Received 900 Million Won After Becoming Lovers Through Conditional Meeting... "Pay 500 Million Won Gift Tax" Ruling [Seocho-dong Legal Story]

Ms. A met Mr. B, a man in his 30s, on an internet chat site in 2004 when she was a high school student. As their relationship deepened, they considered each other lovers. Mr. B, a full-time stock investor, provided substantial financial support for over seven years. He managed Ms. A's securities account and even conducted stock trading on her behalf.

The photo is unrelated to the article content. [Image source=Yonhap News]

However, their relationship ended in disaster, and Mr. B filed a civil lawsuit against Ms. A. Mr. B claimed, "Between 2007 and 2008, Ms. A borrowed 700 million won, saying 'my father's business was on the brink of bankruptcy,' but did not repay it." He also filed a fraud complaint, alleging, "I was deceived by Ms. A and extorted 700 million won."

Ms. A countered, "200 million won was given by Mr. B as 'funds for stock investment,' and 500 million won was given as an apology after I disappeared for about a month and then reappeared, saying 'I was in prison for soliciting sex from another youth.'"

The civil and criminal cases were resolved in Ms. A's favor. In the civil lawsuit, the court dismissed Mr. B's claim, stating, "He did not demand repayment for about 10 years. This money was given to maintain the relationship with Ms. A." The prosecution also dismissed the charges against Ms. A due to insufficient evidence.

However, the logic Ms. A presented during this process later became a disadvantage in her gift tax appeal lawsuit.

Ms. A underwent a tax audit in 2019 because the tax authorities were suspicious about her earning 43 million won in interest income in 2011 and acquiring three real estate properties between 2014 and 2017. Upon investigating the source of funds, it was confirmed that Ms. A received a total of approximately 930 million won from Mr. B in 73 installments between 2006 and 2012.

The tax authorities imposed a tax of about 530 million won on Ms. A, stating, "The 930 million won was 'gifted' by Mr. B." Under current law, regardless of the name, form, or purpose, transferring tangible or intangible property or benefits to another person without compensation, or increasing another person's property value, constitutes a "gift" and is subject to gift tax.

In 2021, Ms. A filed an administrative lawsuit requesting the cancellation of the gift tax imposition. She argued, "The money was received as compensation for conditional meetings, not as a gratuitous gift," and "Some of the money was in the form of settlement money or alimony."

Ms. A lost in the first trial. Recently, the Seoul Administrative Court, Administrative Division 2 (Presiding Judge Shin Myung-hee) ruled, "Money received after reaching adulthood is indeed a gift," and dismissed Ms. A's claim. Ms. A was also ordered to bear the litigation costs.

The court stated, "In the previous civil and criminal cases, Ms. A testified that she was in a romantic relationship with Mr. B and received financial support. The money in this case cannot be considered merely as payment for prostitution with a minor," adding, "It should rather be regarded as a gift received during the course of their relationship."

Furthermore, the court added, "Ms. A herself claimed in the related civil lawsuit that Mr. B paid 200 million won as stock investment funds, which by nature constitutes a gift," and "There is no evidence to recognize the 500 million won as settlement money, and it is against common experience to pay such a large amount as alimony."