The burden of proving the invalidity of a third party, such as the authority to act on behalf of the former owner or the forgery of registration documents, is on the taxpayer.

It is reasonable to view that capital gains have been realized since it is attributed to the principal, inasmuch as the right to sell the land was delegated to the form of sale, and the spouse also granted the right to dispose of the land and the right to receive the purchase price. Since the principal concludes a sales contract on the land along with the principal and his spouse received all the purchase price from the buyer.

Article 96 of the Income Tax Act

2015Gudan31286 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

Intervenor CC

June 22, 2016

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit are assessed against the Plaintiff, including the part resulting from the supplementary participation.

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 149,778,460 on August 18, 2014 (the Plaintiff appears to be a clerical error, but it appears to be a clerical error) against the Plaintiff on August 18, 2014 is revoked.

1. Details of the disposition;

A. On April 17, 2003, the Plaintiff acquired a total of 1,653 square meters of land, including 286-2 square meters of land 286-2 site, 286-4 site, 286-5 site, 260 square meters of the same 286-8 site, and 286-8 site 582 square meters of the same 286-8 site (hereinafter “instant land”) in KRW 375 million, and filed a report on transfer income tax with the director of the competent regional tax office on July 13, 2004.

B. In the course of investigating the transfer income tax for the land of this case transferred to the Intervenor’s Intervenor (hereinafter “ Intervenor”) who is the former spouse of the EE as a division of property according to divorce, the head of the DD Tax Office notified the Defendant of the acquisition value of the land of this case as KRW 600 million. However, the Defendant notified the Defendant of the transfer value of the land of this case as KRW 425 million reported by the Plaintiff, on the ground that it is reasonable to view the transfer value of the land of this case as KRW 425 million.

C. However, on August 18, 2014, the Defendant issued a disposition imposing capital gains tax of KRW 149,778,460 to the Plaintiff in 2004 (hereinafter “instant disposition”) on the premise that the head of the DD Tax Office re-verifications the Plaintiff’s transfer value of the instant land at KRW 600 million and notifies the Defendant.

D. The Plaintiff filed an appeal with the Tax Tribunal on October 23, 2014, but was dismissed on January 28, 2015.

[Ground of recognition] No dispute, Gap evidence Nos. 1, 2, 8, Eul evidence Nos. 1 to 4, the whole purport of pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Since the instant disposition was made on the basis of an invalid sales contract concluded between FF and transferee EE, the Plaintiff’s transfer of the instant land to EE and received only KRW 425 million, the Defendant deemed the transfer value of the instant land as KRW 600 million and the transfer value of the instant disposition was erroneous. In addition, the Plaintiff filed a transfer income tax report with the knowledge that the transfer value of the instant land would have a cause of KRW 425 million, and thus, the transfer income tax exclusion period in principle falls under five years, since the Plaintiff did not evade the transfer income tax by unlawful means. The instant disposition was made after the exclusion period for imposition of transfer income tax expires.

(b) Fact of recognition;

1) Around June 2004, the Plaintiff was at the Seoul detention center. Around the end of 2004, the Plaintiff asked F, a model F, to find out whether the Plaintiff’s land in this case can be sold more than KRW 400 million.

2) Accordingly, FF asked GaO, a constructor, to find a buyer of the instant land, and thereafter, HH, a licensed real estate agent entrusted by GaO, was acting as a broker for a sales contract for the instant land between the Plaintiff and EE.

3) On June 10, 2004, at the real estate agent's office located in Seosung-dong or Suwon-si, the seller's JJ and the Plaintiff's wife in the seller's side, and at the buyer's side, the seller's YJ and GG, which is the mother of EE and the intervenor's mother, YO, and real estate agent II, a sales contract of KRW 600 million with respect to the land of this case as HH's intermediary (Evidence No. 3) was prepared.

In addition, the time is not clear, but the approval agreement of KRW 425 million was also prepared for the submission of the tax office.

4) At the time H written a sales contract of KRW 600 million for the instant land, and the said contract was written by FF as the seller’s agent. At the time FF affixed its own seal and the Plaintiff’s seal, who is the seller, and the buyer of GG affixed his seal. In that place, FF received KRW 100 million for the down payment from GG as the Plaintiff’s agent, and written a receipt in the future of EE.F also affixed the Plaintiff’s seal and his own seal.

5) On July 6, 2004, the Plaintiff drafted a power of attorney (Evidence A 4) to delegate the Plaintiff’s wife JJ with the authority to dispose of the instant land and to receive the sales price.

