[1] Whether Article 104 (1) 2-7 of the former Income Tax Act, which provides for the application of 60% of the transfer income tax base to non-business land, violates the excessive prohibition principle, thereby infringing on property rights or violating the principle of no taxation without law (negative)

[2] Whether Article 3 of the Addenda of the Income Tax Act (amended by December 31, 2005) provides that the former Income Tax Act, which prescribes the transfer of land after the enforcement of the former Income Tax Act, shall apply to gains from the acquisition of non-business land before the enforcement of the Income Tax Act, shall be in violation of the principle of trust protection or the principle of excessive prohibition (negative)

[3] Whether Article 168-8 (5) 1(a) of the former Enforcement Decree of the Income Tax Act provides that the scope of farmland excluded from self-employed land among farmland acquired by its owner before being transferred to an urban area and transferred to its owner after being transferred to an urban area is against the principle of excessive prohibition or the principle of no taxation without law (negative)

[1] The legislative purpose of the capital gains tax system for non-business land under Article 104(1)2-7 of the former Income Tax Act (amended by Act No. 8825, Dec. 31, 2007; hereinafter the same applies) is to restrain speculative demand for land by classifying land for non-business use as non-business use without using it for productive purpose according to its actual demand and by classifying it as non-business use. The capital gains tax rate imposed pursuant to the aggravated tax rate is 60% of the capital gains tax base for the purpose of suppressing real estate speculation, which is 60% of the capital gains tax base, and it is difficult to view that the capital gains tax rate is more than 70% of the capital gains tax base in light of the legislative purpose of the Act, which is to promote the balanced development of the land for non-business use, and thus, it is difficult to view that the capital gains tax rate is more than 60% of the capital gains tax base for the purpose of protecting the public interest by seriously restricting the property value of the land.

[2] Article 3 of the Addenda of the Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same) provides that the former Income Tax Act shall apply to the land that was transferred after the enforcement of the former Income Tax Act, which had already been transferred before the enforcement of the Income Tax Act (amended by Act No. 8825, Dec. 31, 2007; hereinafter the same), and for which the taxation requirements have already been completed, not to allow the former Income Tax Act to apply the former Income Tax Act to the land that was transferred after the enforcement of the Income Tax Act. Therefore, the former Income Tax Act provides that the tax rate of the former Income Tax Act, which was not known at the time of the acquisition of the land for non-business, shall not be deemed to be a retroactive legislation. Furthermore, if the former Income Tax Act provides that the period of its enforcement, such as Article 104(1)2-7 (hereinafter referred to as the “instant aggravated tax rate provision”) shall be more reliable than the enforcement period of the former Income Tax Act, which would not have any need to be applied more flexibly or more in the current tax development.

[3] Article 104-3 (1) 1 (b) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) provides that “The provisions of the Enforcement Decree of this case” under the proviso of Article 168-8 (5) 1 (b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008) shall be one of the “farmland the owner of which resides in a location of such farmland and cultivated himself/herself” as one of the above provisions under the proviso of Article 168-8 (1) 1 (b) of the former Enforcement Decree of the Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) provides that “any farmland which was re-established for a period of not less than one year retroactively from the date of incorporation into an urban area under the main sentence of Article 104-3 (1) 1 (b) of the Act, which could not be reasonably known to the extent of land subject to be converted to an urban area.

[1] Article 104 (1) 2-3 (see current Article 104 (1) 4), Article 2-7 (see current Article 104 (1) 8), and Article 104 (1) 3 (see current Article 104 (1) 10) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) / [2] Article 104 (1) 2-7 (see current Article 104 (1) 8), Article 1 and Article 3 of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) / [3] Article 104 (1) 2-7 (see current Article 104 (1) 8), Article 1 and Article 104 (3) of the former Income Tax Act (amended by Act No. 825 of Dec. 31, 2005), Article 208 (1)

[1] Constitutional Court en banc Order 201Hun-Ba357 Decided July 26, 2012 (Hun-Ba190, 1367) (Hun-Ba190, 1367) / [2] Constitutional Court en banc Order 2009Hun-Ba67 Decided October 28, 2010 (Hun-Ba169, 1871)

Plaintiff 1 and one other (Law Firm Sejong, Attorney Kim Ba-young, Counsel for the plaintiff-appellant)

Head of Seogsan Tax Office

Busan High Court Decision 2010Nu1873 decided July 14, 2010

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. Of the transfer income tax on non-business land under Article 104(1)2-7 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005 and amended by Act No. 8825 of Dec. 31, 2007; hereinafter the same) (hereinafter “instant aggravated tax rate clause”), the legislative purpose of the Act is to reduce speculative demand on land by classifying the land as non-business land and reserving it as a means of property increase without using it for a productive purpose according to the actual demand.

