Plaintiff (Law Firm Chungcheong, Attorneys Choi Jong-soo et al., Counsel for the plaintiff-appellant)

head of Sung Dong Tax Office

July 5, 2018

Seoul Administrative Court Decision 2017Gudan60065 decided January 23, 2018

1. Of the judgment of the court of first instance, the part of the judgment against the Defendant regarding KRW 275,374,984 among the disposition imposing capital gains tax of KRW 317,694,050 for the Plaintiff on July 12, 2016 against the Plaintiff is revoked, and the Plaintiff’s claim corresponding to the revocation portion is dismissed.

2. The defendant's remaining appeal is dismissed.

3. 80% of the total costs of the lawsuit shall be borne by the Plaintiff, and 20% shall be borne by the Defendant.

1. Purport of claim

The Defendant’s disposition of imposition of capital gains tax of KRW 317,694,050 on July 12, 2016 (the purport of the claim stated in the complaint and the “instant order of the first instance judgment” appears to be clerical error) against the Plaintiff on July 12, 2016 is 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. The Plaintiff owned 1/2 shares in the land in Gangnam-gu Seoul (hereinafter “instant land”) and 118.32 shares in (hereinafter “the part owned by the Plaintiff among the instant land and buildings) 1/2 shares in (No. 1 omitted), (No. 2 omitted), (No. 3 omitted), (No. 4 omitted), and (No. 5 omitted) and (No. 37.2 shares in (No. 5 omitted) and (No. 118.32 shares in (No. 6 omitted) of (No. 1/2 shares in the instant land and buildings) and the Plaintiff’s father Nonparty 1 owned 1/2 shares in the instant land and 1/6 shares in (No. 7 omitted), (No. 8), (No. 99), (No. 106) and (No. 78/168 of shares in the instant building, and no. 78/106 of shares in the instant land and buildings.

B. On September 16, 2014, the Plaintiff transferred the instant real estate to Nonparty 2 and Nonparty 3 (hereinafter “transferees”), respectively, at KRW 4.5 billion, and Nonparty 1 transferred Nonparty 1’s real estate to the transferee on the same day, respectively.

C. After that, the Plaintiff reported and paid the transfer income tax to the Defendant with the transfer value of the instant real estate as KRW 4.5 billion. However, as indicated in the following table, the Defendant distributed the transfer value of the instant land and the instant building in proportion to the standard market price ratio between the entire land purchase price and the entire building purchase price. Furthermore, the Plaintiff’s share and the transfer value of Nonparty 1’s share are divided according to the standard market price ratio, and the transfer value of the instant real estate shall be KRW 5,417,359,409, and the Plaintiff corrected and notified the transfer value of the instant real estate at KRW 317,694,050 (hereinafter “instant disposition”).

The total amount of 64.75 square meters (units): non-party 1, non-party 1, 64.70, 910, 4525, 361, 974.41, 97, 1964.36, 197, 197, 197, 197, 197, 197, 1964, 197, 197, 1964, 197, 197, 1964, 197, 1964, 197, 1964, 197, 197, 1964, 197, 1964, 197, 1964, 297, 164.66, 297, 297, 197, 2064, 197

D. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on October 7, 2016, but was dismissed on February 7, 2017.

[Reasons for Recognition] A without dispute, Gap evidence Nos. 1-4, Eul evidence No. 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) On September 16, 2014, the Plaintiff transferred the instant real estate to the transferee in KRW 4.5 billion, and Nonparty 1’s transfer of Nonparty 1’s real estate in KRW 6.5 billion to Nonparty 1 on the same day under a separate sales contract, not a blanket transfer. Therefore, the provision on the calculation method under Article 100(2) of the Income Tax Act, premised on the case of a blanket transfer, cannot be applied to this case.

2) Of the instant building, the Plaintiff’s owned parts and Nonparty 1’s owned parts were newly constructed and used as separate independent buildings. In light of structural characteristics, there is a reasonable ground to view that the transfer value of the instant real estate is less than KRW 4.5 billion, than KRW 6.5 billion, the transfer value of Nonparty 1’s real estate is less than KRW 6.5 billion. Ultimately, the Plaintiff did not receive the remainder of the transfer value of the instant real estate from the assignee, and thus, the Defendant’s disposition based on the premise that the transfer value of the instant real estate is KRW 5,417,359,409, is unlawful, as it violates the principle of substantial taxation and the principle of no taxation without law.

B. Relevant statutes

Attached Form 1 shall be as listed in attached Table 1.

C. Determination

1) Determination on the Plaintiff’s first argument

A) Article 100(2) of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same), Article 166(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same) and Article 64 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 26071, Feb. 3, 2015; hereinafter the same) use the expression “land and building.” In light of the language and text, the above provision appears to be subject to the premise that the aforementioned provision is applied not only to cases where “land and building” are transferred en bloc, but also to cases where “land and building” and “building and building” are transferred en bloc, and it is reasonable to interpret that the above provision can be applied only to cases where the transferor is deemed to have the same form of actual transaction price, such as “land and land” and building.

