income Tax Act (see current Article 97 (2) of the former Income Tax Act)

[1] Supreme Court Decision 81Nu10 decided Nov. 24, 198 (Gong1982, 75) 88Nu5273 decided Jun. 13, 198 (Gong1989, 198), Supreme Court Decision 91Nu7637 decided Jan. 21, 1992 (Gong1992, 9797, 1997) 90Nu1329796 decided Feb. 14, 1997 (Gong1997, 897, 8199) 2/9697, 90Nu92979 decided Feb. 12, 1993 (Gong1993, 1021) / [2] Supreme Court Decision 90Nu9794979 decided May 16, 197

Plaintiff 1 and two others (Attorney Kim Young-ok, Counsel for the plaintiff-appellant)

Daejeon director of the tax office

Daejeon High Court Decision 96Gu2680 delivered on December 18, 1998

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

1. Summary of the judgment of the court below

A. Comprehensively taking account of the evidence established, the court below: (a) purchased each of the real estate in this case between the two vice-party plaintiffs, as stated in its decision, and sold and purchased each of the real estate in the table of sale and purchase attached to the court below's judgment on April 22, 1989, and (b) concluded the contract of this case with the date of contract, intermediate payment, June 30 of the same year, and June 30 of the same year with the payment of intermediate payment, and concluded the contract of this case to complete the registration of transfer at the same time with the receipt of intermediate payment; (c) made a final return of tax base on the transfer of each of the real estate in this case on May 28 of the same year; (d) the defendant paid transfer income tax on the ground that the plaintiffs acquired each of the real estate in this case with a special relationship with the plaintiffs, and (e) reduced the acquisition value of each of the real estate in this case by 15th appraisal or disposal of each of the above real estate at the time of acquisition of each of the real estate in this case.

B. Based on the above findings, the lower court determined as follows on the Plaintiffs’ assertion that the instant disposition was unlawful.

(1) First, the plaintiffs' assertion that the special relationship under Article 55 (1) of the former Income Tax Act was established between the above businesses and the above businesses by acquiring the shares of the above businesses on December 15, 1989, which was after the transfer of each real estate of this case, and that there was no special relationship with the above businesses at the time of the transfer of each of the real estate of this case, was established based on the evidence established. According to the above facts established, the plaintiffs' assertion that the above businesses did not constitute a special relationship with the above businesses. According to the above facts, the plaintiffs were admitted as a shareholder of the above businesses from the day following the acquisition date or the payment date of each new shares by acquiring the shares or acquiring new shares under the name of the title trustee on the register of shareholders and paying the shares for the shares, and the issue of whether the purchase price of each of the real estate of this case was determined shall be 18,043 shares totaled 18,00 per cent of the total issued shares and 32,000 per cent of the above businesses.

(2) Second, even if the act of transferring each of the real estate in this case is recognized as a transaction between the parties with a special relationship, the transfer price of each of the real estate in this case cannot be deemed to fall short of the market price at the time of transfer because there is no material verifying the market price at the time of transfer, and thus, the disposition of this case which deemed that the act of transferring each of the real estate in this case constitutes a case where tax burden was unjustly reduced by transferring the assets below the market price at the time of the transfer. According to the facts acknowledged in its holding, if the plaintiffs entered into a contract of transfer at the same time and the payment method thereof are the same as the whole in the transfer of each of the real estate in this case, and if the transaction was conducted for the purpose of using each of the real estate as the site of the hotel or sports center, the plaintiffs transferred each of the real estate in this case to the above fixed industry, regardless of whether the transfer price at the time of the transfer price at the time of transfer at the time of sale at the time of the above 7% appraisal price at the time of 98% appraisal price at each of the above.

