Cho Jae-2018-China1789 (Law No. 19, 20186)

The commencement date of business on business income under the Income Tax Act shall be based on the commencement date of business under the Value-Added Tax Act.

The starting date of business on business income under the Income Tax Act shall be based on the date of business commencement under the Value-Added Tax Act, and the starting date of business in this case shall be 2013.

Article 143 of the Enforcement Decree of Income Tax Act

2018Guhap69821 Revocation of Disposition of Imposing global income tax, etc.

AA, BB,CC

O Head of tax office

March 20, 2019

April 11, 2019

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 the global income tax for the year 2013 against Plaintiff AB, the imposition of the global income tax for the year 2017, the imposition of the global income tax for the year 2013, the imposition of the global income tax for the Plaintiff BB, and the imposition of the global income tax for the year 2013, the imposition of the global income tax for the Plaintiff CCC for the year 2017, the imposition of the global income tax for the year 2013.

1. Details of the disposition;

A. The Plaintiffs completed business registration for the construction of a residential building (30% of the Plaintiff AAA shares, 20% of the Plaintiff BB shares, and 40% of the Plaintiff CCC shares).O.O. 2012, 8 households of multi-family housing (hereinafter referred to as “multi-family housing of this case”) have commenced on the OO-O-O's ground at OO-O. 2012, and conducted the business of selling them after obtaining approval for use from O.O.O.O. 202 (hereinafter referred to as “instant business”).

B. Under the premise that the Plaintiffs sold by-products of the previous building in 2012, which was the taxable period immediately preceding the 2013 taxable year in which the sales revenue of the instant apartment house was generated, and obtained the amount below the amount stipulated in Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same shall apply), the Plaintiffs calculated the estimated income by applying the simple expense rate to the global income tax return for 2013, and filed a comprehensive income tax return and payment by applying the special tax reduction and exemption for the construction business from the amount calculated.

C. As a result of an income tax investigation on the plaintiffs, the director of the regional tax office of the OO shall regard the 2013-year business commencement date from which the actual amount of sales income of the apartment house in this case actually occurred, and the plaintiffs constitute a new business operator, not a business operator who has engaged in the existing business on the basis of each relevant taxable period. Since the amount of revenue exceeds the standard amount under Articles 143(3)1 and 208(5)2 of the former Enforcement Decree of the Income Tax Act, it is necessary to estimate the amount of income by applying standard expense rate rather than simple expense rate, and because the plaintiffs cannot be deemed to have engaged in the construction business, they shall not be deemed to have engaged in the construction business, they shall notify the defendant that the provisions on special tax reduction and exemption under Article 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 12173, Jan.

D. Accordingly, the Defendant calculated necessary expenses according to the estimation method based on standard expense rate, excluded the application of the provision on special tax reduction and exemption for small and medium enterprises under Article 7(1) of the former Restriction of Special Taxation Act, and added additional taxes for unfaithful return and payment after deducting the amount of tax already paid by the Plaintiffs, such as the amount of tax already paid. O.O.O.O.O.O.O.O.O.O.O.O.O. (including additional taxes), Plaintiff BB for each of the income tax for 2013 years for the Plaintiff CCC (including additional taxes), respectively (hereinafter “each of the instant dispositions”).

E. The Plaintiffs appealed and filed an appeal with the Tax Tribunal on 2018O.O.O., and the Tax Tribunal dismissed the appeal on 2018O.O.O., respectively.

Facts without any dispute, Gap's evidence 1 through 5, Eul's evidence 1 (including the number of each claim) and the purport of the whole pleadings.

2. The plaintiffs' assertion

A. Simple expense application assertion

The plaintiffs shall be deemed to have commenced the business of this case as of the commencement date of the removal of existing buildings or the commencement date (2012O.O.O., 2012) or approval for use of the apartment house of this case at the latest (2012O.O., etc.). Even without such, the process of removing the existing building to newly construct the apartment house of this case is bound to occur repeatedly and continuously in the course of the plaintiffs' business operation. Thus, the amount of revenue from the sale of by-products, such as scrap iron, etc. thereby constitutes income related to the business under the Income Tax Act. In other words, the plaintiffs obtained income from by-products of the old building from the sale of by-products of the old building inO.O., 2012, since the plaintiffs obtained income from by-products of the old building in DD, the commencement date of business of the plaintiffs appears to be any mother. Nevertheless, the defendant applied the "standard expense rate to the new business entity that the plaintiffs commenced the business in this case in the pertinent taxable period."

