Cho Jae-2018-Seoul Government-2298 (29 June 2018)

No land shall be deemed land prohibited or restricted from use pursuant to statutes after it is acquired.

The forest of this case cannot be seen as "land, the use of which is prohibited or restricted pursuant to Acts and subordinate statutes after acquiring the land under Article 168-14 (1) 1 of the Enforcement Decree of the Income Tax Act."

Article 104-3 (2) of the Income Tax Act, Article 168-14 (1) 1 of the Enforcement Decree of the Income Tax Act

Seoul Administrative Court-2018-Gu Group-76319

Gong*

o Head of the tax office

July 10, 2019

August 14, 2019

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of KRW 85,421,670 (including penalty tax) for the Plaintiff on June 1, 2017 (including penalty tax. The Plaintiff does not specifically mention the penalty tax; however, the imposition of penalty tax is separate from the imposition of principal tax, and it is apparent that the Plaintiff included the amount stated in the purport of the claim. As such, the disposition of imposition of penalty tax is revoked.

1. Details of the disposition;

A. On October 26, 1979, the Plaintiff acquired, on the grounds of sale and purchase, ① 15,669 square meters of Gyeongnam-gun** 81 forest of 15,66 square meters in Dorisan 83, ② 88,066 square meters in Dorisan 83, ③ 114-2 forest of 5,216 square meters in Riri, ④ 114-6 forest of 114-6 forest of 256 square meters in Riri, ⑤ 5 forest of 114-7 forest of 135 square meters in Riri (hereinafter collectively referred to as “the forest of this case”).

B. On April 22, 2016, the Plaintiff transferred 81, 83 forest land, and 114-2, 114-6, 114-7 forest land on November 25, 2016, respectively (the transfer in question is the transfer in question, and the individual transfer is specified as the date of transfer).

C. The Plaintiff reported and paid the transfer income tax of KRW 12,305,108 to the Defendant on June 30, 2016 on the transfer by April 22, 2016, and on the transfer by November 25, 2016, the Plaintiff reported and paid the transfer income tax of KRW 12,305,108 to the Defendant.

The transfer income tax base of KRW 59,671,199 was reported and paid respectively. The Plaintiff also filed each transfer income tax base.

B In calculating B, the forest of this case was calculated by deducting the amount of special deduction for long-term possession from the gains on transfer of this case on the premise that the forest of this case is land, the use of which is restricted under the National Land Planning and Utilization Act, the Act on the Management and Utilization of Livestock Excreta, and the Water Quality and Aquatic Ecosystem Conservation Act, on the basis that it

D. However, on June 5, 2017, the Defendant deemed that the instant forest falls under the land for non-business use, and notified the Plaintiff of the correction and notification of the transfer income tax of KRW 87,603,350 (including additional taxes) for the transfer of this case (hereinafter “pre-reduction disposition”).

E. The Plaintiff appealed to the Defendant on July 25, 2017, but was dismissed on September 8, 2017, and filed an appeal with the Tax Tribunal on December 12, 2017, but the appeal was dismissed on September 3, 2018. Accordingly, the Plaintiff filed the instant lawsuit on December 3, 2018, and sought the revocation of the previous disposition prior to the reduction.

F. On March 22, 2019, the Defendant reflected the portion calculated in excess of the acquisition value of the instant forest and field on March 22, 2019, and reduced KRW 2,181,680 from the disposition before reduction to KRW 87,60,350, and the J below reduced the amount of KRW 85,421,670, which remains after reduction (i.e., KRW 87,603,350)

2,181,680 won is the "disposition of this case".

G. On July 9, 2019, the Plaintiff sought revocation of the previous disposition before reducing the purport of the claim.

It has been reduced to seek the cancellation of disposition only.

