Corporate Special Assessment Tax Case

[12-1 KCCR 16, 96Hun-Ba95, etc.,(consolidated),

January 27, 2000]

In this case, the Court found nonconforming to the Constitutionthe provision of the Corporate Tax Act that delegated the determi-nation of the tax basis for the special assessment on transfer income to the Presidential Decree, on the ground that it violated the principleof statutory taxation and the rule against blanket delegation.

A. Background of the Case

The Special Assessment is imposed on a corporate capital gain arising out of the disposition of lands and buildings. The corpora-tion, in addition to paying corporate tax on the real estate transferincome, which is included in the annual income, must pay the special assessment separately for that transfer income. The Special Assess-ment is aimed at closing the gap in taxation between corporationsand natural persons (corporate tax rate being lower than transfer in- come tax imposed on natural persons) and thereby deterring corpora-tions from speculation in real estate.

The Corporate Tax provision in controversy, without any restric-tion, described the tax basis for the Special Assessment as 'transferof real property identified in the Presidential Decree', thereby delega- ting the authority to determine the tax basis wholly to the Adminis-tration. Therefore, the Administration determined through a Presi-dential Decree that 'gains arising out of the sale of a newly con-structed residential building, land of limited size annexed to thatbuilding and commercial buildings, and other welfare facilities annex-ed to that building newly

constructed and sold' shall not be subjectto the Special Assessment.

Complainants constructed residential buildings for lease togetherwith ancillary welfare facilities including commercial buildings andsold the latter to another. The tax authority determined that residential buildings for lease cannot be sold for a limited period according to the Residential Buildings for Lease Act, and therefore that, the complainants' buildings do not qualify as 'a residential building new-ly constructed and sold' under the Enforcement Decree provision,therefore imposing the Special Assessment.

Complainants sought cancellation of the Special Assessment, andfiled this constitutional complaint when their request for constitutionalreview of the relevant laws and regulations was denied by the pre- siding court.

B. Summary of the Decision

The Constitutional Court issued a decision of nonconformity, sus- pending the Corporate Tax Act provision, on a majority vote of sevenJustices, as follows:

Article 75 of the Constitution states the President may promul-gate Presidential Decrees in regard to those matters delegated bystatutes with concretely defined scope. It specifies the basis andlimit of delegated rule-making, and thereby prevents arbitrary inter-pretation and enforcement of law by executive powers and accom-plishes the principle of parliamentary legislation and the rule of law.In light of the intent behind the Constitution, the phrase 'concretelydefined scope' means that the content, scope, and other basic mat-ters to be prescribed by lower rules such as Presidential Decreesmust be determined concretely and clearly by Status so that anyonecan predict from the statue itself the overall content of the lowerrules. Especially, for the rules tending to restrict or infringe people'sbasic rights directly, the requirement of concreteness and clarity isstrengthened, and the element and scope of delegation need to bedefined more strictly than other administrative laws and rules. Onlywhen the subject to be regulated is extremely diverse and transient,the requirement of concreteness and clarity can be loosened. (Con-stitutional Court, 1995. 11. 30, 91 Hun-Ba 1, et al.)

The instant statutory provision does not itself specify which landis to be assessed upon and leaves the issue to be determined byPresidential Decrees. One cannot predict the scope of the subjectmatter to be taxed even through an organic and comprehensiveunderstanding of the statutory provision, the legislative intent andsystem of the Corporate Tax Act, the Income Tax Act, the TaxExemption Regulation Act, and other related laws.

Therefore, the instant statutory provision does not permit the

Special Assessment taxpayer any prediction on the scope of the taxedsubject matter, and leaves room for an infringement on people'sproperty rights by the Administration's arbitrary exercise of the ad-ministrative rule-making power. It violates the Article 75 ruleagainst blanket delegation and violates the Article 59 principle ofstatutory taxation.

On the other hand, although the instant provision deserves to beinvalidated immediately as a matter of principle, its immediate invali- dation upon a simple decision of unconstitutionality will cause a vac-uum in law in which the Special Assessment cannot be imposed atall. Its invalidation will also cause a result unequal with those whoalready paid the Special Assessment. Furthermore, its unconstitu-tionality does not arise out of the National Assembly's failure to use the correct legislative form, a statute. Therefore, this Court finds the statute nonconforming to the Constitution without a decision of sim-ple unconstitutionality suspends the application of the statutory pro- vision by the Court and other state agencies, and local governments.

When the Constitutional Court leaves the task of revising or re- pealing provisions with unconstitutional elements to the legislature'sformative discretion, it is a matter of principle that those cases af-fected by this decision retroactively or those cases to be disposed ofunder this statutory provision shall be governed by the new statutoryprovision rid of unconstitutionality by the legislature after this deci- sion.

Presiding Justice Kim Yong-joon and Justice Kim Moon-hee dis- sented as follows:

The Constitutional Court, since its inception and on numerousoccasions, has reviewed those tax laws that did not define the pre-requisites to taxation clearly or set the scope of taxation concretelyand delegated those matters all-inclusively to Presidential Decrees,and invalidated them or found them nonconforming to the Constitutionon the ground that they violate the constitutional principle of statu-tory taxation and the rule against blanket delegation. Nonetheless,the state agency charged with revision of tax laws has not been dili- gent in revising and bringing the laws into constitutional conformity.Therefore, it is the time not to stop at a decision of nonconformitybut to issue a decision of unconstitutionality in order to accomplishthe Constitutional Court's duty to defend the constitutional order andensure and guarantee people's basic rights more effectively.