A Study on the Improvement of Taxation System of Inheritance Tax and Gift Tax: The Effect of Valuation Period)
Asian Tax Journal Vol. 26 No. 1 (2025), pp. 83-113
Abstract
Inherited or gifted property is gratuitous handover of wealth. Inheritance Tax and Gift Tax Act prescribes that value of inherited property and gifted property shall be calculated based on the market value. However, inherited or gifted property is a special form of transaction in which exchange value is not formed between an unspecified individuals, there is a problem with the valuation period that applies the market price. Accordingly, this study examines problems and suggest improvement measures for cases where the sale price, including the market price, is confirmed within a period of two years prior to the valuation standard date that does not correspond to the valuation period under the Enforcement Decree of the Inheritance Tax Act in the valuation period for inherited or gifted property. The Inheritance Tax and Gift Tax Act stipulates that if the market price cannot be confirmed within the valuation period, the value of the property can be assessed by taxpayer using a supplemental valuation method applying Articles 60 to 66. Meanwhile, the proviso of Article 49 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulates that “if a market price exists during a period that is not included in the assessment period (two years prior to the assessment reference date), it may be applied for assessment,” but taxpayers understand that the proviso provision applies only to exceptional cases, and there is a different opinion between taxpayers and the disposing agency regarding the assessment period. In other words, in cases where this can be applied, the valuation review committee must confirm, upon application by the taxpayer or the disposing agency, that there were market prices at this time and that there were no special circumstances that led to price fluctuations, such as the management status of the stock company or drastic changes in the surrounding environment. However, if the market price is confirmed during a period other than the evaluation period, the disposal agency recognizes it as the market price after deliberation by the evaluation review committee. Looking at the entire period not corresponding to the evaluation period, the inheritance tax is a long period corresponding to a total of 3 years and 3 months (2 years and 9 months for gift tax). Not only is this enough time to change the price, but taxpayers have limitations in obtaining information about market prices compared to the disposal agency. In this regard, we propose the following improvement scheme. First, clarity regarding Decree of the Inheritance Tax and Gift Tax Act should be provided. Second, the guideline for applying the proviso of Article 49 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act must be provided to taxpayers. Third, introduction of tax cooperation that provides taxpayers with material to guide transaction prices required for Inheritance Tax and Gift Tax Act reporting is necessary.
Keywords
- valuation period
- assessment reference date
- Market Valuation
- Inheritance Tax and Gift Tax Act
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