Cho Jae-2015-Seoul Government-1323 (23 March 2016)

Criteria for determining whether there is a justifiable reason for the discontinuance of construction

Where the owner on the register and the truster who is the subject of the project implementation varies as a result of the conclusion of a management-type land trust contract for a new building construction project on the land subject to taxation, whether there is any justifiable reason for the discontinuance of construction should be considered as the situation of both the contractor and the plaintiff who is the trustee.

Article 12 of the Gross Real Estate Tax Act

2016Guhap64913

AA Trust

BB Head of the Gu,CC Head of the tax office

March 9, 2017

April 6, 2017

1. The plaintiff's claims against the defendants are all dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The part exceeding 154,65,930 won among the disposition of imposition of property tax of 193,964,490 won against the Plaintiff on September 18, 2014, which exceeds 30,931,180 won among the disposition of imposition of 38,792,890 won for local education tax, shall be revoked. The part exceeding 74,254,270 won among the disposition of imposition of 653,623,290 won for comprehensive real estate tax of 2014 against the Plaintiff on November 16, 2014, which exceeds 130,724,650 won among the disposition of imposition of 14,850,850 won for special rural development tax, shall be revoked.

1. Details of the disposition;

A. On December 20, 2010, the Plaintiff: (a) concluded a management-type land trust contract (hereinafter referred to as “instant trust contract”) for the execution of a new condominium construction project (hereinafter referred to as “instant project”) with respect to DD (hereinafter referred to as “DD”) on December 20, 2010 and the total of 82,243 square meters (hereinafter referred to as “instant land”) for BB-Gu 00 Dong 196 and 45 lots; and (b) completed the registration of transfer of ownership and trust with respect to the instant land on December 27, 2010. The Plaintiff was transferred respectively in the name of the project owner of urban planning facilities related to the instant project on July 21, 201, and in the name of the project owner on July 26, 2011.

B. The head of Defendant BB changed the land attached to a building under separate aggregate taxation pursuant to Article 103(1)3 of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 27710, Dec. 30, 2016; hereinafter the same shall apply), which was the land attached to the building under separate aggregate taxation, to which the instant land was subject to separate aggregate taxation for at least six months as of June 1, 2014, was suspended for at least six months without justifiable grounds, to the Plaintiff on September 18, 2014, and notified the Plaintiff of the correction of KRW 286,14,610, total property tax of KRW 193,964,490, property tax of KRW 53,387,230, local education tax of KRW 38,792,890.

C. On November 24, 2014, the director of the tax office issued a revised notice of KRW 692,116,190 of the comprehensive real estate holding tax for the year 2014 and KRW 138,423,230 of the special rural development tax for the Plaintiff.

D. The Plaintiff filed an appeal on each of the above dispositions, but the appeal was dismissed on March 3, 2016 and March 23, 2016, respectively.

E. On December 13, 2016, the head of the tax office’s disposition in the above paragraph (c) reduced or corrected comprehensive real estate holding tax amounting to 38,492,90 won and special agricultural and fishing villages tax amounting to 7,698,580 won (hereinafter “each of the dispositions by the Defendants,” and “each of the dispositions by the Defendants,” and “the remaining parts,” means the remaining parts, for which the disposition by the head of the tax office is reduced or exempted).

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 5, 9, 10 evidence, Eul evidence No. 1

written evidence 7, Eul 1 and 2 (including each number), the purport of the whole pleadings, and the purport of the whole pleadings

2. Whether each disposition of this case is lawful

A. The plaintiff's assertion

Since the owner and taxpayer of the instant land are the Plaintiff, whether the construction was suspended without any justifiable reason should be determined on the basis of the Plaintiff. However, since the project of this case occurred several problems from the early stage, DD, which had been an executory company, was finally defaulted on March 2013. On October 8, 2012, EE Construction Co., Ltd. (hereinafter “E EE Construction”), which acquired all the project implementation rights of this case and DD’s status as a contractor, was also decided to commence the work on March 2013 and decided to commence the rehabilitation procedure on January 9, 2014. Accordingly, the discontinuance of the instant construction work was caused by the external factors such as failure to exercise the time of the construction and commencement of the rehabilitation procedure, and there was no room for involvement in the discontinuance and resumption of the construction work of this case as the trustee of this case and the owner of the instant land, which is the formal form of the instant trust agreement of this case, as the Plaintiff did not have any authority and responsibility with respect to the instant construction work.