(b) argument on the application of special tax reduction

Since the plaintiffs directly constructed the apartment house of this case with a construction business license, each of the dispositions of this case which excluded the construction business under Article 7 (1) 1 (g) of the former Restriction of Special Taxation Act from being included in the reduction and exemption of the special tax amount by small and medium enterprises is unlawful.

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination

A. Judgment on the first argument of the plaintiffs

1) Under the principle of no taxation without law, the tax laws shall be interpreted as the text of the law, and shall not be interpreted extensively or analogically without reasonable grounds. However, even if the language and text of the tax laws itself are unclear or they appear to be inconsistent with the other laws and regulations, the court must naturally state the true meaning of the language and text at issue through the harmonious interpretation of the laws and regulations. In this case, the judges can make a combined interpretation of the laws and regulations that consider legislative purport and purpose to the extent that it does not undermine the legal stability and predictability of the taxation without law (see, e.g., Supreme Court Decision 2007Du4438, Feb. 15, 2008). The former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter referred to as the "former Income Tax Act") provides for the definition of the business income and the purpose of applying for the change of business registration within the scope of the former Income Tax Act, which does not explicitly stipulate the meaning of the business income under Article 18(1).

2) Whether the plaintiffs are business entities subject to simple expense rate application

In full view of the language, structure, and purport of relevant statutes, such as the former Income Tax Act and the former Value-Added Tax Act (amended by Act No. 16101, Dec. 31, 2018; hereinafter “former Value-Added Tax Act”), the starting date of business of business income under the former Income Tax Act shall also be the starting date of business under Article 5(2) of the Enforcement Decree of the Value-Added Tax Act, which stipulates the starting date of business under Article 5(2) of the former Value-Added Tax Act. Therefore, the starting date of the instant business is 2013 years from the commencement of the construction of the instant multi-family housing by the Plaintiffs, and it is difficult to view that the revenues from the sale of by-products of the former building constituted income accrued from the instant business

(1) Article 19(1) of the former Income Tax Act defines "income generated from various types of business, such as agriculture, forestry, fishery, mining, manufacturing, construction, etc." as business income, and Article 1-2(1)5 of the same Act defines "resident with such business income" as business income. In other words, business activities under the former Income Tax Act are premised on the actual occurrence of income. Therefore, the commencement date of business cannot be advanced until the preparation of business, which is the time of the provision of goods or services directly causing income, begins. As such, preparation of business not only is considerably irregular and broad but also it is difficult to objectively specify the starting date of business. Business entities may avoid tax liability by arbitrarily adjusting the amount of income to apply simple expense under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act. This may cause interference with the national tax collection authority or cause inequality among taxpayers.

(2) Articles 1-2(1)5 and 19 of the former Income Tax Act define residents with income derived from continuous and repeated activities under their own account and responsibility for profit-making purposes. Meanwhile, Article 2 subparag. 3 of the former Value-Added Tax Act defines those who supply goods or services independently for business purposes regardless of whether they are for profit-making purposes. Here, the term “person who supplies goods or services independently for business purposes” refers to a person who supplies goods or services with an ongoing and repeated intent by meeting the business form to create added value (see Supreme Court Decision 98Du16705, Sept. 17, 199). Therefore, it is necessary to interpret the starting date of business related to business income under the former Income Tax Act uniformly from the starting date of business under the former Value-Added Tax Act. This is so so, in relation to a single business, the legal stability should be granted to those who are liable for tax payment and are liable for value-added tax.

In this regard, Article 168 (1) and (2) of the former Income Tax Act imposes an obligation on the head of the tax office having jurisdiction over a new entrepreneur to make a business registration under the former Income Tax Act, but the entrepreneur who has made a business registration under the Value-Added Tax Act is considered to have made a business registration under the former Income Tax Act, and Article 163 (1) of the former Income Tax Act imposes an obligation to prepare an invoice or receipt as prescribed by Presidential Decree and to issue it to the person who has received the goods or services if the entrepreneur who made a business registration supplies the goods or services, as