The transfer income tax rate imposed pursuant to the instant aggravated tax rate provision is 60% of the tax base of capital gains tax, which is the 60% of the transfer income tax, and this is not high compared with the application of the transfer income tax base to three or more houses or more by one household in order to restrain speculation in this real estate under Article 104(1)2-3 of the former Income Tax Act. In the case of unregistered transferred assets under Article 104(3) of the same Act, the transfer income tax rate is 70% of the transfer income tax base. Moreover, inasmuch as the transfer income tax on real estate is imposed on the basis of its capital gains, it is difficult to view that the said rate is significantly limited to an individual’s freedom of disposal of property even if the said rate is higher than 60% of the said capital gains tax base. On the other hand, the public interest pursuing the instant aggravated tax rate provision is aimed at stabilizing the price of land by suppressing speculative demand for land, thereby promoting the sound development of the national economy and ensuring the public interest, and thus infringing on the legislative purpose of this case.

The judgment of the court below that judged the illegality of the instant disposition by applying the instant aggravated tax rate provision on the premise that the instant aggravated tax rate provision is consistent with the Constitution, shall not be deemed to have erred by misapprehending the legal principles on the unconstitutionality of the instant aggravated tax rate provision, or by omitting judgment, thereby adversely affecting the conclusion of the judgment.

B. Meanwhile, the main text of Article 95(2) of the former Income Tax Act provides for the exclusion of the application to non-business land, etc. among the assets subject to the special long-term holding deduction for the holding period of at least three years under each subparagraph of Article 95(2) of the same Act (hereinafter “special long-term holding deduction provision”).

However, in the instant case where the Plaintiffs owned the instant land for a period of less than three years, which is the minimum period for which the special long-term holding deduction can be applied, and transferred to a third party, the instant land does not fall under the assets for more than three years as prescribed by each subparagraph of Article 95(2) of the former Income Tax Act, and thus, the special long-term holding deduction cannot be applied to the transfer of the instant land, and the instant provision excluding the special long-term holding deduction is not a provision that forms the basis for the instant disposition. Therefore, the allegation in the grounds of appeal disputing the unconstitutionality of the provision excluding the special long-term holding deduction is related to the illegality of the instant disposition or any matters

2. Regarding ground of appeal No. 2

A. Even in cases where the relevant statute is amended, barring any other provision in the transitional provision, an administrative disposition is based on the amended law that enters into force at the time of the disposition and the standards set thereon. Even in cases where the amended law provides the legal effect that is more unfavorable than the previous one in relation to the property rights of the people with respect to the existing facts or legal relations subject to the application of the amended law, such fact or legal relations cannot be deemed as a violation of property rights by retroactive legislation prohibited under the Constitution unless it has been completed or terminated before the amended law enters into force, and in relation to the application of such amended law, there is room to place restrictions on the application of the amended law in order to protect the public trust in cases where the public trust in the continuation of the statute prior to the amendment is deemed more worthy of protection than the public interest demand for the application of the amended law. On the other hand, in order to determine the violation of the principle of trust protection, on the other hand, the purpose of realizing the statute through the amendment should be compared and balanced comprehensively (see, e.g., Supreme Court en banc Decision 200239Du93939, Nov. 29, 2009.

B. Article 1 of the Addenda of the former Income Tax Act provides, “This Act shall enter into force on January 1, 2006, and the amended provisions on the instant aggravated tax rate provisions shall enter into force on January 1, 2007,” and Article 3 of the Addenda of this Act (hereinafter “instant supplementary provisions”) provides, “The amended provisions on capital gains tax in this Act shall apply from the transfer after this Act enters into force.”

This case’s supplementary provision on capital gains tax, which is a tax on income accrued from the transfer of assets, does not require that the former Income Tax Act be applied retroactively to the land that was already transferred before the enforcement of the former Income Tax Act and for which the taxation requirement is completed, and thus, the former Income Tax Act shall not apply retroactively to the land that was transferred after the enforcement of the former Income Tax Act. Therefore, the former Income Tax Act requires the application of the former Income Tax Act to the land that was not known at the time of the acquisition of the land. Furthermore, the former Income Tax Act has a grace period that can avoid the application of the instant aggravated tax rate provisions by late one year compared to the enforcement date of the former Income Tax Act. In the field of the tax law, since the State’s legislation and system on taxation has no choice but to change flexibly and reasonably, it cannot be expected or trusted that the current tax rate is maintained in the future, barring special circumstances (see, e.g., Constitutional Court en banc Decision 2009Hun-Ba67, Oct. 28, 2010).

