[1] Whether a designated area of a house under Article 168-3 (1) of the former Enforcement Decree of the Income Tax Act has the legal effect on real estate other than a house in the area (negative), and whether the proviso of Article 109 (1) 1 (c) of the former Local Tax Act applies to a substitute acquisition of real estate other than a house in a designated area of a house (negative)

[2] The case holding that in a case where the Minister of Finance and Economy designated, pursuant to the delegation of Article 168-3 of the former Enforcement Decree of the Income Tax Act, only the house was designated as the designated area, and Party A acquired real estate other than the house located in the Yanyang-si to replace the real estate for public services and filed a return on and paid the registration tax and acquisition tax, the acquisition of the above real estate and the registration thereof cannot be subject to the proviso of Article 109 (1) 1 (c) of the former Local Tax Act

[1] Article 168-3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008) provides that the criteria for designation of a designated area shall be converted into the inflation rate and the inflation rate of land prices. Accordingly, the Minister of Finance and Economy designates a designated area as an area for housing and an area for real estate other than a house. A designated area for a housing shall also be deemed to have the same legal effect as a designated area for real estate located in the relevant area. Since the rising rate of land transaction of a house in the relevant area is higher than a certain level and the speculative demand for housing is likely to occur so that it is a designated area for the purpose of giving tax disadvantage to real estate other than a house that has no risk of speculation, it is reasonable to interpret the proviso to Article 168-3 of the former Local Tax Act (amended by Presidential Decree No. 20720, Mar. 31, 2010; Presidential Decree No. 22010, Jan. 1, 2019).

[2] The case holding that the court below erred in the misapprehension of legal principles as long as Gap's acquisition tax and registration tax can not be applied to real estate under the proviso of Article 109 (1) 1 (c) of the former Local Tax Act (wholly amended by Act No. 1021, Mar. 31, 2010) which provides for the exclusion of the acquisition tax and registration tax and non-taxation on real estate acquired by the Minister of Finance and Economy from the acquisition of real estate and its registration shall be excluded from the category of real estate acquired in accordance with the proviso of Article 109 (1) 1 (c) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010) which provides for the exclusion of the acquisition tax and registration tax and non-taxation on real estate acquired by the Minister of Finance and Economy from the category of real estate acquired by Gap, regardless of the type of "land subject to non-taxation."

[1] Article 109 (1) 1 (c) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010); Article 127-2 (2) of the current Restriction of Special Local Taxation Act; Article 104-2 (1) of the former Income Tax Act (Amended by Act No. 8852, Feb. 29, 2008); Article 168-3 (1) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 20720, Feb. 29, 2008); Article 109 (1) 1 (c) of the former Local Tax Act (wholly amended by Act No. 1021, Mar. 31, 2010); Article 127-2 (2) (c) of the former Restriction of Special Local Taxation Act (Amended by Presidential Decree No. 20170, Feb. 29, 2008); Article 208-3 (108 (2) of the former Enforcement Decree (2)

Plaintiff (Law Firm Boll, Attorney Park Jae-sung, Counsel for the plaintiff-appellant)

The head of Ansan-si (Law Firm Mayang, Attorneys Lee Sung-ok et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2009Nu10637 decided November 13, 2009

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 109(1) main sentence of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010; hereinafter the same) provides that “Where a person who has obtained approval of a project under the provisions of related Acts and subordinate statutes purchases, expropriates, or removes real estate, etc., to acquire real estate, etc. as substitute for the acquisition of such real estate, etc., within one year from the date of the contract or the date of the public announcement of the project approval, or after obtaining the construction permission, and acquires the substitute real estate, etc., within one year from the date of the last receipt of the compensation, acquisition tax shall not be imposed on the acquisition.” Article 109(1) main sentence of the former Local Tax Act provides that “The land, etc., other than farmland, is located within the Special Metropolitan City, Metropolitan City, or Do adjacent to the Special Metropolitan City, Metropolitan City, or Do where the purchased, expropriated, or removed real estate, etc., is excluded” (Article 104-2(1) of the Income Tax Act).

In addition, Article 104-2 (1) of the former Income Tax Act (amended by Act No. 8852 of Feb. 29, 2008; hereinafter the same) provides that "The Minister of Finance and Economy may designate a designated area according to the standards and methods as prescribed by the Presidential Decree in case where the rate of increase of real estate prices in the relevant area is higher than the national consumer price inflation rate and the increase in real estate prices in consideration of the increase in real estate prices in the relevant area is higher or is likely to rise rapidly." Article 168-3 (1) of the former Enforcement Decree of Income Tax Act (amended by Presidential Decree No. 20720 of Feb. 29, 2008; hereinafter the same) on the designated area under Article 104-2 (1) of the former Income Tax Act (amended by the Presidential Decree No. 20720 of Feb. 29, 2008) provides that "the Minister of Finance and Economy shall designate the designated area separately from the designated area

2. According to the reasoning of the judgment below, the court below determined that the Plaintiff received 6,736,681,280 won for expropriation from SP on June 29, 2007 as the Plaintiff’s land and its ground buildings owned by the Plaintiff were incorporated into real estate for public-service projects implemented by SH on the 25th, Mapo-gu, Seoul, Mandong (number 1 omitted) and received 6,736,681,280 won for expropriation from SP on June 29, 2007. ② The Plaintiff did not report and pay acquisition tax to the Defendant on June 9, 2008 on two lots of land and its ground living facilities (number 2 omitted) (hereinafter “the real estate of this case”), including acquisition tax, from SPP Co., Ltd., Ltd., for the purpose of replacing the above real estate, to be exempt from acquisition tax of 00 billion won or less, and thus, the Plaintiff should not report and pay acquisition tax of 200 million won or less, respectively.

3. However, we cannot agree with the judgment of the court below for the following reasons.

Article 168-3 of the former Enforcement Decree of the Income Tax Act provides that the criteria for designation of a designated area shall be converted into the inflation rate and the inflation rate of land prices, and accordingly, the Minister of Finance and Economy also designates the designated area as a designated area concerning housing and a designated area concerning real estate other than housing. Since the inflation rate of housing in the designated area is higher than a certain level and the speculative demand for housing is likely to occur and the designated area for the purpose of imposing tax disadvantage on the housing, it is reasonable to interpret that the designated area of housing does not fall under the provisions of this case where the substitute acquisition of real estate other than housing in the designated area does not constitute a substitute acquisition of housing in the designated area is contrary to the purpose of the designated area, on the ground that real estate other than housing which is not likely to be speculative demand is located in the designated area.

As acknowledged by the court below, the Minister of Finance and Economy, on May 29, 2003, designated Ansan-si as a designated area for housing, and on July 20, 2005, as an area for real estate other than housing. The plaintiff acquired the real estate of this case, other than housing located in Ansan-si on June 25, 2008. In light of the above legal principles, the plaintiff acquired the real estate of this case as substitute real estate of this case, which is real estate of this case, other than housing located in Ansan-si on June 25, 2008. In light of the above legal principles, since the real estate of this case was designated as a designated area for housing and the real estate other than housing has not been designated as an area for real estate, the acquisition of the

Nevertheless, the lower court determined that the acquisition of the instant real estate and the registration thereof shall be excluded from non-taxation subject to acquisition tax, etc. under the proviso of this case. In so determining, the lower court erred by misapprehending the legal doctrine on the proviso of this case, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

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 Ahn Dai-hee (Presiding Justice)