Seoul High Court Decision 2011No. 41

Application of the standard market price when the actual transaction price is not confirmed in the standard market price principle.

Unless the actual transaction price at the time of transfer or acquisition is confirmed because the actual transaction price at the time of land acquisition, the transfer income tax shall be calculated according to the standard market price at the time of transfer and acquisition.

2013Guhap10403 Revocation of Disposition of Imposing capital gains tax, etc.

Gangwon A

Head of Maritime Tax Office

November 14, 2013

December 5, 2013

1. Of the instant lawsuit, the part that the Defendant sought revocation of the imposition of OOO of the local income tax belonging to the year 2006, which was against the Plaintiff on June 7, 2012, shall be dismissed.

2. On June 7, 2012, the part of the principal tax imposed by the Defendant on the Plaintiff for the imposition of capital gains tax for the year 2006, exceeding OOO and penalty tax, respectively, shall be revoked.

3. The plaintiff's remaining claims are dismissed.

4. One-fifth of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

Cheong-gu Office

On June 7, 2012, the defendant revoked the imposition of OOO of transfer income tax and OOO of local income tax for the plaintiff on June 7, 2012 (the "local education tax" in the purport of the complaint seems to be a clerical error in the "local income tax").

1. Details of the disposition;

A. On March 12, 1997, the Plaintiff purchased the sales price of O23-1 0,504 m23-1 m2,000 m24,496 m24,000 m24,496 m2,000 m2,000 (hereinafter collectively referred to as “the entire land of this case”) from OB from OB, and completed the registration of ownership transfer in the name of the Plaintiff on March 19, 197 with respect to the entire land of this case.

B. After doing so, 17,563 square meters among the above mountain 23-1 land became an O-si O-si O-si 126-6 miscellaneous land 17,563 square meters (hereinafter “the instant land”) through the process of division and land category change.

C. On December 28, 2006, the Plaintiff sold the instant land toCC Construction Co., Ltd. (hereinafter “CC Construction”), and completed the registration of ownership transfer in the name ofCC Construction on December 29, 2006.

D. On February 28, 2007, the Plaintiff filed a preliminary return on the transfer income tax for the Defendant for the year 2006, and the transfer value was calculated by calculating the transfer income amount as the OOO, and the acquisition value was reported and paid by the OOO of the transfer income tax.

E. The director of the Gwangju Regional Tax Office conducted a tax investigation on the transfer income tax of the instant land from April 12, 2010 to April 30, 2010, and determined that the Plaintiff’s acquisition value of the instant land is the acquisition value of the instant entire land, and the acquisition value of the instant land among them is an OO won. Accordingly, the Defendant issued a notice of correction and notification of the transfer income tax OOOOO director to the Plaintiff on June 10, 2010.

F. However, as a result of the Board of Audit and Inspection’s audit of the tax investigation operation status from October 6, 201 to November 24, 2011, the instant land cannot be confirmed by books or other documentary evidence, and thus, it determined that the acquisition value should be deemed an OO (OO) equivalent to the conversion value, and accordingly notified the Defendant to correct the transfer income tax accordingly.

G. Accordingly, on June 7, 2012, the Defendant corrected and notified the Plaintiff’s KRW OOO of capital gains tax and KRW OOO of local income tax for the year 2006 (hereinafter “instant imposition of capital gains tax”), and imposed the said imposition of capital gains tax, “the instant imposition of capital gains tax” and “the instant imposition of local income tax.”

H. The Plaintiff appealed and filed a request for review with the Board of Audit and Inspection on September 24, 2012. However, the Board of Audit and Inspection dismissed the Plaintiff’s request for review on March 14, 2013.

[Reasons for Recognition] Each entry of Gap evidence 1 through 5 (including paper numbers), the purport of the whole pleadings

2. Whether the part of the instant lawsuit seeking revocation of imposition of local income tax of the instant case is legitimate

According to Article 177-4(1), (2), and (5) of the former Local Tax Act (amended by Act No. 8864 of Feb. 29, 2008), resident tax to be imposed (applicable to local income tax under the current Local Tax Act) is a local tax to be paid to the head of a Si/Gun/Gu having jurisdiction over the place for payment of income tax. If the head of a tax office collects income tax through the method of imposing a notice of imposition according to the correction, determination, etc. under the Framework Act on National Taxes or the Income Tax Act, it appears that the head of the relevant Si/Gun/Gu imposed a notice of imposition along with the resident tax, and thus, the head of the relevant Si/Gun/Gu has the jurisdiction over the place for payment of income tax (see Supreme Court Decision 2004Du1459, Feb. 25, 2005).

