Whether the amount calculated by dividing the maximum debt amount by the credit ratio of the financial institution may be deemed as the market price.

The value calculated by dividing the maximum maximum debt amount of the right to collateral security established on real estate by the credit ratio of financial institutions, shall be the objective exchange price formed through normal transactions or the value assessed by objective and reasonable methods, which is difficult to regard as the market price under Article 60

Article 97 (Calculation of Necessary Expenses for Capital Gains)

Article 163 of the Enforcement Decree of the Income Tax Act

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The defendant's rejection disposition against the plaintiff on January 19, 2005 against the tax base of KRW 171,303,318 of the transfer income tax belonging to the year 2004 is revoked.

1. Details of the disposition;

A. The Plaintiff’s husband ○○○○○○○, ○○○○○, ○○○○, ○○○○, ○○○○○, ○○○○ 2, and 16.72/1302 shares of 16.72/1302, among ○○ apartment, ○○○○, ○○○, ○○○, ○○○, 14.53 square meters, 4.75 square meters under the ground, 22.22/120.92 (hereinafter referred to as “instant commercial”), among 60 square meters of the instant commercial building (hereinafter referred to as “○○ 2, ○○, ○○, ○○, ○○, ○○, ○○○ 2, ○○, ○○, ○○, ○○, ○○, and 143.22 square meters of the instant commercial building, which was converted into 6.7 square meters of the instant commercial building.

B. On June 22, 2004, the Plaintiff transferred the instant shares at KRW 750,00,000, and the transfer value at KRW 750,00,000, and the acquisition value at KRW 4,378,516 for the portion of the building in the inherited shares at issue (i.e., the National Tax Service’s base price at the time of January 1, 2001, KRW 4,463,320,00,000 calculated as the officially assessed individual land price for the portion of the inherited shares at KRW 17,052,00,00,000 for the inherited shares at KRW 11.76,76,00,000 for the inherited shares at KRW 750,00,00,000 for the transferred shares at KRW 684,284,300,000 for the transferred shares at the time of the price by ○ appraiser corporation’s preliminary return at KRW 3830,10,0300,1030.

C. If the market price of the portion of the building of this case is calculated by dividing the aggregate of the maximum debt amount of the right to collateral security established in the commercial building of this case into the credit ratio of financial institutions, the Plaintiff claimed that the market price of the portion of the inherited share of this case as of the date of commencing the inheritance of this case was 172,830,479 won, and that of the portion of the donation of this case was 230,502,853 won as of the date of donation of this case. Thus, the acquisition price of the portion of the building of this case among the donation of this case was 403,333,32 won, and the acquisition price of the portion of the land among the donation of this case was 2,70,700 won calculated as the officially assessed individual land price pursuant to Article 61(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 5582, Dec. 28, 198; hereinafter the same) was 65,700 won.

D. As to this, the Defendant rendered the instant disposition rejecting the Plaintiff’s request for correction on January 19, 2005 on the ground that the amount calculated by dividing the maximum debt amount of the right to collateral security established in the instant commercial building, which the Plaintiff asserted, by the lending ratio of the financial institution, cannot be recognized as the acquisition value of the portion of the building

(In fact that there is no dispute, Gap evidence 1 to 11, Gap evidence 2, Eul evidence 2, the purport of the whole pleadings, and the purport of the whole pleadings.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) The Defendant calculated the acquisition value pursuant to the proviso of Article 97 (1) 1 (a) of the former Income Tax Act and Article 163 (9) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705, Feb. 19, 2005). However, Article 163 (9) of the former Enforcement Decree of the Income Tax Act is not applicable as it is unlawful because there is no specific ground for delegation to the mother law. Therefore, applying Article 97 (1) 1 (c) of the former Income Tax Act and Article 163 (12) of the former Enforcement Decree of the Income Tax Act, the acquisition value shall be applied gradually by applying Article 97 (1) 1 (c) of the former Income Tax Act and Article 163 (12) of the former Enforcement Decree of the Income Tax Act, and if there is no transaction example or appraisal value, the converted value calculated according to the actual transaction value at the time of transfer

