[1] Purport of the proviso of Article 69(1) of the former Restriction of Special Taxation Act

[2] In cases where farmland is incorporated into a residential area, etc. under the National Land Planning and Utilization Act and has been designated as a land reserved for replotting other than farmland pursuant to the Urban Development Act, etc., the time when restriction on exemption from capital gains tax under the proviso of Article 69(1) of the former Restriction of Special Taxation Act applies (=the date incorporated into a residential area, etc. and the

[3] The case holding that in a case where Gap's own farmland for not less than 8 years has been incorporated into an industrial area under the National Land Planning and Utilization Act, and then Gap filed a request for correction to refund capital gains tax excessively paid as of the date of designation of land scheduled for substitution after transferring the land and filing a return of capital gains tax on the basis of the date of incorporation into an industrial area pursuant to the Urban Development Act, etc., but the above land can be exempted from capital gains tax pursuant to the proviso of Article 69 (1) of the former Restriction of Special Taxation Act only for the portion arising until the date of incorporation into an industrial area

[1] Restricting the scope of exemption from capital gains tax pursuant to the main sentence of Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 13560, Dec. 15, 2015) is because, after farmland was incorporated into a residential area, etc. or designated as a reserved land for replotting, it does not need to grant a benefit of exemption from capital gains tax as farmland even to that part, since it begins with the development gains accrued after the farmland was designated as a reserved land for replotting

[2] In light of the language of the proviso of Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 13560, Dec. 15, 2015; hereinafter “former Special Taxation Act”), the scope of exemption from capital gains tax can be deemed limited if only one of the requirements of incorporation into a residential area, etc. and designation of land to be reserved for replotting is satisfied. In addition, in cases where farmland has been designated as a land to be reserved for replotting under the Urban Development Act, etc. successively after being incorporated into a residential area, etc. under the National Land Planning and Utilization Act (hereinafter “National Land Planning Act”), it is actually treated as land other than farmland and traded since it has already been incorporated into a residential area, etc., the land is not subject to exemption from capital gains tax, etc. In such cases, the “residential area, etc.” means only a residential area, commercial area, and industrial area. Meanwhile, since farmland was incorporated into a green area under the National Land Planning Act and obtained the designation of land to be reserved for replotting under the former Urban Development Act, the proviso to Article 9(1) of the National Land Planning Act is not applied.

[3] In a case where Party A, who had been self-employed for not less than eight years, was incorporated into an industrial area pursuant to the National Land Planning and Utilization Act, and then reported capital gains tax on the date of the transfer of the land other than the farmland and then filed a request for correction as of the date of the designation of the land scheduled for substitution, but was subjected to a disposition of rejection, the case holding that the court below erred by misapprehending the legal principles that deemed that capital gains tax exemption was unlawful on the capital gains accrued until the date of the designation of the land scheduled for substitution was exempted, on the ground that the said land was already incorporated into an industrial area prior to the designation of the land scheduled for substitution, and that the said land was already incorporated into an industrial area prior to the date of the designation of the land scheduled for substitution, pursuant to the proviso to Article 69 (1) of the former Restriction of Special Taxation Act (amended by Act No. 13560, Dec. 15, 20

[1] Article 69(1) of the former Restriction of Special Taxation Act (Amended by Act No. 13560, Dec. 15, 2015) / [2] Article 69(1) of the former Restriction of Special Taxation Act (Amended by Act No. 13560, Dec. 15, 2015) / [3] Article 69(1) of the former Restriction of Special Taxation Act (Amended by Act No. 13560, Dec. 15, 2015)

Plaintiff (Law Firm New, Attorneys Jeong Young-young et al., Counsel for plaintiff-appellant)

Daejeon Head of the District Tax Office

Daejeon High Court Decision 2016Nu11542 decided October 7, 2016

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined.

1. Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 13560, Dec. 15, 2015; hereinafter “former Special Taxation Act”) provides that income accruing from the transfer of land directly cultivated by a person who resides in a location of farmland for not less than eight years shall be exempted from capital gains tax in full. In the proviso thereof, where the relevant land is incorporated into a residential area, commercial area, and industrial area under the National Land Planning and Utilization Act (hereinafter “National Land Planning Act”) or has been designated as a land reserved for replotting other than farmland prior to a replotting disposition pursuant to the Urban Development Act or other Acts (hereinafter “Urban Development Act, etc.”), only the income accrued until the date of incorporation into a residential area, etc. or of obtaining the designation as a reserved land for replotting as prescribed by the Presidential Decree shall be exempted from capital gains tax.

