Cho High Court Decision 2017Du3396 ( October 31, 2018)

The aggregate period of the pre-donation property of succession shall be 10 years.

If the heir becomes the heir by satisfying the requirements of the substitute heir as of the commencement date of inheritance, the value of the property donated by the decedent within 10 years before the commencement date of inheritance shall be deemed the donation to the heir and included in the taxable amount of inheritance taxes.

Article 13 of the former Inheritance Tax and Gift Tax Act (Taxable Value of Inherited Property)

2018Guhap63426 Revocation of Disposition of Levying Inheritance Tax

- Appellants

MadD et al.1

- Appellants

○ Head of tax office

February 28, 2019

March 28, 2019

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

The Defendant’s disposition of imposition of KRW 92,614,121 (Plaintiff YoonD 69,818,565 won, Plaintiff Choi G22,795,556 won) against the Plaintiffs on November 1, 2016 is revoked.

1. Details of the disposition;

A. The LA had the lowestB and the lowestCC as his child, and the lowestB married with the Plaintiff apD and had the maximum E, the FF, and the Plaintiff MaximumG among them.

B. On October 15, 2009, LA donated 8/12 shares to LB, among the above-mentioned ○○○○○○-dong ○○○○○○-dong ○○○○○-dong ○○○○-dong ○○○-dong ○○, and the above-mentioned buildings, respectively, to LA-D, and donated 8/12 shares to the Plaintiff, and 3/12 shares to the Plaintiff, respectively (hereinafter referred to as “instant shares”).

C. Accordingly, the Plaintiffs paid gift tax. The Plaintiffs also paid 6,351,931 won (hereinafter referred to as “the added amount”) calculated by adding 30/100 to 21,173,104 won of gift tax pursuant to the main sentence of Article 57 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916, Jan. 1, 2010) by falling under a lineal descendant, other than a donor’s child, as the donor’s lineal descendant.

D. The largestA died on May 1, 2015, and earlier, the Plaintiffs, the heir of the largestB, died on November 30, 2010, became the inheritor of the largestB.

Name

Relationship with the inheritee

Inheritance Shares

Amount of payable tax

Joint and Several Tax Liability Ceiling

LCC

A.

83.05

453,910,848 won

2,699,315,405 won

MadD

Ministry of Gender Equality

12.78

69,818,565 won

658,859,669 won

LGG

the Corporation.

4.17

2,795,556 won

215,115,748 won

E. On November 30, 2015, the MinimumCC filed an inheritance tax base return with the amount of KRW 2,435,962,080 (i.e., property value 5,703,939,206 - the amount of tax to be paid at KRW 3,267,97,126), the amount of tax to be paid at KRW 552,946,350, without including the donated property, such as the instant shares, in the taxable value of inherited property (i.e., property value 5,703,97,126). Accordingly, the Defendant determined the amount of tax to be paid at KRW 668,173,574 (i.e., the value of the instant shares donated by the Plaintiffs from the MinimumA, 68,308,054 + KRW 185,865,520) as the property value donated by the ancestor within ten years prior to the commencement date of inheritance, and determined the amount of inheritance tax to be paid at KRW 363651,3616.

F. The Plaintiffs asserted that the instant shares donated to them by LA do not constitute “property donated to their heir” under Article 13(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 13557, Dec. 15, 2015; hereinafter “former Inheritance Tax and Gift Tax Act”) and filed a request for adjudication on June 14, 2017 following an objection on January 26, 2017, but the Tax Tribunal dismissed the said shares on January 31, 2018).

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 6, 9 to 11, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

The Plaintiffs did not have any intention to avoid or reduce inheritance tax burden based on the progressive rate at the time of the donation, and such donation cannot be deemed to have the character as an advance payment of inherited property, and if it is interpreted to be included in the “he inheritor” under Article 13(1)1 of the former Inheritance Tax and Gift Tax Act prior to the occurrence of a cause for substitute succession, the prohibition of double taxation would be in violation of the prohibition of double taxation, and in case where the decedent died before the person is dead, it is not included in the taxable value of inherited property, due to an unreasonable result included in the taxable value of inherited property, which would be contrary to the principle of no taxation without law, the principle of clarity of retroactive legislation, and the principle of trust protection, because the shares donated by the Plaintiffs from LA cannot be deemed to fall under the property donated by the decedent, and thus, the disposition of this case, which was added up the value of inherited property, is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) If the heir becomes the heir under the former Inheritance Tax and Gift Tax Act upon the death of the decedent and the commencement of inheritance, the value of the property donated by the decedent within ten years prior to the commencement date of inheritance shall be deemed as a donation to the heir pursuant to Article 13(1)1 of the former Inheritance Tax and Gift Tax Act, and shall be included in the taxable value of inherited property (see Supreme Court Decision 2016Du54275, Dec. 13, 2018). Such interpretation does not violate the principle of prohibition of double taxation, the principle of prohibition of retroactive legislation, the principle of prohibition of retroactive legislation, and the principle of protection of trust. The reasons are as follows.

