Cho Jae-2016-China-3835 ( December 30, 2016)

Whether brokerage fees are included in necessary expenses of transfer income tax

Since there is no evidence to recognize that the instant land was disbursed as a brokerage commission, it is difficult to recognize it as necessary expenses.

Article 37 (Calculation of Necessary Expenses of Other Incomes)

Incheon District Court 2017Guhap51321 Global Income and Revocation of Disposition

○ ○

○ Head of tax office

oly 2018.17

2018.05.31

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s imposition of global income tax (including additional tax) of KRW 758,91,540 on February 2, 2016 by the Plaintiff on February 2, 2016 exceeds KRW 718,541,781.

1. Details of the disposition;

A. The Plaintiff’s global income tax return and the Defendant’s increase or correction

On July 22, 2008, the Plaintiff entered into a sales contract with ○○ Industries Co., Ltd. (hereinafter referred to as the “○○ Industry”) and ○○○○○○○○○○○-1, and 11 land (hereinafter referred to as the “instant land”) owned by the Plaintiff located within the land transaction permission zone to sell 10.658 billion won. Upon receipt of the down payment of 2 billion won (hereinafter referred to as the “the down payment”), the Plaintiff agreed to receive 8.658 billion won for the remainder after the land transaction permission. However, on July 11, 2011, the Plaintiff entered into a sales contract with ○○ Industries and the said purchase payment of 10.358 billion won as the down payment already paid, and the remainder of 8.358 billion won as the down payment was replaced by the down payment already paid, and entered into a sales contract up to 2012.3 billion won.

On December 1, 2011, the Plaintiff paid 8.35 billion won, etc. to the Plaintiff until June 30, 2012. As to the instant land by the Plaintiff until June 30, 2012, the Plaintiff entered into the procedure for the registration of ownership transfer on the ground of sale and purchase on July 11, 2011. However, if the ○ industry did not pay the Plaintiff the remaining amount of KRW 8.358 billion until June 30, 2012, the sales contract on the instant land was rescinded without any separate declaration of intention, and the ○ industry did not claim the Plaintiff to return the down payment of the instant land until June 30, 2012, the Plaintiff did not pay the remainder of KRW 8.35 billion to the Plaintiff.

In filing a return of the global income tax attributed to year 2013, the Plaintiff filed a return of the instant down payment with the total amount of 1.6 billion won, which is 80% of the said amount, as other income by deducting the necessary expenses, from the amount of other income. The Defendant denied necessary expenses for the instant down payment on the ground that the time when the down payment falls in 2012 and the necessary expenses are not recognized. On February 2, 2016, the Plaintiff corrected and notified the global income tax (including additional taxes; hereinafter the same shall apply) that reverts to the Plaintiff in 2012.

B. Plaintiff’s objection and Defendant’s correction of reduction

On July 1, 2016, the director of ○○ Regional Tax Office, upon the Plaintiff’s filing of objection, recognized the attorney’s fees of KRW 13,410,00 in civil litigation related to the sales contract on the instant land and KRW 5,216,00 in the lawsuit telephone case as necessary expenses and decided to rectify the tax base and tax amount. Accordingly, the Defendant corrected the Plaintiff’s comprehensive income tax for KRW 851,949,590 in the amount of KRW 2012.

C. Plaintiff’s tax appeal and Defendant’s correction of reduction

On December 30, 2016, upon the Plaintiff’s request for adjudication, the Tax Tribunal: (a) performed the civil engineering work on the instant land in order to build a factory; (b) recognized the market price and the appraisal commission of the instant land owned by the Plaintiff as necessary expenses; and (c) accordingly, determined that the tax base and the amount of tax should be corrected by adding the amount of KRW 172,450,000 and the appraisal commission fee of KRW 3,300,000 to the necessary expenses; and (c) accordingly, the Defendant adjusted the amount of the global income tax of KRW 758,91,540 for the year 2012 reverted to the Plaintiff’s total income tax of KRW 758,91,540 for the year 2012 when the reduction or correction was made (hereinafter “instant disposition”).