(2) ① The amount obtained by dividing the maximum debt amount of the right to collateral security established on the part of the instant building out of the instant shares by the lending rate of a financial institution is the acquisition value of the portion of the instant shares out of the instant shares. Therefore, as of the date commencing the inheritance of the instant shares, the normal price of the portion of the instant shares out of the instant shares is KRW 403,333,333 (i.e., the sum of the maximum debt amount of the instant shares as of the date commencing the inheritance. (ii) the acquisition value of the portion of the instant shares out of the inheritance is KRW 172,830,479 (=403,333,333. 43.22 square meters) and the disposal of the portion of the instant shares, which was assessed by the Plaintiff as of the date of the instant donation, was unlawful, since the normal price of the portion of the instant shares out of the instant shares was not changed between the inheritance date and the inheritance date of the instant shares, the acquisition value of the instant shares calculated as of KRW 230,331343.7.1.33.7

(3) Considering the circumstances in which ○○ Appraisal Corporation created a collateral security right, which causes a total of 121,00,000,000 of the maximum debt amount, at the time of appraising the instant equity interest, the instant disposition that deemed otherwise unlawful even if it is unreasonable that the appraised value of the instant equity interest is excessive and unreasonable, and that the acquisition value of the instant equity interest calculated on the basis thereof is also unreasonable.

C. Determination

(1) As to the Plaintiff’s first argument

Article 97 (1) (a) of the former Income Tax Act provides that the acquisition value of the relevant property shall, in principle, be based on the standard market price at the time of its acquisition; in cases of the real estate located in an area designated and publicly announced as a real estate designated under Article 96 (1) 6-2 of the former Income Tax Act, the acquisition value shall be based on the actual transaction price required for the acquisition of the relevant property; and Paragraph (5) of the same Article provides that the scope of the actual transaction price required for acquisition shall be determined by Presidential Decree; and Article 163 (9) of the former Enforcement Decree of the Income Tax Act provides that the value of the assets inherited or donated under Articles 60 through 66 of the former Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or donation shall be deemed the actual transaction price at the time of its acquisition; in cases of a building inherited or donated before the standard market price of the inheritance tax and Gift Tax Act is publicly announced by the National Tax Service, the value assessed by an appraisal institution under Article 60 through 666 of the former Enforcement Decree shall be deemed the average market price determined by Presidential Decree.

In full view of the above provisions, in case where the transfer margin is to be calculated based on the actual transaction value as general assets other than the assets inherited or donated pursuant to the proviso of Article 97 (1) 1 (a) of the former Income Tax Act, if it is impossible to confirm the actual transaction value required for such transfer, the transfer margin may be calculated based on the transaction example, appraisal value, or conversion value as prescribed by the Presidential Decree. However, in case where the transfer margin is to be calculated based on the actual transaction value as to the assets inherited or donated pursuant to the proviso of Article 97 (1) 1 (a) of the former Income Tax Act, there is no actual transaction value at the time of acquisition. Accordingly, in case of the assets inherited or donated pursuant to the main sentence of Article 163 (9) of the former Enforcement Decree of the Income Tax Act, there is no separate provision as to the actual transaction value at the time of acquisition, and accordingly, the value assessed pursuant to the provisions of Articles 60 through 66 of the former Inheritance Tax and Gift Tax Act as of the date of commencing the inheritance or donation.

(2) As to the second argument by the Plaintiff

The value calculated by dividing the maximum debt amount of the right to collateral security established on real estate by the rate of credit available to financial institutions is the objective exchange price formed through normal transactions or the value assessed by objective and reasonable methods, and it is difficult to regard it as the market price under Article 60 of the former Inheritance Tax and Gift Tax Act, and it is difficult to regard it as the sale price under Article 49 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act, and there is no other ground to view it as the price in which the acquisition value

(3) As to the third assertion by the Plaintiff

In a case where there is no exchange price through transaction, the appraisal value by a reliable appraisal institution may also be deemed the market value (see, e.g., Supreme Court Decision 90Nu4761, Sept. 28, 1990). Therefore, the above appraisal value at the time of the price immediately after the date of the instant donation falls under the acquisition value of the gift shares of this case as the market price stipulated in Article 60 of the former Inheritance Tax and Gift Tax Act. Therefore, the Plaintiff’s assertion on this part is

3. Conclusion

Thus, the plaintiff's claim of this case is dismissed for reasons.

