"Tax Authority's Use of 'Appraised Value' Standard for Inheritance Tax on High-Value Real Estate Is Justified"

Published 29 Jul.2024 14:03(KST)

A court ruling has established that tax authorities may request an appraisal when there is no existing appraised value for inherited property.

The Administrative Court of Seoul, Administrative Division 6 (Presiding Judge Na Jin-yi) ruled on May 24 against Mr. A in a lawsuit (2023GuHap73250) he filed to cancel the inheritance tax imposition by the Seongdong Tax Office.

[Image source=Beomryul Newspaper]

[Case Overview]

In May 2021, Mr. A inherited real estate located in Seocho-gu, Seoul. In November of the same year, Mr. A evaluated the property at approximately 14 billion KRW under the Inheritance and Gift Tax Act and reported and paid about 9 billion KRW in inheritance tax. However, in April 2022, the Seoul Regional Tax Office commissioned two appraisal agencies to appraise the property, which was valued at approximately 33 billion KRW. Based on this, the Seongdong Tax Office additionally imposed about 9 billion KRW in inheritance tax on Mr. A in October 2022.

[Mr. A’s Claims]

1. The tax authorities do not have the authority to request an appraisal when there is no existing appraised value. Therefore, the appraised value obtained cannot be considered the market value.

2. The appraisal conducted based on arbitrary criteria by the tax authorities treats taxpayers differently, violating the principle of tax equality.

3. The request for appraisal by the tax authorities under Article 49, Paragraph 1 of the former Enforcement Decree of the Inheritance and Gift Tax Act grants arbitrary discretion, violating the principle of clarity in tax requirements, and is unconstitutional and invalid. The inheritance tax imposition based on this is also illegal.

[Court’s Judgment]

1. Authority of Tax Authorities to Request Appraisal

Market value generally means the objective exchange value formed through normal transactions, but it also includes values appraised by objective and reasonable methods. Therefore, appraised values from reputable appraisal agencies can be considered market value (Supreme Court 2004Du2356).

2. Whether There Is a Violation of the Principle of Tax Equality

The principle of tax equality is the tax law expression of the constitutional principle of equality or the prohibition of discrimination under Article 11, Paragraph 1 of the Constitution. It prohibits discrimination without reasonable grounds, so legally differentiating based on essential differences of the regulated subject is not a violation of tax equality as long as it is reasonable (Constitutional Court 2005HunBa75). The tax authorities’ request for appraisal and the resulting inheritance tax imposition have procedural legitimacy and are not considered discriminatory treatment among taxpayers.

3. Constitutionality and Validity of Article 49, Paragraph 1 of the Former Enforcement Decree of the Inheritance and Gift Tax Act

Although the provision does not explicitly state the tax authorities’ authority to request appraisals, it aligns with the market value principle established by the Inheritance and Gift Tax Act. Furthermore, the proviso in Item 2 guarantees taxpayers the right to request a reappraisal from appraisal agencies if they believe the market value of the inherited property is unclear (Supreme Court 2020Du54265).

[Conclusion]

The court dismissed all of the plaintiff’s claims and ruled that the tax authorities’ inheritance tax imposition was lawful.

This ruling reaffirms the legality of market value calculation through appraisal when tax authorities impose inheritance tax. It provides an important legal standard regarding the legitimacy and scope of discretion for tax authorities’ appraisal requests on high-value real estate inheritance.