Cho High Court Decision 2014Da3116 ( September 30, 2014)

No retroactive appraisal value shall be the acquisition value of capital gains tax.

Where there exist the appraisal prices deemed to have credibility as appraised by at least two appraisal business operators on the relevant assets within three months before and after the date of transfer or acquisition respectively, the average value of such appraisal prices may be deemed the acquisition value, but it shall not be deemed the acquisition value if it is not within three months before and after the date of transfer or acquisition respectively.

Article 97 of the Income Tax Act

2014Guhap674 Revocation of Disposition of Imposing transfer income tax

AA

00. Head of tax office

on October 1, 2015

October 14, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The disposition of imposition of capital gains tax for the taxable year of 000 that the Defendant rendered to the Plaintiff on October 000 shall be revoked.

(The plaintiff stated the date of disposition on November 7, 000 in the purport of the claim, but it is obvious that it is a clerical error).

1. Basic facts

A. On July 26, 2004, the Plaintiff acquired 00 m2,00 m2,000 m257.1 m2,00 m2,000 m2, and 00 m2,000 m2,000 m2,000 m2,000 m2,000 m2,449,546,500 m2, and the transfer value was 2.5 billion m2,000 m2,000,000 and reported the transfer income tax on November 27, 2012, and paid KRW 7,04

B. On September 2013, the Defendant: (a) investigated whether the details of the Plaintiff’s transfer income tax were appropriate; and (b) deemed that the actual acquisition value of the instant real estate was not confirmed; and (c) notified the Plaintiff of the acquisition value of the instant real estate at KRW 2,138,615,709 at the conversion price; and (d) on November 20, 2013, the Defendant corrected and notified the transfer income tax of KRW 104,45,190 for the transfer income tax reverted to the year 2012

C. The Plaintiff appealed and filed a national tax appeal with the Tax Tribunal on February 17, 2014, but was dismissed on September 30, 2014.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff acquired the instant real estate in KRW 2.5 billion and transferred it in KRW 2.5 billion. Nevertheless, the Defendant deemed that the actual acquisition price of the instant real estate was not confirmed, and thus, imposed capital gains tax at KRW 2,138,615,709 on the instant real estate at the conversion price. The instant disposition was erroneous and unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Facts of recognition

1) On July 15, 2004, prepared between the Plaintiff and AAA on July 15, 2004, the Plaintiff submitted a sales contract (Evidence No. 1-2) with the sales price of the instant real estate as KRW 2.4 billion, and a sales contract (Evidence No. 2) with the sales price of the instant real estate as of July 15, 2004 with the sales price of the instant real estate as of KRW 2.5 billion.

2) According to the appraiser BB’s appraisal of documents, the sales contract (Evidence A(Evidence A(2) dated 15, 2014, the sales price of which is KRW 2.5 billion, is presumed to have been written on July 15, 2014, not on the latest document, but on the around 2004.

3) Results of market price assessment

A) According to the result of the appraisal of the market price of the instant real estate at the request of the East Asia’s 00 branch on July 20, 2004, the time of the appraisal is as of July 19, 2004, the land of this case is KRW 2,421,749,00 in total as of KRW 2,421,749,00 in the case of the instant land, and KRW 2,421,749,00 in the case of the building.

B) According to the result of the appraisal of the market price of the instant real estate at the Plaintiff’s request on July 19, 2004 on May 20, 2014, the market price of the instant real estate is KRW 277,68,00 for the instant land, KRW 2,114,218,920 for the instant building, and KRW 2,391,86,920 for the instant land.

C) According to the result of the appraisal of the market price of the instant real estate at the Plaintiff’s request on July 19, 2014, 000 by 00 appraisal corporations, the market price of the instant real estate is KRW 275,097,00 for the instant land and KRW 2,147,938,520 for the instant building, and KRW 2,423,035,520 for the instant land.

D) According to the result of the appraisal of the real estate price of this case at the request of the president of the NAF branch on March 10, 2003 at the time of the appraisal on March 7, 2003, the land of this case is KRW 2,259,95,00 in total, KRW 1,989,987,40 in the case of the building, and KRW 2,259,942,40 in the case of the building.

