Cho Jae-2018-China-0897 ( October 24, 2018)

Whether the transfer time of a long-term installment sales contract can be deemed the use date.

The instant sales contract cannot be deemed as a sale with a long-term installment, since the period from the date following the date of use and profit-making of forest land for the purpose of sale to the date of payment of the last installment has been confirmed as one year or more at the time of the contract.

Enforcement Decree of the Income Tax Act Article 162 (Time of Transfer or Acquisition)

Enforcement Rule of the Income Tax Act Article 78 (Scope of Long-Term Installment Terms and Conditions)

2018Gudan8638 Disposition of revoking capital gains tax

The two AA

Head of Si Tax Office

2019.04.05

.04.26

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 imposing capital gains tax of KRW 804,929,460 for the transferred portion on October 12, 2016, which was issued by the Plaintiff on October 31, 2017, is revoked.

1. Details of the disposition;

A. On January 3, 1998, the Plaintiff acquired 5,950 square meters of forests and fields 114 square meters in △△-dong, △△-dong, △△-dong due to a consultation and division. On October 29, 2010, the Plaintiff entered into a sales contract with the purchaser KimA to sell the said forests and fields in KRW 1 billion (hereinafter “instant sales contract”).

B. After that, on August 12, 2011, the Plaintiff established a right to collateral security with regard to the registration conversion and division of 565-25 forest land (hereinafter “instant land”) with respect to 3,690 square meters from the said forest land as well as the said forest land (hereinafter “instant land”). On August 12, 201, 201, the Plaintiff established a right to collateral security with regard to ○○○ Agricultural Cooperatives as a mortgagee, BBBBB as an obligor, and the maximum debt amount of the instant land amount of KRW 2,08,000,000. Thereafter, the voluntary auction procedure based on the said right to collateral security was initiated with regard to the instant land (Uwon District Court 2015TAD 200), and CCC was determined as the highest bidder at the said auction procedure, and paid 2,08,555,000 won in full.

C. On December 31, 2016, with respect to the instant land, the Plaintiff reported KRW 22,81,580, which was calculated by adding the acquisition value to KRW 128,868,148, as the transferee to KimA, the date of transfer to October 12, 2016, and the transfer value to KRW 620,167,230 (an amount equivalent to the ratio of the size of the instant land out of the purchase price of KRW 1 billion in the instant sales contract).

D. After conducting an investigation of capital gains tax on the Plaintiff, the Defendant deemed that the instant land was transferred to CCC Co., Ltd. for the purchaser of the said auction procedure at KRW 2 billion on October 12, 2016, and notified the Plaintiff of KRW 804,929,460, which belonged to the year 2016, on October 31, 2017 (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on January 31, 2018, but the Tax Tribunal dismissed the Plaintiff’s claim on May 24, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 4, 5, 12, 14, 16, 17, Eul evidence No. 1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) Claim on condition of long-term installment sale

Article 162 (1) 3 of the Enforcement Decree of the Income Tax Act provides that "long-term installment condition 1.3 shall be the date of receipt of ownership transfer registration, the date of delivery or the date of use or profit-making, whichever is earlier." Article 78 (3) of the Enforcement Decree of the Income Tax Act provides that "long-term installment condition 2" shall be imported from the transfer of assets by means of monthly, yearly or other installment payments, 1. (2) The transfer price of the assets shall be paid in two or more installments from the date of receipt of ownership transfer registration, delivery or use of the transferred assets, whichever is earlier, until the due date of the last installment payment 1.0 billion won from the date of the sale contract to the date of the first installment payment." Since the sale contract of this case shall be deemed to have been issued 1.0 billion won from the date of the first installment payment to the date of the second installment payment, 2.1 million won from the date of the sale contract to the date of the second installment payment 2.1 million won from the date of the sale contract.

