[Sejong = E-Daily Reporter Kim Mi-Young ] In a gift tax lawsuit worth tens of billions of won between the Hanjin Group’s controlling family and tax authorities over trust assets held overseas by the late Cho Yang-ho, former chairman of Hanjin Group, the court ruled in favor of the tax authorities. The court determined that the National Tax Service’s decision—made after former Chairman Cho’s death—to impose gift tax by designating his family as the beneficiaries of the trust assets was justified.

According to legal and tax industry sources on the 22nd, the 8th Administrative Division of the Seoul Administrative Court recently ruled against the plaintiffs in a lawsuit filed by former Chairman Cho’s spouse, Lee Myung-hee, an advisor at Jeongseok Enterprises, and their daughter, Cho Hyun-ah (now Cho Seung-yeon), former vice president of Korean Air, seeking to overturn the gift tax assessment issued by the National Tax Service. The gift tax at issue in this lawsuit amounts to approximately 67 billion won, and Advisor Lee and former Vice President Cho have continued their legal battle while paying the tax in installments.

The case began in April 2019 following the death of former Chairman Cho. The following year, while conducting an inheritance tax investigation into former Chairman Cho, the National Tax Service identified trust assets totaling over 100 billion won in Singapore.

Tax authorities deemed the time of former Chairman Cho’s death to be the effective date of the gift. Accordingly, they assessed gift tax, determining that Advisor Lee Myung-hee, former Vice President Cho Seung-yeon, and Hanjin Group Chairman Cho Won-tae were the beneficial owners of the trust. Cho Hyun-min, president of Hanjin and the youngest of the three siblings, was reportedly excluded from the list of beneficiaries due to her U.S. citizenship.

The Hanjin Group family immediately objected. They reportedly claimed, “We were not even aware that such trust assets existed overseas, and we have never actually received any distributions from the trust.” Their reasoning is that the owner of the assets should be considered the overseas trustee managing the trust, and that it is reasonable to impose gift tax only at the point when the assets are actually transferred from the trustee. After the Tax Tribunal dismissed their appeal, Chairman Cho Won-tae accepted the ruling, but Advisor Lee Myung-hee and former Vice President Cho Seung-yeon contested the decision and filed an administrative lawsuit.

Analysts both within and outside the tax industry believe this legal battle stems from a strategy to reduce a massive tax burden. Under current law, assets gifted in advance within 10 years prior to the decedent’s death are included in the taxable estate for inheritance tax purposes. If, as the tax authorities determined, the date of former Chairman Cho’s death is considered the date of the gift, the surviving family members would not only have to pay gift tax on the trust benefits but also face a double tax burden because those assets would be included in the estate for inheritance tax purposes. Consequently, analysts suggest that the surviving family members are attempting to avoid the combined taxation of inheritance and gift taxes by significantly pushing back the timing of the gift to “more than 10 years after death.”

The outcome of this lawsuit hinged on decisive evidence secured by the tax authorities. It is reported that the National Tax Service directly obtained and analyzed former Chairman Cho’s trust agreement through an exchange of information with the Singaporean tax authorities, using it as the basis for taxation and the lawsuit. A tax industry official commented, “Verifying the facts regarding a deceased person’s overseas assets is inherently difficult,” adding, “This case is a prime example of the effective use of the international information exchange system—from the tax audit to the assessment and the litigation response.”

Although the first-instance ruling has been issued, the legal battle is likely to continue. An industry official predicted, “Given that the amount in dispute reaches tens of billions of won and the differences in position between the two sides regarding the timing of the gift of overseas trust assets are so sharp, it is highly likely that the plaintiff will file an appeal.”