The court below held that the supplementary provision of this case is inconsistent with the Constitution since it does not violate the principle of trust protection, and judged the illegality of the disposition of this case by applying the aggravated tax rate provision pursuant to the supplementary provision of this case is based on such legal principles, and there is no error of law by misunderstanding the legal principles on the unconstitutionality of the supplementary provision of this case, as otherwise alleged in the

3. As to the third ground for appeal

Article 104-3 (1) 1 (b) of the former Income Tax Act provides that "any farmland in an urban area (excluding any area prescribed by Presidential Decree; hereafter the same shall apply in this subparagraph) under the National Land Planning and Utilization Act among the Special Metropolitan City, Metropolitan Cities (excluding any Gun located in a Metropolitan City; hereafter the same shall apply in this Article) and Si areas (excluding any Eup/Myeon area in a Si in the urban and rural complex form under the provisions of Article 3 (4) of the Local Autonomy Act; hereafter the same shall apply in this Article)" as one of the land falling under the main sentence of Article 104-3 (1) 1 (b) of the former Income Tax Act, and the proviso of the proviso provides that "if the farmland which the owner has resided in a location and cultivated and has been incorporated into the urban areas of the Special Metropolitan City, Metropolitan City, or

The proviso of sub-paragraph (b) of the above sub-paragraph (b) provides that in the event that farmland owned by the owner residing in the location of the farmland was incorporated into an urban area under the main sentence of sub-paragraph (b) above (hereinafter referred to as "urban area") due to the change of the special-purpose area, and disposes of the farmland within a certain period from the date of incorporation, the farmland owner shall not be subject to unexpected disadvantages due to the change of the special-purpose area by excluding from the land for non-business, and the owner shall not exclude from the land for non-business, and shall delegate the specific scope

Article 168-8 (5) 1 (b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008) enacted by delegation (hereinafter “the Enforcement Decree provision of this case”) provides that “The farmland which the owner has resided in the location of the farmland and cultivated by himself/herself” as one of the cases falling under the proviso of Article 168-8 (5) 1 (b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008) provides that “The farmland which was cultivated by himself/herself at least one year retroactively from

The enforcement decree of this case is interpreted to the effect that farmland owners acquired and possessed farmland regardless of speculative transactions, in a village of not less than one year retroactively from the date of incorporation into an urban area, in view of the fact that the possibility of alteration of a special-purpose area is known through procedures such as drafting an urban management plan modification, public announcement of a proposal for alteration of an urban management plan, hearing opinions of residents, etc. (see Article 22 of the Enforcement Decree of the National Land Planning and Utilization Act), and transfer margin on the land belonging to the relevant area can be formed in the course of land subject to alteration of a special-purpose area. This is to prevent farmland owners from unexpected disadvantages due to alteration of a special-purpose area and to curb speculative transactions on farmland subject to alteration of a special-purpose area, it can be deemed that the period and time of reference set reasonably set for the farmland owner’s use, which may be excluded from a non-business land in consideration of various circumstances, such as the current status of use of farmland incorporated into an urban area, possibility of speculative transactions, period of prior outflow of information on alteration

Therefore, the provision of the Enforcement Decree of this case was acquired before being transferred to an urban area, and re-established the scope of farmland that can be excluded from non-business land among farmland acquired by being transferred to an urban area and transferred to another city after being incorporated into an urban area as above cannot be deemed as violating the principle of excessive prohibition or the principle of no taxation without law

Based on the premise that the provisions of the Enforcement Decree of this case are consistent with the Constitution and the former Income Tax Act, the court below held that the land of this case cannot be excluded from non-business land because the ownership period before being transferred to the urban area does not fall short of one year, since the land of this case was incorporated into the urban area on November 15, 2006, even though the plaintiffs did not own the land again from the acquisition date of December 6, 2005 to the transfer date of the land of this case, the court below did not err in the misapprehension of legal principles as to the unconstitutionality and illegality of the Enforcement Decree of this case or the scope of non-business land, as otherwise alleged in the ground of appeal.

4. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Shin Young-chul (Presiding Justice)