Cho-2018-China-1797 (Law No. 19, 2018)

The plaintiff is not a business operator subject to simple expense rate application, and the plaintiff's business does not constitute a construction business subject to special tax reduction or exemption.

Since the business commencement of the Plaintiff, a housing construction and sales business entity, should be understood as an objective and practical time of supply of housing subject to sale, the time of commencement of sale of housing should be seen as the time of commencement, and the Plaintiff’s business does not constitute a construction business subject to reduction or exemption of special tax

Article 143 of the former Enforcement Decree of the Income Tax Act

2018Guhap69869 Of global income and lawsuits seeking revocation of disposition

○ ○

Head of △ District Office

March 20, 2019

April 11, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s portion exceeding KRW 304,986,410, out of KRW 29,230,940, global income tax for the year 2013, and global income tax for the year 2015, as global income tax for the year 2015, as well as KRW 304,986,410, respectively, shall be revoked.

1. Details of the disposition;

A. 1) On August 1, 2012, the Plaintiff completed the business registration of a residential building construction business on the trade name, “AAAC household,” and started the new construction of a new apartment house**********6 ground-6 ground-based 8 household (hereinafter referred to as “instant 1 apartment house”) and obtained approval for use on December 26, 2012, and conducted the business of selling the instant 1 apartment house (hereinafter referred to as “the instant 1 project”) around 2013.

2) On March 20, 2015, the Plaintiff started a new construction work with the trade name, "BDada Generation" on May 14, 2015, and completed the registration of each housing construction and sales business on May 15, 2015,**** Dong****-5 ground-based multi-family housing (hereinafter referred to as "second-family housing of this case") and**** Si************-4 ground-based multi-family housing (hereinafter referred to as "third multi-family housing of this case"), and the aggregate of the first, second, and three multi-family housing of this case, "each multi-family housing of this case" was approved on October 23, 2015, and the project of this case 2 and 3 multi-family housing of this case (hereinafter referred to as "the project of this case") was combined with each of the projects of this case.

B. Under the premise that the Plaintiff sold the by-products of the former building in 2012, which was the taxable period immediately preceding 2013, when the sales revenue of the instant multi-family housing was generated, and obtained the amount below the amount stipulated in Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same shall apply), the Plaintiff calculated the estimated income by applying the simple expense rate to the global income tax return for 2013, and filed the global income tax return and paid the comprehensive income tax by applying the special tax reduction and exemption for the construction business from the calculated tax amount. In addition, the Plaintiff calculated the tax amount by applying the simplified expense rate even at the time of filing the global income tax return for the year 2015, when the sales revenue of the instant multi-family housing was generated.

C. As a result of an income tax investigation on the Plaintiff, the head of △△△ Regional Tax Office shall regard the date of commencement of the business from 2013 to 2015 where the actual amount of sales income accrued from the sale of each of the instant multi-family housing, and the Plaintiff constitutes a new business entity, not a business entity that has engaged in the existing business as of the relevant taxable period. Since the amount of revenue exceeds the standard amount under Articles 143(3)1 and 208(5)2 of the former Enforcement Decree of the Income Tax Act, the amount of income should be estimated by applying standard expense rate rather than simple expense rate, and since the Plaintiff cannot be deemed to have engaged in the construction business, the head of △△△ Regional Tax Office notified the Defendant to the effect that the application of the provisions on special tax reduction and exemption by small and medium enterprise under Article 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 1217

D. Accordingly, on August 4, 2017, the Defendant calculated necessary expenses according to the estimation method according to the standard expense rate, excluded the application of the provisions on special tax reduction and exemption for small and medium enterprises under Article 7(1) of the former Restriction of Special Taxation Act, and subsequently notified correction and notification of KRW 29,230,940 as global income tax for the year 2013 in addition to the penalty tax due to unfaithful return and payment after deducting various deductible tax amounts, such as the amount of tax already paid by the Plaintiff, and notified correction and notification of KRW 350,285,430 as global income tax for the year 2015 (hereinafter “instant second disposition”).

