Whether the special tax reduction or exemption for small and medium enterprises can be applied in cases where a residential building is constructed on a turnkey basis without performing direct construction activities.

The evidence presented by the plaintiffs alone is insufficient to deem that the plaintiff was responsible for construction works, although the plaintiff was directly engaged in construction activities or awarded a subcontract for each field, and that the whole construction works were managed as a whole, so the reduction or exemption of special tax amount for small and medium enterprises cannot be applied.

Article 7 of the Restriction of Special Taxation Act

Seoul Administrative Court 2019Guhap56715 global income and revocation of disposition

Cho** et al.*

○ Head of tax office

November 01, 201

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The Defendant’s imposition of KRW 203,657,958 (including additional taxes), 54,381 (including additional taxes), and 46,640,270 (including additional taxes) in the imposition of global income tax for the year 2014, and KRW 87,813,981 (including additional taxes) in the imposition of KRW 203,657,958 (including additional taxes), and KRW 21,910,198 (including additional taxes) in the imposition of global income tax for the year 2014, and KRW 176,250,925 (including additional taxes) in the imposition of global income tax for the year 2014.

1. Details of the disposition;

A. The Plaintiffs (hereinafter referred to as “each of the instant houses”) closed the business after newly building and selling each of the instant multi-family housing units (hereinafter referred to as “each of the instant houses”) after having registered the relevant business as indicated below:

B. The Plaintiffs estimated the amount of income in 2013 and 2014 as simple expense rate, and reported the comprehensive income tax as indicated below by applying the special tax reduction and exemption (hereinafter “instant reduction and exemption”) under Article 7(1)1 (g) of the former Restriction of Special Taxation Act (amended by Act No. 12853, Dec. 23, 2014; hereinafter the same shall apply) and Article 7(1)1 (g) of the former Restriction of Special Taxation Act (amended by Act No. 12853, Jan. 1, 2015; hereinafter the same shall apply). However, the head of the ○○ Regional Tax Office issued a personal consolidated investigation against the Plaintiffs from January 18, 2018 to April 22, 2018, and notified the Defendant of the taxation data that “the Defendant should be excluded from the application of the instant reduction and exemption provisions, and that “the standard expense rate should be applied” should be included in “the Defendant’s global income tax for 201 and 30 years following” (hereinafter referred to “the Plaintiffs”).

C. The Plaintiffs filed a tax appeal on July 26, 2018, but was dismissed on November 22, 2018.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 4, Eul evidence 1 to 9, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion that they leased a construction business license and newly built and sold each of the instant houses, and thus, are subject to the application of the reduction and exemption clause in this case.

(b) as shown in the attached Form of the relevant statutes.

C. Determination

1) Articles 2(3), 7(1)1(g) and 2(2) of the former Restriction of Special Taxation Act provide that special tax reduction and exemption shall apply to companies running a construction business among small and medium enterprises; however, the classification of the types of business used in the said Act is in accordance with the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22 of the Statistics Act. According to the former Korean Standard Industrial Classification (amended by Statistics Korea No. 2015-311, Sept. 24, 2015; hereinafter the same), “construction business construction business (Classification No. 4111)” refers to industrial activities for constructing residential buildings, such as solely and multi-households, apartment houses, etc., which belong to the category of subdivided items of “construction business” (Classification No. 4111). Where a subcontract is made by a construction field without directly performing construction activities, but a comprehensive construction business code (Classification No. 41) is not classified as “general construction business code,” but where a whole building is constructed and supplied as a whole residential building (Classification12).

2) In principle, the burden of proof of non-taxation requirements, reduction and exemption requirements, deduction requirements, etc. in a lawsuit seeking revocation of a tax disposition is deemed to be the taxpayer. In light of the following circumstances acknowledged by the evidence presented by the Plaintiffs, the evidence submitted by the Plaintiffs alone is insufficient to deem that the Plaintiffs directly performed construction activities or provided a subcontract by sector, but the overall responsibility for construction works was proved, as a whole, and there is no other sufficient evidence to acknowledge otherwise.

A) In the aggregate building ledger of each house of this case, the contractor is recorded as a construction company that is not the plaintiffs. The plaintiffs did not have a construction business license, and there are no data to recognize that there is no human and material resources or related experience that can directly perform or exercise overall control over the construction activities of each house of this case.

B) Although the Plaintiffs submitted the details of the Plaintiffs’ payment of labor cost, material cost, interior cost, etc., it is difficult to view that the Plaintiffs managed the entire process due to the failure to submit the contract or objective data that can identify the process of the process of executing the contract in relation to the construction by fields, such as land survey, design, civil engineering, foundation, framework, equipment, electricity, etc., and there is no data to support that the above disbursement is directly related to each of the instant houses, and it cannot be deemed that the expense expenditure for the entire process was significantly insufficient.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in entirety as it is without merit. It is so decided as per Disposition.