The Seoul High Court Decision 2009Nu40218 Decided June 10, 2010

Article 85 subparagraph 5 of the former Restriction of Special Taxation Act (amended by Act No. 8146 of Dec. 30, 2006) and Article 79-2 (1) 9 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19888 of Feb. 28, 2007) provide that where a resident transfers real estate within a designated area under Article 104-2 (1) of the former Income Tax Act (amended by Act No. 8852 of Feb. 29, 2008; hereinafter the same shall apply) to a project operator before the designation date of a rearrangement zone under Article 4 of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 8785 of Dec. 21, 2007; hereinafter referred to as the "Urban Improvement Act"), the provisions of this case provide for the special taxation for the transfer price and acquisition price (hereinafter referred to as the "standard market price").

Meanwhile, Article 8(3) and (4) of the Urban Improvement Act provides that an urban environment improvement project may be implemented by an association or a landowner comprised of landowners, etc., and the head of a Si/Gun shall designate the landowner of land, etc. and have him/her implement the rearrangement project, if a project implementer intends to implement a rearrangement project, he/she shall submit the project implementation plan, etc. to the head of a Si/Gun and obtain authorization for the implementation of the project. Article 38 provides that a project implementer may expropriate or use land, things or other rights if necessary to implement the rearrangement project. Article 85(7) of the Urban Improvement Act provides that a person who implements a rearrangement project without obtaining authorization for the implementation of the project shall be punished by imprisonment for not more than two years or by a fine

The text and legislative intent of the above provisions, especially the Act on the Maintenance and Improvement of Urban Areas, recognize the right to expropriate real estate necessary for the implementation of a rearrangement project to the project implementer, and even if the transferor transfers real estate to the project implementer through consultation, the right to decide on the transfer value is considerably limited. Thus, the transfer value and acquisition value can be determined based on the standard market price, thereby relaxing taxpayers' transfer income tax burden and promoting the smooth implementation of a rearrangement project at the same time, and the special provisions on taxation cannot be implemented without the project implementation authorization under Article 28 of the Act on the Maintenance and Improvement of Urban Areas. In principle, if the landowner wishes to be the project implementer, unless there are special circumstances such as the designation of the project implementer under Article 8(4) of the Act on the Maintenance and Improvement of Urban Areas, it is difficult to specify the project implementer until the project implementation authorization is granted, and the right to expropriate is not yet granted, and even if the landowner transfers real estate such as land before the project implementation authorization is implemented, it is difficult to conclude that the land owner is subject to the special provisions on the project implementation authorization after the transfer authorization.

According to the reasoning of the judgment below, on September 5, 1985 and May 20, 2002, the plaintiff acquired the real estate of this case located in ○○○○○○○○○○○○○○○○ on May 20, 2005. On July 7, 2005, the plaintiff concluded a contract to sell it to ○○○○○○ Co., Ltd., but around July 2005, △△△△ Co., Ltd. (hereinafter referred to as “non-party company”) refused to transfer the real estate of this case by receiving the payment of the remaining value from the non-party company on December 7, 2006 (hereinafter referred to as “transfer”). The plaintiff did not request for special taxation for the transfer of the real estate of this case on the ground that the difference between the transfer income tax amount and the actual transaction value of the non-party company, which was designated as the designated area under Article 104-2(1) of the former Income Tax Act, was not subject to the application of the urban Environment Improvement Project Act.

Examining these facts in light of the legal principles as seen earlier, although the non-party company was preparing for an urban environment improvement project as the owner of land, etc. at the time of the transfer of this case, the transfer of this case was not subject to the special taxation provisions of this case. However, the court below held that the transfer of this case was illegal on the ground that Article 28 of the Urban Improvement Act was able to be recognized as the project implementer even before the project implementation authorization was granted, and that the non-party company demanded the acquisition of land ownership in advance in order to obtain project implementation authorization, and that the transfer of this case is subject to the special taxation provisions of this case after the fact that the non-party company actually received project implementation authorization, etc.

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.