Cho Jae-2016 Jeon-631,632 (2016.02)

In the case of a transaction which is a single transaction, it can be taxed according to the substance if it constitutes a disguised act.

The form of transaction chosen by a taxpayer shall not be denied without permission, but where there are special circumstances to regard it as a disguised act, it may be taxed pursuant to Article 14 of the Framework Act on National Taxes.

Article 14 (Real Taxation)

2016-Gu short-8160 Revocation of Disposition of Imposing capital gains tax

AA and 1

o Head of the tax office

2017.04.26

2017.05.31

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

The Defendant’s imposition of KRW 00,000,000 on Plaintiff AA on August 18, 2015, and the imposition of KRW 201* (00,000,000) on Plaintiff BB on August 19, 2015, respectively, shall be revoked.

1. Details of the disposition;

A. The plaintiffs and the non-party CCC acquired as a gift a lot of land of 00 -00 - 00 - 00 - 00 - from Non-party DD, which was put on June 14, 2004.

B. On August 23, 2012, the Plaintiffs and the CCC reported and paid the transfer income tax according to the standard market price by deeming that the actual transaction price cannot be confirmed after the exchange was made.

C. On December 9, 2014, the Plaintiffs transferred the land No. 1 to F Co., Ltd. F (hereinafter “Non-Party Company”), and reported and paid each transfer income tax of KRW 1,023,50,000 on the actual transaction value, and KRW 861,619,898 on the ground that the conversion acquisition value cannot be confirmed at the time of exchange, deeming that the conversion acquisition value cannot be confirmed at the time of exchange, Plaintiff AA reported and paid each transfer income tax of KRW 18,975,650 and KRW 13,203,470 on February 3, 2015.

D. After conducting a field investigation of capital gains tax from October 0, 2015 to October 0, 2015, the head of a tax office: (a) deemed that the instant exchange transaction between the Plaintiffs and CCC constitutes a fictitious act; and (b) notified the Defendant to impose capital gains tax by deeming that the instant exchange transaction between the Plaintiffs and CCC constitutes a direct transfer transaction; and (c) accordingly, the Defendant notified the Plaintiffs of each of the capital gains tax as indicated in the purport of the claim (hereinafter “each of the instant dispositions”).

E. The Plaintiffs appealed and filed their respective appeals with the Tax Tribunal, but all of the appeals were dismissed on May 2, 2016.

[Ground of recognition] No dispute, entry in Gap 1 through 3, Eul 1 and two (including each number), the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiffs' assertion

In the process of Nonparty DD’s donation of land to three children by equally dividing the land owned by Nonparty DD to the maximum extent possible, the land donated to each donee is located or its form is not consistent. Since then, the Plaintiffs and CCC exchanged the land of this case and the land of this case, the value of which is the same as that of the area, thereby bringing about the result that the form of land is arranged in a rectangular form by each owner.

Although this exchange transaction is a real transaction made for a reasonable purpose to increase the utility of land and the utility value to the maximum extent possible, the defendant regarded the exchange transaction as the most recent transaction and made each disposition of this case in accordance with the substance over form principle under Article 14(3) of the Framework Act on National Taxes.

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) The non-party CCC acquired the land of 000 Gun/Eup 000 from DD on June 14, 2004 as gift from Plaintiff BB’s punishment was due to Plaintiff BB’s error, and traded the instant exchange transaction as seen earlier on August 23, 2012.

2) 위 교환 거래로 인하여 이 사건 제1토지는 CCC의 소유였다가 원고들의 토지로, 이 사건 제2토지는 원고들의 토지였다가 CCC의 소유로 변경되었는데, 위 교환 당시 개별공시지가를 살펴보면 이 사건 제1토지는 16,500원(㎡당)으로 교환면적 6,770㎡을 곱하면 111,705,000원 정도로 평가되고, 이 사건 제2토지(4필지)는 43,100원〜44,700원으로 교환면적 6,770㎡을 곱하면 301,079,800원 정도로 평가된다.

3) After the instant exchange transaction, CCC transferred the instant land to EE on October 29, 2013. The Plaintiffs transferred the instant land to Nonparty Company on December 9, 2014, and the transfer value was determined by multiplying 50,000 won per square day by the size. EE is a specially related person holding 35% of the company’s shares and holding 50% of the company’s shares (15%) in combination with the company’s shares (15%).

4) After the exchange transaction, the Plaintiffs reported and paid the transfer income tax on the land No. 1 of this case by deeming that the actual transaction price cannot be confirmed, while the Plaintiff reported and paid the transfer income tax on the land No. 1 of this case at the standard market price, considering that the actual transaction price cannot be confirmed at the time of exchange after the transfer of the land No. 1 of this case

5) The Plaintiffs and the CCC transferred the land exchanged for the instant exchange transaction to EE or the non-party company as it is at the time of exchange without carrying out administrative and legal procedures for the development of the land.

6) Meanwhile, in order to reduce the transfer income tax on the land No. 2 of this case, the CCC demanded the EE to prepare a certificate of approval in proportion to the transfer value at will, and then the actual contract was abolished. CCC demanded the Plaintiff AA, etc. first of all the instant exchange transaction, and currently is in arrears with a large amount of national taxes to be paid to emigrants.

