Taxpayer files lawsuit after tax office rejects payment application due to deficit for 2 years
Court "Continued company losses are a structural problem...property unsuitable for management and disposal"
(Seoul = Yonhap News) Reporter Lee Bal-eum = A court ruled that it was legal for the tax authorities to reject an application to pay inheritance tax instead of the unlisted stocks of a company that has consistently suffered losses.
According to the legal community on the 4th, the 4th Administrative Division of the Seoul Administrative Court (Chief Judge Kim Young-min) ruled that the plaintiff lost in the lawsuit filed by Mr. A against the head of Seocho Tax Office to cancel the refusal of water payment permit.
In 2023, Mr. A inherited 4,850 shares of B Corporation and real estate located in Teheran-ro, Gangnam, Seoul. He applied to pay the 8.58895 billion won in inheritance tax incurred in this process in kind (paying taxes with something other than money) in the form of 1,797 shares of unlisted shares of Company B, which were worth 4.67 million won per share, and real estate.
The Seocho Tax Office permitted real estate payments, but refused to pay about 8.4 billion won worth of unlisted stocks of Company B, saying that the company had incurred losses over the previous two years. It was judged to be ‘property not suitable for management and disposition.’
Mr. A filed a lawsuit claiming that even if Company B was in deficit, the value of its assets was high so it could not be considered as an asset that would be difficult to manage and dispose of, and the disposition was invalid because the tax authorities had exceeded the statutory processing deadline.
However, the court ruled in favor of the tax authorities, considering Company B's unlisted stocks to be unsuitable property for management and disposal.
The court pointed out that Company B has continued to record operating losses, including about 200 million won in 2019 and about 140 million won in 2020, and that "the loss is not temporary, but a structural problem."
The fact that the Korea Asset Management Corporation reviewed Company B and issued a negative opinion, saying, "The net asset value is expected to continue to decrease in the future due to the fixed loss structure," was also cited as a basis.
In addition, since Company B's shareholders are comprised of A's brothers and other family members, it was believed that even if the government acquired a minority stake, it would not be easy to dispose of the shares.
In response to Mr. A's claim that the tax authorities had exceeded the processing deadline, a notice of extension of the processing deadline was sent by registered mail, and since it was not returned, it was determined that it was delivered to Mr. A legally.
The current Enforcement Decree of the Inheritance Tax and Gift Tax Act specifies ‘securities issued by a company that incurred a loss within two years prior to the date of application for payment in kind’ as objects that can refuse payment in kind.
