early trial 2016west2897 ( November 21, 2016)

The selection of tax investigation and retroactive appraisal conducted by the tax authorities are also legitimate, and the application of the unfair calculation book for non-residents is legitimate.

If the notification of tax investigation was made only and did not actually conduct the tax investigation, the selection of the tax investigation cannot be deemed unlawful, and the application of the retroactive appraisal value by the tax authority is legitimate, and the application of the unfair calculation method to the non-resident is legitimate.

Article 155 of the Enforcement Decree of the Income Tax Act (Special Cases of Housing for One Household):

2017Guhap1216 Revocation of Disposition of Imposing capital gains tax

Chapters AA, BB

AA, BB Head of the Tax Office

2, 2018.03

2018.19

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

The imposition of each capital gains tax of KRW 000,000,000, which was made by the head of the tax office on June 8, 2016 to the Plaintiff headA, and the head of the tax office on June 8, 2016 to the Plaintiff headB on June 8, 2016 shall be revoked.

1. Details of the disposition;

A. On December 2, 2002, the Plaintiffs inherited 1/4 shares of 00,338.2 square meters (hereinafter “instant land”) by the Yeongdeungpo-gu Seoul Metropolitan Government ○○○○○○○ on December 2, 2002, along with other two shapes of punishments.

B. On December 23, 2015, the Plaintiffs transferred 3,839,307,000 won (hereinafter “instant transfer”) calculated based on the officially assessed individual land price to ○○○○ Limited Liability Company (the Plaintiff headA concurrently holds 100% equity shares with his/her spouse and children as the representative director and his/her spouse; hereinafter “foreign corporation”) and paid 981,121,960 won each of the capital gains tax on December 30, 2015 (hereinafter “instant transfer”). At the time of the instant transfer, the Plaintiff headB resided in the United States.

C. In the process of examining the application for confirmation of real estate sale funds by Plaintiff BB, a non-resident under the Income Tax Act, and the tax base return of the Plaintiff’s transfer income tax shares in the instant land, Defendant BB head of the tax office visited two licensed real estate agents’ offices around the instant land and searched the market price by taking account of the fact that the individual land price is considerably lower than the ordinary market price and there is a special relationship between the Plaintiffs and the non-party corporation. According to the results of the search that the surrounding market price of the instant land is KRW 20 million to KRW 27 million per square, the market price of the instant land is KRW 6,50,000 to KRW 27 million per square day. The Plaintiffs requested the appraisal of the market price of the instant land to the two appraisal corporations by deeming that there is a suspicion that the Plaintiffs had transferred the instant land shares to the non-party corporation at low price.

D. On March 17, 2016, the said appraisal corporation sent to the director of the tax office of Defendant BB a reply to the result of appraisal that the market price of 1/4 shares out of the instant land is 5,43,595,500 won (5,010,000 won or 00 won or 5,498,668,500 won (5,070,000 won or 00 won) or 5,498,668,500 won (5,000 won or 1,00

E. On June 8, 2016, the Defendants: (a) deemed that the average amount of the said appraisal was KRW 5,466,132,00 (hereinafter “instant appraisal value”) constituted a legitimate market price of 1/4 shares in the instant land; and (b) applied the provision regarding the wrongful calculation register under Article 101(1) of the Income Tax Act on the ground that the Plaintiffs transferred the instant land shares at a price significantly lower than the market price to a non-party corporation with a special relationship, Defendant AA Tax Office imposed and notified the Plaintiff A on the Plaintiff; (b) Defendant BB Tax Office on the Plaintiff headB; and (c) KRW 00,00,935 (principal tax amount was KRW 00,000,000,876 + additional tax was imposed on the Plaintiff 200,000,000,000,059) as the transfer income tax for the year 2015.

F. The Plaintiffs appealed and filed a request for adjudication on July 29, 2016. The Tax Tribunal did not have the instant appraisal value at the time when the Plaintiffs reported the transfer income tax, and considering the fact that the Plaintiffs asked questions at the National Tax Service Call Center, etc., the Tax Tribunal rendered a decision to reduce or correct each additional tax of KRW 00,000,059 on November 21, 2016 by deeming that there was justifiable grounds for the Plaintiffs to underreporting the transfer income tax by applying the officially assessed individual land price (hereinafter “instant disposition”).

