Daejeon District Court-2017-Gu Group-10046 ( October 25, 2018)

Cho Jae-2016- Daejeon District Court-390 (2.02. 2017)

The tax reduction or exemption should be applied so long as it satisfies the requirement that the land required for the public works was transferred to the "business operator who implements the public works".

Since the non-party company is recognized to be in the position of the project implementer performing the public works by being designated as the project implementer of the instant urban planning facility project after the acquisition of the instant land shares, which are the land required for the public works by the Plaintiff, after the acquisition from the Plaintiff, the tax reduction or exemption should be applied. However, the special long-term holding deduction is not applicable

Article 77 of the Restriction of Special Taxation Act for Land, etc. for Public Works Projects

Daejeon High Court 2018Nu10482 Revocation of Disposition rejecting capital gains tax rectification

○ ○

Head of △ District Office

February 28, 2019

April 4, 2019

1. The part of the judgment of the court of first instance against the Plaintiff falling under the order to revoke the lower judgment shall be revoked. The Defendant’s revocation of the disposition exceeding KRW 17,865,318 of the corrective dismissal of KRW 27,679,074 of the transfer income tax belonging to the year 2015, rendered against the Plaintiff on May 13, 2016.

2. The plaintiff's remaining appeal is dismissed.

3. Of the total litigation costs, 2/3 shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

The judgment of the first instance shall be revoked. The defendant shall revoke the corrective rejection of KRW 27,679,074 of the transfer income tax belonging to the year 2015 that reverts to the plaintiff on May 13, 2016.

1. Details of the disposition;

A. On April 10, 1987, the Plaintiff acquired and held one-half shares of 792 m2,023 m2, and 792-2 m20 m20 m2, respectively, and completed the registration of ownership transfer to the non-party company on September 30, 2015 (hereinafter referred to as "non-party company") on the following grounds: (a) from December 21, 1994, the Plaintiff resided in 401 m2, ○○○-gun, ○○○-gun, ○○-gun, ○○○-gun, ○○-gun, ○○-do; and (b) on February 2, 2015, the Plaintiff entered into a sales contract (hereinafter referred to as "the sales contract in this case"); (c) signed on September 30, 2015.

B. On October 30, 2015, the ○○○○○○○ Dong BB apartment construction project (hereinafter referred to as “the instant housing construction project plan”) was approved by the non-party company on the ○○○○○○ Dong BB apartment construction project (hereinafter referred to as “the instant housing project plan”) that was scheduled to be implemented on the ○○○○ ○○ ○○ dong 792 and 32 parcels, and the former Housing Act (wholly amended by Act No. 13805, Jan. 19, 2016) published a notice of approval for the housing construction project plan (hereinafter referred to as “the notice of approval for the instant project plan”).

C. In the public notice of approval of the instant project plan, the ○○○ City listed the matters concerning the determination of the urban management planning (district planning), the designation of the implementor of the urban planning facility project and the announcement of the implementation plan under the National Land Planning and Utilization Act, the matters concerning the determination of the urban management plan (district planning) and the announcement of the designation of the implementor of the urban planning facility project, and the matters concerning the authorization of the implementation plan for the urban planning facility project as the legal fiction of other Acts in relation to the “urban planning facility project (road) project” (hereinafter referred to as the “instant urban planning facility project”). Accordingly, in the public notice of approval of the instant project plan, the ○○ City listed the “matters concerning the designation of the implementor of the urban planning facility project” in the public notice of approval of the instant project plan as well as the 503 square meters (hereinafter referred to as “the instant land”) out of the 00,023 square meters of the land subject to the instant contract, which is the land subject to the instant purchase contract, and the said public notice was made with respect to the said land ownership or the instant land.

D. On November 30, 2015, the Plaintiff reported and paid KRW 264,530,310 for capital gains tax for the year 2015 according to the instant sales contract.

