The commencement of business of the Housing Construction and Sales Business shall be the starting point of sale of each house of this case.

It is difficult to deem that the business has commenced solely on the fact that a house was completed or temporarily leased before the completion of construction, and if the business has been closed even after the completion of business registration, it shall be deemed that the business has reached the status of the completion of the business due to the failure to establish the content of the business to perform any longer as the business has already been achieved.

Article 143 (4) of the Enforcement Decree of the Income Tax Act

2019Guhap5606 global income and revocation of disposition

ZE et al.

AA Head of tax office et al.

2019.08.20

October 17, 2019

1. All of the plaintiffs' claims are dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

Cheong-gu Office

On July 2, 2018, Defendant AA Tax Office’s imposition of global income tax on KRW 93,212,570 (including additional tax; hereinafter the same shall apply) made to Plaintiff AE, and Defendant BB Tax Office’s imposition of global income tax on KRW 280,96,130, each of which was made by Defendant BB Tax Director to Plaintiff ACC.

1. Details of the disposition;

A. On April 27, 2011, the Plaintiffs registered a business (business number:****-*-*******; hereinafter referred to as “instant first business”) with the trade name called “O house” in Seoul OOO-gu O-dong 113-38, and constructed three units of housing (hereinafter referred to as “existing houses”) on the land outside 113-38 and two parcels of OO-dong 113-2, Seoul, and then sold three units of housing (hereinafter referred to as “existing houses”) for all years in 2013 and reported the amount of revenue therefrom, and subsequently closed the instant first business on August 18, 2014 as of June 30, 2014.

B. On November 5, 2014, the Plaintiffs filed an application for the resumption of the instant primary business, and corrected the location of the place of business on November 28, 2014 to 176-8, Seoul OOE, and on November 28, 2014, the Plaintiffs changed their respective shares ratio between 70% and 30% to 80% and 20% to 176-8, respectively, and filed a corrective report on the registration of the instant primary business.

C. On November 14, 2014, the Plaintiffs acquired a house with a total floor area of 598.47 square meters on the ground (7 households, officetels 2, etc.; hereinafter referred to as “first house”) on the ground (the commencement date: December 2, 2014) and sold it in KRW 2.56 billion on September 1, 2015.

D. Meanwhile, on July 20, 2013, the Plaintiffs: (a) purchased a house of 596 square meters in total (12 households, multi-household households, etc.; (b) on September 4, 2014; (c) 80% and 20%, and registered joint business operators (3*****-*-*-*-***; (d) however, (c) on September 9, 2013, the Plaintiffs purchased a house of 171-17 large scale 152.12 square meters in Seoul OO-gu, Seoul; and (d) on September 4, 2014, 196 large area of 59 square meters in total (12 households, etc. of urban living housing; hereinafter referred to as “200 million won”); and (d) newly constructed a house of 150 million won in total (1.25 billion won in total) and 305 billion won in total (1.5 billion won in total).

E. In the event that the amount of income less than the amount prescribed in 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 the same shall apply) was generated in 2014, which was the taxable period immediately preceding the pertinent taxable year in which the sales revenue of each of the instant houses was generated, the Plaintiffs calculated estimated income by applying the simple expense rate under the above provision, and accordingly, reported and paid the global income tax for 2015 (the Plaintiff’s return and payment of global income tax related to the instant 2 houses of this case was made in the name of ParkD).

F. From April 18, 2018 to May 17, 2018, the director of the Seoul Regional Tax Office notified the Defendants of the taxation data so that income tax belonging to the Plaintiffs in 2015 should be calculated as standard expense rate and revised, respectively, as a result of conducting a personal integration investigation with respect to the Plaintiffs’ instant projects and the instant projects, respectively. On July 2, 2018, Defendant AAA Head of the Seoul Regional Tax Office notified the Plaintiff ZE of the global income tax amounting to KRW 93,212,570, and Defendant BB Head of the Seoul Regional Tax Office notified the Plaintiff ZE of the correction and correction of global income tax amounting to KRW 280,96,130, global income tax amount corresponding to the year 2015 (hereinafter collectively referred to as “instant disposition”).

G. On November 5, 2018, the Plaintiffs dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on November 5, 2018, but the Tax Tribunal dismissed the said appeal on January 4, 2019.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 4, 5, Eul evidence Nos. 1 through 4, and 6 (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

Since the Plaintiffs continued to conduct construction and real estate business in a joint manner since 2013, and the occurrence of a joint revenue of KRW 10,580,00 (real estate rental business) through the lease of the second house in this case in 2014, Article 80(3) of the former Income Tax Act (amended by Act No. 15225, Dec. 19, 2017; hereinafter the same shall apply) and Article 143(4)2(a) of the former Enforcement Decree of Income Tax Act should be applied to the instant disposition that applied the “standard expense rate” as it constitutes a continuing business operator (existing business operator) whose revenue amount in the immediately preceding taxable period is less than KRW 36 million. Therefore, the instant disposition that applied the “standard expense rate” on a different premise should be revoked as it is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) 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 the amount of income is estimated or revised, the amount of income shall be determined or revised by deducting the purchase cost, rent, labor cost, and income from the amount of income from the amount of income by standard expense rate. However, with respect to a person subject to the application of simple expense rate, the amount of income shall be determined or corrected by deducting the amount of income from the amount of income from the amount of income by simple expense rate. The term "person subject to simple expense rate" means a business operator newly commencing a business in the pertinent taxable period, and the amount of income in the pertinent taxable period is below KRW 150 million (including the business development and supply of residential buildings; hereinafter the same shall apply) and Article 143(5)2(b) of the former Enforcement Decree of the Income Tax Act and Article 143(3) of the former Enforcement Decree of the Income Tax Act explicitly provides for the definition of business operator and the definition of Article 18(1) of the former Enforcement Decree.

