Plaintiff 1 and 20 others (Law Firm B&S, Attorneys Ba-woon et al., Counsel for the plaintiff-appellant)

the director of the tax office of Western

October 6, 2010

Incheon District Court Decision 2009Gudan1409 Decided May 13, 2010

1. Revocation of a judgment of the first instance;

2. The Defendant’s revocation of each disposition of imposition of the attached Form 2 against the Plaintiffs.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of disposition;

A. The Plaintiffs owned each farmland (hereinafter “instant farmland”) indicated on the attached Form 3’s real estate and the details of the acquisition by agreement (hereinafter “instant farmland”). (However, each real estate set forth at 17 times owned by the Nonparty, the husband of Plaintiff 17, but thereafter acquired an agreement with the Korea National Housing Corporation, and the Nonparty died on January 20, 2008, and thus the transfer income tax was imposed on Plaintiff 17).

B. The Minister of Construction and Transportation, on July 29, 2003, publicly announced the Kimpo-ri, the Gi-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri-ri (hereinafter “instant project”), which includes the farmland in this case, as a planned housing site development area. On November 1, 2004, the Ministry of Construction and Transportation announced the designation and alteration of the planned housing site development area and the housing site development plan with regard to Kimpo-ri-ri-ri-ri-ri-ri-ri (hereinafter “instant project”) including the farmland in this case as a planned housing site development area. The Minister of Construction and Transportation announced the alteration of the existing planned housing site development plan and the approval of the implementation plan. The Minister of Construction and Transportation announced on January 4, 2005 under Article 204-480.

C. The Korea National Housing Corporation that implemented the instant project, from April 15, 2005 to April 29, 2005, shall complete the registration of ownership transfer on the date indicated in the column of the “registration date for acquisition of real estate and the acquisition of the land by consultation”, by paying each compensation to the Plaintiffs from June 9, 2005 to July 12, 2006 after the procedures for public announcement and perusal of the compensation plan regarding the farmland of this case were followed.

D. Pursuant to Article 23(2) of the Enforcement Rule of the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects, the Plaintiffs received compensation assessed as a natural green belt, agriculture, and forestry, and management area, etc., a special-purpose area prior to the change of the farmland of this case. The officially assessed individual land price as of January 1, 2005 regarding the farmland of this case was publicly announced on May 30, 2005.

E. The Plaintiffs filed an application for reduction or exemption of capital gains tax pursuant to Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 9276, Dec. 29, 2008; hereinafter the same) on the ground that the instant farmland was self-refised by the Defendant for at least eight years, and voluntarily reported and paid the amount of tax payable after reduction or exemption.

In accordance with the proviso of Article 69(1) of the former Restriction of Special Taxation Act, the Defendant issued a correction and notification of KRW 404,568,260 in total of the transfer income tax for the year 2005 (in the case of Plaintiff 10, it reverts to the year 2006) (hereinafter “instant disposition”). At the time of the instant disposition, the Defendant did not publicly notify the officially assessed individual land price as of January 1, 2005 as of January 1, 2005, since the date of the instant disposition was incorporated into a residential area and the date of incorporation was not publicly notified as of January 1, 2005, the standard market price as of the date of incorporation into a residential area was considered as the officially assessed individual land price as of January 1, 2004.

F. On February 10, 2009, the Plaintiffs filed a petition with the Tax Tribunal for an inquiry regarding the instant disposition, but the Tax Tribunal dismissed the petition for an inquiry on June 3, 2009.

【Ground for Recognition: Facts without dispute, Gap evidence 1, 2, 7, 8, 9, Eul evidence 1 and 2 (including each number), the whole purport of the pleading

2. The plaintiffs' assertion

The instant disposition is unlawful for the following reasons, and thus, should be revoked.

(a) An allegation of illegality in the application of the standard market price on the date of incorporation into a residential area;

1) The “date of incorporation into a residential area, etc.” under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21214, Dec. 31, 2008; hereinafter the same) should be deemed to be around 2006, which was publicly notified as a green-belt area, rather than the date of approval of the implementation plan for the housing site development project. The instant disposition of imposition was unlawful, regarding the date of incorporation into a residential area as the date of January 4, 2005.

