Seoul Administrative Court-2013-Gu Partnership-61845 ( November 19, 2015)

Disposition of income as dividends from interest paid on borrowings from the head office of a foreign corporation in excess of six times the amount invested in the head office of the foreign corporation;

In full view of the structure and contents of the Korea-U.S. Tax Treaty and the provisions of the Korean Corporate Tax Act, interest paid on borrowings from the head office exceeding six times the amount invested by the head office of a foreign corporation shall be deemed dividends

Article 8 of the Framework Act on National Taxes

2017Guhap82901 Attachments and lawsuits confirming the invalidity of the disposition of imposition of capital gains tax

AA

BB Director of the Tax Office

July 13, 2018

August 24, 2018

1. Of the instant lawsuit, the part of the instant lawsuit seeking confirmation of each of the attachment dispositions rendered by the Defendant against the Plaintiff on June 17, 2013 regarding the attachment of a building listed in attached Table 1 List No. 1, CC Bank deposit refund claims and the attachment of the deposit refund claims by II Bank as of June 19, 2014, CC Bank’s attachment of a building listed in attached Table No. 2 as of December 30, 2014, and 200 deposit withdrawal claims by the Seoul Central District Court as of July 21, 2014 is dismissed.

2. The plaintiff's remaining claims are dismissed.

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

1. On June 17, 2013, the Defendant’s attachment disposition against the Plaintiff on the attached Table 1’s attached Table 1’s attached Table 1’s attached disposition, on June 19, 2014’s deposit refund claim and the attached disposition on the attached list II bank’s deposit refund claim, on December 30, 2014’s attached Table 1’s attached attachment disposition, on July 21, 2014, on the Plaintiff’s claim for deposit withdrawal deposit payment amount, and on the attached list 1’s attached list’s attached disposition, the Seoul Central District Court’s 2012Hun-Ba000,000 each becomes invalid).

2. The Defendant confirmed that the imposition of capital gains tax of KRW 61,789,440 (including additional tax) imposed on the Plaintiff on June 1, 2013 is null and void.

1. Details of the disposition;

A. On April 6, 2004, the Plaintiff acquired an OOO-O-O large 172.6 square meters (hereinafter “the instant land”) and a building listed in attached Table 1 List 1 (hereinafter “the building before the destruction”) on the instant land, and resided in the building before the destruction and removal, and moved to a foreign country on April 24, 2009. However, on October 9, 2010, DDD, the Plaintiff’s leakage, entered into a construction contract with EE Construction Co., Ltd. and the instant land to newly construct neighborhood living facilities and detached houses on the instant land. The EE Construction Co., Ltd completed the building listed in attached Table 1 List 2 (hereinafter “the instant building”).

C. The instant land was sold to FF and GGG on September 20, 2012 at the auction procedure (Seoul Central District Court No. 2012ta, 5781) with respect to the instant land as requested by EE Construction Co., Ltd.

D. Defendant 2) imposed capital gains tax of KRW 61,789,440 (including additional tax) on June 1, 2013 on the Plaintiff on the ground that the Plaintiff did not report capital gains tax after the transfer of the instant land, with the transfer value of KRW 462,50,00,00, and with the transfer value of KRW 61,789,440, and necessary expenses for the conversion value under Article 97(1)1 (b) of the former Income Tax Act (amended by Act No. 14389, Dec. 30, 2016).

E. On December 30, 2013, the registration of destruction was completed on the ground of the destruction on November 10, 2010 with respect to the building prior to its destruction on December 30, 2013. The FF applied for a compulsory auction (Seoul Central District Court Decision 2014Ma21947) with respect to the instant building, the registration of preservation of ownership in the Plaintiff’s name was completed by commission on October 17, 2014.

F. In the above compulsory auction procedure, a distribution schedule was prepared to distribute the amount of KRW 88,711,970 to the Defendant, who is the holder of the right to deliver on July 15, 2016, and KRW 18,678,420 to the Plaintiff, who is the debtor and owner, respectively. The dividends to the Plaintiff was deposited as Seoul Central District Court 2012,0000 (hereinafter “instant deposit”).