E. On March 29, 2016, the Plaintiff entered the instant land into the urban planning facility project publicly notified by the ○○ market as above, and this constitutes the land for public services as prescribed by Article 77 of the former Restriction of Special Taxation Act (amended by Act No. 13498, Aug. 28, 2015; hereinafter the same) and thus, should be subject to reduction of 15% for special long-term holding deduction and cash compensation. Accordingly, the Plaintiff filed a claim for correction of KRW 27,679,074 for refund of capital gains tax on the portion equivalent to the Plaintiff’s 1/2 shares out of the instant land.

F. However, on May 13, 2016, the Defendant dismissed the Plaintiff’s claim for correction on the ground that the non-party company, the purchaser of the instant land, as a private constructor, is not a project implementer for public works under Article 77(1)1 of the former Restriction of Special Taxation Act, and is not subject to reduction or exemption. For the same reason, Article 168-14(3)3 of the Enforcement Decree of the Income Tax Act cannot be applied to the instant land for non-business purposes (hereinafter “instant disposition”).

G. The Plaintiff filed an objection against the instant disposition and filed an appeal with the Tax Tribunal, but was dismissed on February 2, 2017.

As a result of the fact-finding on the first instance court and the first instance court of this court on the ○○ Market of this court, the purport of the whole pleadings, and the purport of the whole pleadings, as to the evidence Nos. 1, 2, 3, 4, and

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

The ○○○ City appointed a non-party company as the project implementer of the instant urban planning facility project, prepared a detailed statement of land and rights other than ownership to be expropriated or used for the instant land, etc. for the implementation of the project, and further approved and publicly announced the implementation plan of the instant urban planning facility project. Therefore, the instant land is intended to build an urban planning facility (road) corresponding to the public project as prescribed by the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects (hereinafter “Land Compensation Act”). Thus, the Plaintiff transferred the instant land necessary for the public project under Article 77 of the former Restriction of Special Taxation Act through the instant sales contract, which is not idle land pursuant to Article 168-14 (3) 3 of the Enforcement Decree of the Income Tax Act. Thus, in calculating the transfer income tax on the instant sales contract, the instant land should be deducted from the amount of long-term possession deduction under Article 95(1) of the former Income Tax Act (amended by Act No. 1358, Dec. 15, 2015; hereinafter the same).

B. Relevant statutes

[Attachment] The entry in the relevant statutes is as follows.

C. Determination

1) Determination on the assertion of tax reduction or exemption under the former Restriction of Special Taxation Act

A) Major issues of the instant case

Article 77(1)1 of the former Restriction of Special Taxation Act provides that a tax amount equivalent to 15/100 of capital gains tax shall be reduced on income accrued from the transfer of land, etc. necessary for a public project to which the Land Compensation Act applies to the operator of the relevant public project and two years retroactively from the date of the public project approval (the date of the transfer where the land, etc. is transferred before the date of the public project approval) to which the relevant land, etc. belongs, by December 31, 2015. In addition, Article 77(2) of the former Restriction of Special Taxation Act provides that where a resident transfers land, etc. necessary for a public project under Article 77(1)1 of the same Act owned for at least two years to the operator of the public project before the designation as the operator of the public project under Article 77(1)1 of the same Act by the statutory deadline for filing a tax base return for the taxable period to which the date of the transfer of the relevant land, etc. belongs, and where a business operator is designated as the project operator within five years from the date of transfer.

On September 30, 2015, the Plaintiff acquired the instant land prior to the public notice of approval of the instant business plan against Nonparty Company and retained it for more than two years, and subsequently transferred it to Nonparty Company on September 30, 2015. Nonparty Company was designated as the implementer of the instant urban planning facility project for this case on October 30, 2015, along with the public notice of approval of the instant business plan and the public notice of designation of the implementor of the instant urban planning facility project and the authorization of the implementation plan. The Plaintiff filed a tax base return on November 30, 2015, within the statutory due date of return of the taxable period to which the transfer date belongs. Accordingly, the key issue in this case is that the Plaintiff’s transfer of the instant land shares constitutes the transfer of the land, etc. necessary for the public project under Article 77(2) and (1)1 of the former Restriction of Special Taxation Act to which the Land Compensation Act applies.