A) Article 13(1) of the former Inheritance Tax and Gift Tax Act provides that the taxable value of inherited property shall be calculated by adding the value of the property donated by an ancestor to a person who is not an inheritor within 10 years prior to the commencement date of the inheritance (Article 13(1) of the same Act) and the value of property donated by an ancestor to a person who is not an inheritor within 5 years prior to the commencement date of the inheritance by adding the value of the inherited property to the value of the inherited property. This is to maintain the equity between inheritance and gift tax for tax burden by including the value of donated property in the taxable value of inherited property in advance, and to prevent unjust evasion of inheritance tax by dividing it into a gift without distinction from inheritance and transfer

B) Article 28(1) main text of the former Inheritance Tax and Gift Tax Act provides that “The amount of gift tax (referring to the amount of gift tax calculated on donated property as at the time of donation) on donated property added to inherited property under Article 13 shall be deducted from the amount of inheritance tax calculated in order to exclude double taxation on the same property while maintaining the effect of taxation by adding the value of donated property to the taxable value of inherited property, as seen above.” In addition, as seen in the instant case, where inheritance due to the death of a donor was commenced after a gift tax was imposed as a gift on a lineal descendant who is not a child of a donor, and the donee became a heir upon satisfying the requirements for inheritance by representation under Article 1001 of the Civil Act, the amount of gift tax deducted from the amount of inheritance tax calculated in accordance with the main sentence of Article 28(1) of the former Inheritance Tax and Gift Tax Act includes the amount of household omission calculated due to the increase in taxation (see Supreme Court Decision 2016Du54275, Dec. 13,

C) Inheritance tax is also imposed on inherited property as of the commencement date of inheritance due to inheritance, and the inheritance is also established at the time of inheritance commencement, and an inheritor is obligated to pay inheritance tax on the basis of the property received or to be received by each obligee. Here, an inheritor includes a substitute inheritor under Articles 1001 and 103 of the Civil Act (Articles 1(1) and 3(1) of the former Inheritance Tax and Gift Tax Act, etc.).

D) Supreme Court Decision 2012Da31802 Decided May 29, 2014 (2014) regarding the interpretation of Article 1008 (Shares of Inheritance for Special Beneficiary) of the Civil Act prepared for the purpose of ensuring fairness among co-inheritors in calculating a specific share of inheritance. As such, the instant case differs from its legislative intent, text, content, and system of relevant statutes, and thus, it is inappropriate to invoke it in the instant case.

2) Examining the aforementioned facts in light of the aforementioned legal principles, even if the Plaintiffs received the instant shares from the leastB during their existence, and thereafter, when inheritance commenced due to the death of the leastA, the donor and the heir of the deceased, the Plaintiffs became the donor and the heir of the bestA. Thus, the instant shares donated by the leastA within 10 years prior to the date of commencing the inheritance constitute “property donated by the decedent to his heir” under Article 13(1)1 of the former Inheritance Tax and Gift Tax Act, and thus, are included in the taxable value of inherited property. Accordingly, the Plaintiffs’ assertion on a different premise is without merit.

3. Conclusion

Therefore, the plaintiffs' claims of this case are without merit, and they are dismissed. It is so decided as per Disposition.

1) On the other hand, the maximumCC also appealed on January 26, 2017, and the Director of the Regional Tax Office rendered a reinvestigation decision on January 26, 2017. Ultimately, the Defendant corrected the total amount of the determination at KRW 845,759,559 by partially reducing the part regarding the maximum amount of the donation property value (No. 5 and No. 6). However, since the materials that were served on the Plaintiffs are not present in the pleadings of this case, it cannot be deemed that the instant disposition was corrected yet, and thus, it is determined based on the content of the disposition as of November 1, 2016.