In calculating gains on transfer of combined houses, it is legitimate to calculate the transfer value by the standard market price at the time of transfer pursuant to Article 100 (2) of the Income Tax Act.

Where the transfer value is calculated based on the actual transaction value and the distinction between the value of the land and the building is unclear, it is legitimate to calculate the transfer margin by the standard market price at the time of the transfer of both commercial and the house.

Article 100 (Calculation of Gains on Transfer of Income Tax Act)

2018Guhap747 Revocation of Disposition of Imposing capital gains tax

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The director of the tax office of Luxembourg

June 8, 2018

July 13, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 16,578,670 for the year 2016, which the Plaintiff rendered on August 1, 2017, revoked KRW 14,579,486.

1. Details of the disposition;

A. On March 8, 2005, the Plaintiff completed the registration of ownership transfer on the ground of the inheritance due to the agreement division made on December 6, 2004 with respect to the above ground reinforced concrete structure, slive roof, four floors, and detached houses (hereinafter referred to as “the instant building,” including land and buildings, and “the instant real estate”). On August 25, 2016, the Plaintiff completed the registration of ownership transfer on the ground of the sale on January 29, 2016 (hereinafter referred to as “the instant sales contract”). The sales amount under the instant sales contract is in total of KRW 920,000,000, and is not divided by the value of assets, such as land and buildings.

B. On October 27, 2016, the Plaintiff: (a) deemed that the fourth floor of the instant building falls under a non-taxation subject to one house for one household; (b) deemed that the housing and the commercial buildings jointly are used; and (c) 261,292,647 won of total transfer income (i.e., transfer value of KRW 920,00,000, acquisition value of KRW 437,474,790- Necessary expenses - 109,250, 111,982,563 won for long-term possession special deduction of KRW 111,982,563) constituted one house area for one household [the total area of the instant building is 541.28 square meters, one story, or four stories, 105 square meters; ＋ ＋ 105 square meters ＋ x 121,284,296,2964; and (b) applied the amount of capital gains subject to one household /2965646,29646.7.646

C. From May 22, 2017 to June 10, 2017, the Defendant conducted an investigation of capital gains tax on the Plaintiff’s return of the said capital gains tax, the Defendant denied KRW 9,250,000 from the necessary expenses, and deemed the underground floor as a commercial building according to the use in the public record, and divided the transfer value into the standard market price as shown in attached Table 1, and then issued a notice of correction and notification of capital gains tax of KRW 18,578,670 to the Plaintiff on August 1, 2017 (hereinafter “instant taxation disposition”).

D. On October 11, 2017, the Plaintiff filed a request for a trial with the Tax Tribunal after filing an objection. On December 28, 2017, the Tax Tribunal rendered a decision that “The cost of attorney-at-law fee of KRW 9,250,000, which is related to the name-related lawsuit, shall be included in necessary expenses, and the tax base and tax amount shall be corrected, and the remaining request for a trial shall be dismissed.”

E. Accordingly, the Defendant, according to the decision of the Tax Tribunal on January 5, 2018, corrected the amount of KRW 2,904,820 of the instant taxation disposition.

[Ground of recognition] Unsatisfy, Gap evidence 3, Gap evidence 4, Eul evidence 1 to 8

(including branch numbers) each description, the purport of the whole pleadings, and the purport of the whole pleadings.

2. The plaintiff's assertion and judgment

A. The plaintiff's assertion

Although the Defendant disposed of this case on the basis of Article 100(2) of the Income Tax Act and Articles 163 and 166(6) of the Enforcement Decree of the same Act, the said provision cannot be applied as the applicable provision in cases where the transfer value is unclear in the case of a blanket transfer of land and buildings, based on the classification of transfer value from the building where both housing and commercial buildings are located

B. Relevant statutes

Attached Form 2 shall be as listed in attached Table 2.

C. Determination

1) According to Article 100(2) of the former Income Tax Act (amended by Act No. 13796, Jan. 19, 2016); Article 166(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 27471, Aug. 31, 2016); Article 64 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 27472, Aug. 31, 2016), where land, buildings, etc. (hereinafter referred to as “building, etc.”) are transferred at the same time and the transfer value is calculated based on the actual transaction value, where the distinction between the value of the land and buildings, etc. is unclear, and where both the standard market value of the land and buildings, etc. is calculated based on the standard market value as of the date of the supply contract, the same shall apply to the calculation method in proportion to the value calculated based on the standard market value as of the date of the supply contract.

2) Regarding the instant case, as seen earlier, the instant sales contract is not divided into the prices of land, buildings, and other assets, and thus, falls under the case where the prices of the land, buildings, etc. are indivisible, and also falls under the case where taxable buildings and non-taxable housing exist. The Defendant is legitimate to have imposed tax on the instant real estate portion by calculating the publicly announced individual housing prices based on the standard market price of the building and the officially announced individual land price of the building (including sub-land) as to the transfer value of the instant real estate pursuant to the instant calculated method of division.

3) 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.