Seoul High Court 2011Nu15185 ( November 09, 2011)

early 2010 Heavy0630 (2010.04.08)

No transfer shall be deemed to be made inasmuch as the sales contract was cancelled and void retroactively.

Since a sales contract was retroactively invalidated due to the fulfillment of the terms and conditions of rescission, it cannot be deemed that there was a transfer of assets, which is a taxation requirement of capital gains tax, and it cannot be deemed that there was a third party purchaser of real estate, and thus, it cannot be deemed that the damage claim or a part of the purchase price not returned, which was acquired due to

2011Du31802 The revocation of the disposition of refusal to request capital gains tax rectification

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Head of Namyang District Tax Office

Seoul High Court Decision 2011Nu15185 Decided November 9, 2011

November 29, 2012

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

The grounds of appeal are examined.

Article 4(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009) provides that a resident’s income shall be classified into global income, retirement income, and transfer income, and thus, “income accrued from the transfer of assets” (Article 3). As such, capital gains tax is imposed on income from the transfer of assets. Thus, even if a sales contract appears to have been transferred by a sales contract, if a sales contract becomes null and void from the beginning or later cancelled, the sales contract received by the transferor should be returned to the transferee in principle, and thus, it shall not be deemed as a taxable object of capital gains tax (see, e.g., Supreme Court en banc Decision 2010Du23644, Jul. 21, 201). Thus, even if the transferor had concluded a sales contract for real estate and completed the registration of ownership transfer in the future, it cannot be deemed that the transferor’s income becomes retroactively null and void and void, and thus, the transferor cannot be deemed as having been subject to capital gains tax.

According to the reasoning of the judgment of the court below, the plaintiff entered into a sales contract for the real estate in this case with HA and transferred the ownership registration to HA while receiving part of the purchase price from the buyer, and HA again transferred the ownership registration to HB, etc. The plaintiff filed a lawsuit against HA to HB, etc. thereafter, the plaintiff filed a lawsuit seeking confirmation of invalidity of the sales contract in this case against HA, and the court rendered a judgment in favor of the plaintiff on the ground that the cancellation condition regarding the settlement of capital gains tax was fulfilled. The above judgment became final and conclusive on June 16, 2009. The plaintiff filed a final and conclusive return and payment of capital gains tax for the year 2008 in relation to the sales contract in this case, but the defendant filed a request for correction on the ground that the above final and conclusive judgment was not returned, but the defendant dismissed the above disposition

Examining the above facts in light of the legal principles as seen earlier, since the sales contract in this case was retroactively invalidated due to the fulfillment of the condition of rescission, it cannot be deemed that there was a transfer of assets, which are the taxation requirement of capital gains tax, and it cannot be deemed that the third purchaser of the real estate in this case, who was thereby unable to restore to the original state in the future of the Plaintiff, and that the damage claim acquired by the Plaintiff or the purchase price for a part of the purchase price that the Plaintiff is not

Nevertheless, the court below determined that the disposition of this case rendered by the defendant was lawful on the premise that the plaintiff suffered income from the transfer of the real estate of this case. The judgment below erred by misapprehending the legal principles on the transfer of assets subject to capital gains tax, which affected the conclusion of the judgment. The ground of appeal assigning this error

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.