Cho High Court Decision 2008Da2289 ( December 19, 2008)

Where only 1/2 of a newly-built house eligible for reduction or exemption exists when determining one house for one household, whether it is subject to exclusion from special taxation.

In calculating the number of houses to determine whether a household constitutes two houses, the concept of physically and socially as a single house is a single house. It is reasonable to view that a house, such as a newly-built house, is also a newly-built house, whose transfer tax is reduced or exempted for one-half shares.

The contents of the decision shall be the same as attached.

1. The Defendant’s disposition of imposition of capital gains tax of KRW 43,395,380 against the Plaintiff on April 10, 2008, exceeding KRW 19,544,678, shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. One-third of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The Defendant’s disposition of imposition of capital gains tax of KRW 43,395,380 against the Plaintiff on April 10, 2008 exceeds KRW 11,834,390, shall be revoked.

1. Details of the disposition;

A. On June 4, 2002, the Plaintiff entered into a sales contract on the first apartment 1200 Do-dong 113903 Do-dong 1200 Do-dong 1200 Do-dong 113903 (hereinafter “the newly-built house of this case”) with the Plaintiff on June 10, 2005, while owning Busan Do-dong 707 Do-dong 707 Do-dong 707 Do-dong 6 1301 (hereinafter “former house of this case”). On June 10, 2005, the Plaintiff donated 1/2 shares of the newly-built house of this case to Nonparty ○, the Plaintiff’s wife, and completed the registration of ownership transfer with respect to each 1/2 shares of the newly-built house of this case on January 26, 2006, to the Plaintiff and Ansan Do-dong 1/2 shares.

B. On December 31, 2007, the Plaintiff: (a) donated the instant previous house to Kim○-chan on the condition that Nonparty Kim Jong-chan, who was an son on December 31, 2007, takes over the debt of KRW 150 million of the deposit for the entire lease.

C. On February 11, 2008, the Plaintiff calculated the transfer special amount of KRW 89,290,773, and calculated the calculated tax amount of KRW 43,395,386 to the Defendant, and filed a preliminary return on the tax base of transfer income, the Plaintiff deemed that the newly-built house of this case constitutes one house for one household under Article 99-3 of the former Restriction of Special Taxation Act (hereinafter “newly-built house”) and reported that the entire calculated tax amount was exempted.

D. Accordingly, on April 10, 2008, the Defendant, like the Plaintiff, rendered a disposition imposing capital gains tax of KRW 43,395,380 on the Plaintiff on April 10, 2008 (hereinafter “instant disposition”) on the ground that the Plaintiff’s portion of 1/2 of a newly-built house was excluded from the application of special taxation as to the portion of 1/2 that was donated to a person who constitutes a household (hereinafter “instant disposition”).

E. In the instant disposition, the Plaintiff filed an appeal with the Tax Tribunal on June 27, 2008, but dismissed the Plaintiff’s appeal on December 19, 2008, which was temperatured by the Tax Tribunal.

[Reasons for Recognition] Facts without dispute, Gap evidence 1-1, 2, Eul evidence 1, Eul evidence 2-1, Eul evidence 2-1, 2, Eul evidence 3-5, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff asserts that the instant newly-built house at the time of the transfer of the instant previous house constitutes a newly-built house for which the transfer income tax is reduced or exempted under Article 99-3 of the Restriction of Special Taxation Act, and thus, the instant house cannot be deemed as two houses for one household with heavy capital gains tax because it falls under Article 167-5 (1) 9 of the Enforcement Decree of the Income Tax Act, and thus, the instant disposition

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Interpretation of Article 167-5 of the Enforcement Decree of the Income Tax Act

(A) In calculating the number of houses to determine whether they constitute two houses for one household, it shall be premised on the concept of "one house" in terms of unfavorable and social terms, and since it cannot be deemed that three family members who form one household share one house in their own shares, it shall not constitute three houses for one household. Thus, as in the instant case, even if the Plaintiff and the Plaintiff’s wife share one-half shares of the newly-built house, the number of houses owned by the Plaintiff’s household shall be deemed to be the newly-built house and the previous house of this case.

(B) If 1/2 shares of the newly-built house in this case owned by the Plaintiff and 1/2 shares of the newly-built house in this case owned by the Plaintiff’s wife are calculated as one house, as the Defendant’s assertion, the number of shares of the newly-built house in this case owned by the Plaintiff’s household is 1/2 shares, 1/2 shares of the newly-built house in this case owned by the Plaintiff’s wife, and the previous house in this case, 1/3 shares of the newly-built house in this case owned by the Plaintiff’s wife and 3 houses for one household shall be applied Article 167-3 subparag. 9 of the Enforcement Decree of the Income Tax Act (in this case, the transfer income tax rate shall be 60/10). The Defendant’s own application of the transfer income tax rate for 3 houses for one household to the Plaintiff in this case without applying the transfer income tax rate for 1/100 to the Plaintiff is also implicitly recognized by the Defendant, as well.

(C) If the number of houses owned by the Plaintiff’s household is two, the issue of this case is whether the transfer income tax can be seen as a newly-built house under Article 167-3(1)5 of the Enforcement Decree of the Income Tax Act, which is reduced or exempted only for the 1/2 shares, such as the newly-built house in this case. The legislative intent of the Income Tax Act which sets heavy taxation rate for the 2 houses for one household is to restrain speculative demand for houses and to recover profits from speculation. In light of the legislative intent of the Income Tax Act, the Plaintiff’s transfer of 1/2 shares of the newly-built house to the ○○○, the spouse of the newly-built house in this case, and the Plaintiff’s continued possession of 1/2 shares to the ○○, the Plaintiff alone without transferring them to the ○○○, and it is reasonable to view the provisions of Article 167-5(1)9 of the former Enforcement Decree of the Income Tax Act to be a requirement for the reduction or exemption of the transfer income tax, and the provisions on such taxation requirements are more strict interpretation.

(D) Therefore, the previous house of this case constitutes only one house except for the house falling under subparagraphs 1 through 6 of Article 167-5 (1) 9 of the former Enforcement Decree of the Income Tax Act, and thus, it cannot be deemed as two houses for one household with capital gains tax heavy. Thus, the plaintiff's assertion pointing this out has merit.

(2) Justifiable capital gains tax amount

If the transfer income tax amount of the previous house of this case is calculated again according to the transfer income tax rate prescribed in Article 104 (1) 1 of the former Income Tax Act, it is deemed as KRW 19,544,678 as stated in the separate calculation column, and thus, the portion exceeding the legitimate transfer income tax amount of KRW 19,544,678 in the disposition of this case is unlawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claim is dismissed as it is without merit. It is so decided as per Disposition.