[Reasons for Recognition] Entry of Evidence Nos. 1 through 7, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

As ○○ Industry implemented a civil construction work for the construction of a factory on the instant land, and changed the current status of the instant land to a site in the previous forest, field, orchard, etc., the instant land was subject to comprehensive aggregate taxation from the land subject to property tax for the year 2012, thereby causing damage to the payment of KRW 31,475,850 for comprehensive real estate holding tax for the year 2012. As such, the Plaintiff’s amount of comprehensive real estate holding tax paid KRW 31,475,850 shall be excluded from other income subject to income tax or included in necessary expenses. In addition, since the Plaintiff paid KRW 45,00,00 as brokerage commission to ○○○○○, a licensed real estate agent, who arranged for the sale and purchase of the instant land, the Plaintiff’s brokerage commission amount of KRW 45,00,000 should be included in the necessary expenses for the income of the instant down payment. Therefore, the instant disposition

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

1) The nature of the down payment of this case

Article 21 (1) 10 of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014) provides that "compensation for breach or termination of a contract" as one of other income. Article 41 (7) of the Enforcement Decree of the Income Tax Act provides that "compensation for breach or termination of a contract" refers to compensation for breach or termination of a contract on property rights, and regardless of its title, "the value of money or other goods to compensate for damages exceeding the damages to the payment itself which is the contents of the original contract regardless of its title." In light of the circumstance and contents of the telephone settlement between the Plaintiff and ○○ Industries, the down payment reverted to the Plaintiff is not compensation for damages to the payment itself which is the contents of the sales contract on the instant land, but compensation for such excess damages. Thus, it is difficult to view the Plaintiff's other income subject to income tax (the Plaintiff's payment of 2012 comprehensive real estate holding tax on the instant land as excluding the Plaintiff's payment of 2012-year comprehensive real estate holding tax on the instant land.

2) Whether the amount of comprehensive real estate holding tax is recognized as necessary expenses

In calculating other income amount under Article 37 of the Income Tax Act, necessary expenses refer to the expenses directly related to the occurrence of income. The amount of comprehensive real estate holding tax for the year 2012 pertaining to the land of this case paid by the Plaintiff as of June 1, 2012 as of June 1, 2012, as the Plaintiff owned the land of this case in the same state as the current tax base date, and thus, it is difficult to view that the amount of comprehensive real estate holding tax for the year 2012 pertaining to the land of this case constitutes necessary expenses for the receipt of down payment of this case.

3) Whether to recognize the necessary expenses of brokerage commission

In a lawsuit seeking revocation of global income tax disposition, the burden of proof on the tax base, which is the basis of taxation, is on the tax authority, and the tax base is deducted from necessary expenses, and thus, the tax authority shall bear the burden of proof on income and necessary expenses in principle. However, since necessary expenses are only favorable to the taxpayer, and most of the facts generating necessary expenses are located in the territory under the control of the taxpayer and the tax authority is difficult to prove. Thus, if it is reasonable to prove the taxpayer in consideration of difficulty in proof or equity between the parties, it accords with the concept of fairness to recognize the necessity of proof on the taxpayer (see, e.g., Supreme Court Decisions 2002Du1588, Sept. 23, 2004; 2007Du2955, Mar. 26, 2009).

The Plaintiff asserted that with respect to the sale and purchase of the instant land, the Plaintiff paid KRW 45,00,000,000 as brokerage commission to ○○○○○○○○○ on July 1, 201; KRW 10,000,000 on December 16, 2011; KRW 5,000,000 on July 26, 2012; KRW 5,000,000 on August 12, 2012; and KRW 45,00,000,000 on the aggregate of KRW 10,15,000,000 on June 25, 2014; however, it is difficult to acknowledge the Plaintiff’s assertion that it is difficult to believe that the Plaintiff’s sales and purchase of the instant land in light of the following circumstances; and it is difficult to recognize that the Plaintiff’s sales and purchase of the instant land was 400,500,000 won as brokerage commission.

(1) There is no consistency in the receipt and loan certificate in the name of ○○○ (A No. 10, No. 15-1 through 4) since the receipt and loan certificate in the name of ○○ does not coincide with the Korean language and Chinese characters, the form of the amount entered, etc., and all of them are deemed a document prepared by ○○○○. In addition, there is a natural aspect that the receipt and loan certificate (A. 10, No. 15-3, No. 15-4) are different from each other.

② The Plaintiff submitted the details of the financial transaction by asserting that the Plaintiff paid the cash that the Plaintiff had been under his/her custody in the cash that was withdrawn, paid, or withdrawn each time the commission for brokerage was paid to ○○○○. However, the details of the financial transaction on the other day except the cash withdrawal on July 1, 201 are not verified (the details of the transaction on the account list, which is not a “cash,” but a “substitute”).

(3) ○○○ operated a real estate agent’s office * There was no value-added tax return regarding the intermediation of sale and purchase of the instant land between the Plaintiff and ○○ industry.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.