Transferred 1.6 Billion Won Property for 700 Million Won, but Faced a '500 Million Won Tax Bomb'; Court Rules "Legitimate Tax"

A father and son who sold real estate at about half of the market price and faced a tax bomb of around 500 million won filed a lawsuit but lost. On the 29th, the Administrative Court of Seoul, Administrative Division 4 (Chief Judge Kim Jeong-jung) dismissed the capital gains tax imposition cancellation lawsuit filed by the father-son relationship A, B, and C against the Seoul Seongbuk Tax Office chief.

Father A transferred his share of real estate in Nowon-gu, Seoul, which he acquired 10 years ago for 700 million won, equally to his sons B and C in 2019. The declared transfer price (acquisition price) reported to the Seongbuk Tax Office was the same 700 million won as 10 years ago. However, the tax office found an issue with the price and requested an appraisal, which calculated the average price at 1.585 billion won. This is about twice the transaction price. The tax office regarded this as the market price and imposed a total of about 490 million won in capital gains tax and gift tax.

Seoul apartment complex. Not directly related to the article. [Image source=Yonhap News]

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The A family filed an administrative lawsuit. They argued that since there were no similar transactions or appraisal prices at the time of the transaction, imposing taxes retroactively through post-appraisal violated the principle of legality in taxation. However, it was found that another property in the same building as the disputed real estate, on a different floor and used as an academy, was sold just two days apart from the plaintiff’s transaction. The court ruled that "the objective exchange value was appropriately reflected."

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The court also stated, "It is merely a lack or error in law or a mistake in interpretation or application," and "The plaintiffs could have easily identified similar transactions by inquiring at a brokerage office located 150 meters from the real estate, but there is no evidence that such efforts were made," explaining the reason for dismissal.

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