2) Violation of the principle of substantial taxation and assertion of unreasonable taxation

Even if the property was actually transferred for price, it should be interpreted as "transfer" that only if the owner actually incurs income from the transfer of the land in this case. Considering the fact that the Plaintiff's profit from the transfer of the land in this case is merely KRW 200 million equivalent to 20% of the total purchase price, it is virtually impossible for the purchaser of the land in this case to receive the remainder of the purchase price due to the lack of contact. Since the BBBBBBBBB, the debtor of the right to collateral security established on the land in this case, is also in a closed state, there is no value for the Plaintiff to exercise the right to reimbursement against the said debtor. If the Plaintiff establishes the right to collateral security, the Plaintiff suffered enormous damages by creating the said right to collateral security, because it is the buyer's false end that the Plaintiff would immediately pay the intermediate payment, and the Plaintiff is under the influence of the local tax in arrears and is currently under seizure of the benefit accrued to the Plaintiff, the instant disposition that corrected and notified the amount exceeding four times as transfer income tax as well as the unlawful disposition that violates the principle of substantial taxation and is too harsh to the Plaintiff.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) Claim on condition of long-term installment sale

A) Under Article 98 of the former Income Tax Act and Article 162(1) of the former Enforcement Decree of the Income Tax Act, each provision of Article 98 of the former Income Tax Act and Article 162(1) of the former Enforcement Decree of the Income Tax Act shall be deemed to have satisfied the requirements for a long-term installment transaction under Article 78(3)2 of the former Enforcement Decree, only if the period of the payment of the last installment at the time of the contract is one year or longer from the date following the earlier of the receipt date of ownership transfer registration, delivery date, or use and profit-making date, which is anticipated to require a considerable period of time until the date of the payment of the last installment, or delays in the payment of the last installment in the process of performing the specific contract, and thus, to interpret and apply the relevant provisions without contradiction, it shall be deemed that the last installment at the time of the contract is a restriction provision on the acquisition and transfer date of assets for tax accounting (see, e.g., Supreme Court Decision 201Du37140, Feb. 27, 2014).

B) According to the statement in Gap evidence No. 1, as to the method of payment of KRW 1 billion in the sales contract of this case, the sales contract of this case includes a provision that KRW 10 million in the first intermediate payment of KRW 10 million in the contract, and KRW 30 million in the second intermediate payment of KRW 30 million in the second intermediate payment of KRW 7, 201, and KRW 950 million in the remainder of KRW 950 million in December 30, 201 (Article 2). However, as to the use and profit-making of forest for the purpose of sale including the land of this case, where the buyer (the plaintiff) requests the buyer (the buyer), the seller shall immediately provide it to the buyer (Article 5), and the seller may recognize the fact that there is no provision that the buyer would use or profit-making forest from the purpose of sale to the date of the contract, i.e., when the buyer would use or profit-making forest, and no provision exists in the agreement.

C) Examining the contents of the instant sales contract in light of the legal principles as seen earlier, the instant sales contract cannot be deemed as a long-term installment sales contract, since the period from the date following the date of use and profit-making of forest for the purpose of sale to the due date of payment of the last installment (i.e., the remainder payment) at the time of the instant sales contract is determined as one year or more. Accordingly, it can be deemed that there was an agreement between the seller and the buyer on the fact that the Plaintiff is “the time when the instant sales contract was concluded and the seller must deliver the buyer’s consent at the same time as at the time of the instant sales contract,” and that “the date of permission to use and profit-making of forest for the purpose of sale immediately after the sales contract was concluded as the date of the sales contract.” Furthermore, the Plaintiff’s application for permission to use and profit-making of forest for the purpose of sale was determined as one year or more from the date following the date of the instant sales contract to the due date of payment of the remainder. However, the Plaintiff’s application for permission to use and profit-making of forest is not included in the instant sales contract.

D) Ultimately, this part of the Plaintiff’s assertion cannot be accepted.

2) Violation of the principle of substantial taxation and assertion of unreasonable taxation

Even where the ownership of real estate is de facto transferred through the voluntary auction procedure, it constitutes a transfer of real estate which is subject to capital gains tax, and there are circumstances such as: (a) the establishment registration of a neighboring mortgage, which is the basis of the voluntary auction, guaranteed real property against the third party’s obligation; and (b) the auction proceeds that did not pay dividends to the owner, or that the exercise of the right to indemnity against the debtor was practically impossible due to the debtor’s insolvent (see, e.g., Supreme Court Decisions 85Nu537, Sept. 24, 1985; 86Nu60, May 27, 1986). In light of such legal principles, even if the Plaintiff did not receive dividends in the voluntary auction procedure for the land of this case and it is practically impossible to exercise the right to indemnity against the debtor, such circumstance alone cannot be deemed as excluding the sale of the land of this case from the “transfer subject to capital gains tax” subject to the imposition of capital gains tax or violating the principle of substantial taxation. Moreover, the Plaintiff’s disposition of this case cannot be deemed unlawful.

Therefore, we cannot accept all of the plaintiff's assertion.

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.