2) In a case where the farmland of this case is deemed to have been incorporated into a residential area on January 4, 2005, the “base price for the date of incorporation into a residential area, etc.” under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act refers to the officially assessed individual land price as of January 1, 2005. The instant disposition of this case is unlawful since it was calculated by applying the officially assessed individual land price as of January 1, 2004.

B. Preliminary assertion

1) The “standard market price at the time of transfer” under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act is not the “standard market price at the time of transfer” but rather the “standard market price at January 1, 2004, which is the base date for the assessment of compensation consultation price,” rather than the “standard market price at the time of transfer” under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act. The instant disposition of imposing the standard market price at the time

2) Since the instant farmland was incorporated into a residential area, the land price of the instant farmland did not increase. There is no capital gains excluded from the scope of reduction or exemption.

3) At the Korea National Housing Corporation and Kimpo-si, officially known the view that the transfer income tax on the farmland of this case is reduced or exempted. The instant disposition is against the above public opinion and is contrary to the good faith principle.

3. Relevant statutes;

Restriction of Special Taxation Act (amended by Act No. 9276 of Dec. 29, 2008)

Article 69 (Abatement or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(1) With respect to the income accruing from the transfer of land prescribed by the Presidential Decree among the land which is subject to the taxation of agricultural income tax (including the objects of non-taxation, reduction and exemption, and collection by small amount), which is cultivated directly by a resident prescribed by the Presidential Decree residing in the location of such land for not less than eight years (not less than eight years omitted), the tax amount equivalent to 100/100 of the transfer income tax shall be reduced or exempted: Provided, That where the relevant land is incorporated into a residential area, commercial area, and industrial area under the National Land Planning and Utilization Act (hereafter referred to as "residential area, etc." in this Article) or has been designated as any land other than the reserved land for replotting prior to the disposition of replotting under the Urban Development Act and other Acts, the tax amount equivalent to 10/100

Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21214 of Dec. 31, 2008)

Article 66 (Abatement or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(7) "Income prescribed by Presidential Decree" in the proviso to Article 69 (1) of the Act means the amount calculated by the following formula from among the transfer income under Article 95 (1) of the Income Tax Act (hereafter referred to as "transfer income amount" in this paragraph):

A person shall be appointed.

4. Determination on the lawfulness of the instant disposition

A. Determination as to when and when "the date of incorporation into a residential area" is "the date of incorporation"

According to Article 36(1) of the former National Land Planning and Utilization Act (amended by Act No. 7707, Dec. 7, 2005; hereinafter the same), the Minister of Construction and Transportation or a Mayor/Do Governor shall determine the designation or alteration of a specific use area by an urban management plan, and the specific use area determined by an urban management plan shall be classified by an urban area, management area, agricultural and forest area, and natural environment conservation area, and the urban area shall be classified by “residential area, commercial area, industrial area, and green area.” According to Articles 31 and 30(6) of the former National Land Planning and Utilization Act, the Minister of Construction and Transportation or a Mayor/Do Governor shall announce it when he/she determines an urban management plan, and the determination of an urban management plan shall take effect five days after

On the other hand, Articles 7 and 9 of the former Housing Site Development Promotion Act (amended by Act No. 7715 of Dec. 7, 2005) provide that the implementor of the housing site development project shall prepare the implementation plan for the housing site development project and obtain approval from the Minister of Construction and Transportation, and the Minister of Construction and Transportation shall give public notice when the implementation plan for the housing site development project is approved. Article 11 provides that the approval and public notice of the implementation plan for the housing site development project shall be deemed as the determination and public notice of the urban management plan

Therefore, “the date of incorporation into a residential area, etc.” under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act refers to the date on which the implementation plan for a housing site development project was approved and announced on January 4, 2005, and five days have passed after the date it is deemed that the determination and notification was made for a residential area, etc. under the National Land Planning and Utilization Act (see Supreme Court Decision 99Du806, Apr. 13, 199; Supreme Court Decision 2003Du4034, Dec. 9, 2004). This part of the plaintiffs’ assertion is without merit.