[Reasons for Recognition] The facts without dispute, Gap evidence Nos. 1 through 4, 6, 7, Eul evidence Nos. 1 through 6 (including each number), witness witness witness's testimony and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) The plaintiffs were unable to know the objective value of the land in this case at the time of transfer, and they were traded according to the officially assessed individual land price and reported the transaction price. The plaintiffs were not subject to tax investigation, such as "case of being suspected of false or erroneous as a result of a regular analysis of the taxpayer's return in good faith" under Article 81-6 (2) 1 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015; hereinafter the same) or "case of evident material to acknowledge the suspicion of omission or error in the contents of the report" under Article 81-6 (3) 4 of the same Act. Nevertheless, since the defendants selected and investigated the plaintiffs illegally, the disposition of this case based on the unlawful tax investigation is also unlawful.

2) In order to apply Article 101(1) of the Income Tax Act, it is recognized that the tax burden on income has been reduced unfairly through transactions with a specially related person. Since the officially assessed individual land price can be seen as the market price of the land of this case, the plaintiffs cannot be deemed as transferring the land of this case to a non-party corporation at a price lower than the market price. In other words, the land of this case is difficult to calculate the market price pursuant to Article 60(3) and Article 61(1)1 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 1357, Dec. 15, 2015; hereinafter referred to as the "former Inheritance Tax and Gift Tax Act"), and thus, the officially assessed individual land price shall be deemed as the market price pursuant to Articles 60(1) and 61(1)1 of the former Inheritance Tax and Gift Tax Act. The defendants, without any legal basis, deemed the appraisal result voluntarily requested by the Defendants to be the market price of this case.

3) Article 101(1) of the Income Tax Act provides that a transaction between a resident and a specially related person is applied to a case where a transaction is unjustly avoided or reduced tax burden, not by a normal economic person’s reasonable method, and the existence of economic rationality should be determined by specifically considering the overall circumstances of the transaction. However, the Plaintiffs’ transfer of the instant land to a non-party corporation was not possible because the Plaintiffs traded shares of the land that did not generate any particular profit, and the Plaintiffs were able to promptly dispose of the instant land. Therefore, the instant transfer should be deemed an economic rationality. In particular, in the case of Plaintiff Chapter BB, it constitutes a non-resident under the Income Tax Act, and Article 101(1) of the Income Tax Act provides that the transfer value shall be calculated based on the actual transaction value, and thus, the provision of the wrongful calculation panel under Article 96(1) of the Income Tax Act provides that the transfer value shall be calculated based on the actual transaction value. Thus, unless there is any provision applicable mutatis mutandis to the non-resident,

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the instant disposition is unlawful due to the illegality of the selection of a person subject to tax investigation

A) As a type of an administrative investigation to realize the State’s right to taxation, a tax investigation refers to an act of questioning questions in order to determine or correct the tax base and amount of national taxes and inspecting and investigating account books, documents and other articles or ordering the submission thereof (Article 81-2(2)1 of the former Framework Act on National Taxes). In the case of a tax investigation for which the tax authority’s right to inquiry and investigation for taxation is exercised, a taxpayer or a person who is deemed to have a transaction with the taxpayer bears the legal duty to answer questions for the collection of taxation data and undergo an inspection. However, it does not constitute “tax investigation” to which the provisions of Chapter 7 Chapter 2 of the Framework Act on National Taxes apply, as a matter of principle, unless there is a duty to answer or allow the taxpayer to answer, and there is no possibility that the taxpayer’s freedom of business or right to investigate may be abused. Ultimately, whether an investigation conducted by a tax official constitutes such “tax investigation” should be determined individually in light of the purpose and details of the investigation, object and content of inquiry, data acquired through the investigation, scale and period of the investigation (see Article 16).

