Cho High Court Decision 2018 Deputy 2208 (2018.09)

No fixed assets shall be transferred to the proper purpose business of a non-profit domestic corporation for at least three consecutive years.

The issue of non-taxation shall be strictly interpreted in accordance with the text of the law, and so long as the plaintiff has not used the pertinent land directly for the proper purpose business for more than three consecutive years, even if it is inevitably impossible to use the relevant land, it cannot be viewed as non-taxation under the Corporate Tax Act regardless of whether it constitutes a "justifiable cause, such as being subject to statutory restrictions."

Article 3 (Scope of Taxable Income)

2018Guhap7468 Disposition of revocation of refusal to correct corporate tax

AAAAA Class A of the AA

BB Director of the Tax Office

June 13, 2019

July 25, 2019

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s rejection of correction of KRW 617,931,890 of corporate tax for the business year 2016 against the Plaintiff on October 17, 2017 is revoked.

1. Details of the disposition;

가. 원고는 KKKK 56세손인 MMM(牧使公) 치행(致行)의 5세손으로서 KKKK60세손인 JJ 양세(兩世)의 후손들로 이루어진 종중으로, 2009. 1. 7. 법인으로 보는 단체로 승인을 받은 비영리내국법인에 해당한다.

나. JJ의 분묘는 원고 소유인 00 00군 00리(이하 '00리'라고만 한다)772-1 묘지 8,862㎡ 지상에 위치해 있었고, 원고는 1934년경 그 인근의 00리 772-5대 506㎡ 지상에 종중 재실인 LL재(二履齋, 이하 '이 사건 재실'이라고 한다)를 지어 그곳에서 선조들의 제사를 지내 왔다.

C. On July 6, 1989, the Do governor submitted to the Minister of Construction and Transportation an application for planning decision on the land readjustment project of 00 urban planning 00,000 square meters with the aim of conducting the land readjustment project in 389,801 square meters, and the Minister of Construction and Transportation presented it as an agenda to the Central Urban Planning Committee. On September 27, 1999, the Central Urban Planning Committee made a decision on the land readjustment project plan of 00,000 square meters with the exception of 11,694 square meters with four children's parks, and 10,801 square meters with the exception of 389,80 square meters with the above 00,000 square meters with the road facilities, and the land readjustment project of 00,000 square meters (hereinafter referred to as the "land readjustment project of this case") was commenced on June 27, 190.

D. On August 18, 2006, the part of 4,811 square meters in a 00-ri 772-1 graveyard 8,862 square meters in J’s grave was divided into 00-ri 772-1 graveyard 4,811 square meters. On August 18, 2006, the part of 420 square meters in a 772-2 large 506 square meters in a 00-ri 772-5 square meters in a 772-5 square meters in a 420 square meters in a 772-1 graveyard in which J’s grave was located was divided into 420 square meters in a place where J’s grave was located, and 00-ri 772-4,811 square meters in a cemetery, 725 square meters in a 725 large 420 square meters in a 20-ried land in a 20-ried land prior to the removal of the instant land.

E. On July 12, 2013, 200 Ri 696-1 and 27160 m20 m2, including the instant land before the instant land substitution (hereinafter “the instant land substitution”), the land cadastre was drafted on the ground of completion of partition rearrangement on July 12, 2013. As to the graveyard 4,81 m2, among the land before the instant land after the instant land substitution on September 10, 2013, the land substitution registration under the Land Readjustment and Rearrangement Project was made on September 2466.9/2710 of the land after the instant land substitution; as to the land before the instant land substitution on the share of 772-5 large 420 m20 m2,7160 m2, 27160 m2,7608 m2,2768 m2,2768,2768 m2,27686.67

F. On March 25, 2016, the Plaintiff sold all of the instant co-ownership shares to the SSS District Housing Association at KRW 3,247,761,00,000. On April 8, 2016, the Plaintiff completed the registration of transfer of ownership on the ground of the instant co-ownership in the future of the SS District Housing Association.

G. On March 31, 2017, the Plaintiff calculated gains from transfer by subtracting the acquisition value of KRW 57,727,922 from the transfer value of KRW 3,00,00 and KRW 1,027,79,283 from the acquisition value of KRW 3,189,05,00,000 from the transfer value of KRW 3,247,761,00,000, and calculated gains from transfer by applying the special deduction for long-term possession of KRW 956,701,584 from the said gains from transfer to KRW 2,232,30,303,69, calculated capital gains by applying the special deduction for long-term possession of KRW 956,70,584, and then filed a return and payment as corporate tax (hereinafter referred to as “corporate tax of this case”).

H. On August 18, 2017, the Plaintiff filed a claim with the Defendant for rectification of KRW 827,925,400 of the instant corporate tax, which was reported and paid as above, on the ground that the Plaintiff’s proper purpose business of a non-profit domestic corporation was excluded from taxation as a transfer margin after being used for at least three years. However, on October 13, 2017, the Defendant rejected the Plaintiff’s claim for rectification of the instant corporate tax on the ground that it falls under the case where the Plaintiff was not directly used for the proper purpose business for at least three consecutive years retroactively from the date of the disposition (see, e.g., Supreme Court Decision 201Da4000, Oct. 17, 2017) (hereinafter “the original disposition”).

