Whether the special taxation on transfer of real estate for public service in a designated area is appropriate for gains on transfer;

Whether to apply the special taxation of capital gains tax under Article 85 of the Restriction of Special Taxation Act is the date of designation and announcement of the distribution complex, the date when two years retroactively from the public announcement date of project approval, and the date when the designation and announcement date of the distribution complex arrives after the designation of the designated area, whichever comes earlier.

Article 85 of the Restriction of Special Taxation Act (Special Taxation for Real Estate for Public Works in Designated Area)

Article 6 of the Promotion of Distribution Complex Development Act (Public Notice of Designation of Distribution Complex)

1. The plaintiff's claim is dismissed.

2. The plaintiff shall bear the litigation costs.

Cheong-gu Office

The defendant's rejection of correction of the transfer income tax belonging to the year 2005 against the plaintiff on 31, 2006 shall be revoked.

1. Circumstances of dispositions;

A. On November 15, 2004, 2003, the Plaintiff acquired and held 1,358 square meters of ○○○-dong ○○○○○○-dong ○○○○○○○-dong ○○○○○○-dong ○○○○○-dong ○○○○○-dong ○○○○○-dong 515,116 square meters of land, including the instant land, and was designated as ○○○-dong ○○○○-dong ○○○○-dong ○○○○○-dong ○○○○○○-dong ○○○○○○-dong ○○○○○○○ ○○○-dong ○○○○ ○○ ○○ ○○ ○○ ○ ○○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○.

B. Meanwhile, on the other hand, the Minister of Finance and Economy designated the ○○○○ City where the land of this case is located as the designated area (hereinafter “designated area”) under Article 96(1)6-2 of the former Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same) and the proviso of Articles 96(1) and 6-2 and 97(1)1(a) of the former Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same) where the transfer value and acquisition value are calculated on the basis of the actual transaction value.

C. The Plaintiff calculated the transfer value and acquisition value of the instant land as the standard market price, calculated the transfer margin and made a preliminary return on the transfer income, and paid the said tax amount in KRW 72,377,270.

D. However, since the Defendant’s land falls under the designated area, the defect that the transfer margin should be calculated based on the actual transaction price, the Plaintiff accepted it and filed a revised return on the transfer income tax on December 20, 2005, and additionally paid the transfer income tax of KRW 22,792,570.

E. On April 18, 2003, the date on which the Plaintiff acquired the instant land was designated by the Minister of Finance and Economy as the designated area. As such, the instant land constitutes a special taxation for transfer income tax on real estate for public works within the designated area under Article 85 of the former Restriction of Special Taxation Act (amended by Act No. 7839, Dec. 31, 2005; hereinafter the same) and thus, the transfer value and acquisition value of the instant land should be calculated based on the standard market price. On May 30, 2006, the Plaintiff filed a claim for correction of KRW 22,792,570, out of the transfer income tax belonging to the Defendant in 2005 and paid as above.

F. The Defendant rendered the instant disposition rejecting correction by failing to notify the decision on the request for correction within two months, which is the deadline stipulated in Article 45-2(3) of the Framework Act on National Taxes.

G. The Plaintiff appealed and filed a trial on October 02, 2006, but was dismissed on December 13, 2006.

[Reasons for Recognition] Evidence Nos. 1 through 6, Evidence Nos. 4-1 to 5, and the purport of the whole pleadings

2. The legality of the instant disposition

A. The plaintiff's assertion

The acquisition date of the instant land is prior to November 25, 2004, which is the date of designation of a distribution complex, and is also prior to the date of designation as a speculative area. As such, even though the transfer margin of the instant land should be calculated based on the standard market price, it is unlawful to deem that the instant disposition was rendered by deeming that the Defendant is capable of applying the standard market price only when it should be acquired on the date of designation of a distribution complex, the date when two years retroactively from the date of public announcement of the project approval, and the date before the highest date

(b)the relevant legislation;

○ Scope of transfer income under Article 94 of the Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005)

(1) The transfer income shall be the following incomes generated in the current year:

1. Income accruing from transfer of land (referring to a lot of land subject to registration of land category in the cadastral record under the Cadastral Act) or buildings (including the facilities and structures annexed to such buildings);

Article 96 of the Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) (1) Transfer value of assets under Article 94 (1) 1 and 2 shall be the transfer value of the assets.