B) However, in order to deem that a taxation disposition is unlawful due to the illegality of the selection of the object of the tax investigation, it should be that there was an illegal selection act of the object of the tax investigation and an actual tax investigation was conducted as a subsequent procedure, and accordingly, the taxation disposition was conducted. Therefore, in this case, the Defendants conducted a tax investigation with respect to the Plaintiffs, and accordingly, examined

According to the purport of the entire argument, although the head of the defendant Youngpo Tax Office selected the plaintiffs as the object of tax investigation on January 2016 and notified them to the plaintiffs, in light of the facts acknowledged earlier, the above defendant is doubtful in that the transfer income tax reported and paid by the plaintiffs on the transfer of this case is calculated based on the officially assessed individual land price, and as a result, the above defendant looked at an appropriate market price at the neighboring licensed real estate agent office of the land of this case in order to understand the correct evaluation amount, the market price of the land of this case was requested to the appraisal corporation to make an appraisal in order to understand the correct evaluation amount, and there was no fact that the defendant did not exercise the right to ask and investigate or order the plaintiffs or non-party corporations to inspect or investigate books, documents and other articles or to submit

As above, the acts of the director of the tax office in Yeongdeungpo-gu by the defendant were not the other party to the tax payment or the interested person, and it does not impose any obligation on the taxpayer or infringe on the taxpayer’s freedom of business, and thus, the substance cannot be deemed the same as the request for submission of data to the taxpayer, etc.

As long as the tax investigation of the plaintiffs cannot be deemed to have been actually conducted, even if there were some errors in the act of selecting the persons subject to the tax investigation, the disposition of this case cannot be deemed to be unlawful. Therefore, this part of the plaintiffs' assertion is without merit.

In addition, according to the purport of the evidence Nos. 3 and 4 and the whole pleadings, the head of the defendant Young-gu Tax Office is acknowledged to have selected and notified the plaintiffs as subject to tax investigation, as a result of searching the market price at the nearby licensed real estate agent office of the instant land. In addition to the facts acknowledged earlier, the selection of the plaintiffs as subject to tax investigation by the head of the defendant Young-gu Tax Office constitutes a legitimate act under Article 81-6 (3) 4 of the former Framework Act on National Taxes because the plaintiffs' report on transfer of the instant land constitutes a case where there is evident evidence to prove the omissions or errors in the contents of the plaintiffs' report on transfer income tax of the instant case. In this regard,

2) Whether the disposition of this case in light of the appraisal value at the market price is unlawful

A) Article 101(1) of the Income Tax Act provides that where the head of a tax office, etc. having jurisdiction over the place of tax payment deems that an act or calculation of a resident’s capital gains has reduced unreasonably the tax burden on such income through transactions with a related party of the resident, regardless of such resident’s act or calculation, Article 101(1) of the Income Tax Act provides that the scope and other necessary matters for wrongful calculation under paragraph (1) of the same Article shall be prescribed by Presidential Decree. Accordingly, Article 167(3)1 of the Enforcement Decree of the Income Tax Act provides that “Where an asset is purchased from a related party at a price higher than the market price or the asset is transferred to a related party at a price lower than the market price, the difference between the market price and the transaction price shall be 30 million won or more, or where it is deemed that the burden of taxation has been reduced unfairly by transferring land, etc. at the market price with a related party for a period of time before or after the date of transfer, Article 167(4) of the Enforcement Decree of the Income Tax Act provides that the former Enforcement Decree shall be calculated by transfer price or transfer price.

B) Article 60(1) of the former Inheritance Tax and Gift Tax Act provides that the value of the property on which the inheritance tax or gift tax is levied shall be calculated based on the market price as of the date of commencing the inheritance or the date of donation. Article 60(2) of the same Act provides that the market price shall be determined at an ordinarily established price where transactions are freely conducted between many and unspecified persons, and that shall be recognized as the market price, as prescribed by Presidential Decree, such as the expropriation price, public sale price, and appraisal price. In applying Article 60(3) of the same Act, where it is difficult to calculate the market price in consideration of the type, scale, transaction circumstances, etc. of the pertinent property, the appraised value shall be deemed as the market price according to Articles 61 through 65 of the same Act. The main sentence of Article 49(1) of the former Inheritance Tax and Gift Tax Act provides that the market price can be calculated based on the concept and appraisal price of the relevant property under Article 60(2) of the same Act in cases of sale, appraisal, expropriation, public sale price, or public sale within six months before or public sale date.