B) According to Gap evidence Nos. 1, 2, 7, and 11 and Eul evidence Nos. 3 (including each number; hereinafter the same shall apply) respectively, the sales contract (Evidence No. 1) with the plaintiff as the seller as to the pertinent real estate, and the sales contract (Evidence No. 2) with the non-party No. 1 as the seller as to the non-party No. 1 as to the real estate. The sales contract of this case set the sales price of the pertinent real estate as 4.5 billion won, and the sales price of the non-party No. 1 as 6.5 billion won, respectively; ② The non-party No. 1 paid the non-party No. 6,193,540,000 won from the sales price of the real estate 6.5 billion won to the non-party No. 1 as to the non-party No. 6,193,540,000 won to the non-party No. 1 as to the non-party No. 6. 1's. 15 billion won to the lease deposit.

C) However, in full view of the following circumstances, it is reasonable to view that the Plaintiff and Nonparty 1 transferred the instant land and buildings collectively, taking into account each of the aforementioned evidence, Gap evidence Nos. 16, 17, and Eul evidence Nos. 2 and the whole purport of the pleadings. Accordingly, the Plaintiff’s assertion on this part is without merit.

① The Plaintiff and Nonparty 1 are completely identical to the date of preparation of each sales contract, the buyer, the document form, and the sales price.

② Article 6(2) of the above sales contract provides that “This contract shall be deemed to be a contract for the transfer of a business not deemed to be a supply of goods under tax law.” The Plaintiff and Nonparty 1, together with the instant land and buildings, share one-half shares of each of the instant land and buildings by making a registration of annexation with respect to the instant building after the Plaintiff and Nonparty 1 were transferred.

③ On May 2, 2016, Nonparty 2, one of the buyers, stated in the Defendant’s tax investigation on May 2, 2016 that “The assignee sought the entire building of this case, and thus, the total purchase price was important. The sales price of each share owned by Nonparty 1 and Nonparty 1 was stated in the amount presented by the Plaintiff, the transferor, and Nonparty 1.” The buyer presented the instant real estate in a written confirmation in October 2016 to the effect that “(the assignee) was transferred the instant real estate in KRW 4.5 billion, and the transferor was accepted and traded.” However, it is consistent with the statement as to the fact that the real estate of this case and Nonparty 1 were transferred together with the instant real estate.”

2) Judgment on the second argument by the Plaintiff

A) According to Article 100(2) of the former Income Tax Act, Article 166(6) of the former Enforcement Decree of the Income Tax Act, and Article 64 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act, where land, buildings, etc. are transferred along with each other and the transfer value is calculated based on the actual transaction price, if the distinction between the value of the land, buildings, etc. is unclear, it shall be calculated in proportion to the value calculated according to the standard market price as of the date of the transfer contract. Here, the phrase “when the distinction between the value of the land and buildings is unclear” does not mean only where the land, buildings, etc. are transferred without distinction. Even if the value of the land, buildings, etc. is clearly distinguishable from each other under the contract, it shall be reasonable to interpret that the purport includes the cases where

B) As to the proportional distribution value between the instant land and the instant building

According to the above facts, among the purchase price of this case 11 billion won, the total amount of KRW 9,366,879,942 (the Plaintiff’s share of KRW 3,910,459,092 + Nonparty 1’s share of KRW 5,456,420,850) and the total amount of the purchase price of the building was KRW 1,63,120,057 (the Plaintiff’s share of KRW 589,540,540,90 + the total amount of KRW 1,043,579,149). According to the standard market price ratio, the total amount of the purchase price of the land based on the standard market price ratio is 9,42,545,232 (the sum of the purchase price of KRW 4,721,272,6162) x the total amount of the purchase price of the building x the total amount of the purchase price of KRW 1,57,47686,79

Therefore, the allocation of the purchase price between land and buildings out of the purchase price stated in each sales contract of this case is not based on the genuine agreement between the parties, or it is not deemed that it is not reasonable to distinguish the sale price from the ordinary transaction practices, and thus, it cannot be deemed as a case where the distinction of the price is unclear. The plaintiff's assertion in this part is with merit.

C) As to the proportional distribution amount of the sales price of the instant building

According to the above facts, among the instant building, the sales price for the Plaintiff’s shares in the instant building is KRW 589,540,908 in total, and KRW 1,043,579,149 in total, KRW 454,038,241 in total, and KRW 1,043,579,149 in total, may be determined.

