Ji-Hyun Yoon, On Interpretation of Section 36 of the Korean Inheritance and Gift Tax Act with respect to Cancellation of Indebtedness and Other Similar Transactions, Seoul Tax Law Review, Vol. 25, No.1 (2019), pp. 71-114.
<Abstract>
This article discusses some of the issues relating to interpretation of Article 36 of the Korean Inheritance and Gift Tax Act (“IGTA”), which imposes gift tax on cancellation of indebtedness (“COI”) as well as repayment of debts by third parties and assumption of debt liabilities. Under the current gift tax regime of the IGTA, where the general and comprehensive term “gift” should prevail, which is defined as “any transfer of asset or shift of profit,” the sole and determinative test in levying gift tax is whether such a “gift” can be found to exist in the transaction(s) at issue. Given that economic benefits arising from COI are often dealt with in the field of income taxation, previous discussions on taxation of COI income should also be taken into consideration in interpreting the aforesaid article 36 of the IGTA. When it comes to an act of COI, the debt-claim may originate from diverse types of event, to which different legal effects may be attached. Depending upon such legal analyses, there may be, again, various judgments on whether the “gift” test is met in a particular case. In case of repayment by third parties, there may also be cases where legally valid recourse-claims accrued to the “repayers” should be disregarded for tax purposes because they are from economic perspectives valueless. In this regard, the current article 36 of the IGTA can be criticized for its simplistic approach, which plainly ignores such subtleties. It is therefore submitted that further discussion for more teleological and systematically coherent interpretation is warranted. In the end, this article argues the following：(ⅰ) as to taxation of COI, origins of debt-claims should be taken into account so that, if the debt has been incurred without giving economic benefits to the debtor, the ensuing COI should generally not be taxed；(ii) when the debt is repaid by a third party, who consequently acquires a recourse claim, the debtor should not yet be liable to gift tax unless the aforesaid recourse claim can be duly disregarded； and, (iii) assumption of a debt by a third party should result in levy of gift tax only when this assumption relieves the initial debtor from the debt.
<Keywords>
gift tax, cancellation of indebtedness, assumption of liabilities, repayment of debts
Ji-Hyun Yoon, On Interpretation of Section 36 of the Korean Inheritance and Gift Tax Act with respect to Cancellation of Indebtedness and Other Similar Transactions, Seoul Tax Law Review, Vol. 25, No.1 (2019), pp. 71-114.
<Abstract>
This article discusses some of the issues relating to interpretation of Article 36 of the Korean Inheritance and Gift Tax Act (“IGTA”), which imposes gift tax on cancellation of indebtedness (“COI”) as well as repayment of debts by third parties and assumption of debt liabilities. Under the current gift tax regime of the IGTA, where the general and comprehensive term “gift” should prevail, which is defined as “any transfer of asset or shift of profit,” the sole and determinative test in levying gift tax is whether such a “gift” can be found to exist in the transaction(s) at issue. Given that economic benefits arising from COI are often dealt with in the field of income taxation, previous discussions on taxation of COI income should also be taken into consideration in interpreting the aforesaid article 36 of the IGTA. When it comes to an act of COI, the debt-claim may originate from diverse types of event, to which different legal effects may be attached. Depending upon such legal analyses, there may be, again, various judgments on whether the “gift” test is met in a particular case. In case of repayment by third parties, there may also be cases where legally valid recourse-claims accrued to the “repayers” should be disregarded for tax purposes because they are from economic perspectives valueless. In this regard, the current article 36 of the IGTA can be criticized for its simplistic approach, which plainly ignores such subtleties. It is therefore submitted that further discussion for more teleological and systematically coherent interpretation is warranted. In the end, this article argues the following：(ⅰ) as to taxation of COI, origins of debt-claims should be taken into account so that, if the debt has been incurred without giving economic benefits to the debtor, the ensuing COI should generally not be taxed；(ii) when the debt is repaid by a third party, who consequently acquires a recourse claim, the debtor should not yet be liable to gift tax unless the aforesaid recourse claim can be duly disregarded； and, (iii) assumption of a debt by a third party should result in levy of gift tax only when this assumption relieves the initial debtor from the debt.
<Keywords>
gift tax, cancellation of indebtedness, assumption of liabilities, repayment of debts