D&A LLC successfully represented donees who had received non-residential real estate from their parents (“Clients”) in a dispute over the imposition of gift tax based on a retroactive appraisal. During the proceedings, we challenged the legality of the gift tax assessment, which was calculated using a retroactive appraisal conducted under the so-called Appraisal and Assessment Project for Small Buildings, ultimately securing a favorable judgment from the Seoul High Court.

The Clients had duly reported and paid gift tax calculated using the supplementary assessment method prescribed under the Inheritance and Gift Tax Act. However, the tax authority subsequently performed a retroactive appraisal, an appraisal conducted beyond the statutory assessment period for taxation purpose, under the Appraisal and Assessment Project for Small Buildings. The authority cited the proviso to Article 49 of the Enforcement Decree of the Inheritance and Gift Tax Act, as amended by the Presidential Decree No. 29533 (February 12, 2019), as its legal basis, and imposed additional gift tax by treating the retroactively appraised value as the market value of the property.

In response, we argued that the retroactive appraisal conducted for taxation purposes was unlawful. We further contended that if the tax authority intends to recognize an appraised value determined on a date other than the base date of assessment as the market value, it bears the burden of proving that no exceptional circumstances of price fluctuation exist, which the authority failed to establish. In light of this, we challenged the legality of the gift tax imposition. After reviewing our arguments, the Seoul High Court held that the tax assessment in this case was unlawful.

As a landmark case, this case is expected to have a significant impact on the legitimacy and future implementation of the National Tax Services’ Appraisal and Assessment Project for Small Building. Moreover, the forthcoming Supreme Court ruling in this matter is anticipated to influence numerous similar cases and play a pivotal role in shaping tax practices regarding the valuation of real estate gifts.