B) Whether the land required for the public interest project to which the Land Compensation Act applies is the ‘public interest project operator' or not

Article 1 of the Land Compensation Act provides that "the purpose of this Act is to promote the promotion of public welfare and the appropriate protection of property rights through the efficient implementation of public works by prescribing matters concerning compensation for losses incurred by the acquisition or use of land, etc. required for public works through consultation or expropriation." In addition, Article 2 subparagraph 2 and Article 4 subparagraph 2 of the Land Compensation Act defines "public works" as "project concerning roads for public interest after obtaining authorization pursuant to the relevant Acts," and Article 2 subparagraph 3 of the same Act as "project operator". Furthermore, Article 19 (1) of the Land Compensation Act provides that "the project operator may expropriate or use the land, etc. as prescribed by this Act if necessary for the execution of public works," and Article 20 (1) of the same Act provides that "the project operator shall obtain the approval of the project from the Minister of Land, Infrastructure and Transport as prescribed by Presidential Decree in order to expropriate or use the land, etc. under Article 19."

However, it is clear that the instant land was subject to the instant urban planning facility project, such as the notice of approval for the instant project plan and the notice of approval for the implementation plan for the ○○ market, which was made together with the notice of approval for the instant project plan, as in Article 2 subparag. 6 (a) of the National Land Planning and Utilization Act (hereinafter “National Land Planning Act”) and Article 2(1)1 of the former Enforcement Decree of the National Land Planning and Utilization Act (amended by Presidential Decree No. 29284, Nov. 13, 2018; hereinafter “former Enforcement Decree of the National Land Planning Act”).

In full view of the contents and circumstances of the above relevant laws and regulations as well as the following circumstances recognized by the above macroscopic evidence, the urban planning facility project of this case constitutes a public project to which the Land Compensation Act applies as a project related to roads implemented for the public interest after obtaining authorization under the relevant Acts and subordinate statutes as stipulated in Article 2 subparag. 2 and subparag. 2 of the Land Compensation Act. The non-party company is recognized as the status of "project operator," who is "person performing the public project under Article 2 subparag. 3 of the Land Compensation Act by being designated as the project operator of the instant urban planning facility project after the acquisition of the pertinent land shares, which are the land necessary for the public project from the plaintiff, after the acquisition of the land shares from the plaintiff, as the urban planning facility project of this case constitutes a public project under the Land Compensation Act, and as long as the non-party company is deemed to be the project operator, it does not affect the conclusion whether the non-party

① The purpose of the instant urban planning facility project is to build a new road which is surrounded by BB collective housing units. The content of the instant urban planning facility project includes a part of the construction of a road in a site for multi-family housing, thereby creating infrastructure for multi-family housing. However, the main content is to build a new road which is a public facility used by many public in addition to residents of the relevant housing complex.

② As seen earlier, the head of ○○ City prepared and publicly announced a land record and other rights than ownership to be expropriated or used together with the public announcement of approval of the instant project plan. This is bound to be based on the premise that the land subject to the instant urban planning facility project, including the instant land, may be purchased by consultation or expropriated under the Land Compensation Act.

③ The ○○○ City was incorporated into the subject of the instant urban planning facility project only for the site to be used as a “road,” rather than a multi-unit housing site subject to the approval of the instant project plan. Nonparty Company cannot use the land incorporated into the instant land, etc. as a multi-unit housing site, and ought to proceed with the instant urban planning facility project as a site for the road for the first public interest. Even without obtaining the designation (or designation) of the implementor of the instant urban planning facility project (road) and the authorization of the implementation plan, Nonparty Company may not construct roads, such as the instant urban planning facility project, which is an essential public infrastructure.