G. On June 17, 2013, the Defendant issued a disposition to seize each of the instant buildings on July 21, 2014 with the amount in arrears, including capital gains tax, upon the instant disposition, as a preserved bond, and on June 19, 2014, the Plaintiff’s second bank deposit refund claim andCC bank deposit refund claim, and the instant deposit money on July 21, 2014 and December 30, 2014 (hereinafter collectively referred to as “instant attachment disposition”).

H. On July 18, 2014, the Defendant collected KRW 1,836,580 as a disposition of seizure on the claim for the return of deposit in theCC Bank. The Plaintiff’s delinquent amount was fully appropriated as dividends in the above compulsory auction procedure for the instant building according to the payment of KRW 88,71,970 as dividends, and the Defendant released the instant seizure disposition on July 15, 2016.

Facts without dispute over the basis of recognition, Gap evidence Nos. 4, 5, 7, 8, 10, 15, 16, Eul evidence Nos. 1, 3, 4, 5, 10 through 12, and the purport of the whole pleadings

2. Related statutes;

Attached Form 2 shall be as shown in attached Table 2.

3. Whether a lawsuit seeking revocation of the seizure disposition of this case is legitimate

A. If an administrative disposition is revoked, the disposition becomes null and void and no longer exists, and it is unlawful as it merely targets an administrative disposition for which no lawsuit seeking nullification of the disposition ex officio cancelled, or contests the validity of past legal relations (see Supreme Court Decision 2009Du16879, Apr. 29, 2010).

B. On July 15, 2016, prior to the filing of the instant lawsuit, the Defendant revoked both the instant attachment disposition ex officio on July 15, 2016, and thus, the lawsuit seeking confirmation of invalidity of the instant attachment disposition is unlawful as there is no benefit of lawsuit, since it seeks confirmation of invalidity of the already revoked disposition.

4. Whether the instant disposition is null and void

A. The plaintiff's assertion

1) The Defendant sent a tax notice of the instant disposition by registered mail to the address of the place where the Plaintiff did not reside. Moreover, the outer cover of the international special mail alone cannot be deemed that the instant tax disposition was sent to the Plaintiff’s overseas address or that the instant tax disposition was lawfully served on the Plaintiff. Therefore, the instant disposition is null and void since the instant tax disposition was not served on the Plaintiff (hereinafter “instant tax disposition”).

2) The Defendant investigated the site where the instant building was under construction, and recognized necessary expenses for the transfer of the instant land by estimation after making several calls from the Plaintiff. To the extent that the occurrence of necessary expenses according to empirical rule is apparent, the tax authorities should recognize necessary expenses through the field investigation. As long as the instant building was newly constructed, it is clear in light of empirical rule that construction expenses, construction expenses for civil engineering, gas and water supply, additional construction expenses for completion and personnel expenses, acquisition tax, penalty surcharge, litigation expenses, etc. paid to the construction company. Accordingly, the instant disposition imposing the transfer income tax of the instant land by deducting only necessary expenses based on estimation from the foregoing costs is null and void (hereinafter referred to as “section 2”).

B. Determination as to the First Claim

1) In an administrative litigation claiming the invalidity of an administrative disposition as a matter of course and seeking the invalidity of such administrative disposition, the Plaintiff is liable to assert and prove the grounds for invalidity. Thus, the burden of proving the fact that a tax disposition was not served or served on another domicile in the litigation claiming that the tax disposition was null and void due to the absence of a tax notice is the party who asserts the same (see, e.g., Supreme Court Decision 2009Du3460, May 13, 2010).

2) According to the following facts or circumstances, it is insufficient to view that the Plaintiff was unable to receive the instant tax payment notice on the sole basis of the circumstances alleged by the Plaintiff, as a whole, based on the respective statements set forth in subparagraphs 1 through 6 and the results of the inquiry of the fact to the Director-General of the J-Postal Department of JJ, as follows:

A) On April 19, 2013, the Defendant requested the Minister of Foreign Affairs to verify the Plaintiff’s overseas domicile in order to serve a notice for tax payment, etc. of the instant disposition. On April 23, 2013, the Minister of Foreign Affairs sent to the Defendant, on December 3, 2010, that the Plaintiff registered the Plaintiff’s overseas domicile as O-OOOOOOO, OOOOO,OOOOOOOO, or OOOOO (hereinafter “OOO” in this case’s overseas address”). On April 29, 2013 and June 4, 2013, the Defendant sent each international special class post to the instant overseas address, and the said international special class post was not returned.

