The Supreme Court ruled that it is unjust for the tax authorities to impose gift tax based on an appraisal conducted three months after the building was gifted, and that the assessment must be canceled.
The Supreme Court's Second Division (presiding Justice Kwon Young-jun) said on Aug. 8 that it upheld a lower court ruling in favor of the plaintiffs in an appeal filed by A and others seeking to cancel a gift tax assessment against the heads of the Yangcheon Tax Office and the Samsung Tax Office, after the lower court's ruling on May 14.
A's parents on July 29, 2019 gifted a seven-story neighborhood living facility building constructed on a 456㎡ (about 138 pyeong) lot in Sujeong-gu, Seongnam, Gyeonggi Province, to four people in total: two sons and two daughters-in-law.
The four, including A, on Oct. 23, 2019 filed and paid gift tax by valuing the property at the publicly notified price of 3.95188 billion won under the Inheritance Tax and Gift Tax Act. The National Tax Service, however, in April 2020 asked two firms to conduct appraisals using Oct. 27, 2019 as the valuation date.
In September 2020, the tax authorities deemed 6.19108 billion won—the average of the two appraisals—as the market value of A's real estate and imposed gift tax. A and others filed an objection and then petitioned the Tax Tribunal, but it was dismissed. They then filed an administrative lawsuit.
The Seoul Administrative Court ruled to cancel all gift tax assessments imposed on A and others by the tax authorities. The appraisal date was three months after the date the real estate was gifted, and at that time real estate prices were surging. The court said, "It appears there were considerable price fluctuations during the period between the gift date and the appraisal valuation date," adding, "It is difficult to regard the appraisal value as the market value of this real estate."
The tax authorities appealed, but the appellate court dismissed the appeal. The appellate panel also found, "Given that the gift date and the appraisal valuation date were three months apart, it appears there were considerable price fluctuations."
The Supreme Court dismissed the tax authorities' appeal. The court said, "In a lawsuit to cancel a tax disposition, if a legitimate tax amount is calculated (based on materials submitted by the authorities) by the close of oral arguments in the fact-finding instance, only the excess portion must be canceled," adding, "Otherwise, the entire tax disposition must be canceled." Because the tax authorities failed through the appellate stage to submit materials that could objectively calculate the tax base, the assessment imposing gift tax must be canceled.