The standard market price at the time of transfer shall govern.

Provided, That where the relevant property falls under any of the following subparagraphs, it shall be the actual transaction price between the transferor and transferee (hereinafter referred to as the "actual transaction price"):

6-2. Where the rate of increase of real estate prices in the relevant region is higher than the rate of increase of national consumers, and such rate has increased or is likely to rise rapidly in the prices of real estate in consideration of the rate of increase of national real estate prices, which falls under real estate prescribed by the Presidential Decree from among those located in the area

Article 97 of the Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) (1) Necessary expenses to be deducted from the transfer value in calculating transfer margin of a resident shall be as follows:

1. Acquisition value:

(a) In case of assets prescribed in Article 94 (1) 1 and 2, the standard market price at the time the assets are acquired: Provided, That in case where the assets concerned fall under any of subparagraphs of Article 96 (1), it shall be based on the actual transaction price required for the acquisition of such assets;

Article 162-3 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18850 of October 31, 2005), the standards for designated areas, etc.

(1) The term “area designated according to the standards and methods as prescribed by the Presidential Decree” in Article 96 (1) 6-2 of the Act means an area designated by the Minister of Finance and Economy after going through a deliberation of the Deliberation Committee on Real Estate Price Stabilization under the provisions of Article 162-4 (hereinafter referred to as the “designated area”) where the Minister of Construction and Transportation makes a request for designation because he deems that there is a possibility that the increase of real estate prices in the relevant area may continue or might spread to other areas in view of the real estate price trend throughout the country and the relevant regional characteristics, etc. from among the areas falling under any of the following subparagraphs. In this case, with respect to an area which falls under any of the following subparagraphs but is not requested for designation by the Minister of Construction and Transportation, the Minister shall refer it to the Deliberation Committee

○ The date prescribed by each of the following subparagraphs (referring to the date publicly announced by the head of the relevant administrative agency in the Official Gazette or the official bulletin; where the date of public notification is within 2 years retroactively from the date of public notification, referring to the date that 2 years retroactively from the date of public notification; where the date of notification falls within 2 years retroactively from the date of designation of the designated area under Article 96 (1) 6-2 of the Income Tax Act, referring to the date of designation of the designated area where the date of notification arrives after the designation of the designated area under Article 96 (1) 6-2 of the Income Tax Act) by a resident of capital gains tax on real estate for public works within the designated area under Article 85 of the Restriction of Special Taxation Act (amended by Act No. 7839, Dec. 31, 2005; hereafter the same shall apply in this Article) may be omitted from the standard market price under the provisions of Articles 96 (1) 6-2 and 97 (1) 1 (a) of the Income Tax Act:

1. The date of designating the scheduled housing site development area under Article 3 of the Housing Site Development Promotion Act;

2. The date an industrial complex is designated pursuant to the provisions of Article 7-3 of the Industrial Sites and Development Act;

3. Date designated for the multi-regional development area under Article 4 of the Balanced Regional Development and Support for Local Small and Medium Enterprises Act

4. Date of announcement of a compensation plan under Article 15 of the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor (referring to the United States Armed Forces stationed in the Republic of Korea under the Mutual Defense Treaty between the Republic of Korea and the United States of America) in connection with the

5. In the case of the immovables transferred under other Acts than subparagraphs 1 through 4, the planned area for the project area to which the immovables belong under the relevant Acts.