E. The Plaintiff, who is dissatisfied with each of the above dispositions, filed an appeal with the Tax Tribunal on March 8, 2018 on November 2, 2017, and dismissed the said appeal on June 19, 2018.

Facts that there is no dispute, Gap's evidence 1 through 4, Eul's evidence 1 through 5 (including various numbers), and the purport of the whole pleadings.

2. The plaintiff's assertion

A. Simple expense rate application assertion (as to the first disposition of this case)

The Plaintiff’s removal of the former building in order to construct the 1st apartment house of this case is inevitable in the process of constructing the 1st apartment house. As such, the amount of income from the sale of scrap metals and other by-products generated from the removal of the former building constitutes the total amount of income determined by the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same shall apply). The Plaintiff sold by-products on October 9, 2012 and obtained income of KRW 1,80,000 from the sale of by-products, and filed a global income tax return for 2012. Thus, the Plaintiff’s disposal of the 1st apartment house of this case should be deemed to have already commenced on October 9, 2012 under the reasonable interpretation of Articles 5, 27, and 39(1) of the former Income Tax Act. Thus, even if not, the taxation system of the 1st apartment house of this case is considerably similar to the Corporate Tax Act, the Plaintiff’s new business income from the commencement date of business.

B. As to the application of special tax reduction and exemption for small and medium enterprises (as to the part exceeding KRW 304,986,410 among the Disposition No. 1 and Disposition No. 2 of this case)

Since the Plaintiff directly constructed each of the instant multi-family housing with a construction business license, each of the instant dispositions that excluded it from inclusion in the reduction and exemption of the special tax amount on small and medium enterprises as small and medium enterprises that run construction business under Article 7(1) of the former Restriction of Special Taxation Act

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination

A. Judgment on the plaintiff's first argument

1) Under the principle of no taxation without law, a tax law shall be interpreted in accordance with the text of the law, barring special circumstances, and it shall not be permitted to expand or analogically interpret without reasonable grounds. However, even if the language and text of the tax law itself is not clear, or if it appears that there is a conflict between the laws and regulations, the court should naturally state the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations.

In this case, a judge can make a joint interpretation of the law that takes into account the legislative intent, purpose, etc. to the extent that does not undermine the legal stability and predictability oriented by the principle of no taxation without law (see, e.g., Supreme Court Decision 2007Du4438, Feb. 15, 2008).

Article 1-2 (1) 5 of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter "former Income Tax Act") provides for the definition of "business operator", Article 1-2 (1) 5 of the Income Tax Act provides for whether the income from any type of business constitutes business income, and Article 19 (1) of the former Income Tax Act provides that Article 8 of the Value-Added Tax Act shall apply mutatis mutandis to the method of filing a new application and applying for change of business registration to a business operator who registers his/her business under the former Income Tax Act, and Article 168 (3) of the former Income Tax Act does not expressly determine the commencement date of the business as prescribed in Article 6 of the Enforcement Decree of the Value-Added Tax Act or does not apply mutatis mutandis to the commencement date of the business in the business income. Therefore, it is necessary to look at when the starting date of the business in the former Income Tax Act should be considered as the business income through the joint-purpose interpretation of the Act,

2) Whether the Plaintiff constitutes a business entity subject to simple expense rate application

In full view of the language, structure, and purport of relevant Acts and subordinate statutes, such as the former Income Tax Act and the former Value-Added Tax Act (amended by Act No. 16101, Dec. 31, 2018; hereinafter referred to as the "former Value-Added Tax Act"), the starting date of business of business income under the former Income Tax Act shall not be the Corporate Tax Act, but the starting date of business under the former Income Tax Act shall be the starting date prescribed in each subparagraph of Article 6 of the Enforcement Decree of the Value-Added Tax Act, which provides for the starting date of business under Article 5(2) of the former Value-Added Tax Act. Therefore, the starting date of the first business of this case is 2013 years from the commencement of the sale by newly constructing the first apartment house of this case by the Plaintiff, and it is difficult to deem that

