National Tax Service Review Corporation 2010-0050 ( October 22, 2010)

In the case of "pre-sale sale", the ownership of the profit or loss from sale shall be based on the rate of work progress as long as the construction of the house is completed.

In the case of the so-called "pre-sale sale" in which an apartment seller constructs and sells housing for a long time, the ownership of the profit or loss from sale shall be included in the gross income and deductible expenses for the relevant business year, calculated on the basis of the construction completion rate of the house, namely, the ratio of the total construction cost incurred until the end of the relevant business year, and the rate of work progress shall not be calculated only on the basis of the amount for which the obligation to pay for the construction for the relevant business year has been finalized in accordance

2011Guhap3647 Revocation of Disposition of Corporate Tax Imposition

AAA Construction Corporation

Head of Seocho Tax Office

August 30, 2011

October 20, 2011

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 2,543,340, and 370 won for the Plaintiff on February 3, 2010 shall be revoked.

1. Details of the disposition;

A. On July 31, 2003, the Plaintiff entered into a construction contract with BB Construction Co., Ltd. (hereinafter referred to as “B Construction”) under which the 16 unit construction work of the CC apartments 16 unit construction work (hereinafter referred to as “instant construction work”) on the land outside 000, and 60 lots of land in Taesung-si, Taesung-si (hereinafter referred to as “instant construction work”) during the construction period from February 1, 2003 to April 30, 2005; the contract amount from February 1, 2003 to April 30, 2005; and the contract amount from 92573,250,000,000 won (including value-added tax) is contracted for BB construction (hereinafter referred to as “instant contract”).

B. The Plaintiff considered the sum of the construction cost claimed by BB Construction and the construction cost directly incurred by the Plaintiff as the total construction cost accumulated in accordance with the terms of payment for the construction cost under the instant contract, and calculated the Plaintiff’s sales profit and loss according to the ratio of work progress calculated by dividing it into the total construction cost plus the total construction cost, and reported and paid the amount of corporate tax for the business year from 200

C. The Defendant: (a) based on the taxation data notified by the director of the Seoul Regional Tax Office to the Plaintiff after conducting an investigation into the legal seal tax integration from January 7, 2010 to January 29, 2010, the Defendant did not recognize that the working progress rate should be calculated on the basis of the amount of construction cost requested by BB construction and calculated the Plaintiff’s sales profit and loss accordingly; (b) based on the rate of work progress according to the construction progress of BB construction as the contractor, the Defendant calculated the cumulative construction cost based on the total construction cost; (c) calculated the Plaintiff’s sales profit and loss based on the total construction cost directly paid by the Plaintiff on February 3, 2010; and (d) calculated the Plaintiff’s sales profit and loss on the basis of the sum of the construction cost directly paid by the Plaintiff on February 3, 2010, the Plaintiff corrected and notified 204 corporate tax,2543,340,370 won, and 205464.64.64.

D. The Plaintiff dissatisfied with the instant disposition and filed an objection with the director of the Seoul Regional Tax Office on May 17, 2010, but was dismissed on June 15, 2010. The Plaintiff filed a request for examination with the Commissioner of the National Tax Service on September 13, 2010, but was dismissed on October 22, 2010.

[Ground of recognition] Facts without dispute, Gap 1 to 5 evidence, Eul 1 to 4 evidence, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

① The Plaintiff, a contractor, merely pays the construction cost to BB Construction, which is a contractor under the instant contract, and the degree of work progress of BB Construction is not related to the Plaintiff’s duty to pay the construction cost. Thus, it is reasonable to calculate the Plaintiff’s profit and loss for each business year according to the claim amount under the instant contract, namely, the rate of work progress calculated based on the construction cost claimed by BB Construction (Article 34(1) of the former Enforcement Rule of the Corporate Tax Act, which was applied at the time of 2005, provides that the total construction cost scheduled shall be calculated based on the estimated cost as at the time of 2005, reflecting the changes in the construction cost to the end of the relevant contract until the end of the relevant contract). (2) Information about construction cost, dust rate, and non-ordinary additional construction cost, etc. is difficult to identify the aforementioned information related to BB Construction prior to the settlement of accounts for BB Construction, and thus, it is virtually impossible to verify the Plaintiff’s application rate of the Plaintiff’s tax base and tax rate for B construction progress.

B. Relevant statutes

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

C. Determination

1) Relevant provisions

Article 69(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008; hereinafter the same) provides that where the contract period (referring to the period from the commencement date of construction to the delivery date) of construction, manufacturing, and other services (including contracted construction and reservation sales; hereinafter referred to as "construction") is not less than one year, earnings and losses for each business year from the business year which includes the date of the commencement of construction of the object to the business year which includes the date of its delivery shall be included in the calculation of earnings and expenses for the relevant business year based on the degree of the completion of construction (hereinafter referred to as "work progress rate") as prescribed by the Ordinance of the Ministry of Finance and Economy. Article 34(1) of the former Enforcement Decree of the Corporate Tax Act provides that the total construction cost shall be reasonably calculated at the rate of total construction cost to the date of the completion of construction work, and Article 69(2) of the Enforcement Decree of the Construction Business Act provides that the estimated total construction cost shall be calculated at the end of the construction project.

2) Determination

The Plaintiff’s provision of the above-mentioned Acts and subordinate statutes and No. 5, 6, and 8 were 1, 2, and 7 No. 1, 2, and 3 as follows. According to Article 69(2) of the former Enforcement Decree of the Corporate Tax Act and Article 34(1) of the former Enforcement Decree of the Corporate Tax Act, for the so-called “pre-sale of housing for a long time,” the ownership of profits and losses from sale is completed, i.e., the rate of completion of the construction work (the rate of total construction cost incurred until the end of the pertinent business year) as at the time of the enforcement of the construction project. The Plaintiff’s disposal of the construction project as 1, 2, and 200 if the construction project is carried out at the time of the enforcement of the above-mentioned construction project, the construction project operator’s total construction cost is 40 years prior to the enforcement of the construction project, and the construction project’s total construction cost is 1, 30 years prior to the enforcement of the construction project agreement.

3. Conclusion

The plaintiff's claim is dismissed on the ground that it is without merit.