6) On July 13, 2004, which is the date of the payment of the remainder under the above contract, the seller’s side of this case, F, and F, etc., such as EE, was confirmed to have succeeded to the seller’s collateral obligation of KRW 250 million with respect to the instant land and paid the remainder to the buyer’s side of the transaction. Accordingly, on June 10, 2014, the ownership transfer registration was completed to EE on the grounds of sale as of June 10, 2014.

7) At the time, FF and Park ○, etc. involved in the intermediate transactions with HH and II, and FF and Park ○, etc., each of the remainder of the purchase price paid by the purchaser, received the commission or introduction fee of KRW 10 million. The final amount of KRW 175 million out of the purchase price, was not delivered to the Plaintiff.

8) Since September 2014, the Plaintiff filed a criminal complaint on the grounds that FF et al. entered into a sales contract with FF et al. to set the purchase price of KRW 600 million on the grounds that F et al., obtained the difference by deceiving the Plaintiff as if the contract was concluded. However, the Plaintiff was subject to a non-prosecution disposition on the grounds that the statute of limitations has lapsed.

[Identification Evidence] In addition to the above evidence, each of the statements in Gap evidence Nos. 9, 10 (part), Eul evidence Nos. 5 through 8, Eul evidence No. 11, Eul evidence No. 5 through 7, the financial transaction information meeting of the bank, witness H, Park Jong-○'s testimony, and the whole purport of the pleadings

【Evidence (Insufficient Evidence) Evidence Nos. 7-1, 2, A, 9, 10(s) and Eul-1(s)

C. Determination

1) Relevant legal principles

In cases where a third party is involved in an act of disposal, rather than by the direct act of disposal of the former titleholder, the registration of the former titleholder shall be presumed to have been duly made even if the third party is the agent of the former titleholder. Therefore, the former titleholder who claims the cancellation of the registration on the ground that the registration is null and void shall have the burden of proving the invalidity of the registration by the former titleholder (see, e.g., Supreme Court Decision 2002Da27811, Jan. 24, 2003).

Meanwhile, if the principal grants his/her agent the right to transfer assets and receive the price and received the price from the agent, the legal effect of the receipt of the price belongs to the principal and, barring any special circumstance, he/she also holds the ability to pay the price, and thus, he/she is also deemed to have realized his/her capital gains. However, if it is objectively apparent that the damage liability equivalent to the amount of the principal’s embezzlement is impossible due to the agent’s failure to recover in light of the agent’s asset status and payment ability, etc., and it is objectively apparent that there is no possibility of realizing future income, then the principal cannot be imposed capital gains tax on him/her based on his/her income as taxable income (see Supreme Court Decision 2010Du1385, Sept. 10, 2015). In such cases, the burden of proving that the agent’s damage liability is impossible to recover and thus the possibility of realizing future income is objectively apparent.

2) Whether a sales contract of KRW 600 million for the instant land is null and void

First, the Plaintiff asserts that the sales contract of KRW 600 million for the land of this case was concluded between FF and EE for which the Plaintiff was not authorized to sell. The Plaintiff asserts that the sale contract was null and void because it was concluded between FF and EE for which the Plaintiff was not authorized to sell. On June 1, 2004, FF entered the sales contract of KRW 600 million for the land of this case as the seller’s agent, and the fact that the transfer registration of ownership for the land of this case was made from the Plaintiff on July 13, 2004 to E EE which is the buyer under the above sales contract. Accordingly, according to the above legal principle, the Plaintiff bears the burden of proof with regard to the fact that FF, as the agent of the above sales contract, was not authorized to represent the Plaintiff.

However, in light of the fact that the Plaintiff requested FF to sell the instant land during the detention house number, the sales contract of KRW 600 million contains more specific and detailed terms and conditions compared with the sales contract of KRW 425 million, such as the fact that HH Licensed Real Estate Agents are stated as intermediaries and contain detailed special terms and conditions, and the Plaintiff prepared a power of attorney (Evidence 4) to delegate the authority to dispose of the instant land and receive the sales price to the J around July 6, 2004, the Plaintiff also prepared a power of attorney (Evidence 4). At the time of the conclusion of the instant contract and the remainder receipt, J and FF were both J and FF at the time of the conclusion of the instant contract. In light of the fact that: (a) each statement of KRW 4, 66 through 12 (including each number) submitted by the Plaintiff; and (b) testimony of ParkO and the Korea Telecommunication Bank and Korea Bank's each financial transaction information meeting, etc., the Plaintiff did not have any legitimate authority to recognize otherwise at the time of the conclusion of the instant contract.