① Article 19(1) of the former Income Tax Act defines "income generated from various types of business, such as agriculture, forestry, fishery, mining, manufacturing, construction, etc." as business income. Article 1-2(1)5 of the same Act defines "resident with such business income" as business income. In other words, business activities under the former Income Tax Act are premised on the actual occurrence of income. Therefore, the commencement date of business cannot be advanced until the preparation of business, which is the time of provision of goods or services directly causing income, begins.

The time of commencement is difficult to objectively specify not only the scope of preparation for business but also the scope of the business's subjective intention or necessity.In order to apply the simple expense rate stipulated in Article 143 (4) 2 of the former Enforcement Decree of the Income Tax Act, the business operator can arbitrarily adjust the amount of income and avoid tax liability.

This may cause interference with the legitimate exercise of national tax collection authority or cause inequality among taxpayers.

(2) Article 1-2 (1) 5 and Article 19 of the former Income Tax Act define a resident who has income derived from continuous and repeated activities under his/her own account and responsibility for profit-making purposes as an entrepreneur.

Meanwhile, Article 2 subparag. 3 of the former Value-Added Tax Act defines a person who supplies goods or services independently for business regardless of whether they are for profit-making purposes. Here, “person who supplies goods or services independently for business purposes” refers to a person who supplies goods or services in the form of business to the extent that the added value can be created and continuously and repeatedly (see, e.g., Supreme Court Decision 98Du16705, Sept. 17, 199). Thus, the meaning of a business operator under the former Income Tax Act is not significantly different.

Therefore, it is necessary to interpret the starting date of the business related to the business income under the former Income Tax Act in a uniform manner with the starting date of the business under the former Value-Added Tax Act. This is the same in the sense that the legal stability should be granted to the taxpayers of value-added tax and the business operators who are

In this regard, Article 168 (1) and (2) of the former Income Tax Act imposes an obligation on the head of the tax office having jurisdiction over a new entrepreneur to make a business registration under the former Income Tax Act, but the entrepreneur who has made a business registration under the Value-Added Tax Act is considered to have made a business registration under the former Income Tax Act, and Article 163 (1) of the former Income Tax Act imposes an obligation to prepare an invoice or receipt as prescribed by Presidential Decree and to issue it to the person who has received the goods or services if the entrepreneur who made a business registration supplies the goods or services, as

③ Article 168(3) of the former Income Tax Act provides that Article 8 of the Value-Added Tax Act shall apply mutatis mutandis to a business operator who registers his/her business under this Act. Article 8(1) of the former Value-Added Tax Act provides that a business operator shall file an application for his/her business registration within 20 days from the commencement date of the business, but a person who intends to start a new business may file an application for his/her business registration even before the commencement date of the business. Article 6 of the Enforcement Decree of the former Value-Added Tax Act delegated by Article 5(2) of the former Value-Added Tax Act stipulates that the commencement date of the manufacturing business and non-mining business shall be the date of commencing the supply of goods or services.

④ Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010); Article 143(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) provides that, “an entrepreneur whose aggregate amount of revenue (including revenue increased due to determination or revision) during the immediately preceding taxable period is below the standard amount, other than a new entrepreneur who starts a business in the pertinent taxable period, shall be subject to simple expense expense expense. After that, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010; Presidential Decree No. 22580, Dec. 1, 2010; Presidential Decree No. 22010, Jan. 1, 2012>

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income in the taxable period that begins after February 13, 2018, is amended by Presidential Decree No. 28637, which applies to the portion of income in the taxable period that begins after January 1, 2019, provides that if the total amount of income in the immediately preceding taxable period falls short of the standard amount, if the income in the taxable period concerned falls short of the standard amount of double-entry bookkeeping, the standard expense rate shall be excluded from the application of simple expense expense ratio.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators who lack the capacity to keep records of the principal expenses required by the standard expense rate system, and the legislators seem to have gradually reduced the scope of business operators subject to the simple expense rate application. Furthermore, according to the language and text of the supplementary provision, legislators seem to understand "construction commencement", "construction business, construction business, and commencement of real estate development and supply business."

