Whether a person who succeeds to a newly-built house is included in the subject of special taxation under Article 99(1)2 of the former Restriction of Special Taxation Act (negative), and whether the same applies to the case where the heir is a spouse of the inheritee (affirmative)

Article 99(1)2 of the former Restriction of Special Taxation Act (amended by Act No. 6762, Dec. 11, 2002; hereinafter “former Restriction of Special Taxation Act”) aims to activate a housing-building and real estate market by encouraging new construction and sale through reduction of or exemption from capital gains tax. In light of such legislative intent and text, it is clear that the subject of special taxation under the above provision is, in principle, a resident who acquired a newly-built house from his housing constructor, in principle, the subject of taxation under Article 99(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010); Articles 99(1) and 40(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 2037, Feb. 18, 2010) stipulate that “transfer income accrued for five years from the date of acquisition of the newly-built house from the date of acquisition - the standard market price at the date.”

Meanwhile, according to Article 163(9) of the Enforcement Decree of the Income Tax Act, in cases where a resident transfers inherited assets, the transfer margin is calculated by deeming the market price at the time of commencing the inheritance as the actual transaction value at the time of the acquisition of the assets. As such, in cases where a resident, who was a decedent, dies after five years from the date of acquisition from a housing developer, the “transfer income accrued for five years from the date of acquisition of a newly-built house” under the said legal provision is unlikely to be included in the transfer income amount of the heir. In light of these, the person who succeeded to a newly-built house is not subject to the

Article 99(1)2 and (4) of the former Restriction of Special Taxation Act (Amended by Act No. 6762, Dec. 11, 2002); Articles 40(1) and 99(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 22037, Feb. 18, 2010); Article 163(9) of the Enforcement Decree of the Income Tax Act

Plaintiff

The Director of the Pacific District Office

Seoul High Court Decision 2013Nu45982 decided December 6, 2013

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

The grounds of appeal are examined.

1. Article 99(1)2 (hereinafter “instant legal provision”) of the former Restriction of Special Taxation Act (amended by Act No. 6762, Dec. 11, 2002; hereinafter the same) provides for a special taxation that a resident shall deduct capital gains accrued for five years from the date of acquisition of a newly-built house from a taxable income amount subject to capital gains tax in cases where a resident first concludes a sales contract with a housing developer within the newly-built house acquisition period (from May 22, 1998 to December 31, 1999 in cases of national housing) and transfers a newly-built house acquired by paying a down payment after five years from the date of its acquisition.

2. Upon citing the reasoning of the judgment of the court of first instance, the court below acknowledged that the non-party to the plaintiff's husband entered into a sales contract for the newly-built house of this case on December 27, 1999, the newly-built house of this case, a housing developer, and paid the down payment in accordance with the schedule and acquired it on April 13, 2002. After the non-party died on January 12, 2003, the non-party inherited the newly-built house of this case alone and transferred it on October 31, 2008. The court below determined that the non-party to the plaintiff's husband contributed to the sale of the newly-built house of this case by purchasing the newly-built house of this case from Pungdong Construction and contributing to the sale of the newly-built house of this case, and the plaintiff inherited it according to the non-party's death, giving benefits of reduction or exemption of capital gains tax to the plaintiff is unlawful in light of the legislative purport of this case's new house of this case.

3. However, the lower court’s determination is difficult to accept for the following reasons.

The legislative purport of the instant legal provision is to activate the construction competition and real estate market in progress by encouraging new construction and sale of a house through reduction of or exemption from capital gains tax. In light of such legislative intent and text thereof, it is clear that the subject of special taxation under the instant legal provision is a resident who has acquired a newly-built house directly from a housing constructor in principle. Furthermore, Articles 9(1) and 40(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010) delegated by Article 9(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010) provide that “transfer income accrued for five years from the date of acquisition of a newly-built house” shall be calculated by the formula of “transfer income amount 】 (Standard market price at the time of acquisition - Standard market price at the time of acquisition - Where a spouse acquires a newly-built house after the date of inheritance from his/her death.”

Nevertheless, the lower court determined otherwise by deeming that the Plaintiff’s heir of a newly-built house is subject to the special taxation under the instant legal provisions, and thus, the instant disposition imposing capital gains tax was unlawful. In so doing, the lower court erred by misapprehending the legal doctrine on the subject of special taxation under the instant legal provisions, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-deok (Presiding Justice)