It is difficult to regard items claimed by the Plaintiff as capital expenditure, which are added as necessary expenses.

Personnel expenses, lighting facilities, expansion works, etc., which the Plaintiff claims as necessary expenses, cannot be deemed as capital expenses.

Suwon District Court 2016Gudan7679

○ ○

Head of Ansan Tax Office

March 29, 2017

June 7, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 64,096,140 to the Plaintiff on September 19, 2015 shall be revoked.

1. Details of the disposition;

A. On April 10, 2007, the Plaintiff acquired and owned a total of 544.1 square meters of the stores located in Gwangju (hereinafter “instant real estate”) and transferred the said real estate to Nonparty A on November 27, 2014, and on January 31, 2015, the Plaintiff reported and paid the transfer income tax with necessary expenses for the said real estate 347,354,415 (capital expenditure 265,704,415 + 81,650,000 won + other necessary expenses).

B. From May 18, 2015 to June 6, 2015, the Defendant conducted an investigation into capital gains tax on the Plaintiff, and notified the Plaintiff of KRW 180,790,306 (income-making expenditure + KRW 100,565,306 + Labor cost of KRW 80,225,000) out of KRW 265,704,415 that the Plaintiff reported as capital expenditure, and notified the Plaintiff of KRW 64,096,140 (hereinafter “instant disposition”) on September 19, 2015, by denying necessary expenses.

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on March 8, 2016, but was dismissed on June 10, 2016.

[Ground of recognition] No dispute, Gap 1, Eul 1 through 4, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

After acquiring the instant real estate, the Plaintiff had engaged in the clothing sales business at a certain point. The Plaintiff had frequently invested in facilities, such as interior works, in accordance with the purpose of the store’s use even before disposing of the said real estate. Such facility investment constitutes capital expenditure, which is paid for the improvement of the transferred asset under Article 163(3)3 of the former Enforcement Decree of the Income Tax Act or for the convenience of use by many unspecified persons, and thus, constitutes capital expenditure, and thus, it should

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) From February 1, 2007, the Plaintiff registered its business with the trade name of “B(S)” (hereinafter “instant enterprise”) at the location of the instant real estate from February 1, 2007, and continued to operate the said real estate leased by AA after transferring the said real estate to Nonparty AA.

2) On April 10, 2007, the Plaintiff purchased the instant real estate, which is a part of the Gwangju Paullet, a commercial collective building, from the CCC (hereinafter “CCC”). The Plaintiff entered into a special agreement that, in the sales contract, the Plaintiff should acquire the instant real estate according to the state of usage inspection, the Plaintiff cannot demand any addition, removal, or modification of facilities other than those already installed, and that it cannot perform any act that changes the existing form such as relocation, alteration, damage, etc. of facilities already installed without the approval of CCC.

3) The Defendant, while reporting the transfer income tax after the transfer of the instant real estate, on the spot investigation as to KRW 347,354,415, which the Plaintiff reported by appropriating the transfer income tax as necessary expenses, and calculated the recognized amount and non-recognized amount as follows.

[Reasons for Recognition] Further to the evidence mentioned above, Gap 2's statements and the purport of the whole argument

D. Determination

1) According to Article 97(1)2 of the Income Tax Act and Articles 163(3)1 and 3, and 67(2) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26027, Feb. 3, 2015), capital expenditure among necessary expenses to be deducted from the transfer value of real estate refers to the expenses paid for the alteration, improvement, or convenience of the use of the repair cost or transferred asset disbursed by the business operator in order to extend the service life of the depreciable asset owned by the business operator or to increase the real value of the relevant asset. The former example includes remodeling for the change of the original use, installation of elevators or heating and cooling equipment, installation of escape facilities of buildings, etc., and other similar improvement, expansion, enlargement, etc.

Here, the cost of equipment and improvement corresponding to the necessary expenses to be deducted from the transfer value refers to the cost that significantly increases the objective value of fixed assets to the extent that it may affect the determination of the standard market value of the land or building (see, e.g., Supreme Court Decisions 91Nu7149, Apr. 14, 1992; 96Nu1303, Oct. 10, 197).

