Plaintiff (Law Firm Rate, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

Head of Ansan Tax Office

April 27, 2011

1. The Defendant’s disposition of imposition of KRW 3,267,922,78 and penalty tax of KRW 268,623,252 against the Plaintiff on March 11, 2010 shall be revoked.

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

The same shall apply to the order.

1. Details of the disposition;

A. On September 1, 2004, the Plaintiff, as a doctor, opened and operated a private hospital with the trade name “○○○ Hospital” (hereinafter omitted), and on June 5, 2008, established the medical corporation non-party 5 medical corporation (hereinafter “the medical corporation of this case”) with the said place as its principal office at the same time on June 5, 2008. On August 1, 2008, the Plaintiff comprehensively transferred the total amount of assets (hereinafter “the instant real estate”) including the above lusium (hereinafter omitted) 2,158 square meters and 14 real estate (hereinafter “the instant real estate”), including the above lusium (hereinafter “the instant real estate”), 24,961,890,571 won, and the total assessed amount of the instant real estate at KRW 19,459,238,640) and the total assessed amount of the instant real estate (hereinafter “the instant medical corporation”).

B. On October 30, 2008, the Plaintiff applied for a carryover taxation of capital gains tax pursuant to Article 32 of the Restriction of Special Taxation Act (amended by Act No. 9671 of May 21, 2009; hereinafter the same) with respect to the instant real estate. On December 4, 2008, the Defendant accepted an application for carryover taxation with respect to the Plaintiff’s conversion into a corporation and decided to carry forward taxation. The Defendant’s superior regional tax office, the director of the Central Regional Tax Office, the Defendant’s higher regional tax office, conducted an investigation into capital gains tax from September 21, 2009 to October 12, 2009, and notified the Plaintiff that the content of the Plaintiff’s application for carryover taxation is appropriate.

C. (1) However, after the Board of Audit and Inspection’s audit on the National Tax Service, the Defendant issued a disposition imposing capital gains tax on the Plaintiff for the year 2008, KRW 307,692,910 on March 11, 2010 on the ground that it was irrelevant to the “investment” under the Restriction of Special Taxation Act, since the medical corporation of this case was established as a “contribution” by applying mutatis mutandis the provisions on incorporated foundations under the Civil Act pursuant to Article 50 of the Medical Service Act (hereinafter “instant disposition”).

(2) The Plaintiff filed an application for rectification with the Defendant on May 10, 2010 on the ground that part of the transferred assets was underestimated the acquisition value, and the Defendant accepted the application and subsequently corrected the amount of capital gains tax of KRW 475,30,022 and the amount of penalty tax of KRW 39,069,658 on June 21, 2010.

D. On March 17, 2010, the Plaintiff dissatisfied with the instant disposition and filed a request for review with the Board of Audit and Inspection on March 17, 2010, but the Board of Audit and Inspection dismissed it on September 24, 2010.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 4, Eul evidence 1-1, 2, 2-2, 3-1, 2-3, and 4-3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

① Article 32 of the Restriction of Special Taxation Act recognizes special cases pertaining to corporate conversion in order to enhance competitiveness and transparency of the company through corporate restructuring, and it can be said that the carried-over taxation of transfer income tax at the time of corporate conversion is in fact granted when the corporate conversion is converted into a private corporation. In light of the legislative intent and amendment history above, the application of carried-over taxation of transfer income tax cannot be excluded just because the converted corporation is a non-profit corporation, and it is reasonable to deem that the above provision was carried out by presenting the representative conversion form rather than using the expression “investment” on the premise that the said provision must be a profit-making incorporated association. Therefore, the “investment” prescribed as the requirements for carried-over taxation should be interpreted to include the “contribution.” Therefore, the carried-over taxation of transfer income tax shall apply to the instant real estate transferred while converting into the instant medical corporation, which

② Even if Article 32 of the Restriction of Special Taxation for Home Affairs requires that the converted corporation be a profit-making corporation, the Plaintiff asked the Defendant’s person in charge of the Defendant’s side to hold an interview several times in the process of converting the individual hospital into the medical corporation of this case and to apply the special case of taxation carried forward when converting the medical corporation of this case. The Defendant’s person in charge of the Defendant’s side expressed his opinion that the special case of taxation carried forward would be applicable to the Plaintiff after internal sufficient review. Thus, the Plaintiff was converted into the medical corporation of this case with trust and trust, and the instant disposition of this case imposing a heavy amount of capital gains tax of 4 billion won against the previous opinion is illegal disposition contrary to the principle of trust protection.

③ Even if the imposition of capital gains tax is lawful in the instant disposition, Article 32 of the Restriction of Special Taxation Act constitutes a case of doubt as to the interpretation of tax-related Acts and subordinate statutes, and thus, there is a justifiable reason not to mislead the Plaintiff, who is the taxpayer, into neglecting his/her duty. Therefore

(b) Related statutes;

Restriction of Special Taxation Act (amended by Act No. 9671 of May 21, 2009)

Article 32 (Carryover Taxation of Transfer Income Tax for Conversion into Corporation)

(1) Where a resident changes fixed assets for business to a corporation (excluding corporations operating consumptive service business) by December 31, 2009 as a result of investment in kind or transfer of business prescribed by Presidential Decree, he/she may be subject to taxation carried forward to the relevant fixed assets for business.

