The period of commencement of the business of housing construction and sales business shall be 2015, in which sales revenue accrues by selling housing in units.

Since the commencement of a business is substantially determined on the basis of the time when it becomes possible to carry out the original business purpose, the period of commencement of a business of the Housing Construction and Sales Business Act shall be 2014 years from the time of sale by-products and 2015 years from the time of sale by-products.

Article 19 of the Income Tax Act

District Court 2018Guhap16456 global income and revocation of disposition

○ ○

AA Head of the Tax Office

oly 2019.18

2, 2019.08

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of global income tax of KRW 85,815,980 (including additional tax) for the year 2015 against the Plaintiff on August 10, 2017 is revoked.

1. Details of the disposition;

A. The Plaintiff’s new construction and sale of housing

The Plaintiff completed business registration on September 17, 2014, by jointly conducting the business with Kim○-○ on the opening date of the business, after completing business registration on September 17, 2014, and newly constructing 16 households of multi-household housing (a total floor area of 1,122.72 square meters; hereinafter referred to as “instant housing”) on the OO-dong OO on the ground of OO-dong OO, and sold the housing upon obtaining approval for use on February 24, 2015, and then closed the business on May 31, 2015.

B. The Plaintiff’s global income tax return

1) On May 29, 2015, the Plaintiff sold scrap metal generated in the course of constructing the instant house to KRW 170,000 on the resources on December 9, 2014, and sold Manle (hereinafter referred to as “the instant by-products”) for KRW 1,631,00 on December 25, 2014, to Park △△△△ on December 25, 2014, and reported the amount of KRW 90,50 [170,000 + (+1,631,000 + 2] as revenue amount.

2) The Plaintiff’s total revenue from selling the instant housing in 2015 is KRW 1,423,500,000.

3) With respect to global income tax on May 30, 2016, the Plaintiff calculated the amount of income by applying the simple expense rate under the above provision on the grounds that the sales proceeds of the instant by-products are less than KRW 36 million under Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter “former Enforcement Decree of the Income Tax Act”) by deeming the sales proceeds of the instant by-products as the amount of income for the immediately preceding taxable period, and by applying the said provision on special tax reduction and exemption to small and medium enterprises under Article 7 of the former Restriction of Special Taxation Act (amended by Act No. 13560, Dec. 15, 2015; hereinafter the same).

C. Individual integrated investigation and the Defendant’s disposition

1) After conducting an individual consolidated investigation against the Plaintiff, the Director of the Regional Tax Office: (a) deemed that the Plaintiff started business on December 2015, 2015, which was the time when the Plaintiff sold the instant by-products, rather than on December 2, 2014; (b) accordingly, he/she determined the Plaintiff’s income by applying standard expense rate, which is not simple expense rate, and notified the Defendant that the Plaintiff would rectify the Plaintiff’s tax amount by excluding the special tax reduction and exemption.

2) Accordingly, on August 10, 2017, the Defendant issued a correction and notification of the global income tax of KRW 85,815,980 (including additional tax; hereinafter the same shall apply) for the year 2015 to the Plaintiff (hereinafter “instant disposition”).

(d) passed through the pre-trial procedure.

On April 6, 2018, the Plaintiff appealed against the instant disposition and filed an appeal with the Tax Tribunal, but the Tax Tribunal dismissed the appeal on July 30, 2018.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, Eul evidence Nos. 1 through 4 (including paper numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) As to application of standard expense rate

With respect to construction business, including housing construction and sales business, the business commencement date of the former Income Tax Act ought to be deemed to be the time when the business commenced for the purpose of new construction of housing rather than the time of new construction and sale of housing. However, since the Plaintiff sold the instant by-products as necessary to newly construct the instant housing on December 2, 2014, the Plaintiff already commenced the business of the instant housing around December 2014. As such, the Plaintiff’s global income in 2015, which was the year following the commencement of the business, falls short of KRW 36 million, should be calculated in accordance with the proviso to Article 80 (3) of the former Income Tax Act (amended by Act No. 1358, Dec. 15, 2015) and Article 143 (4) 2 (b) of the former Enforcement Decree of the Income Tax Act (amended by Act No. 13558, Dec. 15, 2015). However, the instant disposition is unlawful and thus, should be revoked.

