CONTENTS
- 1. A Case Disputing Whether Gift Tax Applied Under the Corporate Tax Act
- 2. The Corporate Tax Act, the Lower Court's Determination on Whether Gift Tax Applied
- - The Legal Principles Applied by the Lower Court on the Applicability of the Corporate Tax Act
- 3. The Corporate Tax Act, the Supreme Court's Determination That the Property Is Subject to Gift Tax
- - The Legal Principles Applied by the Supreme Court on the Applicability of the Corporate Tax Act
- 4. Regarding the Corporate Tax Act, Daeryun's Strategy
1. A Case Disputing Whether Gift Tax Applied Under the Corporate Tax Act
This case concerned whether land received as a gift by a non-profit domestic corporation was subject to gift tax under the Corporate Tax Act.
The plaintiff, Foundation A, is a non-profit corporation established by a third party who owned forest land in Seongnam.
Subsequently, part of the forest land at issue was used as temple grounds by Temple B of the Jogye Order of Korean Buddhism, and on the remaining portion the plaintiff operated a project to develop and maintain a public cemetery.
In 2010, the plaintiff received as a gift a portion of the co-ownership shares held by the third party and Temple B of the Jogye Order of Korean Buddhism, thereby acquiring ownership.
Regarding this, the defendant tax office took the view that the gift ‘fell within the scope of gift tax,’ and in 2020 it imposed gift tax and an additional tax.
The plaintiff contested this and filed a request for adjudication (a request contesting an administrative action before an agency prior to court litigation, comparable to seeking administrative review) with the Tax Tribunal. Although a partial reduction was made, the plaintiff filed a revocation lawsuit with respect to the remaining taxed portion.
Whether a Non-Profit Domestic Corporation Is Subject to Taxation, the Issue in the Case
The issue in this case is whether the land at issue that the plaintiff received as a gift constitutes ‘income arising from a profit-making business’ under the former Corporate Tax Act and is therefore subject to corporate tax.
| Plaintiff's Argument | The land at issue is used in the plaintiff's profit-making business and therefore is subject to corporate tax. Accordingly, gift tax cannot be imposed under the former Inheritance and Gift Tax Act. |
| Defendant's Argument | Income arising from a profit-making business under the Corporate Tax Act means income generated from the profit-making business itself, and gains from assets acquired without consideration are not included. Accordingly, the gifted property received by the plaintiff is subject to gift tax. |
2. The Corporate Tax Act, the Lower Court's Determination on Whether Gift Tax Applied
As to whether the property was subject to taxation under the Corporate Tax Act, the lower court, relying on the former Corporate Tax Act, defined the scope of income subject to corporate tax as follows.
As to the applicability of the Corporate Tax Act, the lower court determined that among the income of a non-profit domestic corporation for each business year, the income subject to corporate tax is limited to income arising directly from a profit-making business.
The former Corporate Tax Act enumerates ‘income arising from a profit-making business,’ and the court took the view that special gains outside the business, such as gains from assets received without consideration, are not included.
From this perspective, the court determined that property acquired by a non-profit domestic corporation through a gift was not obtained as a result of a profit-making business and therefore is not subject to corporate tax.
The Legal Principles Applied by the Lower Court on the Applicability of the Corporate Tax Act
∙Legal interpretation of gains from assets received without consideration: ‘Income arising from a profit-making business’ means income that arises continuously and repeatedly through business activities, and gains from assets received as a gift from another do not fall within this category. In general, a gift transaction does not have the continuity and repetition required to be regarded as a business activity, so it cannot be interpreted as income arising from a profit-making business.
∙Application of the former Inheritance and Gift Tax Act: Article 48 of the former Inheritance and Gift Tax Act provides a special rule excluding from the gift tax base property contributed to a public-interest corporation. This is merely a provision for follow-up management, and as a matter of principle it presupposes that gains of a non-profit corporation from assets received without consideration are subject to gift tax.
Accordingly, the lower court determined that the land at issue that the plaintiff received as a gift does not fall within the scope of taxation under the Corporate Tax Act and was lawfully taxed as subject to gift tax.
3. The Corporate Tax Act, the Supreme Court's Determination That the Property Is Subject to Gift Tax
As to whether the property was subject to taxation under the Corporate Tax Act, the Supreme Court found that the lower court's determination conformed to the legal principles, and it dismissed the plaintiff's final appeal.
The Legal Principles Applied by the Supreme Court on the Applicability of the Corporate Tax Act
∙Scope of corporate tax for a non-profit domestic corporation: Under the former Corporate Tax Act, only income arising from the profit-making business of a non-profit domestic corporation is subject to corporate tax.
Income arising from a profit-making business means ‘income generated continuously through business activities,’ and property transferred without consideration (gains from assets received without consideration) does not fall within this category.
∙Tax-law interpretation of gains from assets received without consideration: When the Corporate Tax Act enumerated the scope of a profit-making business, it did not include income outside the business or special gains.
Under the principle of strict interpretation of tax statutes, the Corporate Tax Act cannot be interpreted expansively so as to include income not enumerated therein.
A gift generally does not have the continuity and repetition required to be regarded as a business activity, so it cannot be deemed income arising from a profit-making business.
∙Application of the former Inheritance and Gift Tax Act: The former Inheritance and Gift Tax Act excludes property contributed to a public-interest corporation from the scope of gift tax but provides for taxation where the obligation to use the property for public-interest purposes is violated.
Because this presupposes the principle that a non-profit corporation is subject to gift tax, the land at issue that the plaintiff received as a gift was lawfully treated as subject to gift tax.
4. Regarding the Corporate Tax Act, Daeryun's Strategy
This case concerned whether property was subject to taxation under the Corporate Tax Act.
The Corporate Tax Act is a statute that taxes corporate income and governs the tax treatment of various corporate activities.
Because the Corporate Tax Act covers many items, including the scope of deductible expenses, restricted items, tax credits, and tax reductions, it is advisable to seek the assistance of a professional to prevent risks related to corporate tax.
At Daeryun Law Firm LLP, 🔗attorneys experienced in tax matters, together with certified public accountants and tax accountants, form a team to protect clients' rights and interests.
