Where the tax authority calculates transfer income tax according to the actual transaction price confirmed by the proviso to Article 114 (4) of the former Income Tax Act, whether the transfer income tax calculated according to the standard market price may be exceeded (negative)

The proviso of Article 114 (4) of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002) shall be interpreted as the transfer income tax calculated on the basis of the standard market price if the transferor makes a preliminary or final return on the tax base of transfer income, and if the tax authority confirms the actual transaction price different from the fact, the actual transaction price shall be determined on the basis of the confirmation price, but it shall be interpreted as not exceeding

Articles 96(1)6 and 114(4) (see current Article 114(4) and (6)) of the former Income Tax Act (Amended by Act No. 6781, Dec. 18, 2002)

[Plaintiff-Appellant] Plaintiff 1 et al. (Gong2000Sang, 1213 et al., Counsel for plaintiff-appellant)

Plaintiff (Law Firm Sejong, Attorneys Kim Ba-young et al., Counsel for plaintiff-appellant)

Head of Seogsan Tax Office

Busan District Court Decision 2006Guhap1464 Decided April 17, 2008

September 12, 2008

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposition of capital gains tax of KRW 269,351,360 for the Plaintiff on October 5, 2005 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Details of the disposition;

A. On February 1, 200, the Plaintiff owned each real estate listed in the separate sheet No. 1 (hereinafter “the instant real estate”) in the auction procedure for real estate rent of KRW 582,00,00,00 in the bid price, and remodeled the inside and outside of the building listed in the separate sheet No. 12 (hereinafter “the instant building”) between July 1, 2002 and August 14, 2002, sold the instant real estate to the Nonparty for KRW 1,268,000,000 in the purchase price. The said purchase price was KRW 565,00,000 in the real estate price, KRW 680,00 in the cost of remodelling the instant building, and KRW 300,00 in the instant building, and assessed the various types of equipment of the instant building as KRW 300,300,000 in the shape of the instant building.

B. At the time of entering into the above sales contract, the Plaintiff and the Nonparty, in addition to the sales contract where the sales amount is KRW 1,268,000,000, written a sales contract where the sales amount is KRW 550,000 in order to reduce various tax burdens between the transferor and the transferee.

C. On November 8, 2002, when the Plaintiff reported the transfer income tax on the instant real estate to the Defendant as the actual transaction price, the Plaintiff reported the acquisition price to KRW 582,00,000,000, and the transfer price to KRW 550,000. The Defendant around August 2005 confirmed the actual transaction price at the time of acquisition as KRW 582,00,000, and confirmed the actual transaction price at the time of transfer as KRW 1,278,00,000, and imposed the transfer income tax on the Plaintiff on October 5, 2005 based on the actual transaction price confirmed on the grounds that the transfer price reported by the Plaintiff was less than the actual transaction price confirmed (hereinafter “instant disposition”).

[Reasons for Recognition] Facts without dispute, Gap 1 through 8 (including each number), Eul 1 and 2, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The parties' assertion

(1) The plaintiff's assertion

The proviso of Article 114 (4) of the former Income Tax Act (amended by Act No. 6781, Dec. 18, 2002; hereinafter the same) shall be interpreted to apply only to the extent that the tax amount based on the actual transaction price does not exceed the amount based on the standard market price of the relevant asset, in light of the Constitutional Court Order No. 94HunBa40, Nov. 30, 1995. In the case of the Plaintiff, the transfer income tax on the real transaction price of the instant real estate exceeds the transfer income tax calculated based on the standard market price. Thus, the transfer income tax on the instant real estate shall be calculated based on the standard market

(2) The defendant's assertion

The provision at issue was amended by Act No. 6051, Dec. 28, 1999 as the provision of Article 96 of the Income Tax Act, which became a matter of law on the ground that the above limited decision of unconstitutionality of the plaintiff's assertion was stipulated in the Enforcement Decree, and was subsequently amended by the enactment of the proviso of Article 114 (4) of the Income Tax Act by Act No. 6557, Dec. 31, 2001. Since the defendant confirmed the actual transaction price and imposed the transfer income tax accordingly, the disposition at issue is lawful, and the plaintiff's assertion that the transfer income tax of the real estate at issue should be calculated based on the standard market price is without merit.

B. Relevant statutes

Attached Form 2 shall be as shown in attached Table 2.

(c) Markets:

(1) Interpretation of the proviso of Article 114(4) of the former Income Tax Act

(3) Article 96 of the former Income Tax Act provides that "it shall be based on the standard market price at the time of transfer of the relevant asset, in principle, at the time of the transfer of the relevant asset, and shall be based on the actual transaction price under the proviso to Article 110 (1)" as one of the exceptional cases where the transferor may make a return of the actual transaction price at the time of transfer and acquisition to the head of the tax office having jurisdiction over the place of tax payment by the deadline for final return under the proviso to Article 110 (1) of the Income Tax Act." This provision provides that where certain assets are transferred in accordance with the standard market price principle, it shall be deemed as a provision to supplement the actual transaction price so that the taxpayer does not suffer any disadvantage than the actual transaction price due to the calculation of transfer margin under the standard market price method, even if the actual transaction price at the time of transfer and acquisition pursuant to the proviso to Article 16 of the former Income Tax Act can be interpreted as more than the standard market price at the time of tax return (see Supreme Court Decision 99Du7277, Dec. 37, 20005).

(2) Calculation of transfer income tax following the transfer of the instant real property

If the transfer income tax on the real estate of this case is calculated based on the standard market price, it becomes zero won as shown in the attached Table 3 Calculation Table. Accordingly, even if the amount of tax calculated based on each actual transaction price at the time of acquisition and transfer confirmed by the defendant, the transfer income tax on the real estate of this case shall be calculated based on the standard market price, and otherwise, the disposition of this case is unlawful, which is calculated based on the actual transaction price confirmed by the defendant.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be accepted on the grounds of its reasoning, and the judgment of the court of first instance is just and therefore the defendant's appeal is dismissed. It is so decided as per Disposition.

Judges Kim Shin (Presiding Justice)