7) On August 18, 2015, the Defendant planned to transfer the exchanged land between the Plaintiffs and CCC to a third party at the close time, and adjusted the best acquisition price and acquisition time, thereby constituting an act of pretending to reduce capital gains tax unfairly. On August 18, 2015, the Defendant issued each of the instant dispositions imposing capital gains tax of KRW 136,266,50 to Plaintiff AA for the year 2013, and KRW 149,301,850 for the capital gains tax of August 19, 2015 to Plaintiff BB for the year 2013.

[Reasons for Recognition] Further to the evidence mentioned above, Eul 3-5's statements and the purport of the whole argument

D. Determination

1) A taxpayer may choose one of the several legal relations in order to achieve the same economic purpose in carrying out economic activities. Thus, solely on the ground that a taxpayer engaged in an intermediate transaction, which is an economic transaction to reduce the tax burden, the form of transaction chosen by the taxpayer cannot be readily denied without permission. However, in extenuating circumstances where it can be deemed that an act constitutes the most active act, it shall be deemed that a taxpayer may be taxed based on the substance hidden thereafter, excluding the most active act that does not have the meaning of taxation (see Supreme Court Decision 2013Du15583, Dec. 26, 2013).

2) In light of the above legal principles, the Defendant’s respective dispositions on the grounds that the instant exchange transaction between the Plaintiffs and CCC constitutes the fictitious act to avoid capital gains tax, comprehensively taking account of the facts acknowledged earlier, and the following circumstances revealed by the evidence revealed as to the instant case.

○ In order to reduce the transfer income tax, the instant exchange transaction was conducted between the persons with the history of false sales contract and the residents with a large amount of national tax in arrears at the request of the CCC, and the Plaintiffs and CCC entered into an exchange contract in the form of simple exchange without stating the actual transaction price.

In particular, the Plaintiffs and the CCC prepared a simple exchange contract for the land subject to the exchange without any separate assessment at the time of the instant exchange transaction, and completed the exchange registration. Although the size of the land subject to the exchange is identical, even according to the Plaintiffs’ assertion, the attached DD donated the land to their children fairly owned, which is contrary to the intent of the above puts, and the Plaintiffs exchanged the land subject to the exchange without any assessment or settlement of approximately three times the officially assessed individual land price differs from that of the above puts. This is an exceptional transaction that cannot be generally seen as a private person’s transaction.

Although the plaintiffs and the CCC have a difference of about one year in the time of transfer, the transferor counterpart is a non-party, who actually controls the EE and his spouse as a share of at least 50%, and is practically the same economic entity, and the transfer value was calculated by multiplying the area by the area based on approximately KRW 500,000 per square year.

The Plaintiffs and the CCC immediately reported the transfer value on the basis of the base value without examining the appraisal value, etc., even though multiple collateral security was established on the land at the time of the exchange, and on the grounds that the actual transaction value cannot be verified at the time of the exchange after transferring the land to a third party, the Plaintiff and the CCC reported the transfer income tax differently from the transfer value of the previous transaction to be the same at the time of the exchange.

As seen earlier, the Plaintiffs and CCC transferred the instant land Nos. 1 and 2 to a real estate development company or its representative without carrying out the development activities of the exchanged land, as they were at the time of the exchange. Furthermore, in addition to the circumstances where only capital gains tax and various transaction costs are incurred due to the exchange transaction in this case, it is difficult to deem that there is a clear reason to conduct the exchange transaction in this case except for the reduction of capital gains tax. The Plaintiffs’ assertion that the exchange transaction in this case was a genuine transaction to enhance the utility and utility of land by keeping the shape of the land at a fixed time is difficult to accept.

If ○○ recognized the exchange transaction of this case as it is, the transfer income tax is considerably reduced compared to the transfer without exchange due to the increase in the standard market price by simple exchange and the conversion price by which the acquisition value becomes the acquisition value. In fact, the Plaintiffs considered the effect of reducing the transfer income tax of approximately KRW 70 million for each party, and KRW 200 million for CCC.

○ Meanwhile, as long as the exchange transaction in this case is deemed the most likely act, the application of Article 14(3) of the Framework Act on National Taxes does not need to be separately determined (see Supreme Court Decision 2013Du15583, supra). However, even if the exchange transaction in this case is not the most likely act as alleged by the Plaintiffs, in light of the overall circumstances as seen earlier, the above exchange transaction constitutes a case where it is deemed to be aimed at unfairly receiving benefits from capital gains tax reduction or exemption, and thus, the Defendant may impose tax on the transfer of the instant land No. 1 in accordance with the economic substance of Article 14(2) of the Framework Act on National Taxes by deeming the transfer of the instant land as a direct transaction between the Plaintiffs and the non-party company.

3) Therefore, the Plaintiffs’ assertion cannot be accepted, and each of the instant dispositions by the Defendant is lawful.

3. Conclusion

All of the plaintiffs' claims are dismissed. It is so decided as per Disposition.