Related Acts and subordinate statutes

○ Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005)

Article 96 (Transfer Value)

(1) The transfer value of assets referred to in Article 94 (1) 1 and 2 shall be the standard market value at the time of transfer of the relevant assets: Provided, That where the relevant assets fall under any of the following subparagraphs, it shall be the actual transaction value between the transferor and transferee (hereinafter referred to as the "actual transaction value"):

6-2. Where the rate of increase of real estate prices in the relevant area is higher than the national consumer price inflation rate, which falls under the real estate stipulated by the Presidential Decree from among the real estate located in the area designated by the Minister of Finance and Economy according to the standards and methods prescribed by the Presidential Decree, as the real estate prices

○ Article 97 of the Income Tax Act as necessary expenses

(1) In calculating gains on transfer of a resident, necessary expenses to be deducted from the transfer value shall be as follows:

1. Acquisition value:

(a) In case of assets as prescribed in Article 94 (1) 1 and 2, the standard market price at the time the assets are acquired: Provided, That in case where the assets concerned fall under any of subparagraphs of Article 96 (1), it shall be based on the actual transaction price required for the acquisition of such assets;

(c) In the case of proviso (a) or (b), where it is impossible to confirm the actual transaction value at the time of acquisition, the transaction example value, appraisal value or conversion value

(5) Matters necessary for calculation of necessary expenses, such as the scope of actual transaction price required for acquisition and gift tax amount shall be prescribed by Presidential Decree.

○ Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18705 of Feb. 19, 2005)

§ 163. Necessary expenses of transferred assets

(9) In the application of the provisions of Article 97 (1) 1 (a) (proviso) and (b) of the Act to the assets received by inheritance or donation (excluding the donation under the provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act), the value assessed under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act at the time of its commencement or donation shall be considered as the actual transaction value at the time of its acquisition: Provided, That in the following cases,

2. In the case of the building inherited or donated before the standard market value of the building was published under the provisions of Article 61 (1) 2 of the Inheritance Tax and Gift Tax Act, the larger amount between the value assessed under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation, and the value under the provisions of

(12) The term “amount of transaction example, appraisal value or conversion value as prescribed by the Presidential Decree” in Article 97 (1) 1 (c) of the Act means the amount as provided in the provisions of Article 176-2 (2) through (4).

(5) The standard market price at the time of acquisition of a building acquired before a public notice of the standard market price under Article 99 (1) 1 (b) of the Act shall be the price computed by the following formula:

○ Estimation and correction of Article 176-2 of the Enforcement Decree of the Income Tax Act

(2) The term “acquisition price converted by the method prescribed by the Presidential Decree” in Article 114 (5) of the Act means the acquisition price converted by the method in the following subparagraphs:

1. In the case of the stocks, etc. under Article 94 (1) 3 of the Act or other assets in Article 94 (1) 4 of the Act, the amount calculated by the following formula: and

2. In the case of the rights to acquire the land, buildings and real estate under Article 96 (1) 1 through 7 of the Act (the provisions of subparagraph 6 shall apply only to the assets acquired before a fictitious acquisition date under paragraph (4)), the amount calculated by the following formula:

The actual transaction value at the time of transfer, transaction example as referred to in paragraph (3) 1, or transaction example value as referred to in subparagraph 2 of the same paragraph, X(the standard market value at the time of acquisition / the standard market value at the time of transfer (in the case of paragraph (7)

(3) In case where the transfer value or acquisition value is estimated, determined or revised under Article 114 (5) of the Act, the amount calculated by applying the method falling under each of the following subparagraphs in sequential order: Provided, That in case where the transaction example under subparagraph 1 or the appraisal value under subparagraph 2 is deemed to be objectively unreasonable, such as the value, etc. in the transaction with the person in special relationship under Article 98

1. In case where there are transaction examples of assets bearing the identity or similarity with the relevant assets (excluding stocks, etc. of stock-listed corporations or Association-registered corporations) within 3 months before and after the date of transfer or acquisition respectively, such value.