④ In the case of the non-party company, the non-party company could separately apply for the designation of the project implementer and the authorization of the implementation plan of the urban planning facility project of this case. Considering the consultation with the related agencies (departments) attached to the result of fact inquiry about the ○○ market of this court, the non-party company could obtain the status of purchasing the land to be incorporated into the road of this case or obtaining the authorization of the implementation plan under the procedure prescribed by the Land Compensation Act pursuant to Articles 86, 95, and 96 of the National Land Planning and Utilization Act with the designation and authorization of the non-party company, unless there are special circumstances. However, the non-party company is not entitled to the transfer of the land of this case to the non-party company's land which is designated as the "urban planning facility project (road)" as the "project owner" of this case's land to which the Land Compensation Act applies to the non-party company is not entitled to the transfer of the land of this case's land to the non-party company.

(6) Although there is no objective evidence to verify whether the Plaintiff and the Nonparty Company sold the instant land on the premise that it will be incorporated into a road in the course of concluding the instant sales contract, considering the time of the instant sales contract, the developments leading up to the designation of the implementer of the instant urban planning facility project and the authorization of the implementation plan, the current status of the instant land and the relationship with the site subject to the instant project, etc., the instant land may be deemed as having existed the risk of ultimately being incorporated into a site subject to the instant urban planning facility project rather than the instant apartment site at the time of entering into the instant sales contract. Therefore, even if capital gains tax is reduced or exempted pursuant to Article 77(2) and (1)1 of the former Restriction of Special Taxation Act only with respect to the instant land portion, it cannot be concluded that it violates the principle of tax equality by taking into account the imposition of capital gains tax

Therefore, the plaintiff's above assertion pointing this out is justified.

C) Whether it constitutes "transfer" under Article 77 (2) of the former Restriction of Special Taxation Act

The defendant asserts to the effect that the transfer of land in this case does not constitute "transfer" under Article 77 (2) of the former Restriction of Special Taxation Act because it is not by expropriation or consultation.

As seen earlier, the transfer of the instant land was made by means of a judicial sales contract between the Plaintiff and the non-party company. Article 77(2) or (1)1 of the former Restriction of Special Taxation Act only provides that “transfer of land” is “transfer by expropriation or purchase” and does not limit to “acquisition by expropriation or purchase.” In addition, the purport of the above provision is to provide support for smooth implementation of public-interest projects, and to relieve the burden of transfer income tax in view of the fact that even if the landowner does not respond to purchase by consultation, he/she would have to suffer disadvantages that his/her land is expropriated as a public-interest project. Furthermore, Article 77(2) of the former Restriction of Special Taxation Act provides that transfer income tax may be reduced or exempted pursuant to Article 77(1) of the former Restriction of Special Taxation Act as well as Article 77(2) of the former Restriction of Special Taxation Act in cases where a resident transfers land, etc. necessary for a public-interest project to a business operator who is unable to purchase by consultation or expropriate pursuant to the same Act. In light of the language and purport of the former Restriction of Special Taxation Act.

Therefore, the other defendant's above assertion is without merit.

D) Whether submission of an application for reduction or exemption under Article 72(4) of the former Enforcement Decree of the Restriction of Special Taxation Act is necessary

With respect to the Plaintiff’s procedures for capital gains tax reduction, Article 72(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26762, Dec. 28, 2015; hereinafter the same) provides for the procedures for capital gains tax reduction or exemption for the transferor at the time of transfer of land for public services under Article 77(2) of the former Restriction of Special Taxation Act. The Plaintiff asserts that the Nonparty Company is unable to obtain capital gains tax reduction or exemption under Article 77(2) of the former Restriction of Special Taxation Act on the grounds that the Nonparty Company did not submit an application for tax reduction or exemption within two months from the date on

Article 72 (4) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that where a person who transfers land, etc. for public-service business pursuant to Article 77 (2) of the former Enforcement Decree of the Restriction of Special Taxation Act intends to obtain capital gains tax reduction or exemption, a public-service business operator under Article 77 (1) 1 of the former Restriction of Special Taxation Act shall submit an application for tax reduction or exemption prescribed by Ordinance of the Ministry of Strategy and Finance to the head of the tax office having jurisdiction over the place of tax payment by attaching documents verifying the relevant business operator within two months from the date on which the relevant business operator was designated as the relevant business operator. In this regard, capital gains tax reduction or exemption under Article 77 (2) of the former Enforcement Decree of the Restriction of Special Taxation Act shall not be naturally reduced or exempted if the requirements for such reduction or exemption are met. Since Article 72 (4) of the former Enforcement Decree of the Restriction of Special Taxation Act imposes a duty of cooperation on the taxpayer to submit documents necessary for determining the tax base and tax amount to the Government, even if there is no application for reduction or exemption.