2) As to reduction of special tax on small and medium enterprises

After obtaining a specialized construction business license, the Plaintiff constitutes a business entity that directly operates the instant housing because the Plaintiff, under the Plaintiff’s responsibility and supervision, employs the Plaintiff’s worker and directly constructs the instant housing. Therefore, the instant disposition that excluded the application of the special tax reduction and exemption provisions for small and medium enterprises under Article 7 of the former Restriction of Special Taxation Act should be revoked as unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination on the assertion on the application of the special tax reduction and exemption provision

The argument concerning the application of the special tax reduction and exemption regulations for convenience is first examined.

1) Articles 2(3), 7(1)1(g), and 7(1)2 of the former Restriction of Special Taxation Act provide that an amount equivalent to the tax reduction or exemption calculated by multiplying the income tax rate of the relevant place of business by 20/100, which is the income derived from the relevant place of business until the taxable year ending on or before December 31, 2017; however, the classification of the type of business used in this Act is in accordance with the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22 of the Statistics Act.

In addition, according to the Korean Standard Industrial Classification (Korea Standard Industrial Classification No. 2007-53, Dec. 28, 2007) which was applied in the global income tax taxable period subject to the disposition of this case, "residential building construction business (Classification No. 4111)" refers to the industrial activities of constructing residential buildings, such as single and multi-households, apartment houses, etc., solely and multi-households, and apartment houses. On the other hand, the industrial activities of constructing residential buildings and selling and selling them are classified as "residential building development and supply business (Classification No. 68121, Dec. 1, 200)."

2) In light of the following circumstances, comprehensively taking account of the aforementioned evidence and evidence set forth in the evidence Nos. 5 and 6 evidence, which can be recognized by comprehensively considering the purport of the entire pleadings, the Plaintiff’s business related to global income tax for the year 2015, subject to the instant disposition, constitutes “the development and supply of a residential building” under the Korea Standard Industrial Classification, and it is difficult to view that the Plaintiff’s business subject to the instant disposition constitutes a construction business subject to the special

가) 이 사건 주택과 같이 연면적 661㎡를 초과하는 주거용 건축물의 경우 건설업 면허를 소지한 전문건설업자가 시공하여야 하고, 이 사건 주택의 건축물대장에도 시공자가 그러한 면허를 가진 주식회사 ◆◆건설로 기재되어 있다.

B) The Plaintiff lent the construction business license of the said company to the Plaintiff and directly carried out the instant construction work. However, the Plaintiff asserted that the specialized constructor should be the contractor and only entered the said company as the contractor. However, there is no evidence to prove the fact of the Plaintiff’s license lending. Furthermore, there is no evidence to deem that the Plaintiff satisfied the human, physical, or capacity to carry out the instant housing construction work under the overall responsibility.

C) It is difficult to readily conclude that the pertinent employee, etc. was a person who performed the instant housing construction project, solely on the basis of the report on performance of withholding taxes, the detailed statement of payment of daily wages, and the data of wage ledgers (Evidence A6 and 7) submitted by the Plaintiff, and it seems insufficient to construct the instant housing only by the employees in the details of withholding taxes. Furthermore, the purchase amount, such as the reported labor cost and the materials cost recognized as the tax invoice, etc. is the amount that significantly falls short of the sales revenue amount of the instant housing (in the calculation by the

3) Therefore, the Plaintiff’s assertion that Article 7 of the former Restriction of Special Taxation Act shall apply on the premise that the Plaintiff’s business income for the year 2015 is income accrued from the construction business is without merit.

D. Determination on the assertion on the application of simple expense rate

1) Relevant statutes and legal principles

A) Article 5(1) of the former Income Tax Act provides that a taxable period for income tax shall be one year from January 1 to December 31. According to the proviso of Article 80(3) of the former Income Tax Act and Article 143(3) of the former Enforcement Decree of the Income Tax Act, when a determination or correction of income amount is made by deducting the amount obtained by multiplying the purchase cost, rent, personnel expenses, and income amount by standard expense rate from the income amount. However, for a person subject to the application of simple expense rate, the amount of income shall be determined or corrected by deducting the amount obtained by multiplying the income by