Meanwhile, since the tax authority bears the burden of proving the legality of taxation, the tax authority bears the burden of proof as a matter of principle, as necessary expenses that are the basis of the determination of taxable income. However, deduction of necessary expenses is more favorable to the taxpayer, and most of the facts that form the basis of necessary expenses are located in the controlled area of the taxpayer. As such, the tax authority has difficulty in proving it, so it is reasonable to have the taxpayer prove the burden of proof in consideration of difficulty in proving it or equity between the parties (see, e.g., Supreme Court Decision 91Nu10909, Jul. 28, 1992).

2) We examine the instant case in light of the aforementioned legal principles. In full view of the aforementioned facts and the following facts and circumstances revealed by the evidence revealed earlier, the Plaintiff’s necessary expenses not recognized by the Defendant were disbursed to extend the service life of the instant real estate or to increase the value thereof, or disbursed to improve or use the said real estate, and thus, do not constitute expenses significantly increasing the objective value to the extent that it may affect the determination of the standard market value of the said real estate. Therefore, it is difficult to view that there was any error in the Defendant’s measures not reflected in the necessary expenses.

○ The Plaintiff alleged that the Plaintiff was paid as necessary expenses, but the Defendant’s denied expenses, etc., are expenses incurred in performing internal construction, etc. necessary for the management of clothing sales stores in the instant real estate, rather than expenses paid for the purpose of an objective increase in the value of the said real estate itself, and thus, the Plaintiff’s contribution to the management of the instant real estate in order to operate the instant real estate. Therefore, it cannot be deemed as expenses for installation or improvement of transferred assets (see Supreme Court Decision 91Nu4294, Jan. 21, 1992).

According to the specific construction work that the Plaintiff claimed in the instant real estate, the real estate was originally partitioned by boundary walls for each unit, but it was so far as it constitutes a ceiling, lighting, electricity distribution line, floor floor, interior walls, and painting construction work to constitute a clothing sale store. As seen earlier, the Plaintiff is unable to relocate or alter existing facilities without the approval of CCC, and if construction is performed in violation thereof, it can be deemed that the Plaintiff is liable to restore or compensate for damages depending on the case. As such, the construction cost claimed by the Plaintiff is nothing more than the cost spent to restore the Plaintiff or the transferee to its original state or to install facilities that should be liable to compensate for damages, and thus, it cannot be deemed as the installation cost or improvement cost that objectively increases the value of the instant real estate. Since the Plaintiff transferred the instant real estate again to operate the instant real estate, it is difficult to view that the Plaintiff’s facilities or equipment installed by the Plaintiff after the expiration of the lease period as objectively necessary after the transfer of the real estate, the Defendant’s assertion that the total construction cost of the instant real estate was not denied, but the entire construction cost of the Plaintiff’s construction cost, and its objective installation cost (18).

○ Other aspects of the Plaintiff’s sales business (10,56,306 won) with the exception of labor cost of KRW 10,56, 200 [see subparagraph 3], transportation cost, 10, 112, 14, 178, 174, 277, 36, 37, 38, 57, 57, 60, 61, 82, 84, 86, 86, 80, 80, 80, 108, 110, 147, 178, 174, 175, 174, 176, 276, 176, 176, 176, 174, 176, 47, 176, 176, 17, 17, 47, 17

○ 80,225,00 won out of the necessary expenses denied by the Defendant (for example, 39, 62, 87, 91, 91, 113, 141, 151, 181, 187, 203, 223, 233, and 234) is insufficient only to prove that the Plaintiff has paid such expenses if it is possible to include them in the necessary expenses (for personnel expenses, there is no one-time statement to be prepared on a quarterly basis; for personnel expenses, the total amount of personnel expenses and necessary expenses are not different; for the Plaintiff’s own personnel expenses are not consistent with accurate documents; for the Plaintiff’s self-employed personnel expenses are not remaining, it cannot be deemed that there is sufficient evidence to prove that such expenses are human resources needed to increase the real value of real estate of this case or to decrease depreciation expenses at the expense of this case; for each of the above reasons, the Plaintiff cannot be deemed to have included the aforementioned expenses in the capital expenses.

3) Therefore, the Plaintiff’s assertion cannot be accepted, and the instant disposition is lawful.

3. Conclusion

The plaintiff's claim is dismissed. It is so decided as per Disposition.