(3) Lastly, with respect to the market price and the base time of the transfer value, Article 170 (8) of the former Enforcement Decree of the Income Tax Act provides that the acquisition price or the transfer value shall be calculated based on the market price in calculating the income amount by wrongful calculation. Thus, the transfer value shall not be calculated based on the market price in accordance with the above provision. Here, the market price refers to the objective exchange price formed through normal transactions in principle, but since the concept includes the value evaluated in an objective and reasonable manner, the appraisal price of a reliable appraisal institution can be deemed as the market price. Also, since there are no special provisions regarding the market price base time, if the registration of transfer is completed prior to the remaining liquidation pursuant to Article 27 of the Income Tax Act and Article 53 (1) 2 of the Enforcement Decree of the same Act, the appraisal price of the appraiser 1 should be deemed as the transfer date and the market price at the time of the transfer should be calculated based on the market price at the time of the transfer. Accordingly, the appraisal price of each real estate of this case should be determined as the reasonable price at the time of each transfer registration of this case.

2. Judgment of the Supreme Court

A. The provision regarding the wrongful calculation under Article 55 (1) of the former Income Tax Act provides that the act or calculation of a resident is consistent with objective facts and is legally effective and lawful, and that is calculated in the account, even if it is calculated accurately, where such act or calculation constitutes a transaction between related parties and an objective tax burden, such as low-price transfer, etc., the legislative purpose of this provision is to realize fair taxation by embodying the substance over form principle, and thus, it can be deemed that a reasonable transaction between related parties cannot be deemed to take place in light of social norms and customs, and thus, it can be deemed that the tax burden has been unjustly reduced (see Supreme Court Decision 95Nu13296, Feb. 14, 1997).

B. As to the assertion that the transaction was not made with the related party

Examining the relevant evidence in light of the records, the fact-finding and judgment of the court below that held 18,043 shares issued in the name of the title trustee, including Plaintiff 2, Plaintiff 3, and Nonparty 2, Nonparty 3, Nonparty 4, Nonparty 5, Nonparty 6, Nonparty 7, and Nonparty 8, etc. as of April 22, 1989, which were the date of the instant sales contract, as of April 2, 1989, as of which the purchase price of each of the real estate in this case was determined, constituted a person with a special relationship under Article 111(1)5 of the former Enforcement Decree of the Income Tax Act, on the ground that the Plaintiffs held 18,00 shares issued in the name of the title trustee, including Plaintiff 2, Defendant 3, and Nonparty 2, Nonparty 3, Nonparty 3, Nonparty 4, Nonparty 5, Nonparty 6, Nonparty 7, and Nonparty 8.

C. As to the assertion that it is not a low-price transfer

(1) In light of the records, we affirm the judgment of the court below that the plaintiffs' transfer contract was concluded on the same date in transferring each real estate of this case and the payment method thereof was the same as well as the sale price was made for the purpose of using the real estate subject to transfer as a site for a hotel or sports center as a whole, and that the plaintiffs transferred the real estate of this case to a fixed industry by combining each of the real estate of this case. There is no violation of the rules of evidence or misapprehension of the legal principles as to the probative value of disposal documents

(2) Article 111(2)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19913, Feb. 12, 1993; see Supreme Court Decision 92Nu913, Feb. 12, 1993; 2009Du1489, Feb. 14, 2009) provides that "market price, which is defined as the basis for the denial of unfair act and calculation, refers to an objective exchange price formed through normal transaction in principle, but this is a concept that includes the value evaluated in an objective and reasonable manner, and thus, the reliable appraisal institution's appraisal price can also be deemed as the market price. Thus, if there is such appraisal price, prior to the evaluation according to other statutory evaluation methods, the appraisal price shall be determined on the basis of the appraisal price (see Supreme Court Decision 92Nu9913, Feb. 12, 1993; 200Du1984, Feb. 19, 209).

In light of the purport of these legal principles, the court below asserted that the appraisal price revealed as a result of the appraisal conducted in the course of the lawsuit after the transfer of each real estate of this case shall be deemed the market price of each of the real estate of this case, and that there is no misapprehension of the legal principles as to the wrongful act and calculation panel, and that the defendant who is the tax authority denies the transfer price of each of the real estate of this case for the reason that the original plaintiffs' transfer price of the real estate of this case falls short of the standard market price and applied for the market price assessment based on the standard market price, and the tax amount should be determined based on the result of appraisal that is unfavorable to the plaintiffs than the standard market price in the litigation procedure, and that such assertion cannot be permitted against the principle of good faith. Accordingly, the ground of appeal on this part shall not be accepted.

