[1] The method of determining whether a residential apartment is directly constructed in relation to the apartment construction business, which is a type of business subject to special tax reduction and exemption under Article 7(1) of the former Restriction of Special Taxation Act, and whether the part determining the scope of the apartment construction business and the scope of the “real estate supply business” among the former Korean Standard Industrial Classification violates the principle of taxation requirement specification (negative)

[2] In a case where a company which obtained approval of a housing construction project plan for the construction of an apartment built and sold the apartment by entering into a contract for most of the construction companies, the case holding that the company is engaged in the "real estate supply business" other than the apartment construction business under Article 7 (1) of the former Restriction of Special Taxation Act in relation to the construction and sale of the apartment, and it does not constitute a case where the construction business

[3] The case holding that since the company's business type is viewed as real estate supply business not apartment construction business, it does not constitute a special tax reduction or exemption under Article 7 (1) of the former Restriction of Special Taxation Act as income equivalent to the construction cost directly executed by the company among the total construction cost

[1] According to the purport and contents of Articles 2(3) and 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002), and the classification criteria of the Korea Standard Industrial Classification, an apartment construction business, which is a type of business subject to special tax reduction and exemption under Article 7(1) of the same Act, refers to an industrial activity that directly constructs residential apartment. In this case, whether a residential apartment is directly constructed can be determined by comprehensively taking into account the process and contents of entrustment or contract, the proportion of the construction directly constructed by the relevant small and medium enterprise to the entrustment or contract, the proportion of the construction directly constructed by the relevant small and medium enterprise to the whole construction process, the degree of the relevant party’s intent, etc., and thus, it cannot be said that the part determining the scope of “ apartment construction business” and “real estate supply business” cannot be deemed to violate taxation requirements by lacking clarity.

[2] In a case where a company which obtained approval of a housing construction project plan for the construction of an apartment built and sold the apartment by entering into a contract for most of the construction companies, the case holding that the company cannot be deemed to have directly constructed the apartment even if part of the construction was directly constructed, and thus, the company is engaged in real estate supply business other than apartment construction business under Article 7 (1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002) in relation to the new construction and sale of the apartment, and it does not constitute a case of carrying on construction business as a contractor, since it was not a construction business under a contract

[3] The case holding that since the income of the company related to the construction of apartment should be deemed to have accrued from the real estate supply business regardless of whether the company directly constructed part of the newly constructed construction work, since the company's business is viewed as the real estate supply business, not an apartment construction business, it does not constitute the special tax reduction or exemption under Article 7 (1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002).

[1] Articles 2(3) and 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002) / [2] Article 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002) / [3] Article 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002)

Busan Construction Co., Ltd. (Law Firm Cheong Law, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

Head of Eastern Tax Office

Busan High Court Decision 2005Nu2391 Decided March 30, 2007

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of any statement in the supplemental appellate brief not timely filed).

1. Regarding ground of appeal No. 1

Article 7(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762 of Dec. 11, 2002; hereinafter “Special Act”) provides that a small and medium enterprise shall list “construction business” as a type of business eligible for special tax reduction or exemption on corporate tax, etc., and Article 2(3) of the same Act provides that the classification of specific types of business shall be based on the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 17 of the Statistics Act. The former Korean Standard Industrial Classification (amended by Act No. 2007-53 of Dec. 28, 2007; hereinafter “Korea Standard Industrial Classification”) provides that “The industrial activities of the production unit shall be determined according to the type of the main industrial activities performed by the production unit, according to the classification of “construction business”, which falls under the classification of “construction business”, and excludes apartment construction business (an apartment construction business) from the category of “construction business” from the category of “construction business,” which falls under the category 2, from the category of “construction business”.

According to the purport and contents of the above provisions and the classification criteria of the Korea Standard Industrial Classification, the apartment construction business, which is a type of business subject to special tax reduction and exemption under Article 7 (1) of the Special Act, refers to the industrial activities of directly constructing residential apartment. In such cases, whether a residential apartment is directly constructed can be determined by comprehensively considering the details of entrustment or contract for construction, the ratio of entrusted or contracted construction work to the entrusted or contracted construction work, the ratio of the construction work directly executed by the relevant small and medium enterprise to the entire construction work, the degree of participation by the relevant small and medium enterprise, the parties’ intent, etc. Therefore, the part of the Korea Standard Industrial Classification, which sets forth the scope of the " apartment construction business" and the

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the principle of clarity of taxation requirements.

2. As to the third ground for appeal

According to the reasoning of the judgment below, on July 16, 1998, the plaintiff as a project undertaker and obtained approval from the head of the Busan Metropolitan Government Seo-gu Busan Metropolitan Government (number 1 omitted) for the housing construction project plan with 122 units of apartment houses with 9 stories and 15 stories above ground as the joint executor on September 10, 202, the plaintiff and the wall mountain Development Co., Ltd. (hereinafter " wall mountain Development") as of September 10, 200 and with 16 to 25 stories above ground on July 16, 1998, 7 apartment buildings with 16 to 25 stories above ground (hereinafter "the apartment of this case"). The plaintiff completed the construction work of this case and completed the construction work of the new apartment of this case on December 18, 200, and completed the construction work of the new apartment of this case, excluding the construction work of this case and the construction work of the new apartment of this case on May 23, 2002.

In light of the above facts and the legal principles as seen earlier, even if the part directly constructed by the Plaintiff was part of the construction work, it cannot be deemed that the Plaintiff directly constructed the apartment of this case. Therefore, it is reasonable to deem that the Plaintiff engaged in real estate supply business, not apartment construction business, in relation to the new construction and sale of the apartment of this case. Moreover, the Plaintiff does not constitute a case of conducting construction business as a contractor, since it is not a construction work for

The decision of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the concept of construction business under Article 7 (1) of the Special Provision Act.

3. Regarding ground of appeal No. 2

The lower court rejected the Plaintiff’s assertion that the Plaintiff’s income related to the construction of the instant apartment should be deemed to have arisen from the real estate supply business, regardless of whether the Plaintiff directly constructed part of the newly constructed construction work, at least as income corresponding to the construction cost directly executed by the Plaintiff out of the total construction cost, should be deemed as falling under the object of special tax reduction and exemption under Article 7(1) of the Special Act.

In light of the purport of the relevant provisions and the legal principles as seen earlier, the above judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the scope of special tax reduction or exemption under Article 7 (1) of the Special Provision.

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Yong-dam (Presiding Justice)