However, the following circumstances, which are acknowledged by comprehensively taking account of the aforementioned evidence and the overall purport of the statement and pleading evidence Nos. 12 through 14, i.e., ① the land surface of the instant building 234.60 square meters is owned by Nonparty 1, ② the part owned by the Plaintiff among the instant building and the part owned by Nonparty 1 is independently constructed as a separate building around May 1997, and the entrance direction is separate. Nonparty 1’s entrance entrance is easy to access to the public road; Nonparty 1’s use of high-quality materials in the building; Nonparty 1’s installation of elevators from the beginning, but the part owned by the Plaintiff was installed, but there was no elevator accessibility for the part owned by the Plaintiff; Nonparty 1 and the part owned by Nonparty 1 were installed, and the part owned by Nonparty 2 and the part owned by the Plaintiff cannot be used by the users of the instant building, ③ Nonparty 1 and the part owned by Nonparty 2, the size of the building owned by Nonparty 2 and the part owned by the Plaintiff 165 square meters (hereinafter.665 square meters).

Therefore, the division of the sales price between the Plaintiff and Nonparty 1’s portion out of the sales price of the instant building is not based on the genuine agreement between the parties, or it cannot be deemed as a distinction between unreasonable and unreasonable values considerably deviating from the ordinary transaction practices, and thus, the distinction between the value is unclear. The Plaintiff’s assertion on this part is well-grounded.

D) As to the proportional distribution amount of the purchase price of the instant land

According to the above facts, although the Plaintiff and Nonparty 1 share the same 1/2 shares of each of the instant land, the Plaintiff and Nonparty 1 share the purchase price for the Plaintiff’s share in the instant land under each sales contract, and the purchase price for the Plaintiff’s share in the Plaintiff’s ownership is KRW 5,456,420,850, and the purchase price for the non-party 1’s share in the instant land is KRW 5,456,420,850, and there is a significant difference between each of the purchase prices.

In light of the fact that the market price of the same size of co-ownership shares with respect to the same land is equal in principle, even if the principle of private autonomy is considered, the difference in the purchase price among the above shares is far above the level of difference that can normally arise depending on the difference in negotiating power.

On the other hand, according to the above facts, the Plaintiff and Nonparty 1 asserted that the total purchase price would have been determined first between Nonparty 1 and the transferee, rather than separately negotiating the price for the portion of the real estate owned by them. ② In this regard, the Plaintiff asserted that “The amount of funds necessary to proceed with the corporate rehabilitation procedure of ○○○○○○ L, which was operated by Nonparty 1, was KRW 6 billion, and the Plaintiff agreed to sell at a lower price than Nonparty 1 because it is difficult for the transferee to negotiate the price separately under the circumstances determined by the transferee,” and even according to the above argument, the Plaintiff appears to have distributed the land purchase price to Nonparty 1 in order to omit the procedure for partially donating the purchase price due to the special relationship between Nonparty 1 and his children, and ③ otherwise, the difference between the above purchase price and the Plaintiff’s share ownership is not a reasonable tax evasion or a reasonable tax evasion by agreement between the parties except for the purchase price in this case’s land.

Therefore, as to the land of this case, since the distinction between the transfer value of the Plaintiff’s ownership and that of the non-party 1’s ownership is unclear, the transfer value may be calculated by calculating the transfer value according to the standard market price pursuant to Article 100(2) of the former Income Tax Act, Article 166(6) of the former Enforcement Decree of the Income Tax Act, and Article 64 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act, based on this,

(d) The calculation of a legitimate tax amount;

The sum of the sales proceeds of the instant land and the sum of the sales proceeds of the instant building and the Plaintiff’s ownership and the portion of the sales proceeds of the instant building are applied as they are. However, in calculating the transfer proceeds of the instant real estate by means of distributing only the sum of the sales proceeds of the instant land according to the standard market price ratio, the sum of the sales proceeds of the instant building and the sales proceeds of the instant building are KRW 5,272,980,879 as indicated in the following table.

64. 70. 1974, 1974, 297. 197. 2, 1964, 197. 2, 197. 30, 294, 197. 194, 197. 2, 194, 197. 2, 194, 197. 2, 197, 294, 197. 2, 1964, 197, 1964, 197. 2, 1964, 197, 194, 197. 2, 2, 1964, 197, 2, 1964, 197, 2, 1964. 36, 197, 2,1964, 197, 1967. 2,205

If the amount of a justifiable tax is calculated based on the above transfer value, it is calculated as KRW 275,374,984 as shown in attached Table 2, and thus, the portion exceeding the above legitimate tax amount is unlawful.

3. Conclusion

Among the dispositions in this case, the part exceeding KRW 275,374,984 shall be revoked. Since the plaintiff's claim is reasonable within the above scope of recognition, it shall be accepted, and the remaining claim shall be dismissed as there is no ground.

Since the judgment of the court of first instance is unfair in conclusion with different conclusions, the part against the defendant as to the capital gains tax of KRW 317,694,050 on July 12, 2016, which was imposed by the defendant against the plaintiff on the plaintiff on July 12, 2016, is revoked, and the plaintiff's claim corresponding to the revoked part is dismissed.

The remainder of the judgment of the first instance is just in conclusion, and the defendant's remaining appeal is dismissed as it is without merit.

[Attachment Omission]

Judges gate Charter (Presiding Judge)