4) The following is the trend of changes in the officially assessed individual land price per square meter of the instant land.

5) AA included the price of the instant real estate in KRW 1,229,274,239 (land 230,000,000, and KRW 99,274,239,239) on the balance sheet prepared as of August 31, 2004. The Plaintiff included the instant real estate in KRW 1,65,46,81 (land 649,25,721, building 1,016,211,09) on the balance sheet prepared as of December 31, 2004.

6) On March 14, 2003 regarding the instant real estate, the establishment registration of the mortgage was completed over the maximum debt amount of KRW 2,340,00,000 by the National Agricultural Cooperative Federation and the debtor NN as NN on March 14, 2003. Thereafter, on July 26, 2004, the additional registration of the alteration of the right to collateral security with the purport of making the debtor Kim 00 on the ground of the contract acceptance was completed, and on November 8, 2005, the additional registration of the alteration of the right to collateral security with the purport of changing the right to collateral security with the content of the debtor as the plaintiff was completed.

D. Determination

1) In calculating gains from transfer, Article 97(1)1 of the Income Tax Act provides that the acquisition value shall be one of the necessary expenses to be deducted from the transfer value in the calculation of gains from transfer. The acquisition value shall be the actual transaction example value prescribed by Presidential Decree, appraisal value or conversion value if it is impossible to confirm the actual transaction value at the time of acquisition. Meanwhile, Article 114 of the Income Tax Act provides that the head of the district tax office having jurisdiction over the place of tax payment shall rectify the transfer income tax base and the tax amount if there are omissions or errors in the return of capital gains tax, and the acquisition value shall be based on the actual transaction value at the time of acquisition; where it is impossible to recognize or confirm the actual transaction value at the time of acquisition by the books or other evidentiary documents, the acquisition value may be determined or corrected by the estimate of the actual transaction example value, conversion value (referring to the acquisition value converted from the actual transaction value, purchase price, sale price or appraisal value at the time of acquisition by the method prescribed by Presidential Decree) or the standard market value of the assets at the time of acquisition (referring to the standard market value before or sale price).

2) The Defendant considered the conversion price at the time of acquisition as the acquisition price on the ground that it is impossible to recognize or confirm the actual transaction price presented by the Plaintiff and rendered the instant disposition based thereon. The Defendant examined whether it is reasonable to determine the conversion price as the acquisition price if it is impossible to recognize or confirm the acquisition price presented by the Plaintiff.

3) Whether the acquisition value can be recognized or confirmed as 2.5 billion won

A) The circumstances revealed in the above facts are as follows.

① On July 15, 2004, the Plaintiff and AA made a sales contract (Evidence No. 1-2, No. 2, No. 2,400,000,000 won for the instant real estate and a sales contract (Evidence No. 2, No. 2,000,000,000 won for the instant real estate) with the sales price of KRW 2,50,000 for the instant real estate. As can be seen, preparing a different sales contract on the same day, would be an exceptional basis. In particular, the Plaintiff prepared a sales contract with the initial Defendant having the sales price of KRW 2,40,000,00,000 for the Defendant suspected of the authenticity of the said sales contract, and submitted a sales contract with the amount of KRW 2,50,000,00,000 for the instant real estate. However, according to the result of the appraiser BB’s appraisal of the document, it is presumed that the sales price was written in around July 15, 2014.

② The Plaintiff asserts that, while paying the purchase price of KRW 2.5 billion to AA, the KRW 1.8 billion out of the above KRW 1.8 billion has been assumed by AA to take over the obligations of KRW 1.8 billion loaned from agricultural cooperatives (the Plaintiff directly repaid to Nonghyup), and KRW 700 million has been transferred to AA the claims owed by the Plaintiff against the third party and paid KRW 700 million directly to AA. However, the above method of payment of the purchase price is an exceptional method compared to a buyer’s payment of the purchase price in full to the seller, but the content is not entirely indicated in the sales contract. Moreover, it is not easy to understand that the Plaintiff transferred the claim of KRW 70 million out of the above purchase price to a third party, even if the Plaintiff had a claim of KRW 70 million against the third party, and it is not confirmed whether the Plaintiff had a claim against the third party and whether the claim was transferred to A, at all, by the third party.

