Whether housing construction and sales business operators are subject to simple expense rate application and whether special tax reduction or exemption is applied to small and medium enterprises under the Restriction of Special Taxation Act.

Since the commencement of business by a housing construction and sales business operator is not formally determined on the basis of the date of business registration, etc., it is not a person subject to simple expense rate, but the plaintiff is not a person subject to the application of simple expense rate, and the plaintiff is not a person subject to special tax reduction or exemption due to

Article 143 of the Enforcement Decree of the Income Tax Act

Article 7 of the Restriction of Special Taxation Act: Special Tax Abatement or Exemption for Small or Medium Enterprises

Seoul Administrative Court 2018Guhap87651 Global Income and Revocation of Disposition

AA

BB Director of the Tax Office

July 26, 2019

September 6, 2019

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The imposition of global income tax of KRW 000 (including additional tax) on the Plaintiff on August 5, 2017 shall be revoked.

1. Details of the disposition;

A. On December 11, 2012, the Plaintiff completed business registration (50% of the Plaintiff’s share) under the Housing Construction and Sales Business Act (hereinafter “K”) with KK and the Plaintiff closed business on June 30, 2013.

B. On August 23, 2012, the Plaintiff and KK obtained a building permit to newly construct 8 households of multi-household houses (hereinafter “instant housing”) on the ground of 000 Ansan-si, Ansan-si, 00, and sold the same after obtaining approval for use on December 15, 2012.

C. When the Plaintiff filed a comprehensive income tax for the year 2013, the Plaintiff calculated estimated income by applying the “simplified expense rate” under the above provision, and applying the special tax reduction and exemption pursuant to Article 7(1) of the former Restriction of Special Taxation Act (amended by Presidential Decree No. 25193, Feb. 21, 2014; hereinafter the same) to a small and medium enterprise by applying the special tax reduction and exemption pursuant to Article 7(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 25193, Dec. 23, 2014; hereinafter the same) to the Plaintiff when the Plaintiff and KK leased the site of the instant house before the commencement of the tax year 2012, which was the taxable period immediately preceding the year 2013.

D. The director of the Seoul Regional Tax Office, upon conducting a personal consolidated investigation against the Plaintiff, notified the Defendant of taxation data to the effect that: (i) the Plaintiff is a new entrepreneur who commenced the business in 2013 when the sales revenue amount of the instant house occurred; (ii) the amount of income exceeds the standard amount under Articles 143(4)1 and 208(5)2 of the former Enforcement Decree of the Income Tax Act; (iii) the amount of income should be estimated by applying the standard expense rate rather than the simple expense rate; and (iv) the Plaintiff did not engage in the construction business; and (v) the tax data to the effect that the Plaintiff should be excluded from the special tax reduction

E. Accordingly, on August 5, 2017, the Defendant issued a correction and notification of KRW 000 of the global income tax (including additional tax) for the year 2013 to the Plaintiff (hereinafter “instant disposition”).

F. The Plaintiff, who was dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on April 6, 2018 on November 2, 2017, but the Tax Tribunal dismissed the appeal on September 4, 2018.

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 4, Eul evidence 6 (including branch numbers; hereinafter the same shall apply), Eul evidence 1, the purport of the whole pleadings

2. Relevant statutes;

It is as shown in the attached Form.

3. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) As to application of standard expense rate

The time of commencement of the Plaintiff’s business as a business operator who newly constructs and sells residential buildings shall not be the time of commencement of sale, but the time of commencement of the Plaintiff’s business shall be the time of commencement of construction of new construction after completing business registration, or the time of occurrence of income equivalent to the rent of this case by leasing the site

Even if not, since the business income taxation system of the Income Tax Act is considerably similar to the Corporate Tax Act, Article 6(5) of the Corporate Tax Act and Article 3 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 29529, Feb. 12, 2019) shall apply mutatis mutandis, the starting date of the business under the Income Tax Act shall be deemed the business registration date