The term "person subject to the application of simple expense rate" of the above provision means a constructor (including a residential building development and supply business; Articles 143(4)1 and 208(5)2(b) of the former Enforcement Decree of the Income Tax Act; or a constructor (including a residential building development and supply business; Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act); or a constructor (including a residential building development and supply business; Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act) whose revenue amount in the immediately preceding taxable period falls short of 36 million won

B) The Housing Construction and Sales Business Act related to the instant housing is included in real estate sales business due to its nature as a business that newly constructs and sells housing (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). The commencement of business shall not be formally determined on the basis of the date of business registration, etc., but be determined on the basis of the time when the preparation for the instant business is completed and the preparation for the original business is performed or is able to perform the original business purpose (see, e.g., Supreme Court Decision 94Nu15905, Dec. 8, 1995). Meanwhile, whether the instant housing sales and sales business income under the Income Tax Act constitutes business income under the Income Tax Act ought to be determined according to ordinary social norms, taking into account the existence of the profit-making purpose of the relevant business, the scale and frequency of the business, and the existence of continuity and continuity to the extent that it can be seen as business

2) Determination on the timing of commencement of business

In light of the aforementioned relevant statutes and legal principles, considering the following circumstances revealed by comprehensively taking account of the evidence and the purport of the entire pleadings, it is reasonable to deem that the taxable period in which the instant housing-related business commenced was not 2014 years from the time of sales by-products, but 2015 years from the date of sales by-products of this case.

A) The Plaintiff asserts a commencement of the business on the premise that he himself directly built the instant house. However, Article 19(1) of the former Income Tax Act provides for business income subject to imposition of income tax and provides that the scope of the business shall be in accordance with the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22 of the Statistics Act. As seen earlier, the Plaintiff, without carrying out direct construction activities under the aforementioned classification, built the entire building through a package contract, etc. and carried out a housing construction business as a "business for the development and supply of residential buildings for sale and sale". Accordingly, the Plaintiff’s commencement of the business should be determined based on such "business for the development and supply of buildings".

B) The mere fact that there was a small-sum sales of instant by-products prior to the new construction of the instant housing, it is difficult to deem that the Plaintiff was equipped with the objective substance of the business by completing a business preparation for the housing construction and sales business with the characteristic of real estate sales business, or by continuing and repeated business activities for the purpose of housing construction and sales business, and there is no ground to support the Plaintiff’s intention to engage in the housing construction and sales business for the purpose of profit prior to the occurrence of the instant housing sales revenue. Therefore, it is reasonable to deem that the Plaintiff commenced the business only in 2015, where the instant housing sales revenue occurred.

C) Meanwhile, the Plaintiff asserts to the effect that the starting point of business is illegal because it determines the starting point of business pursuant to the provisions of the Value-Added Tax Act. However, considering the relevant provisions and structure and purport of the former Income Tax Act and the Value-Added Tax Act, there is no particular problem that the starting point of business of a person subject to simple expense rate under Article 143(4)1 of the former Enforcement Decree of the Income Tax Act is regarded as the starting date of supply of goods or services under Article 6 subparag. 3 of the Enforcement Decree of the Income Tax Act. ① Article 168 of the former Income Tax Act provides that a person who has registered his business pursuant to the Value-Added Tax Act shall be deemed as having registered his business under the Income Tax Act, and Article 8 of the former Value-Added Tax Act shall be applied mutatis mutandis to the time of application for the business, and Article 5(2) of the Value-Added Tax Act shall be deemed as having been applied mutatis mutandis to the new business for the purpose of Article 17 of the former Enforcement Decree of the Income Tax Act.

3) Whether the simple expense rate is applicable

As seen earlier, it is evident that the income of the Plaintiff’s place of business in 2015, which started the instant housing business, is at least KRW 150 million. Thus, the Plaintiff is not subject to the application of simple expense rate because the amount of income in the relevant taxable period, which newly commenced the business, falls short of KRW 150 million under Article 143(4)1 of the former Enforcement Decree of the Income Tax Act, is not a business operator subject to the application of simple expense rate. Therefore, the Plaintiff’s assertion that the Plaintiff becomes subject to the application of simple expense rate under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act on the premise that the Plaintiff started the business in

3. Conclusion

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