Considering such legislative intent, in cases of housing construction and sales business that runs a business with a certain scale or more due to its nature, it is necessary to ascertain the commencement date of the business as objective and practical time when the supply of housing subject to sale is more objectively and practically possible than the commencement date that can be determined depending on the business operator’s intent (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). Therefore, it is difficult to deem that the Plaintiff objectively expressed its intent to engage in the housing construction and sales business for profit prior to commencing the sale of the first apartment house in this case.

⑤ Meanwhile, the Plaintiff asserts that the business should have already commenced in 2012, since the income from the sale of scrap metal is included in the total amount of income as prescribed by Article 39(1) of the former Income Tax Act. However, whether the Plaintiff constitutes business income under the Income Tax Act ought to be determined according to social norms, taking into account the existence of the business profit purpose, the scale and frequency of the business, and the manner of the business (see Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, solely on the ground that the Plaintiff sold by-products generated from the removal of the existing building, it is difficult to deem that the Plaintiff continuously and repeatedly conducted for profit-making purposes and became an objective entity as a housing construction-sale seller.

In other words, even if some proceeds have been made by selling the by-products generated from removal, it is only a matter to be considered in calculating necessary expenses under Article 55 (1) of the former Enforcement Decree of the Income Tax Act, and it cannot be viewed as the revenue amount of the business of this case, which is the basis for determining the application of simple expense rate.

B. Judgment on the second argument by the Plaintiff

Articles 2(3), 7(1)1(g) and 7(2) of the former Restriction of Special Taxation Act provide that an amount equivalent to the tax amount calculated by multiplying the income tax on the income accrued from the relevant place of business by 20/10 until the taxable year ending on or before December 31, 2014, shall be reduced or exempted from the income tax on the income accrued from the relevant place of business, and the classification of the type of business used in this Act shall be in accordance with the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant

However, according to the 9th Korean Standard Industrial Classification (amended by the Statistics Korea Notice No. 2017-13, Jan. 13, 2017) that applies to each of the instant dispositions in the global income tax taxable periods, “building construction business (Classification Code 411)” refers to the industrial activities of constructing, enlarging, reconstructing, and reconstructing buildings, including assembly-type buildings, by contracting or self-employed construction contractors. Even if a subcontract is made for each of the construction projects without direct construction activities, it is classified as “general construction business classification code 41)” but the industrial activities of selling and selling buildings are classified as “housing Development and Supply Business (Classification Code 68121)”.

In other words, in the building ledger of the instant apartment building No. 1, the contractor entered into the building ledger of the instant apartment building No. 2 and the building ledger of the instant apartment building as "CCC", and the contractor entered into the building ledger of the instant apartment building No. 2 and No. 3 as "CCC".

② In light of the fact that the Plaintiff did not possess a construction business license and did not submit any particular data to deem that each of the instant multi-family housing construction works had human resources, physical facilities, or capabilities to be constructed under the overall responsibility, and that according to the tax invoice, tax withholding performance statement, and daily-paid worker income payment statement submitted by the Plaintiff, it is recognized that the Plaintiff paid some of the expenses due to design service cost, material cost, labor cost for daily-paid workers, etc., but the amount falls short of the sales revenue amount of each of the instant multi-family housing, each of the instant projects constitutes a “resident development and supply business” under the Korean Standard Industrial Classification and is not a “construction business subject to special tax reduction or exemption under the former Restriction of Special Taxation Act.

5. Conclusion

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