"Therefore, the plaintiff, as well as the commencement of the new construction of the instant housing and the commencement of the business in 2012 in which the income equivalent to the instant rent was generated in the course of the new construction preparation. However, since the Plaintiff’s income in 2012 from the lease of the site of the instant housing does not exceed KRW 36 million, the Plaintiff constitutes “persons subject to the application of simple expense rate pursuant to Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act. Ultimately, the instant disposition to which the standard expense rate is applied to the Plaintiff on a different premise is unlawful,” and the special tax reduction and exemption related to

According to Article 7 (1) of the former Restriction of Special Taxation Act, the special tax amount of small and medium enterprises shall be reduced on income generated from a place of business that runs construction business

However, although the constructor of the instant housing is not the Plaintiff, but another constructor, it is merely merely borrowed the name of the construction company under the name of the Plaintiff, and in fact constructed the instant housing under the Plaintiff’s responsibility and supervision, the Plaintiff should be deemed to operate the construction business. Therefore, the instant disposition that excluded the above reduction or exemption provisions is unlawful.

B. Determination

1) Determination as to whether standard expense rate is applied

A) According to the former Income Tax Act (amended by Act No. 15225, Dec. 19, 2017; hereinafter the same), the proviso of Article 80(3) of the former Income Tax Act, and Article 143(3) of the former Enforcement Decree of the Income Tax Act, the amount of income shall be determined or corrected by deducting the amount of income from the amount of income, purchase cost, rent, labor cost, and income from the amount of income, by standard expense rate. However, for a person subject to simple expense rate, the amount of income shall be determined or corrected by deducting the amount of income from the amount of income by simple expense rate. "person subject to simple expense rate" means a person who newly starts a business in the pertinent taxable period, and the amount of income in the pertinent taxable period is less than 150 million won (including a residential building development and supply business), or a constructor (including a person subject to the aforementioned provision under Article 143(4)1 and Article 208(5)2(b) of the former Enforcement Decree of the Income Tax Act) without any special reason to apply mutatis mutandis Article 14(2) of the former Income Tax Act.

However, even based on the language and text of tax law itself, if its meaning is unclear, or if it appears that there is a conflict between laws and regulations, the court should naturally clarify the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations. In such cases, a judge can make a combined interpretation of the laws and regulations that consider legislative intent, purpose, etc. to the extent that it does not undermine legal stability and predictability pursued by the principle of no taxation without law (see, e.g., Supreme Court en banc Decision 2011Du551, Apr. 16, 2015).

B) In full view of the contents of the relevant statutes and the evidence and the purport of the entire pleadings, it is reasonable to view the Plaintiff’s business commencement date as 2013, the starting date of the instant house, not the time when the Plaintiff commenced the act of newly constructing the instant house at the time when the Plaintiff completed business registration or when the Plaintiff leased the site part of the instant house, and thereby generating income equivalent to the instant rent.

(1) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) stipulates that Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) stipulates that Article 143(2) of the former Enforcement Decree of the Income Tax Act applies simple expense expense to a business operator who newly starts a business in the pertinent taxable period, other than a business operator who starts a new business in the pertinent taxable period, with a view to preventing the reduction of income tax through simple expense application, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 21, 2010).

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income in the taxable period that begins after January 1, 2019, which was amended by Presidential Decree No. 28637, Feb. 13, 2018, provides that the standard expense rate shall be applied by excluding from the application of simple expense rate if the income amount in the taxable period concerned falls under the standard amount of double-entry bookkeeping, even if the total amount of income in the immediately preceding taxable period falls short of the standard amount, as well as the business operator (title 1)

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators who lack the capacity to keep records of the principal expenses required by the standard expense rate system, and the legislators seem to have gradually reduced the scope of business operators subject to the simple expense rate application. Furthermore, according to the text of the supplementary provision, legislators seem to understand the "construction commencement", "construction business, construction business, and commencement of real estate development and supply business" as a separate concept.

Therefore, considering these legislative intent, in the case of housing construction and sales business that operates a business for a long period exceeding a certain scale due to its characteristics, it is necessary to grasp the commencement date of the business as objective and practical time for the supply of housing subject to sale rather than the commencement date that can be determined according to the intention of the

(2) The commencement date of a business of the Housing Construction and Sales Business shall not be formally determined on the basis of the date of business registration, etc., but shall be substantially determined on the basis of the time when the preparation for the business was completed and when the business was in a state where the business was performed or is able to perform its original business (see Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial housing construction and sales business is included in real estate sales business due to its nature (see Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose is to sell housing ultimately.

