In a case where Party A carried on a real estate leasing business while owning land and a ground building; Party B carried on the said real estate leasing business (norries business); Party A reported the value-added tax after transferring the said real estate to Party B; Party B did not report the value-added tax; and the tax authority corrected and notified the value-added tax by deeming that the said transfer does not constitute a comprehensive business transfer, the case holding that the said transfer cannot be deemed a transfer of business not deemed a supply of goods; thus, the said disposition is lawful as a taxable object of value-added tax.

A, while owning land and a ground building, carried on real estate rental business, B carried on the accommodation business (norries business) by leasing the above real estate, and A reported value-added tax after transferring the above real estate to B, but did not report value-added tax by reporting the value-added tax, the tax authority deemed that the above transfer does not constitute a comprehensive transfer of business and notified the value-added tax.

Even if Gap newly constructed a building on the ground and obtained permission for a lodging business, since the whole real estate was leased to lessees for the purpose of a lodging business and reported the income and necessary expenses of a real estate rental business operator, it is reasonable to see that Gap engaged in a real estate rental business not entrusted by a lodging business, and a lessee engaged in a lodging business, and Eul continues to engage in a lodging business even after the acquisition of the real estate, considering the fact that the above transfer cannot be deemed a transfer of business not deemed a supply of goods, and thus, this disposition is lawful as a taxable object of value-added tax.

Article 10(8)2 of the former Value-Added Tax Act (Amended by Act No. 1523, Dec. 19, 2017; see current Article 10(9)2); Article 23 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 28641, Feb. 13, 2018);

Plaintiff (Attorney Kim Young-young, Counsel for the plaintiff-appellant)

Head of the Do Tax Office

November 2, 2018

1. The plaintiff's claim is dismissed.

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

The imposition of the value-added tax of KRW 77,150,600 (including additional tax) imposed on the Plaintiff on January 8, 2018 shall be revoked.

1. Details of the disposition;

A. The Plaintiff owned a building of 143.1 square meters (hereinafter “instant land”) and the 6th floor thereof (hereinafter “instant building,” and the instant land and building are referred to as “instant real estate”) in Gangnam-gu Seoul Metropolitan Government, and operated a real estate rental business with the trade name “○○○○” from the instant real estate, and filed a value-added tax return on the leased income as the sales tax base.

B. On March 29, 2016, the Plaintiff leased the instant real estate and transferred the instant real estate in KRW 1.4 billion (hereinafter “instant transfer”) to the Nonparty, who was engaged in the accommodation business (norries business) with the trade name of “△△△”). On July 18, 2016, the Plaintiff reported the closure of the real estate rental business, and the Nonparty is running the accommodation business (norries business) in the instant real estate up to the present day.

C. The Plaintiff reported the value-added tax for the first time in 2016, deeming the transfer of the instant building as the comprehensive transfer of the business, and did not report the value-added tax for the instant building.

D. On June 28, 2016, the Defendant: (a) conducted on-site verification from April 24, 2017 to April 28, 2017; and (b) notified the Plaintiff of the notice of the imposition of value-added tax on the instant building by deeming that the instant transfer does not constitute the comprehensive transfer of business, based on the audit records by the National Tax Service that the instant transfer was conducted between the Plaintiff and the Nonparty operating a real estate leasing business (norries business); and (c) on-site verification from April 24, 2017 to April 28, 2017, the Defendant issued a notice of the notice of imposition of value-added tax on the instant building.

E. On January 8, 2018, the Defendant issued a correction and notification of KRW 77,150,600 (including additional tax) for the first period of value-added tax of KRW 1.4 billion in the transfer value of the building of this case, which was calculated by dividing the transfer value of this case 1.4 billion as the standard market price, as the tax base (hereinafter “instant disposition”).

F. On January 19, 2018, the Plaintiff filed a request for examination with the Commissioner of the National Tax Service on January 19, 2018, but was dismissed on April 14, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1-5, 7, 8, Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The Plaintiff operated a lodging business directly or by entrusting the operation of the instant real estate to the lessee, and comprehensively transferred to the Nonparty the instant real estate and physical facilities, such as inn and inn and inn, personal facilities such as an employment relationship, and rights and duties concerning the lodging business. As such, the instant transfer cannot be deemed as the supply of goods subject to value-added tax.

B. Facts of recognition

1) From October 16, 2012 to March 29, 2016, the Plaintiff leased the instant real estate to the Nonparty as security deposit of KRW 300 million and KRW 5500,000 per month of rent (including value-added tax). As to the instant real estate, the Plaintiff completed the registration of the establishment of chonsegwon (right to lease on a deposit basis) to the Nonparty.