③ In light of the location, structure, etc. of the instant real estate, it seems that there was an increase in the officially announced value of the instant land from around 2004 to around 2012, and in light of the location, structure, etc. of the instant real estate, the price of all the instant real estate, including the instant building, would have been increased. It is very unusual to sell the real estate acquired in KRW 2.5 billion after 2004 to KRW 2.5 billion, an identical price, while selling it in 2012, around eight years after 2004.

④ Meanwhile, the Plaintiff appropriated the instant real estate as KRW 1,665,46,811 (land 649,25,721, building 1,016,211,090) on the balance sheet prepared as of December 31, 2004, and as seen earlier, AA has appropriated the instant real estate price as KRW 1,229,274,239 (land 230,000,000, building 99,274,2399,239) on the balance sheet prepared as of August 31, 204. As such, even if there is a substantial difference between the acquisition value and the amount calculated as of the said balance sheet claimed by the Plaintiff and AAA, the Plaintiff did not explain the cause of such difference.

B) In full view of the above circumstances, the sales contract submitted by the Plaintiff cannot be recognized or confirmed as the actual transaction price at the time of acquisition of the instant real estate, and there are no other data to recognize or verify the said actual transaction price. Therefore, it is justifiable to determine that the Defendant’s acquisition price of KRW 2.5 billion presented by the Plaintiff cannot be recognized or confirmed.

4) As to whether the acquisition value was determined by the conversion price

A) Article 176-2(3) of the Enforcement Decree of the Income Tax Act provides for the specific method of determining the actual transaction value at the time of transfer or acquisition of assets according to the transaction example value, appraisal value, conversion value, standard market price, etc. In cases where it is impossible to recognize or confirm the actual transaction value at the time of transfer or acquisition of assets, among them, the transfer value or acquisition value shall be determined based on the transaction example value, appraisal value, conversion value, or standard market price, etc. In cases where: (a) two or more appraisal business entities appraise the relevant assets (excluding stocks, etc.) within three months before and after the date of transfer or acquisition by the method

B) The provisions of the Enforcement Decree of the Income Tax Act, where it is impossible to confirm or confirm the actual transaction examples in a situation where it is impossible to recognize or confirm the actual transaction examples, exceptionally, allow the acquisition value to be recognized through the appraisal results, but limit the time of appraisal (the period of appraisal and the date of preparation of the appraisal report) and the date of appraisal (the expiration date) to not more than three months before and after the date of transfer or acquisition, respectively. In addition, it is understood to realize the principle of substantial taxation by allowing more than two appraisal business entities to calculate the value only as a result of the appraisal with credibility and reflect the actual transaction price to the maximum extent possible. In light of the legislative purpose and purport of the above provision, if the time of appraisal and the date of appraisal are not within three months after the date of transfer or acquisition

C) However, an appraisal report prepared by the Plaintiff with 00 appraisal corporations and 00 appraisal corporations among the appraisal report submitted by the Plaintiff is the time of the price set on July 19, 2004, but the said appraisal date is in violation of the said standards after the lapse of at least ten years from the date of acquisition as of May 20, 2014 (the date of preparation of the appraisal report). The appraisal report prepared by the Korea Appraisal Board is also prepared on March 10, 2003 with the price set on March 7, 2003, and thus does not satisfy the said standards.

D) On the other hand, in light of the provisions of the Enforcement Decree of the Income Tax Act, where the same appraisal corporation calculated the appraisal value based on the value assessed by more than two appraisal business entities, it cannot be acknowledged as the appraisal value as it is, in light of the above provisions of the Enforcement Decree, that the market value of the real estate of this case is calculated based on the price assessed by more than one appraisal business entity at the request of the NAF branch on July 20, 204.

E) As seen above, the appraisal result submitted by the Plaintiff is in violation of the appraisal standard set forth in Article 176-2(2) of the Enforcement Decree of the Income Tax Act, and thus, the appraisal value cannot be calculated with the above appraisal result. Therefore, it is justifiable for the Defendant to recognize the acquisition value as the acquisition value converted according to Article 176-2(2) of the Income Tax Act.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.