(3) Whether the Plaintiff constitutes business income under the Income Tax Act ought to take into account whether business activities are continuously and repeatedly conducted in light of the business profit purpose, the scale, frequency, and mode of business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, there is no evidence suggesting that the Plaintiff had objectively expressed his intent to operate a housing construction and sales business for profit prior to commencement of the sale of the instant housing, and the fact that the Plaintiff commenced or completed the instant housing for profit-making purposes is difficult to deem that the instant housing was continuously and repeatedly conducted for profit-making purposes to constitute an objective substance of the Plaintiff as a new housing construction and sales business entity. Moreover, it is difficult to deem that the Plaintiff continuously and repeatedly conducted activities for profit-making purposes solely on the ground that the Plaintiff leased the instant housing site during the preparation process. In addition, in light of the business size, size, etc., it is doubtful whether the instant housing revenue stamp claimed by the Plaintiff was actually leased to the Plaintiff.

C) Furthermore, according to the purport of Eul evidence No. 1 and the entire pleadings, it is recognized that the reported amount of revenue by the plaintiff related to the housing of this case is 000,000, and according to this, it is apparent that the plaintiff, as a business operator newly commenced a business in 2013, which is the starting point of the sale of the housing of this case, does not fall short of the standard amount of 150,000,000 won. Accordingly, the plaintiff does not fall under the simplified expense rate of Article 143(

D) Therefore, the Plaintiff’s assertion on this part is without merit.

2) Determination on whether to grant special tax reduction or exemption

A) Articles 2(3), 7(1)1(g) and 7(2)2 of the former Restriction of Special Taxation Act provide that an amount equivalent to the tax amount calculated by multiplying the income tax on income generated from the relevant workplace by 20/10 shall be reduced or exempted for a company running a construction business among small and medium enterprises, and the classification of the type of business used in the relevant Act shall be in accordance with the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article

However, according to the former Korean Standard Industrial Classification (amended by the Statistics Korea Notice No. 2015-311, Sept. 24, 2015; hereinafter the same), “Housing Construction Business (Classification Code 4111)”, which applies in the instant disposition-related global income tax taxable period, refers to the industrial activities of constructing residential buildings, such as exclusive and multi-households, apartment houses, and apartment houses. On the other hand, the industrial activities of selling and selling real estate and rental housing, which fall under the three categories of “Real Estate Business and Rental Business” (Classification No. 68121), are classified as “Real Estate Development and Supply Business (Classification Code 68121).

B) The above provisions are as follows, comprehensively taking into account the following circumstances, which are acknowledged as Gap's evidence Nos. 3, 7 through 11, Eul evidence Nos. 3 and Eul evidence Nos. 3, and the overall purport of arguments, i.e., construction contractor's entry into the building ledger of the housing of this case, ② the plaintiff is not holding a construction business license, ② the plaintiff is not holding any other construction business license, and there is no specific data to deem that the plaintiff has human resources, physical facilities, or ability to construct the housing of this case under the overall responsibility. ③ According to the report on the performance of withholding tax submitted by the plaintiff, the report on the payment of daily income, etc. (Evidence Nos. 7 through 11) of daily workers, it is recognized that the plaintiff paid some expenses for daily workers, but the amount is not significantly less than the revenue amount of the housing of this case. Considering that the business operated by the plaintiff related to the new construction and sale of the housing of this case falls under the category of "real estate business and the housing supply business" corresponding to "special tax reduction and exemption" under the former Special Taxation Act.

C) Therefore, the Plaintiff’s assertion on this part is without merit.

3) Sub-decisions

The instant disposition, which took place by deeming the Plaintiff as a new business operator who started a business in 2013 and calculated the amount of income in 2013 by means of estimation based on standard expense rate, and excludes special tax reduction and exemption for small and medium enterprises, is eventually lawful.

4. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.