2) On February 8, 2013, the Nonparty: (a) registered the lodging business (n) with the instant real estate located at the place of business; and (b) obtained permission from the competent authorities around that time.

3) On February 19, 2016, the Plaintiff: (a) transferred the instant real estate to the Nonparty at KRW 1.4 billion; (b) deducted KRW 300 million from the purchase price; (c) the remainder payment date on March 29, 2016; and (d) agreed that the terms and conditions of the seller’s succession to the buyer (not including value-added tax) on the condition that the seller comprehensively transfers and acquires all the rights and obligations regarding the instant real estate; and (b) as a special agreement, the Plaintiff entered into a comprehensive transfer and acquisition agreement with the Nonparty (not including value-added tax) on March 29, 2016.

4) Upon filing a global income tax return in 2013-2016, the Plaintiff reported the type of the instant real estate as “real estate business and rental business,” and reported the monthly rent for real estate rental business as revenue amount, taxes and public charges, entertainment expenses, donations, and other necessary expenses. On the other hand, when filing global income tax return in 2013-2016, the Nonparty reported the type of business with the instant real estate as the location of the place of business, and reported the sales from the accommodation as the income amount, and reported the necessary expenses, such as rent, communications expenses, power expenses, gas and water supply expenses, insurance premiums, depreciation expenses, advertising expenses, payment fees, and consumption expenses.

[Reasons for Recognition] Gap evidence Nos. 1-5, Eul evidence Nos. 1-3 (including more than one number), the purport of the whole pleadings

C. Determination

1) Article 10(8)2 of the former Value-Added Tax Act (amended by Act No. 15223, Dec. 19, 2017) provides that “the transfer of business prescribed by Presidential Decree shall not be deemed the supply of goods.” Article 23 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 28641, Feb. 13, 2018) provides that “the transfer of business shall comprehensively succeed to all the rights and obligations pertaining to the business by workplace.” Therefore, “transfer of business” in this context refers to a comprehensive transfer of physical and human facilities, including business property, and a comprehensive transfer of rights and obligations to replace only a business owner while maintaining the identity of the business. Thus, it is necessary to ensure that the business is an organic combination of human and physical facilities separate from the business owner and can be recognized as a social independence. The fact that such organic combination is not a simple physical facility, but a taxpayer bears the burden of proving the transfer of value-added tax due to a failure in taxation.

2) Comprehensively taking account of the facts acknowledged earlier in light of the aforementioned legal principles and the following circumstances revealed by the purport of the entire pleadings, the instant transfer cannot be deemed a transfer of business that does not constitute the supply of goods, and thus, the instant disposition, which is deemed subject to value-added tax, is lawful.

A) Even if the Plaintiff newly constructed the instant building on the ground of the instant land and obtained the permission for accommodation business, it is reasonable to view that the Plaintiff, as its place of business, leased the entire instant real estate to the lessee for the purpose of accommodation business, and thereafter, received deposit and monthly rent (in light of the fixed period (1 year), deposit (250 million won), deposit (250 million won per month), deposit (5 million won), and deposit amount (5 million won per month), etc., the actual contents are not different from the ordinary real estate rental contract). The Plaintiff reported the revenues and necessary expenses of the proprietor of the instant real estate as seen earlier. Therefore, it is reasonable to view that the Plaintiff, as its place of business, was operating a accommodation business, on the ground that the Plaintiff was entrusted to the lessee of the instant real estate, but the Plaintiff did not have any evidence to acknowledge it as the type of entrusted accommodation business solely based on the circumstances and the Nonparty’s lack of evidence to acknowledge it as the type of business.

B) The Nonparty is running a lodging business with the location of the instant real estate as a lessee and continues to operate the lodging business even after the acquisition of the instant real estate by transfer. The Nonparty is not identical to the real estate leasing business operated by the Plaintiff ( insofar as it is not deemed that the Plaintiff operated the lodging business, even if the Nonparty, as alleged by the Plaintiff, intended to acquire the instant real estate for the purpose of the lodging business from the time when the lease contract on the instant real estate was concluded on October 16, 2012 to acquire the instant real estate for the purpose of the lodging business, this is not a circumstance to consider in determining

C) Therefore, even if the Plaintiff owned the Plaintiff’s house and fixtures used for the lodging business in the instant building, as alleged by the Plaintiff, it would be deemed that the Plaintiff provided the instant building for the purpose of leasing it for the purpose of the lodging business. Moreover, the Plaintiff’s assertion that the Plaintiff succeeded to the employment relationship with the Nonparty is difficult to believe, and there is no evidence to acknowledge this.

3. Conclusion

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

Judges Lee Sung-sung (Presiding Judge)