2. In cases where there exist the appraisal values which are appraised by two or more certified public appraisal corporations on the relevant assets (excluding stocks) within three months before and after the date of transfer or acquisition respectively, and deemed to bear credibility (limited to those whose date of appraisal standard is within three months before and after the date of transfer or acquisition respectively), the average value of such appraisal values;

3. Acquisition price converted under paragraphs (2) and (3).

4. The standard market price.

(4) In applying paragraph (3) 1 through 3 to the assets (including the assets inherited or donated) acquired before the date under Article 8 of Addenda of the Act No. 4803, the amended Act of the Income Tax Act (hereinafter referred to as “the date of fictitious acquisition”), the acquisition price as of the fictitious acquisition shall be the larger ones among the prices falling under

1. Prices under paragraph (3) 1 through 3 as of the date of fictitious acquisition; and

2. In case where the actual transaction price at the time of acquisition or the price under paragraph (3) 1 and 2 is confirmed, the amount obtained by adding up the actual transaction price of the relevant assets (excluding the assets inherited or donated), or the price under paragraph (3) 1 and 2, and the amount calculated by multiplying such price by the rate of producer price inflation during holding period from the date of acquisition to the

○ Inheritance Tax and Gift Tax Act (amended by Act No. 5582 of Dec. 28, 1998)

Article 60 Principles of Evaluation

(1) The value of property on which an inheritance tax or gift tax is levied under this Act shall be the market price as of the date the inheritance commences or the date of donation (hereinafter referred to as the "date of appraisal"). In such cases, the value appraised by the method of appraisal stipulated in Article 63 (1) 1 (a) and (b) (excluding cases falling under the provisions of Article 63 (2))

(2) The market price referred to in paragraph (1) shall be the price which is deemed to be normal in cases of free trade between many and unspecified persons, and shall include the price of expropriation, public sale, appraisal price, and others which are deemed to be the market price

(3) In the application of paragraph (1), where it is difficult to compute the market price, the price assessed by the methods prescribed in Articles 61 through 65 shall be based on the types, scale and transaction conditions of the relevant property.

Article 61 of the Inheritance Tax and Gift Tax Act: Appraisal of Real Estate

(1) Real estate and rights to real estate shall be appraised by the methods prescribed in any of the following subparagraphs:

1. Land:

The officially assessed individual land price under the Act on the Publication of Land Prices and Evaluation of Land, etc. (hereinafter referred to as the “officially assessed individual land price”): Provided, That the price of the land for which no officially assessed individual land price exists, shall be the amount assessed by the method as determined by the Presidential Decree, taking into consideration the publicly assessed individual land price of neighboring similar land, and the price shall be the

2. Buildings:

Value based on the standard market value as determined by the Presidential Decree.

○ Special Cases concerning the appraisal of property whose mortgage is established under Article 66 of the Inheritance Tax and Gift Tax Act

Notwithstanding the provisions of Article 60, the value of inherited property falling under any one of the following subparagraphs shall be the larger amount between the value assessed based on the amount of claims secured by the relevant property under the conditions as prescribed by the Presidential Decree and the value assessed under the provisions of Article 60:

1. Property whose mortgage or pledge is settled;

○ Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 15971 of Dec. 31, 1998)

Article 49 (Principles of Evaluation, etc.)

(1) For the purpose of Article 60 (2) of the Act, the term "those recognized as the market price, such as the expropriation or public sale price and the appraised price, etc., as prescribed by Presidential Decree" means the amount confirmed pursuant to one of the following subparagraphs from six months (three months in the case of donated property) before the base date for appraisal of inheritance tax, or the

1. If the fact of sale and purchase of the relevant property exists, the transaction value: Provided, That this shall not apply where the transaction value is deemed objectively unfair, such as transactions with persons with a special relationship provided for in Article 26 (4);

2. In case where there exist the appraisal values which a reliable appraisal institution prescribed by Ordinance of the Prime Minister has appraised property for purposes other than paying inheritance tax and gift tax on the relevant property, the average value of such appraisal values

3. Where there exists an expropriation or public auction of the property concerned, the amount of compensation or the amount of such public auction.

Article 50 of the Inheritance Tax and Gift Tax Act

(6) In applying Article 61 (1) 1 of the Act, the officially assessed individual land price shall be publicly announced as of the standard date of appraisal.