(2) Paragraph (1) shall apply only where the capital of a corporation to be newly established is above the amount prescribed by Presidential Decree.

(3) A resident who intends to be subjected to paragraph (1) shall apply for the carryover taxation under the conditions as prescribed by the Presidential Decree.

Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 21545, Jun. 19, 2009)

Article 29 (Carryover Taxation of Transfer Income Tax for Conversion into Corporation)

(2) The term “business transfer methods prescribed by the Presidential Decree” in Article 32 (1) of the Act means that a person engaged in the relevant business becomes a promoter and establishes a corporation by investing more than the amount referred to in paragraph (4) and comprehensively transferring all rights and obligations concerning the relevant corporation within three months from the date of establishment of the corporation.

(3) A person who intends to be subject to the carryover taxation of transfer income tax pursuant to Article 32 (1) of the Act shall submit an application for carryover taxation to the head of the tax office having jurisdiction over the place of tax payment along with a corporation newly established at the time of a tax base return (including a preliminary return) in the taxable year to which

(4) The term "amount prescribed by Presidential Decree" in Article 32 (2) of the Act means the amount calculated by applying mutatis mutandis the provisions of Article 28 (1) 2 to the net asset value of a place of business converted into a corporation by investing in kind or transferring business fixed assets for business.

Medical Service Act

Article 50 (Application Mutatis Mutandis of the Civil Act)

The provisions of the Civil Act governing incorporated foundations shall apply mutatis mutandis to a medical corporation, except as otherwise prescribed by this Act.

Civil Act

Article 43 (Articles of Incorporated Foundation)

The founder of a foundation shall prepare the articles of incorporation, stating the matters provided for in subparagraphs 1 through 5 of Article 40, with its specified property contributed, and sign and seal it.

C. Determination

(1) Whether the carried-over taxation is applied to the instant real estate

Under the principle of no taxation without law, the requirements for taxation, non-taxation, or tax reduction or exemption shall be avoided, and the interpretation of tax laws and regulations shall not be expanded or analogically interpreted without reasonable grounds (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009).

In addition, the "investment" under Article 32 of the Restriction of Special Taxation Act and Article 29 of the Enforcement Decree of the same Act shall be deemed to be included in the scope of a non-profit corporation, as alleged by the plaintiff, even though the business type of a corporation to which the Restriction of Special Taxation Act applies, has been expanded as alleged by the plaintiff. In addition, the "investment" under Article 32 of the Restriction of Special Taxation Act and Article 29 of the Enforcement Decree of the same Act shall be made by the members of the corporation with capital value, and the members shall be obligated to share the rights to distribute profits accruing from the activities of the corporation and losses or risks. Accordingly, the corporation constituting the investment capital naturally limited to a profit-making corporation. The "contribution", which is an act of establishing the foundation, is to form the foundation's property loss, and does not obtain any profit with property value from the foundation. Thus, the "investment" and "contribution" shall not represent or include either of them as a concept indicating an essential difference

Therefore, even if a non-profit corporation is converted into a non-profit corporation under the premise that the “investment” under Article 32 of the Restriction of Special Taxation Act includes a “contribution,” the Plaintiff’s assertion that the special provision on taxation of transfer income tax shall apply to fixed assets for business is against

(2) Whether the instant disposition violates the principle of trust protection

In general, in administrative legal relations, in order to apply the principle of the protection of trust to an act of an administrative agency, the first administrative agency must express a public opinion that is the subject of trust to an individual, second, the administrative agency should have a reason attributable to the individual when the expression of opinion is justifiable and trusted. Third, the administrative agency should have conducted any act corresponding thereto. Fourth, the administrative agency should have made a disposition contrary to the above expression of opinion, thereby infringing the interests of the individual who has trusted the expression of opinion. Lastly, when taking an administrative disposition following the above expression of opinion, it should not be likely to seriously undermine the public interest or legitimate interests of a third party (see Supreme Court Decisions 200Du8684, Sep. 28, 2001; 2004Du13592, Feb. 24, 2006, etc.).

In light of the overall purport of Nonparty 1’s testimony, Nonparty 1 worked as a tax official for 16 years, and became a tax accountant since 198. On June 207, the Plaintiff asked the Plaintiff to seek advice on the conversion of the above medical corporation into the said corporation and discussed whether the carried-over taxation of the transfer income tax is possible at the time of conversion into the said corporation. Nonparty 1 asked the Plaintiff on several occasions from July 2007, and discussed the possibility of carrying-over taxation of the property tax and the public official in charge of the said medical corporation. As a result, the above property tax and the public official in charge notified Nonparty 1 to the effect that the Plaintiff would not be subject to carried-over taxation of the above medical corporation, including the fact that the Plaintiff would have carried-over taxation of the above medical corporation. Accordingly, the Plaintiff’s application for taxation of transfer income tax was not subject to the first-over taxation of the above medical corporation, and the Plaintiff’s application for taxation of transfer income tax was not subject to the first-over taxation of the above medical corporation.

Therefore, the instant disposition is unlawful against the principle of trust protection.

3. Conclusion

If so, the plaintiff's claim shall be accepted for the reasons of the judgment as per Disposition.

Judges Kim Jong-chul (Presiding Judge)