Therefore, among the instant lawsuits, the part seeking revocation of the imposition of local income tax of this case is unlawful as it is against a non-qualified person.

3. Whether the disposition of transfer income tax of this case is legitimate

A. The plaintiff's assertion

1) The Plaintiff, while purchasing the entire land of this case from privateB to OB, agreed between the privateB and the purchase price for the land of this case among the entire land of this case as OOO and the sales price for the remaining land as OOO. As such, the actual acquisition price of the land of this case is OO.

2) Even if the actual acquisition value of the instant land is not confirmed as an OO won, the acquisition value of the instant land ought to be calculated based on the standard market price pursuant to Articles 94(1)1, 96(2)6, and 97(1) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006; hereinafter the same shall apply).

3) Even if the acquisition value of the instant land is calculated by estimation rather than based on the standard market price, according to Article 114(5) of the former Income Tax Act and Article 176-2 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 19890, Feb. 28, 2007; hereinafter the same), the acquisition value of the instant land shall be determined by estimation investigation in the order of transaction example, appraisal value, conversion value, and standard market price. As to the instant land, there is only the appraisal value (OO) assessed by Sejong Mutual Savings Bank on June 24, 1997 at the time when the Plaintiff created a right to collateral security on the entire instant land. Since the Gwangju Regional Tax Office confirmed that the appraisal value based on the year 2002 of the instant land was OO on February 2, 2010, the acquisition value of the instant land should be calculated based on the above appraisal value.

4) According to Article 48(1) of the Framework Act on National Taxes, the Government does not impose the relevant additional tax if there is a justifiable reason for a taxpayer to failed to perform his/her duty. The head of Gwangju Regional Tax Office confirmed the actual acquisition value of the land of this case as an OOOO in the course of conducting a tax investigation on the transfer income tax of the land of this case, but the Board of Audit and Inspection conducted an audit on the actual tax investigation management status, and subsequently confirmed the actual transaction value of the land of this case, the Board of Audit and Inspection determined the acquisition value of the land of this case as the conversion value of the land of this case and notified the correction thereof. Accordingly, the defendant was subject to the disposition of imposition of the transfer income tax of this case from April 30, 2010, the date on which the Plaintiff issued the disposition of imposition of the transfer income tax of this case from June 10, 2012, which was the date on which the disposition of the transfer income tax of this case was issued. Therefore, additional tax for the above period should be revoked.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) As to the main tax of the instant disposition imposing capital gains tax

A) Articles 96(2) and 97(1)1(a) of the former Income Tax Act provide that the transfer value and acquisition value of assets under Article 94(1)1 and 2 of the same Act shall, in principle, be based on the standard market price at the time of transfer and that at the time of acquisition. In exceptional cases, one of the cases in which the actual transaction value is based on the actual transaction value is reported to the chief of the district tax office having jurisdiction over the place of tax payment by the deadline for final return on the transfer income tax base along with evidential documents.

On the other hand, Article 114 (4) of the former Income Tax Act provides that "if a resident makes a preliminary or final return on the tax base of transfer income pursuant to Articles 96 and 97 (1) 6 and the proviso of Article 97 (1) 1 (a) of the same Act, if the returned value is different from the fact, the tax base of transfer income and the amount of tax shall be corrected with the verified value as the transfer value or the amount of tax." In applying Article 114 (4) of the same Act, in case where the transfer value or the acquisition value is based on the actual transaction value and it is impossible to recognize or confirm the actual transaction value at the time of transfer or acquisition of the relevant asset by books or other documentary evidence due to the reasons as determined by the Presidential Decree, the transfer value or the acquisition value may be determined or corrected by making a preliminary investigation on the actual transaction value, the appraisal value, the conversion value (referring to the acquisition value converted by the actual transaction value, the purchase price or the appraisal value by the method as determined by the Presidential Decree) or the standard market value, etc."