B. Determination as to whether the application of the standard market price on the date of incorporation into a residential area is unlawful

1) As of the date of incorporation of the farmland of this case into a residential area, etc. on January 10, 2005, the standard market price should be applied as of January 1, 2005 pursuant to Article 99(1)1 of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same). The imposition disposition of this case, which applied the officially assessed individual land price as of January 1, 2004 as of the date of incorporation into a residential area, etc., is unlawful.

2) As to this, the Defendant asserts that, on January 10, 2005, the officially assessed individual land price as of January 1, 2005, as of January 1, 2005 of the incorporated farmland of this case, has not yet been publicly announced. Thus, the Defendant asserts that the officially assessed individual land price as of January 1, 2004, which is the immediately preceding standard market price, should be applied by deeming the case of acquisition or transfer before the new standard market price is publicly announced pursuant to Article 99 of the Income Tax Act and Article 164(3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19687, Sep. 22,

Article 164(3) of the former Enforcement Decree of the Income Tax Act explicitly states that “When applying Article 99(1)1(a) of the Income Tax Act,” “the standard market price on the date of inclusion in a residential area, etc. or of the date of the designation of a land scheduled for substitution of land” used in the instant formula, there is no ground to deem that Article 164(3) of the former Enforcement Decree of the Income Tax Act is applicable to the calculation of “the standard market price on the date of the designation of a land scheduled for substitution of land” (Article 2(2) of the former Enforcement Decree of the Income Tax Act, except as otherwise provided in this Act, the Defendant also claims that Article 164(3) of the former Enforcement Decree of the Income Tax Act shall be applied, but

Furthermore, Article 164(3) of the former Enforcement Decree of the Income Tax Act provides that “If a person acquires or transfers farmland before a new standard market price is publicly notified, it shall be based on the immediately preceding standard market price.” Since all of the farmland in this case was settled by consultation or expropriation between June 2005 and July 2006, it constitutes a case where the standard market price was publicly notified in 2005 at the time of transfer.

3) The purport of Article 69(1) of the former Restriction of Special Taxation Act that reduces or exempt transfer income tax on farmland of this case and that only income prescribed by Presidential Decree accrued until the date of incorporation into a residential area should be excluded from income generated after the date of incorporation into a residential area. (1) Since the farmland of this case was incorporated into a residential area on January 10, 2005, it is difficult to deem that there was income generated after the date of incorporation into a residential area. (2) The proviso of Article 69(1) of the former Restriction of Special Taxation Act requires strict application as it constitutes an exception to Article 69(1) of the former Enforcement Decree of the Restriction of Special Taxation Act to limit the exemption from transfer income tax on farmland of this case. (3) Since the date of incorporation into a residential area, etc. is on January 1, 2005, the standard market price of individual land price as of January 1, 2005 is more accurately reflected, the Plaintiffs’ application of the former Enforcement Decree of the Restriction of Special Taxation Act to 201.

C. Illegality of the instant disposition

The instant disposition of imposition, which applied the officially assessed individual land price as of January 1, 2004 as of the date of incorporation of the farmland into a residential area, etc., is unlawful. The instant disposition of imposition is revoked (However, in the case of Plaintiff 10, as of January 10, 2006, the officially assessed individual land price as of January 1, 2006 was applied as of the time of transfer, and thus, whether all or part of the disposition of imposition may vary depending on whether the voluntarily paid tax amount was the standard market price at the time of transfer of the officially assessed individual land price as of January 1, 2006 (No. 10, No. 10, No. 2006). However, even if part of the disposition of imposition of the instant case is unlawful

5. Conclusion

The judgment of the first instance shall be revoked. Each disposition of imposition in attached Form 2 shall be revoked.

[Attachment]

Judges Kim Jong-dae (Presiding Judge)