Seoul High Court 2012Nu39782 (Law No. 13, 2013)

The disposition that considers the apartment to have not been resold is legitimate.

In light of the fact that there was approval for the use of apartment at the time of transfer of the right to sell apartment and the registration for preservation of ownership was completed in the name of the selling company, the unpaid sale price was extremely poor in light of the total sale price, and the economic ability to pay the remaining sale price at the time is deemed to have been sufficient, etc., the disposition taken by deeming that

2013Du13563 Revocation of Disposition of Imposing capital gains tax

1. The HongA 2. KimB

Head of Yongsan Tax Office

Seoul High Court Decision 2012Nu39782 Decided June 13, 2013

April 23, 2015

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

Article 94 (1) of the former Income Tax Act (amended by Act No. 9774 of Jun. 9, 2009; hereinafter the same) provides that "transfer income shall be the income falling under any of the following subparagraphs generated in the current year." Article 94 (1) of the former Income Tax Act provides that "transfer income shall be the income accruing from the transfer of land or a building, which is subject to taxation, and "income accruing from the transfer of the right to acquire real estate (including the right to acquire a building upon completion of its construction and its appurtenant land)" in subparagraph 2 (a). Meanwhile, Article 104 (1) 3 of the former Income Tax Act provides that "transfer income shall be subject to heavy taxation of 70/10 for unregistered transferred assets, while Article 94 (1) 1 and 2 of the former Income Tax Act provides that "transfer of unregistered transferred assets" shall be made by a person who has acquired assets under Article 94 (1) 1 and 2 without registering the acquisition of such assets.

In light of the above provisions, where a purchaser who entered into a real estate sales contract transfers his/her rights and duties or purchaser’s status to a third party and withdraws from the sales contract, barring special circumstances, such as where a special agreement was entered into between the purchaser and the purchaser prior to the completion of the registration of ownership transfer even before the remainder is fully paid, the registration of acquisition is impossible. Thus, in principle, the heavy taxation rate on unregistered transfer assets under Article 104(1)3 of the former Income Tax Act cannot be applied even if such transfer is made (see Supreme Court Decision 2010Du23408, Sept. 27, 2012). However, if a purchaser who entered into a real estate sales contract pays the remainder of the remainder as well as the down payment, the registration of acquisition is possible if there are special circumstances such as transfer of his/her rights to real estate without paying the remainder due to the intent to avoid the tax rate of capital gains tax and the application thereof. In such cases, the rate of taxation on unregistered transfer assets under Article 104(1)3 of the former Income Tax Act shall be applied (see Supreme Court Decision 2015Du17151.

According to the reasoning of the judgment of the first instance as cited by the court below and the evidence duly admitted by the court below, the plaintiffs acquired the right to purchase the apartment of this case supplied by DD shopping Co., Ltd. (hereinafter referred to as 'DD shopping') on December 31, 2002, and paid the remainder of the sales price after receiving a discount of part payment on February 6, 2003 and paying the part payment in full, out of the remainder of February 10, 2006, excluding OOOO's total sales price. The apartment of this case was approved for use on November 22, 2005 and completed the registration of ownership transfer on December 29, 2005. The plaintiffs paid the remainder of 200 OO's exclusive ownership transfer on November 17, 2006 and completed the registration of ownership transfer to 207O's exclusive ownership transfer (hereinafter referred to as '200O'). Meanwhile, the plaintiffs were liable to transfer the right to the apartment of this case.

Examining these facts in light of the legal principles as seen earlier, since only the down payment and intermediate payment have already been paid to the apartment of this case, and considerable portion of the remainder payment has already been paid, the Plaintiffs immediately paid part of the remainder payment and registered the acquisition thereof, notwithstanding the fact that they could have been registered immediately, they transferred the apartment of this case with the intention to avoid the application of heavy taxation of capital gains tax, and thus, the transfer thereof constitutes the transfer of unregistered transferred assets under Article 104(3) of the former Income Tax Act.

In the same purport, the lower court was justifiable to have determined that the instant disposition, which applied the heavy taxation rate under Article 104(1)3 of the former Income Tax Act, by deeming the transfer of unregistered transferred assets, was lawful. In so doing, it did not err by misapprehending the legal doctrine on the scope of unregistered transferred assets subject to heavy taxation.

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.