1. Legal provisions, etc. applicable to the application;

Article 104-3 (1) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007; hereinafter the same shall apply) provides for "land falling under any of the following subparagraphs for the period prescribed by Presidential Decree during which the relevant land was owned for non-business purposes" as land falling under subparagraph 1 and subparagraph 1 provides for "farmland, paddy field and orchard (hereafter referred to as "farmland" in this Article)", and subparagraph (b) provides for "the Special Metropolitan City, Metropolitan Cities (excluding Guns located in Metropolitan Cities; hereafter the same shall apply in this Article) and Si areas (excluding Eup/Myeon areas of Si in urban and rural complex form under Article 3 (4) of the Local Autonomy Act; hereafter the same shall apply in this subparagraph) under the provisions of the National Land Planning and Utilization Act (excluding areas prescribed by Presidential Decree; hereafter referred to as "urban areas" in this subparagraph) and the period prescribed by Presidential Decree of Article 104-3 (1) of the former Income Tax Act shall be excluded from the date of incorporation into the urban area under Article 10 (3) of the former Special Metropolitan City and Metropolitan City:

Meanwhile, Article 104 (1) 2-7 of the former Income Tax Act (hereinafter “instant aggravated tax rate provision”) provides that the transfer income tax rate of land for non-business use under Article 104-3 of the former Income Tax Act shall be 60/100 of the transfer income tax base.

2. Summary of and judgment on grounds for the application

A. Summary of the reasons for the application

The legal provisions of this case do not have any complementary measures to exclude farmland already incorporated into an urban area at the time of the introduction of the capital gains tax heavy taxation system for non-business land from non-business land. Rather, it rather causes disadvantages to farmers who were self-employed in the urban area or promote their own farming, and the infringement of private interest, which is the heavy capital gains tax for farmers who will suffer from the difficulties in industry, is smaller than the public interest such as suppressing speculative demand. Therefore, the legal provisions of this case violate the principle of freedom and the principle of self-help under the Constitution, and even if the legitimacy and method of the legislative purpose are recognized, it violates the principle of excessive prohibition because they do not meet the requirements of minimum infringement and the balance of legal interests.

In addition, since farmland in an urban area is incorporated into an urban area in spite of no difference between farmland in the natural green area and its tax-bearing capacity, it is against the principle of tax equality to regard it as non-business land as subject to imposition of capital gains tax.

B. Determination

(1) Whether the principle of freedom of light and the principle of self-help is violated

The instant legal provision provides that farmland in an urban area shall be deemed as a means of property increase, not a productive purpose, and shall be deemed as a non-business land. This is the legislative purpose of the instant legal provision, considering the fact that even if farmland in an urban area is located in the location of farmland, even though the farmland owner residing therein, the price of the land may rise due to the characteristics of the relevant area, and thus, it may be subject to speculative transactions, and it is not desirable to continue to use the land in an urban area as farmland in terms of balanced utilization and development of the land. Therefore, the legislative purpose of the instant legal provision is to restrain speculative demand for land, to stabilize the price of land, to promote the sound development of the national economy, and to realize the balanced utilization, development and preservation of the national land (see, e.g., Supreme Court en banc Order 2010Da59, Oct. 25, 2012; Constitutional Court en banc Decision 2011Hun-Ba357, Jul. 26, 2012).

Meanwhile, Article 121(1) of the Constitution of the Republic of Korea provides that “The State shall endeavor to achieve the principle of light freedom, with respect to farmland, and the tenant system of farmland shall be prohibited.” However, Article 122 of the Constitution provides that “The State may impose necessary restrictions and obligations on farmland in accordance with the provisions of Act for the efficient and balanced utilization, development and preservation of the land which serves as the basis for all citizens’ production and living.” Article 6 of the National Land Planning and Utilization Act provides that special-purpose areas shall be classified in consideration of the actual conditions and characteristics of the use of land, future directions for use, etc., and Article 121(1) of the same Act provides that “an area where population and industry are concentrated or such concentration is anticipated to be concentrated and which requires systematic development, maintenance, management, preservation, etc. of such area as an urban area (title 1). In the case of farmland in an urban area as seen earlier, there is a high possibility of increase in the price of land due to its characteristics, and the continuous use of farmland as farmland can not be seen as a violation of the principle of free use and land within a certain urban area.

(2) Whether the principle of excessive prohibition is violated

The former Income Tax Act amended by Act No. 7837 on December 31, 2005, in addition to the instant legal provisions, newly established the instant aggravated tax rate provisions, and stipulated that “this Act shall enter into force on January 1, 2006,” but the amended provisions of Article 104(1) (excluding subparagraph 2-4) under the proviso of the same Article shall enter into force on January 1, 2007.”

As such, the former Income Tax Act has set a grace period to avoid its application by a person who owns farmland in an urban area before the enforcement of the former Income Tax Act by having the enforcement time of the aggravated tax rate clause more than one year than the enforcement time of the former Income Tax Act, and further, Article 104-3 (2) of the former Income Tax Act provides that "in applying the provisions of paragraph (1) of this Article, the prohibition of use due to the provisions of Acts after the acquisition of the land or due to other unavoidable reasons prescribed by the Presidential Decree, if it falls under a non-business land, it may not be deemed as a non-business land under the conditions as prescribed by the Presidential Decree."

As the State needs to flexibly and reasonably operate tax and financial policies in the field of tax laws, laws and systems on taxes are inevitably changed flexibly, barring special circumstances, taxpayers cannot expect or trust to maintain the current tax rate in the future (see Supreme Court Decision 2010Du17281, Oct. 25, 2012). Furthermore, in light of the fact that the legal provisions of this case provide that farmland in the urban area, which had already been owned before the enforcement of the former Income Tax Act, constitutes a non-business land subject to capital gains tax as a matter of principle, and thus, are not in violation of the principle of excessive prohibition.

(3) Whether the principle of tax equality is violated

The principle of equality in taxation based on the principle of equality stipulated in Article 11(a) of the Constitution is that the imposition and collection of taxes must be conducted fairly and equally in accordance with the taxpayer's ability to pay taxes, and it is not allowed to discriminate against or give preferential treatment to a specific taxpayer without reasonable grounds.

Since farmland in an urban area, which is stipulated in the legal provision of this case, is likely to be owned as a means of property increase, not a productive purpose, regardless of its own identity, and other farmland is owned for a productive purpose if it satisfies certain requirements, such as re-villages and progresss, so it cannot be deemed as essentially the same object. In addition, since the legal provision of this case is treated differently based on the above difference, it cannot be deemed a arbitrary and unreasonable discrimination. Accordingly, the legal provision of this case does not violate the principle of tax equality.

3. Conclusion

Therefore, it is so decided as per Disposition by the assent of all participating Justices on the bench that the motion for adjudication on the constitutionality of this case is without merit.

Justices Kim Yong-deok (Presiding Justice)