C) Even if the tax authority assessed and assessed the market price of the pertinent property based on the supplementary assessment method for the reason that it is difficult to assess the market price, if the market price of the pertinent property has been proven by the time the argument for revocation of the tax disposition is closed at the trial court, the determination of whether the pertinent tax disposition is unlawful depending on whether the amount of tax imposed exceeds the reasonable tax amount (see, e.g., Supreme Court Decision 95Nu13821, Aug. 23, 1996). Here, “market price” means, in principle, an objective exchange price formed through normal transaction, but this is a concept that includes the value assessed in an objective and reasonable manner, if there is no exchange price, the appraisal price by the reliable appraisal agency may be deemed as the market price, and even if the value does not change by retroactive appraisal (see, e.g., Supreme Court Decision 2004Du1834, Feb. 1, 208)

In light of the above legal principles, the "appraisal value" stipulated in Article 60 (2) of the former Inheritance Tax and Gift Tax Act includes retroactive appraisal by the tax authority. In particular, in the case of the appraisal value of this case, it constitutes "where there is appraisal value assessed by the public trust appraisal institution prescribed by Ordinance of the Ministry of Strategy and Finance within three months before or after the date of transfer" and "where there is appraisal value assessed by two or more public trust appraisal institutions during the evaluation period prescribed by Ordinance of the Ministry of Strategy and Finance within three months after the date of transfer."

Therefore, the Plaintiffs’ assertion purporting that a new appraisal is permitted only when the appraisal value of the instant land exists at the time of the transfer of the instant land, but the said appraisal value is inappropriate.

3) Whether the application of the unfair calculation method provision under Article 101(1) of the Income Tax Act is impossible or not

A) Whether the transfer of this case’s economic rationality exists

Under the Income Tax Act, in a case where a resident’s act of wrongful calculation is deemed to have avoided or reduced tax burden by abusing the various forms of transactions listed in each subparagraph of Article 98(2) of the Enforcement Decree of the Income Tax Act without a reasonable method by a person having a special relationship with the resident, the said act is deemed to have been denied by the person having a right to taxation, and it is limited to the case where the taxpayer’s economic rationality is recognized to have neglected the economic rationality due to the wrongful calculation of an unnatural or unreasonable act in the manner prescribed by the statutes. The determination of whether the economic rationality exists is just based on the fact that only the price relation of the pertinent transaction is not ordinarily performed in the transaction behavior with a person who is not a special relationship, but rather on the basis of whether the transaction is unreasonable in light of sound social norms and commercial practice (see, e.g., Supreme Court Decision 200Du13081, May 12, 2005).

As seen earlier, the Plaintiffs’ burden of capital gains tax was reduced due to a low price transfer of the instant land, and the officially assessed individual land price reported by the Plaintiffs with the transfer value of the instant land is about 70% (=3,839,307,00 won / 5,466,132,000 won) of the assessed value of the instant land, which can be seen as a legitimate market price. Since the instant land is a land where no particular profit accrued or there was no applicant for purchase due to the transaction of shares, there is no evidence supporting the Plaintiffs’ assertion that there was no choice but to trade as the officially assessed individual land price with the non-party corporation and the non-party corporation. Rather, according to each of subparagraphs 1 and 2 of the evidence No. 6-1 and 6-2, the instant land is a remote bridge-type land adjacent to the subway station, which is located in an area where various neighborhood living facilities, apartment houses, factories, etc. are mixed, and it seems easy to develop or purchase it in the future.

B) Whether Article 101(1) of the Income Tax Act cannot be applied to the Plaintiff-B

In general provisions of Chapter 1, Chapter 2, Chapter 3, Chapter 4, Article 101(1) of the Income Tax Act provides for a resident’s liability to pay tax on global income and retirement income, Chapter 3, Article 101(1) of the Income Tax Act provides that a resident’s liability to pay tax on capital gains is limited to a resident’s act or calculation, and Article 121(2) of the Income Tax Act provides that a resident who has income from capital gains on assets and rights located in the Republic of Korea shall be imposed by classifying the same method as that of the resident, unless there is a separate provision excluding the application of Article 101(1) of the Income Tax Act on the denial of wrongful calculation, the said provision is also applicable to a nonresident. In addition, the said provision is also applicable to a nonresident unless there is a reasonable reason not to deny the application of wrongful calculation only with respect to a nonresident, and the State where the relevant property is located in the Convention between the Republic of Korea and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to a nonresident.

D. Sub-committee

The disposition of this case is legitimate, and all of the plaintiffs' arguments are without merit.

3. Conclusion

Therefore, all of the plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.