Rather, in full view of the respective descriptions of evidence Nos. 3 through 7 and the overall purport of testimony and pleading by witnesses H, the Plaintiff prepared a power of delegation (Evidence No. 3) to FF to the effect that the right to sell the instant land is delegated to F, and on this basis, can only be recognized that the Plaintiff and EE entered into a sales contract of KRW 600 million for the instant land. Ultimately, the Plaintiff’s assertion to the effect that the sales contract of KRW 600 million for the instant land is null and void by an unauthorized representation is without merit.

3) Whether it is legitimate to recognize the transfer value as KRW 600 million

Next, the Plaintiff asserts that even though only KRW 425 million was paid out of the purchase price of the instant land, the Defendant’s finding the transfer price of the said land as KRW 600 million was erroneous.

In light of the above legal principles, as seen earlier, the Plaintiff delegated FF with the authority to sell the instant land, and even the JJ granted F with the authority to dispose of the said land and to receive the sales price. Since FF and J concluded a sales contract of KRW 600 million on the instant land and both the buyer and the buyer received KRW 600 million on the instant land, it is reasonable to view that the Plaintiff’s transfer income was realized once, since the legal effect of receiving the price belongs to the Plaintiff, the principal, and the legal effect of receiving the price belongs to the Plaintiff.

If, as alleged by the Plaintiff, J and F embezzled part of the transfer proceeds by deceiving the Plaintiff as if they were to transfer the instant land in violation of the purport of delegation, the Plaintiff’s damage claim against the J et al. was impossible to recover and thus no possibility of realizing future income exists, then the Plaintiff may not be subject to transfer income tax on the income as taxable income. However, as seen earlier, the burden of proof for such circumstance exists on the Plaintiff, who is the taxpayer. In light of the mutual relationship between the Plaintiff and J (C) and FF, the evidence submitted by the Plaintiff, such as the complaint et al., is insufficient to prove that the impossibility of recovery of the damage claim was objectively apparent. Accordingly, the Defendant’s disposition of this case, which reported the transfer value of the instant land in excess of KRW 60 million, is erroneous.

We cannot see that the plaintiff's assertion on this part is without merit.

4) Whether the exclusion period has lapsed or not

Finally, the plaintiff asserts that the disposition of this case was made after the exclusion period of transfer income tax was excessive.

Article 26-2(1) of the Framework Act on National Taxes provides that a taxpayer may be liable to pay national taxes for ten years from the date on which he/she can impose national taxes if he/she evades national taxes, obtains a refund or deduction by deceit or other unlawful means. Article 12-3(1)1 of the Enforcement Decree of the same Act provides that a taxpayer who files a return on a tax base and amount of national taxes may impose national taxes on the day following the due date for filing a return or the due date for filing a return on the tax base and amount of national taxes; and Article 110(1) of the Income Tax Act provides that a resident with capital gains shall report the tax base to the head of a tax office having jurisdiction over the place for tax payment from May 1 to 31 of the year following the relevant taxable period under the conditions as prescribed by the Presidential Decree. Meanwhile, the "illegal act" referred to in Article 26-2(1) of the Framework Act on National Taxes includes not only the taxpayer's unlawful act, but also the taxpayer's agent or performance assistant who obtains profits in the field of acts by entrusting the relevant business (see, etc.

As acknowledged earlier, when filing a return on the tax base of transfer income of this case on July 13, 2004 with EE, the Plaintiff prepared and attached a sales contract stating that the actual transfer value of the land of this case is KRW 625 million, not the actual transfer value, but the false transfer value of KRW 425 million. According to the above legal principles, even if the Plaintiff was unaware of or did not directly participate in the act of FF, which is an agent, the Plaintiff was entrusted to FF for the purchase and sale of the land of this case, thereby gaining profits therefrom, and the Plaintiff’s transfer income tax was evaded by FF’s wrongful act, barring special circumstances, such as that the Plaintiff was able to exercise due care and supervision to prevent FF’s misconduct (in this case, it seems that the Plaintiff could have known that the actual transfer value would not be difficult if the Plaintiff had seen it to the opposite contractual party or broker, etc.). Accordingly, the exclusion period of transfer income tax for the Plaintiff’s transfer income tax on the land of this case should be 10 years.

5) Sub-committee

Therefore, all of the Plaintiff’s assertion cannot be accepted, and the instant disposition that the Defendant rendered to the Plaintiff on the premise that the transfer value of the instant land is KRW 600 million is legitimate.

3. Conclusion

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