(3) Article 168(3) of the former Income Tax Act provides that Article 8 of the Value-Added Tax Act shall apply mutatis mutandis to a business operator who operates a business under this Act. Article 8(1) of the former Value-Added Tax Act provides that a business operator shall apply for a business registration within 20 days from the commencement date of the business, but a person who intends to start a new business may apply for a business registration even before the commencement date of the business. Article 6 of the Enforcement Decree of the same Act delegated by Article 5(2) of the former Value-Added Tax Act for the taxable period sets the commencement date of the manufacturing business and non-commercial business as the commencement date of the supply of goods or services. Accordingly, the commencement date of the business in this case

(4) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) provides that, “an entrepreneur newly commencing a business in the pertinent taxable period” shall be deemed to apply simple expense rates to “an entrepreneur whose total amount of income (including an increased amount of income due to determination or revision) during the immediately preceding taxable period is below the standard amount, other than a newly commencing one in the pertinent taxable period.” Thereafter, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010; Presidential Decree No. 14320, Dec. 1, 2010; Presidential Decree No. 2160, Mar. 16, 2012> provides that, in order to prevent the reduction of income tax through the application of simple expense rates in cases where the new entrepreneur falls under the standard for the application of the Income Tax Act.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators who lack the capacity to keep records of the principal expenses required by the standard expense rate system, and the legislators seem to have gradually reduced the scope of business operators subject to the simple expense rate application. Furthermore, according to the language and text of the supplementary provision, legislators seem to understand "construction commencement", "construction business, construction business, and commencement of real estate development and supply business."

Considering such legislative intent, in cases of housing construction and sales business that runs a business with a certain scale or more due to its nature, it is necessary to ascertain the commencement date of the business as objective and practical time when the supply of housing subject to sale is more objectively and practically possible than the commencement date that can be determined depending on the business operator’s intent (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). Therefore, it is difficult to view that the Plaintiffs objectively expressed their intent to engage in the housing construction and sales business for profit-making purposes prior to commencing the sale of the instant collective housing.

(5) Meanwhile, the Plaintiffs asserted that the business should have already commenced in 2012, since the income from the sale of scrap metal is included in the total amount of income from the sale of scrap metal under Article 39(1) of the former Income Tax Act. However, whether the business income falls under the business income under the Income Tax Act shall be determined according to social norms, taking into account the existence of the profit purpose of the business, the scale and frequency of the business, and the mode of the business (see Supreme Court Decision 91Nu6559 delivered on November 26, 191). However, solely on the ground that the Plaintiffs sold by-products generated from the removal of existing buildings, it is difficult to deem that the Plaintiffs continuously and repeatedly conducted activities for profit-making purposes and have an objective substance as a housing construction-sale businessman. In other words, even if some profits have been accrued from the sale of by-products generated from removal, it is only necessary matters to be considered in calculating the necessary expenses under Article 55(1) of the former Enforcement Decree of the Income Tax Act, and it cannot be deemed the income amount of the instant business that constitutes the business income subject to this part.

B. Judgment on the second argument by the plaintiffs

Articles 2(3), 7(1)1(g) and 7(2) of the former Restriction of Special Taxation Act provide that an amount equivalent to 20/100 of the income tax on income accrued from the relevant place of business shall be reduced or exempted until the taxable year ending on or before December 31, 2014, and that the classification of the type of business used in the 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. However, according to the 9th Korean Standard Industrial Classification (amended by the Statistics Korea Notice No. 2017-13, Jan. 13, 2017), which applies to the global income tax taxable period subject to the disposition of the instant case, "construction business (Classification No. 411)" means industrial activities that newly construct, expand, rebuild and rebuild a building including prefabricated-type building by a contractor or a comprehensive constructor. Even if construction works are subcontracted for each field without performing directly, the entire construction work shall be classified as "one construction business and one (16)."

In light of the following circumstances, which are acknowledged by comprehensively considering the entries in Gap evidence No. 5 and the purport of the entire pleadings, that is, (1) the contractor entered in the building ledger of the apartment house of this case as "EEEF", and (2) the plaintiffs are not holding a construction business license and are not equipped with human resources and physical facilities or capabilities to be constructed under the overall responsibility of the construction work of this case, the business of this case operated by the plaintiffs constitutes "the development and supply business of residential buildings" under the above Korean Standard Industrial Classification, and it does not constitute "construction business" subject to reduction or exemption of special tax amount for small and medium enterprises under the former Restriction of Special Taxation Act.

5. Conclusion

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