Whether a transfer registration completed under the name of a title trustee pursuant to a three-party registered title trust agreement constitutes a transfer registration of ownership under Article 162(1)2 of the former Enforcement Decree of the Income Tax Act, which provides for the time of acquisition and time of transfer of assets (negative)

Article 8 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) defines transfer of assets in the transfer income tax as the actual transfer of assets at a price due to sale, etc. regardless of the registration or enrollment of assets. Article 98 of the same Act provides, “In calculating the gains on transfer of assets, the time of acquisition and transfer shall be determined by the Presidential Decree.” Article 162 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008; hereinafter the same) delegated by the former Enforcement Decree of the Income Tax Act provides, “The time of acquisition and transfer under Article 98 of the Act shall be the date of liquidation of the price of the relevant assets except in the following cases:

In addition to the language and structure of the relevant provisions, comprehensively taking account of the legislative purport of Article 162(1)2 of the former Enforcement Decree of the Income Tax Act, the nature and effectiveness of the registration made in the name of the title trustee under a three-party registered title trust agreement, etc., it is reasonable to deem that the registration of transfer of ownership completed in the name of the title trustee pursuant to the three-party registered title trust agreement does not constitute the registration of transfer of ownership under the said provision. Therefore, if the seller completed the registration of transfer of ownership under the name of the title trustee pursuant to a three-party registered title trust agreement while transferring real estate, and then the title truster and the purchaser are liquidated the price

Articles 88(1) (see current Article 88 subparag. 1) and 98 of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006); Article 162(1)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008); Article 4(2) of the Act on the Registration of Real Estate under Actual Titleholder’s Name

[Plaintiff-Appellant] Plaintiff 1 and 1148 delivered on January 21, 1997 (Gong1997Sang, 673) (Gong200Du6282 delivered on April 12, 2002)

Plaintiff (Law Firm Gangnam, Attorneys Cho Jae-sung et al., Counsel for the plaintiff-appellant)

Head of Dong Daegu Tax Office

Daegu High Court Decision 2014Nu6358 decided April 17, 2015

The judgment below is reversed, and the case is remanded to the Daegu High Court.

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

1. The main sentence of Article 88(1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) defines transfer of assets in the transfer income tax as actual transfer for price due to sale, etc. regardless of the registration or enrollment of the assets. Article 98 of the same Act provides that "the time of acquisition and time of transfer shall be determined by Presidential Decree in calculating the gains on transfer of assets." Article 162(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008; hereinafter the same) delegated by the former Enforcement Decree provides that "the time of acquisition and time of transfer under Article 98 of the Act shall be the date of liquidation of the price of the relevant assets except in cases falling under any of the following subparagraphs."

In full view of the language and structure of the relevant provisions, comprehensively taking into account the following circumstances, such as the legislative purport of the instant provision, the nature and validity of the registration made in the name of the title trustee under the three-party registered title trust agreement, it is reasonable to deem that the ownership transfer registration completed in the name of the title trustee pursuant to the three-party registered title trust agreement does not constitute the registration of ownership transfer under the instant provision. Therefore, where the seller, while transferring real estate, completed the registration of ownership transfer under the name of the title trustee pursuant to the three-party registered title trust agreement, and the title truster and the price thereof are liquidated, the time when the relevant real estate was transferred should be

A. In light of the language, legislative purport, etc. of the provision of this case, where a person who acquires assets conducts the registration of transfer of assets before the price is settled, the provision is deemed as the date of receipt of registration recorded in the register (see, e.g., Supreme Court Decision 2000Du6282, Apr. 12, 2002). Here, the transfer of ownership registration refers to registration where, in principle, a person who acquires the relevant assets has completed the legal act, etc. which caused the transfer of assets as the cause of registration.

B. Meanwhile, in a case where the transfer of real estate is null and void, barring special circumstances, even if the transfer of ownership is completed in the name of the transferee, it cannot be deemed that the transfer of assets subject to capital gains tax falls under the transfer of assets or income from the transfer of assets (see, e.g., Supreme Court Decision 96Nu8901, Jan. 21, 1997). Therefore, even if the transfer of ownership becomes null and void before the transferee liquidates the price, the receipt date of the registration cannot be deemed the transfer date

C. However, in cases where a title truster who purchased real estate completed the registration of ownership transfer under the name of a title trustee pursuant to a three-party registered title trust agreement, such registration is not only the name of the purchaser, but also the sales contract between the seller and the buyer is not a cause for registration. Registration made under an invalid title trust agreement is null and void pursuant to the main sentence of Article 4(2) of the Act on the Registration of Real Estate under Actual Titleholder’s Name (hereinafter “Real Estate Real Name Act”). Moreover, registration made under the name of the title trustee is invalid in that it has no validity

However, in a case where a title trustee disposes of a trust real estate to a third party at will, the third party acquires the ownership of the real estate in question, which differs from the registration of invalidation of general cause. However, such a third party’s effective acquisition of the trust real estate is only a result that the Real Estate Real Name Act provides that the invalidation of a title trust agreement and registration pursuant to the title trust agreement shall not be asserted against the third party in order to promote the safety of transaction. In other words, the third party’s acquisition of ownership is a result of the above provision, and thus, the title trustee cannot be deemed to have acquired the ownership of the trust real estate or the status of disposing

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

A. On December 29, 2005, the Plaintiff sold each of the instant real estate owned by Nonparty 1 at KRW 650 million (in the event of a contract, KRW 65 million for intermediate payment of KRW 315 million for intermediate payment of KRW 300 million on December 29, 2005, the remainder of KRW 270 million for intermediate payment of KRW 270 million on January 19, 2006) and the transfer of ownership is registered at the same time with the payment of intermediate payment, and the remainder of KRW 270 million for collateral security (the maximum bond amount of KRW 20 million, Nonparty 2), and the lease money of KRW 70 million for lease on a deposit basis, were entered into the instant sales contract with Nonparty 3, the buyer’s title under the sales contract.

B. The Plaintiff and Nonparty 1 separately prepared a sales contract stating a total of KRW 320 million in the purchase price of each of the instant real estate and completed the registration of ownership transfer on December 29, 2005 and Nonparty 3 on December 30, 2005, prior to the remainder payment date.

C. Under the sales contract of this case, the right to collateral security, which Nonparty 1 succeeded to and settled instead of payment, was cancelled on January 20, 2006 due to termination.

D. On February 6, 2006, the Plaintiff filed a preliminary return on capital gains tax with the transfer value of each real estate of this case as KRW 320 million to the Defendant.

E. On December 10, 2012, the Defendant calculated gains on transfer from the actual transaction price of each of the instant real estate at KRW 650 million and notified the Plaintiff of the correction and notification of capital gains tax of KRW 189,809,060 (including additional tax) for the year 2005 (hereinafter “instant disposition”).

3. Examining these factual relations in light of the aforementioned provisions and legal principles, the Plaintiff transferred each of the instant real estate, and completed the registration of ownership transfer under the name of Nonparty 3, a title trustee, pursuant to the three-party registered title trust agreement, and then settled the price with Nonparty 1, a title truster, the purchaser. As such, the time of transfer of each of the said real estate should be deemed to be around January 20, 2006, when the price was settled. Accordingly, the instant disposition based on the premise that capital gains from the transfer of each of the said real estate accrue in the year 20

4. Nevertheless, on the grounds as indicated in its reasoning, the lower court determined that the instant disposition was lawful by deeming that the time of transfer of each of the instant real estate was December 30, 2005, which was the date of receipt of the registration. In so determining, the lower court erred by misapprehending the legal doctrine on the time of transfer of assets under the Income Tax Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal

5. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)