B) According to the facts as seen earlier, the Defendant sent the first international specialty post on April 29, 2013 to the Minister of Foreign Affairs after requesting the confirmation of the Plaintiff’s domicile abroad for the purpose of delivering the notice of imposition of the instant tax disposition, etc. In this case, the Defendant’s sending of the notice of imposition of the instant tax disposition to the Plaintiff on April 29, 2013 is only one case for which the instant tax disposition was issued. The Defendant’s sending of the notice of imposition of the instant tax disposition to the Plaintiff on April 29, 2013 is consistent with the empirical rule to view that the Defendant’s sending of the notice of imposition of the instant tax disposition to the Plaintiff on April 29, 2013, when the Defendant, who is the administrative authority, was an international specialty post, is not well-founded. The Defendant’s sending of the notice of imposition of the instant tax disposition to the Plaintiff on April 29, 2013 as the same method is consistent with the instant tax disposition.

C) In principle, a tax notice shall be served by means of delivery to an address, residence, place of business or office, or by mail or electronic delivery, except in extenuating circumstances (see Articles 8(1) and 10(1) and (2) of the Framework Act on National Taxes). In cases where a postal item is sent by means of registration, barring any special circumstance, the delivery of an international express postal item may be deemed to have been made by the addressee around that time (see, e.g., Supreme Court Decision 2016Du60577, Mar. 9, 2017). Under Article 15(1)8 of the former Enforcement Rule of the Postal Service Act, the delivery of an international express postal item shall be made in the same manner as a domestic postal item, and the domestic express postal item is delivered on the premise of registration handling, barring any special circumstance, where the Defendant sent the relevant notice to the Plaintiff by international express postal service on June 4, 2013.

D) The Plaintiff asserted that the notice of the instant tax disposition cannot be deemed to have been sent to the overseas address of the instant case or that the Plaintiff was duly served to the Plaintiff by means of international mail only with the cover of the international mail, but does not have any assertion or proof as to the special circumstances that may deem that the instant tax disposition was not actually served to the Plaintiff.

3) Therefore, Plaintiff 1’s Chapter to the effect that the instant disposition becomes invalid due to the failure to serve a tax notice is without merit.

C. Determination on the second proposal

1) As seen earlier, the instant disposition imposed on the transfer of the instant land, other than the instant building. As such, it is obvious that the Plaintiff’s assertion that construction cost, civil engineering, gas, and water supply additional construction cost, finished construction cost and personnel expenses incurred in the instant building, acquisition tax, penalty surcharge, litigation cost, etc. cannot be deducted as necessary expenses in calculating the transfer income tax on the instant land, and even if it is deemed necessary expenses among the aforementioned expenses, it is difficult to ascertain whether the Defendant, who is the tax authority, without accurately investigating the factual relations, should deduct such expenses from the necessary expenses on the instant land.

2) Therefore, it is difficult to view that there exists a ground for invalidation in the instant disposition, and the Plaintiff’s second copy is rejected on a different premise.

5. Conclusion

Therefore, the part of the instant lawsuit seeking nullification of the attachment disposition of this case is unlawful, and all of the claims of the Plaintiff are dismissed as it is without merit. It is so decided as per Disposition.

1) The Plaintiff’s purport of the claim is examined as above.

2) The first Plaintiff’s former domicile and the place where capital gains from the instant land were generated, both of which were under the jurisdiction of the HH Tax Office. However, on February 26, 2015, the National Tax Service and its affiliated agency’s regulations (attached Table 2) were amended by Ordinance of the Ministry of Strategy and Finance as of February 26, 2015, and the BB Tax Office was separated from HH Tax Office. From April 1, 2015, both of them were under the jurisdiction of BB Tax Office (see proviso of Article 1 of the Addenda). The Defendant was not separated from BB Tax Office.