B) In full view of the contents and purport of the above provisions, Article 96(1)6 of the former Income Tax Act and the proviso of Article 97(1)1(a) of the former Income Tax Act are interpreted as a provision that supplements the principle of assessment of the standard market price in order to prevent the transferor from being at a disadvantage than the time when the actual transaction price is calculated due to the calculation of the amount of capital gains based on the standard market price. Therefore, if the actual transaction price is not verified, the amount of capital gains should be calculated based on the standard market price in principle. However, Article 114(4) proviso of the same Act provides that where the head of the district tax office having jurisdiction over the place of tax payment confirms the actual transaction price differently from the reported amount, the amount verified shall be the transfer price or acquisition price, and thus,

In other words, where a transferor of assets under Article 94 (1) 1 and 2 of the former Income Tax Act is confirmed to be the actual transaction price and the reported value is confirmed to be the actual transaction price, capital gains shall be calculated based on such actual transfer and acquisition price. However, where the reported value is not confirmed to be the actual transaction price, capital gains shall be calculated based on the standard market price except where the proviso of Article 114 (4) of the same Act applies as the transferor confirms the actual transaction price different from the reported value by the chief of the district tax office having jurisdiction over the place of tax payment, etc., and the transfer value or acquisition value shall not be determined based on the estimated investigation by applying Article 114 (5) of the same Act (see Supreme Court Decision 2010Du275

C) Whether the actual transaction price at the time of acquiring the instant land is confirmed

After the Plaintiff acquired the entire land of this case, the land of this case was divided from the entire land of this case. The evidence submitted by the Plaintiff alone is insufficient to recognize that the Plaintiff agreed to acquire the entire land of this case as an OOO when the Plaintiff acquired the entire land of this case including this case, and there is no other evidence to acknowledge this otherwise.

D) Whether the standard market price should be determined or not

C) As seen in the above, insofar as the actual transaction price at the time of the transfer is not confirmed and the actual transaction price at the time of the transfer is not confirmed, the transfer income tax shall be calculated based on the standard market price at the time of transfer and at the time of acquisition pursuant to Articles 96(2) and 97(1)1(a) of the former Income Tax Act.

E) Calculation of legitimate capital gains tax

The determined tax amount of capital gains tax on the land of this case shall be the OOO members, such as written in the calculation of the attached tax amount, and if the tax amount so determined is deducted from the tax amount already paid (=OOO members voluntarily paid by the Plaintiff + the determined and notified tax amount paid by the Plaintiff) the amount of capital gains tax on the land of this case to be paid by the Plaintiff shall be the OO members.

2) As to the disposition imposing capital gains tax of this case

A) When both principal tax and additional tax are to be imposed upon a single tax payment notice, the individual tax amount and the basis for calculation thereof should be stated in the tax payment notice separately. In addition, where multiple types of additional tax are to be imposed, it is clear that the taxpayer can per se know the details of each tax disposition by classifying the amount and the basis for calculation thereof, even between them. As such, the imposition of additional tax is deemed an imposition disposition, and only the total amount of additional tax is entered without disclosing the type and the basis for calculation thereof, etc. (see Supreme Court en banc Decision 2010Du12347, Oct. 18, 2012). However, even if there is any defect in which matters required in the tax payment notice are omitted, if it is evident that a taxpayer already stated in the prior notice, etc. sent to the taxpayer prior to the tax payment notice, and thus, the defect of the tax payment notice can be corrected or cured (see Supreme Court Decision 201Du3979, Mar. 29, 201).

B) According to the statement No. 4-1 of the transfer income tax disposition of this case, the defendant is found to have failed to state the basis or type of the imposition of the transfer income tax of this case in the imposition of the transfer income tax of this case, and there are no other circumstances to deem that the defect was corrected or cured. Thus, the additional tax of this case is unlawful without examining the plaintiff's argument.

4. Conclusion

Therefore, the part of the lawsuit of this case seeking revocation of the disposition imposing local income tax of this case is unlawful, and thus, the claim for revocation of the disposition imposing the transfer income tax of this case is justified within the scope of the above recognition. The remaining claims are dismissed as they are without merit. It is so decided as per Disposition.