Plaintiff Wins Lawsuit to Cancel Imposition Disposition
A ruling has been made that tax authorities cannot reimpose gift tax simply because the value of shares in a company increased after receiving building use approval, even if the shares were gifted from a grandfather who was conducting a business of constructing and selling officetels. The court held that the business of constructing and selling officetels on already developed land does not constitute a "development project implementation" under the Inheritance and Gift Tax Act (the Act).
The Administrative Court of Seoul, Administrative Division 4 (Presiding Judge Kim Jeongjung) ruled in favor of Mr. A and others in their lawsuit against the Samsung Tax Office seeking cancellation of the gift tax imposition (2022GuHap60752).
Mr. A’s grandfather, Mr. C, gifted unlisted shares of Company B, which was engaged in the business of constructing and selling officetels, to his grandchildren in March 2017. Mr. A and others reported and paid the gift tax. Subsequently, Company B completed the building construction and obtained use approval for the building on January 7, 2020. After an investigation conducted between February and April 2021, the tax authorities imposed gift tax and additional tax, arguing that the value of the shares increased after Company B received use approval on January 7, 2020, which was within five years from the date of the gift, and that this constituted a property value increase reason (implementation of a development project) under Article 42-3(1) of the former Act. Mr. A and others filed a lawsuit in objection.
Article 42-3(1) stipulates that if a person who is recognized as unable to perform certain acts on their own due to occupation, age, income, and property status acquires property by gift from a related party and within five years from the acquisition date gains profits due to reasons prescribed by Presidential Decree?such as implementation of a development project, change of land use, division of co-owned property, or business permits and approvals (property value increase reasons)?the amount equivalent to such profits shall be included in the value of the gifted property for that person.
The court ruled in favor of Mr. A, stating, “Since it cannot be considered that the property value increase reasons stipulated in the relevant provision occurred, the requirements under the provision are not met, and thus each of the imposed dispositions in this case is illegal.”
The court further explained, “This business is not a project that develops the land itself to increase its value, but merely a business of constructing and selling buildings on the land that the Korea Land and Housing Corporation has already developed through a land development project.”
Park Suyeon, Legal News Reporter
※This article is based on content supplied by Law Times.
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