Facts that there is no dispute over recognition, Gap's 1 through 6, Eul's 1

Each entry, including branch numbers, hereinafter the same shall apply) and the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) After the Plaintiff acquired the instant forest, it was designated as an agricultural and forest area, conservation and control area, and planned control area pursuant to the National Land Planning and Utilization Act. Although the said designation did not itself prohibit or restrict development activities, such as the protection and growing of forests, which are the original usage of forest, but development activities, such as change of form and quality of land, were limited. Therefore, the instant forest land constitutes “land, the use of which is limited under the relevant Acts and subordinate statutes after acquiring land” under Article 104-3(2) of the former Income Tax Act (wholly amended by Act No. 14389, Dec. 20, 2016; hereinafter the same shall apply) and Article 168-14(1)1 of the Enforcement Decree of the Income Tax Act, and thus falls under “land, the use of which is limited under the relevant Acts and subordinate statutes after acquiring land.” Accordingly, the instant forest land constitutes land for

2) The National Tax Service’s execution standard of capital gains tax (104-3-168-6; hereinafter “execution standard of this case”) which was in force at the time of the transfer of this case prescribed that the forest of this case was used for a business during the limited period in a case where the alteration of the form and quality of land was restricted as the forest of this case, and thus, the forest of this case should be deemed land excluded from the non-business land in accordance with the execution standard of this case. Even if the execution standard of this case was deleted on February 21, 2017, deeming the forest of this case as the land for non-business and imposing it on the forest of this case as the land for this reason is in violation of the principle of prohibition of retroactive taxation, and is also in violation of

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Determination as to the first proposal

A) After acquiring “land” as stipulated in Article 104-3(2) of the former Income Tax Act and Article 168-14(1)1 of the Enforcement Decree of the Income Tax Act, “land, the use of which is prohibited or restricted pursuant to the relevant Act and subordinate statutes,” means land, the use of which is specially restricted beyond the ordinary limit according to its use. It is reasonable to view that not only the land directly prohibited or restricted by statutes - the provision itself, but also the land, the use of which is practically prohibited or restricted by an administrative agency as part of administrative action, such as building permission, etc., is uniformly controlled as part of administrative action. In such a case, whether “where the use is specially restricted beyond the ordinary limit according to the use of the land” constitutes “where the use is restricted beyond the ordinary limit according to the use of the land” shall be based on the principle of limitation on the original use of the land, but also on an individual basis, such as the purpose of the acquisition of the land, actual use status

B) First, we examine whether the forest of this case was prohibited or restricted from using under the “this case’s forest”. Since there is no circumstance that the land category of the forest of this case is actually being used for other purposes as a forest, it appears that it was actually used as a forest. Even if there is any restriction on changing the form and quality of land, construction, etc., which is designated as an agricultural and forest area, preservation and management area, and planned control area under the National Land Planning and Utilization Act, it does not directly prohibit or restrict the protection and development of the forest of this case, which is the original purpose of the forest of this case (the Plaintiff’s assertion itself does not dispute the restriction on the original purpose of the forest of this case as a forest). Accordingly, the use of the forest of this case’s forest of this case

C) Next, we examine whether this case’s forest land constitutes land, the use of which is prohibited or restricted pursuant to the laws and regulations after its acquisition, where “determination is based on the purpose of acquisition of land, actual use status, possibility of change of its original use, etc.”

(1) A special deduction for long-term holding is a system that grants a kind of tax benefit to taxpayers by inducing a long-term holding of real estate so as to reduce real estate speculation and facilitate efficient utilization of land by deducting a certain amount of money specially from one’s transfer margin so as to calculate capital gains subject to taxation. However, since land for non-business is land owned as a means of property increase without using it for a productive purpose according to an individual’s actual demand, it is permissible to take special measures under tax law, such as excluding or restricting special deduction for long-term holding, or increasing capital gains tax rates, based on Article 122 of the Constitution that an individual may impose necessary restrictions and obligations on land for efficient and balanced utilization, development and preservation of land. Article 95 of the former Income Tax Act excludes special deduction for long-term holding of land for non-business use as such, the legislative purpose is to restrain