(i) The Plaintiffs were dissatisfied with the instant original disposition and filed an appeal with the Tax Tribunal on April 13, 2018, following the objection on December 25, 2017, but was dismissed on July 9, 2018. The Plaintiffs filed the instant lawsuit seeking the revocation of the instant original disposition on October 8, 2018, which was within 90 days after the notification of the determination of the said tax appeal.

(j) In the process of the instant lawsuit, the Plaintiff reported and paid KRW 827,925,40,00, which is the amount of tax calculated pursuant to Article 62-2 of the former Corporate Tax Act, and the Plaintiff could select and report and pay KRW 617,801,050, which is the amount of tax calculated pursuant to Article 60 of the former Corporate Tax Act, which is more favorable to the Plaintiff, and thus, at least the amount of tax reported and paid should be refunded. The Defendant accepted such assertion on April 30, 2019, and refunded the amount of tax reported and paid by the Plaintiff ex officio (hereinafter in the instant original disposition, 209,993,50, which is the amount of tax reported and paid by the Plaintiff after ex officio reduction of KRW 209,93,50,00 (excluding the amount of reduction and refund ex officio by the Defendant).

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 19, Eul evidence 1 through 5, and Eul evidence 7 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The proviso of Article 3(3)5 of the former Corporate Tax Act (amended by Act No. 1522, Dec. 19, 2017; hereinafter the same) provides that "income generated from the disposal of fixed assets directly used for high purpose business" shall be excluded from taxable income for corporate tax. Article 2(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 27828, Feb. 3, 2017; hereinafter the same) provides that "for more than three consecutive years as of the date of disposal of the fixed assets in question, it shall be used directly for the proper purpose business prescribed by the statutes or the articles of incorporation for three or more years as of the date of disposal of the fixed assets in question." However, since the implementation of the land readjustment project in this case, the Plaintiff continued to use the land in question for another place on the ground of the original land before the land substitution in this case by removing the land in this case from around August 2006 to the date of its removal in accordance with Article 5(1)5) of the former Corporate Tax Act.

Therefore, the disposition of this case rejecting the Plaintiff’s claim for correction of corporate tax of this case is unlawful as it violates statutes.

B. Relevant statutes

The entries in the attached statutes are as follows.

C. Determination

1) Relevant legal principles

Under the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. In particular, it accords with the principle of fair taxation to strictly interpret that a provision clearly deemed a preferential provision among the requirements for reduction and exemption accords with the principle of fair taxation (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009).

Article 3(3)5 of the former Corporate Tax Act and Article 2(2) of the former Enforcement Decree of the Corporate Tax Act provide that a non-profit domestic corporation shall impose corporate tax on revenues accruing from the disposal of fixed assets that are not directly used for the proper purpose business for at least three consecutive years as of the date of disposal of fixed assets. However, where there are justifiable grounds for not using the land directly for the proper purpose business, it shall not be deemed otherwise. Therefore, in determining whether the disposal price of land should be deemed taxable income for corporate tax, the non-profit corporation is not obliged to take into account whether there is justifiable grounds for not using the land directly (see, e.g., Supreme Court Decision 2016Du64722, Jul

2) Determination

In light of the above legal principles, Article 3 (3) 5 of the former Corporate Tax Act and Article 2 (2) of the former Enforcement Decree of the Corporate Tax Act stipulate that the income from disposal of fixed assets of non-profit domestic corporations shall be subject to corporate tax in principle, but it shall be strictly interpreted as to whether the land falls under non-taxation. Therefore, if the plaintiff fails to use the land prior to or after the land of this case for three or more consecutive years, it shall not be deemed that a domestic corporation is obligated to use the land for non-business purposes under Article 5 of the former Enforcement Decree of the Corporate Tax Act, even if it is impossible to use the land for non-business purposes due to the execution of the land of this case for non-business purposes, and it shall not be deemed that the land of this case is subject to non-business purposes under Article 5 of the former Enforcement Decree of the Corporate Tax Act by applying Article 1 of the former Enforcement Decree of the Corporate Tax Act to the determination that the land of this case was not subject to taxation for non-business purposes, regardless of whether it constitutes "justifiable business purposes" under Article 5 of the former Enforcement Rule of the Corporate Tax Act.

In short, Article 3(3)5 of the former Corporate Tax Act and Article 2(2) of the former Enforcement Decree of the Corporate Tax Act do not examine whether a non-profit domestic corporation has justifiable grounds for not being directly used for the proper purpose business for more than three consecutive years as of the date of disposal of fixed assets. Therefore, even if the Plaintiff continued to use the land before or after the instant replotting as a project implementation district due to statutory restrictions, even if the Plaintiff had not used the land before or after the instant replotting for more than three consecutive years due to the fact that the land before or after the instant replotting was conducted, the exception

In addition, the Plaintiff cannot be deemed to have used the pertinent land directly for its proper purpose business under the relevant laws, such as the former Corporate Tax Act. Therefore, insofar as the Plaintiff’s land before or after the instant land substitution as of March 25, 2016, which was sold to the SS District Housing Association, was not used directly for its proper purpose business for at least three consecutive years, the disposal revenue does not constitute non-taxation under Article 3(3)5 of the former Corporate Tax Act and Article 2(2) of the former Enforcement Decree of the Corporate Tax Act.

Therefore, the plaintiff's assertion is without merit.

3. Conclusion

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