Article 79-2 of the Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19888 of Oct. 28, 2007) (Special Taxation for Transfer Income Tax on Real Estate for Public Works in Designated Area)

(1) The term “other dates similar thereto, which are prescribed by the Presidential Decree” in subparagraph 5 of Article 85 of the Act means the base date for the assessment of the standard market price in the attached Table 7, and where there is no base date for the assessment of the standard market price, it means the date on which the plan for compensation is publicly announced

[Attachment VII] Standard market price assessment basis (related to Article 79-2)

8. The date the distribution complex is designated pursuant to the provisions of Article 6 of the Promotion of Distribution Complex Development Act.

Article 6 of the Promotion of Distribution Complex Development Act, such as Notice of Designation of Distribution Complex

(1) The distribution complex designator shall, when he/she designates the distribution complex or modifies the contents of the designation under Article 5, publish the matters prescribed by Presidential Decree in the Official Gazette or the official bulletin of City/Do, and send copies of the relevant documents to the head of the competent Si/Gun/Gu (referring to the head of autonomous Gu;

○ Article 15 of the Promotion of Distribution Complex Development Act (Expropriation of Land, etc.)

(2) In applying the provisions of paragraph (1), when the designation of a distribution complex is publicly notified pursuant to the provisions of Article 6 (1) (referring to the time when the development plan for a distribution complex is publicly notified where the implementer and the detailed items of the land, etc. to be expropriated or used are included in the development plan for the distribution complex after the designation of the distribution complex pursuant to the provisions of the proviso of the main sentence of Article 5 (4)), the approval of the project and the public notification thereof pursuant to the provisions of Articles 20

C. Determination

Article 85 of the former Restriction of Special Taxation Act provides that the resident may use the real estate within the designated area at the standard market price on the date prescribed in any of the following subparagraphs (referring to the date on which the head of the relevant administrative agency publicly announces it in the Official Gazette or the official bulletin; where the date of public announcement falls within two years retroactively from the date of public announcement of project approval, referring to the date on which two years retroactively from the date of designation of the designated area under Article 96 (1) 6-2 of the Income Tax Act; where the date of announcement arrives after the designation of the designated area under Article 96 (1) 6-2 of the former Enforcement Decree of the Income Tax Act or other Acts on or before December 31, 206, Article 96 (1) 6-2 and the proviso of Article 97 (1) 1 (a) of the former Income Tax Act provides that the transfer value and acquisition value of the real estate within the designated area may be determined by the Presidential Decree on the basis of the standard market price; where the real estate falls within the designated area under subparagraph 5 through 8 of Article 7 of the former Enforcement Decree of the Special Taxation Act, the Development Promotion Act.

Therefore, Article 85 of the former Restriction of Special Taxation Act provides that where the date of public announcement is within two years retroactively from the date of public announcement, "the date of designation of the designated area" and "the date of public announcement where the designated area arrives later than the date of the designation of the designated area" as mentioned above, but Article 85 of the former Restriction of Special Taxation Act provides that taxpayers shall be imposed at the standard market price instead of the actual transaction price if real estate in the designated area is transferred or expropriated for the public interest regardless of the intention of the owner of the real estate, and at the same time, the taxpayer shall be exempted from tax burden and the smooth implementation of the public service project shall be promoted at the same time if the project is implemented through the on-site investigation is highly likely to incur considerable demand for the development profit in the case of the implementation of the project, and considering that real estate acquired after the designation of the designated area is substantially high for speculation purposes, the above provision on the date of public announcement of special taxation should be interpreted as "the date of designation and public announcement of the designated area within two years retroactively prior to the date of public announcement."

Therefore, the disposition of this case that held that the transfer of this case's land does not constitute a special taxation of capital gains tax under Article 85 of the former Restriction of Special Taxation Act on the grounds that the Plaintiff acquired the land of this case only before the date of designation of the designated area, and that it acquired the land of this case from November 25, 2004, which was deemed as the date of public announcement of project approval, retroactively from November 25, 2002, after November 25, 2002.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.