(3) On the other hand, since an appraisal requires special knowledge and experience in determining certain matters, there are several different appraisal methods in relation to the same facts, and as long as there is no evidence to prove that there is an error in one of them, it shall not be deemed unlawful unless it violates the empirical rules or logical rules (see Supreme Court Decisions 92Nu1479 delivered on June 29, 1993 and 94Nu14919 delivered on September 5, 195, etc.).

In determining whether the act of transferring each real estate of this case constitutes a low price transfer, the court below employed Nonparty 1’s appraisal results which was assessed as of April 22, 1989, and the appraisal results other than those mentioned above are merely supplementary materials. In this case where there is no evidence to deem that the adoption of the appraisal results by Nonparty 1 violates the rule of experience or logic, the court below did not err by misapprehending the legal principle or by misapprehending the law of reason, as otherwise alleged in the ground of appeal.

D. As to the assertion on the market price at the transfer price and its standard time

(1) In a transaction with a related party under each subparagraph of Article 111(2) of the former Enforcement Decree of the Income Tax Act, if it is deemed that the tax burden has been unjustly reduced by acquiring land, etc. in excess of the market price or by transferring it below the market price, Article 170(8) of the former Enforcement Decree which provides that the acquisition price or transfer price shall be calculated at the market price shall not be deemed an invalid provision without delegation of the parent law, as a provision under Article 55(1) of the former Income Tax Act (see Supreme Court Decision 92Nu913, Feb. 12, 1993, which provides that the acquisition price or transfer price shall be calculated at the market price in the case of a corporation’s land, etc. subject to wrongful calculation in calculating special surtax on the transfer of the corporation’s land, etc.). Therefore, the grounds for appeal that Article 170(8) of the Enforcement Decree of the former Enforcement Decree violates the principle of no taxation without law and

(2) Where Article 55(1) of the former Income Tax Act applies because the transfer of assets by a resident with capital gains is deemed to have reduced the tax burden on capital gains by transferring assets in an amount below the market price with a corporation in a special relationship with the resident, the transfer value shall be calculated at the market price in accordance with Article 170(8) of the Enforcement Decree of the same Act and shall not be calculated based on the standard market price (see, e.g., Supreme Court Decisions 91Nu2731, Nov. 26, 1991; 92Nu19675, Jun. 8, 1993). In addition, “market price” under Article 170(8) of the former Enforcement Decree of the Income Tax Act refers to the objective exchange value formed through a normal transaction in principle, but where it is difficult to verify such market price, the value assessed in an objective and reasonable manner may also be deemed to be the market price (see, e.g., Supreme Court Decisions 91Nu2731, Nov. 24, 1992>

In the same purport, the court below does not apply the standard market price in the calculation of gains on transfer, and it is just to take measures based on the market price of a reliable appraisal institution evaluated in an objective and reasonable manner as the standard market price. Furthermore, in interpreting Article 170 (8) of the former Enforcement Decree of the Income Tax Act, it is reasonable to interpret that the gains on transfer should be calculated based on the standard market price on the ground that the market price of real estate appraised as above is higher than the standard market price and the transfer difference is higher than the standard market price.

(3) The standard time for determining whether a transaction constitutes wrongful calculation is the result of considering the purpose of the system, i.e., the date of the conclusion of a transaction. The standard time for calculating capital gains is the result of applying the general principle on the acquisition and transfer time as the result of the tax authority’s denial of such time when the tax authority denies transfer gains by itself, as it does not have any special provision on the standard time applicable to the calculation of capital gains. As such, both are different from the reason and standard for the choice, and thus the two are different, and it is not unreasonable for the two to regard the standard time differently. In the same regard, the court below’s decision that the transfer time of each real estate in this case is the date of receipt of the ownership transfer registration as to the standard time for the transfer value in determining whether a transfer of real estate in this case is low price transfer is based on the date of conclusion of each transaction in this case, and there is no error of law in the misapprehension of legal principles

3. Therefore, all appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yoon Jae-sik (Presiding Justice)