As can be seen, limiting the scope of exemption from capital gains tax under the proviso of Article 69(1) of the former Special Provision on Article 69(1) of the same Act is because, after farmland was incorporated into a residential area, etc. or was designated as a reserved land for replotting, no benefit from capital gains tax shall be granted to the portion of farmland as farmland, since the development gains accrued after the designation of a reserved land for replotting begins in an economic value aspect. Thus, if only one of the conditions of incorporation into a residential area, etc. and the designation of a reserved land for replotting is met, the scope of exemption from capital gains tax can be limited. In addition, in cases where farmland was incorporated into a residential area, etc. under the proviso of Article 69(1) of the former Special Provision on Article 69(1) of the same Act in order after it was incorporated into a residential area, etc. under the National Land Planning and Utilization Act, it is reasonable to view that it is subject to exemption from capital gains tax for the transfer income tax that occurred before it was incorporated into a reserved land for replotting, etc.

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

A. On April 23, 1990, the Plaintiff completed the registration of ownership transfer with respect to the area of 523 square meters in the name of the Plaintiff, and on August 7, 2003, on the said land, the Plaintiff combined and registered the ( Address 2 omitted) 67 square meters in the name of the Plaintiff, a neighboring farmland owned by the Plaintiff. On August 7, 2003, the amount of 104 square meters, out of the 590 square meters in the Daejeon Seodong-gu ( Address 1 omitted), Daejeon-gu ( Address 3 omitted), divided into the area of 104 square meters in the name of August 1, 2013 and divided into 486 square meters in the area of 59 square meters in the name of the Plaintiff (hereinafter “instant land”).

B. On July 21, 2009, the Minister of Science, ICT and Future Planning publicly announced a development plan for the Daejeon-dong Special Research and Development Zone 2-level ○○ District with the content that the land of this case, including the instant land, is to be developed by the method of project implementation by a replotting method by the landowner according to the Special Act on the Promotion of the Seoul Special Research and Development Zone, etc. (amended by Act No. 11232, Jan. 26, 2012; hereinafter “former Special Research and Development Zone Act”).

C. On December 28, 201, Article 27(1) of the former Special Research and Development Zone Act, the Daejeon Metropolitan City Mayor published the approval of the implementation plan for the development project at the second stage of Taeduk Special Research and Development Zone (○○ District). Accordingly, the instant land was incorporated into the Daejeon Metropolitan City industrial area under the National Land Planning and Utilization Act.

D. On October 25, 2012, the head of the Daejeon Metropolitan City basin head: (a) on October 25, 2012, the head of the ○○ District Development Project Association (“○○○ District Development Project Association”) issued a report of designation of land substitution and a statement of designation of land substitution to its members on November 1, 2012; and (b) accordingly, the land substitution land of this case was 229.9 square meters.

E. On June 21, 2013, the head of the Daejeon Metropolitan City basin head announced the designation of the land scheduled for substitution at the second stage of Taeduk Special Research and Development Zone (○○ District) (the date the effectiveness thereof takes effect) on the day of the announcement, and the land scheduled for substitution in the instant case was designated in the same manner as the aforementioned

F. On September 5, 2014, the Plaintiff completed the registration of ownership transfer for the instant land on the ground of sale on September 1, 2014, to Busan L&A Co., Ltd., and on September 26, 2014, the Plaintiff calculated the tax amount reduced or exempted as KRW 29,858,108 on the basis of the date the instant land was incorporated into a residential area, etc., and reported the transfer income tax to the Defendant.

G. On December 31, 2014, the Plaintiff filed a claim for correction to refund the excessive capital gains tax of 14,105,972 won on the ground that the amount of reduced or exempted tax should be calculated as KRW 43,964,080 on the basis of the date of designation of the land scheduled for replotting as to the instant land, but the Defendant rejected the claim on February 25, 2015.

3. Examining these facts in light of the legal principles as seen earlier, given that the instant land was already incorporated into an industrial area under the National Land Planning Act on December 28, 201 prior to being designated as a land scheduled for replotting other than farmland pursuant to the Urban Development Act, etc. on June 21, 2013, prior to being designated as a land scheduled for replotting other than farmland, it should be deemed that only the portion incurred until December 28, 201, which is the date of incorporation of the Plaintiff’s capital gains of the instant land, among the capital gains of the Plaintiff’s transfer of the instant land, can be deemed eligible for exemption

Nevertheless, solely for the reasons indicated in its holding, the lower court determined that the instant disposition was unlawful by deeming that capital gains tax was exempted on the capital gains accrued until June 21, 2013, which was the date of the designation of the land scheduled for substitution of land as to the instant land. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of application under the proviso of Article 69(1)

4. 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 Kim Yong-deok (Presiding Justice)