(2) Article 104-3(2) of the former Income Tax Act and Article 168-14(1)1 of the Enforcement Decree of the Income Tax Act provide that the land shall not be deemed the land for non-business in extenuating circumstances where the use of the land is prohibited or restricted pursuant to the laws and regulations after the acquisition of the land. As such, if the land falls under the land for non-business purposes, it shall not be deemed the land for non-business purposes, unless the use is prohibited or restricted pursuant to the Acts and subordinate statutes," but the land may not be deemed the land for non-business purposes because there is an unavoidable reason to prohibit or restrict the use of the land in accordance with the Acts and subordinate statutes. In addition, the special deduction for long-term possession under the Income Tax Act has a legislative purpose to restrain real estate speculation and promote efficient use of the land, and Article 104-3(2) of the former Income Tax Act provides for exceptions to the land subject to special deduction for long-term possession, and thus, it is necessary to interpret the above provisions of the Act and subordinate statutes as a whole.

(3) We examine this case in light of the above legal principles. Considering the above evidence, Gap evidence Nos. 7, Eul evidence Nos. 2 and 4 as well as the following circumstances, the forest of this case cannot be seen as "land prohibited or restricted for use in accordance with laws and regulations after acquiring "land stipulated in Article 104-3 (2) of the former Income Tax Act and Article 168-14 (1) 1 of the Enforcement Decree of the Income Tax Act".

① The land category of the instant forest is forest land and actually used as forest land around the date of the instant transfer. After the Plaintiff acquired the instant forest land, it seems that there was no effort to implement the authorization procedure to change the form and quality of land, or to construct buildings on the instant forest land.

② In other words, the Plaintiff plans to engage in development activities, such as changing the form and quality of land, or to engage in development activities, but did not inevitably prevent development activities by designating a specific use area, etc., the Plaintiff did not have entirely plans for development activities on the instant forest land, regardless of whether to designate a specific use area.

③ Rather, in light of the fact that the Plaintiff had no domicile in the place of the instant forest or its neighboring areas, and had continued to engage in the business of manufacturing clothes, etc. for a long time with his domicile in Seoul Special Metropolitan City from the birth, the Plaintiff appears to have only owned the ownership of the instant forest and its neighboring areas, and did not have the purpose of running the business specially in the instant forest

④ In full view of such various circumstances, it is reasonable to view the forest of this case as land for non-business use regardless of the designation of specific use areas under the National Land Planning and Utilization Act.

⑤ If the exception provisions on non-business land apply to the instant forest land by recognizing the existence of an inevitable cause, such as prohibition or restriction of the use of land, solely because the restriction on certain development activities according to the designation of a specific use area under the National Land Planning and Utilization Act was imposed on the instant forest land, it would result in completely eliminating the purport that the Income Tax Act does not allow the special deduction for long-term possession of the land for non-business land, by giving the owners of definite speculation benefits their desire.

2) Determination on the second proposal

The Plaintiff asserts that the instant forest land constitutes an exception to the land for non-business use based on the instant enforcement standards, but the instant enforcement standards are merely merely an administrative agency’s internal administrative guidelines and do not have any legal effect, and thus, the Plaintiff’s assertion that the instant forest falls under the land excluded from the land for non-business use based on the instant enforcement standards, is without merit. Furthermore, as seen earlier, since the instant enforcement standards are not applicable solely on the grounds that development activities, such as change of land form and quality, are limited according to the designation of specific-use area under the National Land Planning and Utilization Act, the instant enforcement standards cannot be deemed applicable to the instant forest, so it is difficult to view that the instant enforcement standards are not applicable to the instant forest (the instant enforcement standards also do not apply to the cases contrary to the aforementioned legal principles). Accordingly, the Plaintiff’s assertion of violation of the principle of retroactive taxation prohibition and the Plaintiff’s assertion of violation of the principle

3) Therefore, the instant disposition is lawful, and the Plaintiff’s assertion disputing this is without merit.

3. Conclusion

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