On the other hand, under the principle of no taxation without law, tax laws shall be interpreted in accordance with the law, unless there are special circumstances, and it is not permissible to expand or analogically interpret without reasonable grounds.

However, even based on the language and text of tax law itself, if its meaning is unclear, or if it appears that there is a conflict between laws and regulations, the court should naturally clarify the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations. In such cases, a judge can make a combined interpretation of the laws and regulations that consider legislative intent, purpose, etc. to the extent that it does not undermine legal stability and predictability pursued by the principle of no taxation without law (see, e.g., Supreme Court en banc Decision 2011Du551, Apr. 16, 2015).

2) According to the following circumstances revealed by comprehensively taking account of the contents of the relevant statutes and the evidence and the purport of the entire pleadings, it is reasonable to deem that, in the case of housing construction and sales business run by the Plaintiffs, the commencement date of the business is not the date of the Plaintiffs’ existing business registration or the commencement date of each of the instant housing, but the time when the supply of each of the instant housing was objective and practical, namely, the starting date of

① Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010); Article 143(4)2 of the same Enforcement Decree provides that, “an entrepreneur newly commencing a business during the pertinent taxable period, other than a newly commencing one, shall apply simple expense rates to “an entrepreneur whose total amount of revenue during the immediately preceding taxable period (including an increased amount of revenue due to determination or revision) falls short of the standard amount.” Thereafter, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act amended by Presidential Decree No. 22580, Dec. 30, 2010; Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010; Presidential Decree No. 22100, Feb. 13, 2012>

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income for the taxable period that begins after February 13, 2018, is amended by Presidential Decree No. 28637, which applies to the portion of income for the taxable period that begins after January 1, 2019, provides that the standard amount of expense shall be applied by excluding the amount of income from the application of simple expense expense expense when the amount of income for the taxable period concerned falls short of the standard amount of income for the immediately preceding taxable period, even if the total amount of income for the taxable period falls short of the standard amount.

In light of the legislative history of Article 143(4) of the Enforcement Decree of the Income Tax Act, the simple expense system is a system to minimize the tax payment costs of small small-scale business operators who lack the capacity to keep records on the disbursement of major expenses required by the standard expense system. Furthermore, according to the text of the Addenda, legislators seem to have gradually reduced the scope of business operators subject to the simple expense rate application. Furthermore, according to the text of the Addenda, legislators seem to have known the "construction commencement", "construction business, construction business related thereto, and commencement of real estate development and supply business" as separate concepts. Therefore, considering these legislative intent, in the case of housing construction and sales business that runs a business for a long period exceeding a certain scale due to the nature of the business, it is necessary to grasp the commencement date of the business rather than the commencement date that can determine the time according to the intent of the business operators

② The commencement date of the housing construction and sales business should be determined on the basis of the time when the preparation for the business is completed, not formally on the basis of the date of business registration, etc., but on the basis of the time when the business was completed or is able to perform its original business (see Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial housing construction and sales business is included in real estate sales business (see Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose of the initial housing construction and sales business is to sell housing ultimately. Therefore, the fact that the existing housing was completed or temporarily leased after completion of the construction or completion of the construction of the existing housing cannot be seen as having commenced the business (sale). In addition, if the Plaintiffs had closed the business before the completion of the construction of the existing housing unit, it cannot be deemed that the existing housing unit sales business had been completed due to the completion of the construction or distribution of the housing unit sales business, and it cannot be deemed that the Plaintiffs continued to have completed the existing housing unit sales business.

③ Whether business income falls under business income under the Income Tax Act shall be determined according to social norms, taking into account whether business activities are continuously and repeatedly conducted in light of the business profit purpose, the scale, frequency, mode, etc. of business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, there is no evidence suggesting that the Plaintiffs objectively expressed their intent to engage in the housing construction and sales business related to each of the of the of the of the of the instant houses for profit purposes before commencing the sale of each of the instant houses. The fact that the Plaintiffs sold the existing houses or completed business registration under the Housing Construction and Sales Business Act, or that the Plaintiffs commenced or completed each of the of the instant houses is insufficient to deem that the activities continuously and repeatedly conducted for profit purposes consisting of continuous and repeated activities for profit purposes.

3) Furthermore, under the premise that the application of simple expense rate under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act is running a business in the immediately preceding taxable period, the case where the amount of revenue falls short of a certain amount is stipulated. Therefore, insofar as the business operation is not yet recognized at the time when the Plaintiffs obtained lease revenue as the second house of this case, there is no room for falling under the standard amount under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act from the beginning. Accordingly, the Plaintiffs’ assertion that the amount of revenue in 2014 constitutes a simple expense rate under the premise that the Plaintiffs is a business

4) Furthermore, according to the purport of Gap evidence No. 2 and the entire pleadings, it is evident that the amount reported by plaintiff CE in 2015 for the first house of this case was KRW 512,00,000 for the second house of this case, and KRW 488,00,000 for the second house of this case, and that the amount reported by plaintiff CC in 2015 for the second house of this case was KRW 2,048,000 for the second house of this case, and KRW 1,736,00,000 for the second house of this case. Thus, it is apparent that the plaintiffs' revenue amount does not fall short of KRW 15,00,000 for the second house of this case as a new business operator in 2015, and that the taxable period of this case was not more than KRW 1,736,00,000 for the second house of this case.

5) Ultimately, the instant disposition that calculated the amount of income according to the estimation method based on the existing premium rate is legitimate, considering that the Plaintiffs are not subject to the application of simple expense rate. Therefore, the Plaintiffs’

3. Conclusion

Therefore, all of the plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.