Whether a dental hospital operated by the Plaintiff is subject to special tax reduction or exemption under the Restriction of Special Taxation Act.

A disposition denying the application of special tax reduction or exemption under the Restriction of Special Taxation Act by deeming a person who operates a dental clinic as a de facto operator of a dental clinic is in conformity with the Medical Service Act and the substance over form principle.

Article 7 of the Restriction of Special Taxation Act: Special Tax Abatement or Exemption for Small or Medium Enterprises

Seoul Administrative Court 2018Guhap73997 global income and revocation of disposition

AA

BB Director of the Tax Office

March 22, 2019

May 24, 2019

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The Defendant’s disposition of imposition of each global income tax (including additional tax) listed in attached Form 1 against the Plaintiff on October 1, 2017 is revoked.

1. Details of the disposition;

A. On January 1, 2002, the Plaintiffs operated a dental hospital with the trade name, “0 dental hospital” (hereinafter “the instant medical institution”) in Seoul, 000, and changed the trade name and the primary type of business into “00 dental clinic after moving the place of business on February 18, 2016.”

B. On the premise that the instant medical institution is a dental clinic, not a dental clinic, the Plaintiffs filed a comprehensive income tax return on income from 2012 to 2015 by applying the special tax reduction and exemption under Article 7(1)1 (b) of the former Restriction of Special Taxation Act (amended by Act No. 12853, Dec. 23, 2014; hereinafter the same). However, upon conducting a tax investigation on the Plaintiffs from July 5, 2017 to August 8, 2017, the Defendant determined that the instant medical institution was not subject to the special tax reduction and exemption on income from 2012 to 2015, and determined that it was not subject to the said comprehensive income tax reduction and exemption (hereinafter referred to as “each of the instant dispositions”).

C. The Plaintiffs filed a tax appeal on December 27, 2017, but was dismissed on May 15, 2018.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 6 (including branch numbers; hereinafter the same shall apply), Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

Since the medical institution of this case is "a dental hospital which has obtained permission for establishment pursuant to the Medical Service Act and subordinate statutes, the special tax reduction or exemption pursuant to Article 7 (1) of the former Restriction of Special Taxation Act should be applied.

B. Relevant statutes

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

C. Determination

1) Relevant legal principles

A) 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, the strict interpretation of the provision that can be seen as clearly preferential provisions among the requirements for reduction and exemption accords with the principle of fair taxation (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009). The special tax reduction and exemption system for small and medium enterprises under Article 7(1) of the former Restriction of Special Taxation Act aims to provide support so that the improvement of financial structure and facility investment, etc. can be smoothly conducted by reducing and exempting income tax and corporate tax for small and medium enterprises with weak competitiveness (see, e.g., Supreme Court Decision 2005Du685, Jan. 13, 2006).

The Restriction of Special Taxation Act amended by Act No. 6762, Dec. 11, 2002 excluded an individual’s source (including dental clinics; hereinafter the same shall apply) from the medical business subject to special tax reduction and exemption (Article 7(1)1 (p) and the Restriction of Special Taxation Act amended by Act No. 14390, Dec. 20, 2016, also amended by Act No. 14390, when the ratio of the amount of health care benefit paid pursuant to Article 47 of the National Health Insurance Act to the amount of income for the pertinent taxable year (referring to sales calculated according to corporate accounting standards) is 80/100 or more, if the amount of global income for the pertinent taxable year is 100 million won or less (Article 7(1)1 (z)). The amendment process can be deemed as a result of a policy change in the competitiveness and equity of taxation of an individual’s source, but it still can be interpreted as a restrictive reduction and exemption requirement.

B) According to Articles 3(2)1(b) and 33(b) and 33(4) of the Medical Service Act, a dentist is a dental clinic. A medical institution mainly providing medical services to outpatients is a dental hospital, and a medical institution that mainly provides medical services to inpatientss must obtain permission from the competent Mayor/Do Governor, as prescribed by Ordinance of the Ministry of Health and Welfare, after meeting facility standards under Article 36 of the Medical Service Act. However, Article 3-2 of the same Act only provides that at least 30 beds should be provided only to a hospital and oriental medical hospital, and there is no such provision for a dental hospital, and Article 34 [Attachment Table 3] of the Enforcement Rule of the Medical Service Act upon delegation under Article 36(1) of the same Act does not impose a duty on a dental hospital to be equipped with a hospital room. Therefore, it is possible to obtain permission for establishment as a dental hospital even if there is no beds or room for hospitalization. In full view of the following provisions, it is reasonable to interpret the aforementioned medical statutes systematically to obtain permission for establishment of the hospital at least three (2).

① Article 3(2) of the Medical Service Act, which is a medical definition provision, stipulates that the hospital is mainly a medical institution that provides medical services to 'inpatients', and mainly differs from the medical institution that provides medical services to 'inpatients' for 'inpatients'. However, if the patient's hospitalization itself is impossible, it exceeds the limit of the language and text of the above 'inpatients'.

② In the case of a hospital, the Medical Service Act (amended by Act No. 14438, Dec. 20, 2016; hereinafter the same) provides the medical personnel on duty differently from the former Medical Service Act (amended by Act No. 14438, Dec. 20, 2016; hereinafter the same) (Article 41(1)), and further, efforts to provide the integrated nursing and nursing service, which is the hospitalization service that is comprehensively provided by nursing support personnel, such as nurses, without having their guardians, etc. stay in the hospital (Article 4-2), strengthens the 'hospitalize' as a functional requirement of the hospital. Thus, even under the former Medical Service Act where there was no provision on integrated nursing and nursing care, hospitalization is the same as that of the hospital.

2) Specific determination

According to the background of the above disposition, Eul evidence Nos. 3 and 4 and the purport of the argument as a whole, the medical institution of this case was not equipped with facilities for hospitalization, such as beds. Since the opening of the medical institution of this case, the lessor of the building where the medical institution of this case was located after the opening of the medical institution of this case, consistently demanded that the plaintiffs should not remain in the hospital after business hours (which appears to have been consented by the plaintiffs). Accordingly, the fact that one patient who was only one of the medical institutions of this case was not hospitalized can be acknowledged. Therefore, it is reasonable to deem that the plaintiffs established the medical institution of this case for the purpose of treating only outpatients in a situation where hospitalization is impossible from the beginning. The medical institution of this case is not a dental hospital, but a dental clinic.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in entirety as it is without merit. It is so decided as per Disposition.

1) In light of the respective descriptions of Gap evidence 4 and 5 (including paper numbers).

2) The former Restriction of Special Taxation Act applies until 2014 business years, and Article 7(1)1 of the former Restriction of Special Taxation Act (amended by Act No. 14390, Dec. 20, 2016) for the business year 2015 is applicable, but the content of the former Restriction of Special Taxation Act is the same as that of the former Restriction of Special Taxation Act, except for those applied until the taxable year prior to December 31, 2017.