Therefore, the defendant's above assertion on a different premise is without merit.

E) Sub-decisions

Therefore, the Plaintiff is deemed to have transferred land necessary for public service to the operator of a public service project in accordance with Article 77(2) and (1)1 of the former Restriction of Special Taxation Act. As such, the tax reduction or exemption (9,813,756 won) shall apply to the transfer of this case. On different premise, the part concerning the reduction or exemption of the tax amount under the former Restriction of Special Taxation Act among the Defendant’s disposition of this case (the portion exceeding KRW 17,865,318 out of the transfer income tax belonging to year 2015) is unlawful.

2) Determination on the assertion of special deduction for long-term possession under the former Income Tax Act

A) Relevant legal principles

According to Article 95 (1) and (2) of the former Income Tax Act, when a certain asset is transferred after holding it for not less than three years, the amount of special deduction for long-term possession should be deducted from gains from transfer, and "land for non-business" under Article 104-3 of the same Act shall be excluded from the special deduction for long-term possession. In addition, Article 104-3 (1) of the same Act provides that "land for non-business use" as "land for non-business use" (proviso to subparagraph 1 (a)) or "farmland that can be owned by the owner of the farmland" (proviso to subparagraph 1 (a)) or "farmland for which the period prescribed by Presidential Decree has not elapsed from the date of incorporation into an urban area, such as the Special Metropolitan City, Metropolitan City, etc. (proviso to subparagraph 1 (b))" is exceptionally excluded from the non-business

In addition, Article 104-3 (2) of the former Income Tax Act provides that when applying Article 104-3 (1) of the former Income Tax Act, where the land falls under any of the subparagraphs of paragraph (1) due to the prohibition of use of the land after the acquisition of the land or other inevitable reasons prescribed by Presidential Decree, the land may not be deemed a non-business land again according to certain conditions, and Article 168-14 (3) 3 of the Enforcement Decree of the Income Tax Act, which was prepared by delegation, provides that "land purchased by consultation or expropriated in accordance with

In a systematic interpretation of the provisions of the relevant laws, the issue is, in principle, excluded from the special deduction for long-term possession as land for non-business use, but the case falls under the above non-business use land due to inevitable reasons under the laws, i.e., the land purchased by consultation or expropriated by consultation under the Land Compensation Act, etc., shall not be considered as the land for non-business use, and the amount of income should be calculated by recognizing the special deduction for long

B) Determination

In light of the above legal principles, we examine the transfer of the land of this case in light of the following circumstances, which are acknowledged in addition to the purport of the entire argument, i.e., the land of this case falls under ‘the answer', â‘ the land of this case does not fall under the exception of Article 104-3 (1) 1 (a) and (b) of the former Income Tax Act, and ‘non-business land' in principle, and â‘ although the plaintiff's transfer of the land of this case to non-party company is the case of transfer of land necessary for the public works to which the Land Compensation Act applies, the transfer of land of this case does not constitute ‘acquisition or expropriation by consultation' under the conditions as provided in Articles 3 and 4 of the Land Compensation Act, â……………………………………………§ 'the land of this case', the transfer of land of this case does not fall under the case of purchase by consultation or sale of the land of this case.

Therefore, the disposition of this case is legitimate, which did not deduct the special deduction amount for long-term possession with respect to the transfer of the land of this case.

3. Conclusion

Therefore, the plaintiff's claim is justified within the above scope of recognition, and the remaining parts are dismissed as it is without merit. Accordingly, the judgment of the court of first instance is unfair by accepting part of the plaintiff's appeal and revoking part of the judgment of the court of first instance and revoking part of the disposition of this case. The remaining appeal of the plaintiff is dismissed. It is so decided as per Disposition.