"Transaction Price of Comparable Apartment 17 Months Prior Also Recognized as Market Value"...Lawsuit Against Additional Gift Tax Dismissed

"Transaction Price of Comparable Property Outside Appraisal Period Can Be Recognized as Market Value If Reviewed by Committee"

A court has ruled that it was lawful for the tax office to impose additional gift tax on taxpayers who paid tax based on the officially announced price of an apartment, by recognizing the transaction price of a comparable property outside the official appraisal period as the market value.

Seoul Administrative Court, Seocho-gu, Seoul. Photo by Yonhap News

According to the legal community on March 30, the Administrative Division 4 of the Seoul Administrative Court (Presiding Judge Kim Youngmin) ruled against plaintiffs A and B in their lawsuit to cancel the additional gift tax assessment imposed by the head of the Seongdong Tax Office on January 30.

A and B, a married couple, received an apartment located in Seongdong-gu, Seoul as a gift from B’s father on August 2, 2022. B acquired a two-thirds stake, while A acquired a one-third stake. On August 5 of the same year, the plaintiffs filed and paid their gift tax to the Seongdong Tax Office, calculating the value of the gifted property based on the officially announced price for multi-unit housing, which was 1.106 billion won. B paid 39,446,660 won, and A paid 17,783,330 won in gift tax, respectively.

Subsequently, the Seongdong Tax Office discovered that another apartment in the same complex had been sold for 1.455 billion won on March 6, 2021. After review by the Seoul Regional Tax Office’s Appraisal Review Committee, this transaction price was recognized as the market value. Based on this, the Seongdong Tax Office imposed additional gift tax of 45,037,350 won on B on September 1, 2023, and 24,507,670 won on A on January 19, 2024.

The plaintiffs then filed a lawsuit. They argued that the transaction price of the comparable property did not correspond to the value “from six months before the appraisal date to three months after the appraisal date,” as stipulated in Article 49 of the former Enforcement Decree of the Inheritance and Gift Tax Act, and thus should not apply. They also contended that, between the date of the comparable property’s transaction and the date of the apartment’s gift, the officially announced price for the apartment rose by 16.9% and the Seongdong-gu land price index increased by 8.915%, constituting a special circumstance of price fluctuation.

Article 49 of the former Enforcement Decree of the Inheritance and Gift Tax Act stipulates that if there is a transaction within six months before and three months after the appraisal date, the transaction price is regarded as the market value. If a sale occurs within two years prior to the appraisal date and there are no special circumstances of price fluctuation, the sale price may be recognized as the market value following review by the Appraisal Review Committee. The same provision applies under the current Enforcement Decree.

The court determined that, considering the wording, structure, and purpose of the relevant regulations, it is reasonable to recognize the transaction price of a comparable property outside the six-month pre-appraisal period as the market value, provided other requirements are met.

The court also rejected the plaintiffs’ argument regarding special circumstances of price fluctuation. The court explained that the decline in the officially announced price of the apartment as of January 1, 2023, resulted from the fulfillment of the then presidential campaign pledge. Additionally, according to real estate market data from Kookmin Bank, the price of this apartment remained largely unchanged from around March 2021 to around June 2023, so the court determined there were no special circumstances of price fluctuation over time.

This content was produced with the assistance of AI translation services.