Therefore, since the land of 34 parcels, among the instant land, incorporated as the site for new construction works, is a case where there is a justifiable reason for the discontinuance of construction works, the increased tax amount should be revoked by unlawful means, as it is deemed that the said 34 parcels among the instant dispositions are subject to combined aggregate taxation.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

1) The main contents of the instant trust agreement are as follows.

2) Around March 21, 2007, DD acquired the ownership of the instant land, and entered into a contract for construction works with EE Construction to implement the instant project, and EE Construction commenced the instant construction project by setting 34 lots out of the instant land as building site around March 2010.

3) DD borrowed from financial institutions KRW 100 billion on March 26, 2007, and KRW 50 billion on December 20, 2010, respectively. D and EE Construction concluded the instant trust contract with the Plaintiff to facilitate the instant project on December 20, 2010, and thereafter, D and E and E and E were to take over the status of E and E and E & Construction took over the entire status of D as to the instant project on October 8, 2012 due to the management deterioration of D and the causes for the transfer of the project implementation right stipulated in the instant contract. D and E and E were to be treated as D in March 2013.

4) From November 2012 to sell the instant business rights after acquiring the status of D, EE Construction received several letters of intent to purchase from November 2012 to January 2013, and some of them was drafted by the MOU.

5) However, around January 2013, the instant construction was suspended, and EE Construction was suspended from the KOSDAQ market transaction due to complete capital erosion around February 2013, and was under a creditor financial institution’s workout program from March 2013, but it was impossible to normally operate, and filed an application for commencement of rehabilitation procedures with the Seoul Central District Court on December 30, 2013, and was decided to commence rehabilitation proceedings (2013 hap291) on January 9, 2014.

[Reasons for Recognition] Unsatisfy, Gap evidence 4 to 9, Eul evidence 2 to 5,

Each entry of evidence No. 7, the purport of the whole pleadings

D. Determination

1) Article 12(1) of the Comprehensive Real Estate Tax Act provides for the scope of "land annexed to buildings prescribed by Presidential Decree, such as land annexed to buildings for factories" under Article 106(1)2 (a) of the former Enforcement Decree of the Local Tax Act, and the proviso to Article 103(1)3 of the former Enforcement Decree of the Local Tax Act provides for the scope of "land annexed to buildings prescribed by Presidential Decree, such as land annexed to buildings for factories" under Article 106(1)2 (a) of the former Enforcement Decree of the Local Tax Act, including buildings being constructed within the scope of buildings under Article 101(1) of the Enforcement Decree of the Local Tax Act, but excluding the land subject to separate aggregate taxation or separate taxation among the land owned by a taxpayer as of the tax base date.

Therefore, it is a matter of whether the construction of this case was suspended for at least six months without "justifiable cause" as of June 1, 2014, which is the tax base date of each disposition of this case.

"Justifiable reason for the suspension of construction" in this case means not only external reason for which a corporation cannot work in mind, such as prohibition or restriction of construction under the law, but also internal reason for which the corporation has to inevitably suspend construction despite its normal efforts and implementation. Thus, the existence of such justifiable reason should be determined individually in accordance with specific cases, considering whether the relevant corporation is a profit-making corporation, the size of the construction work, the period required for the completion of the construction work, the statutory and de facto disability and level of disability that cannot be carried out, whether the pertinent corporation has made efforts to carry out the construction work, whether the cause of the administrative agency's fault has occurred, etc. (see, e.g., Supreme Court Decision 2001Du84831, Feb. 28, 2003). Further, if the management trust contract for the construction of the land subject to taxation is concluded and the owner of the project becomes the subject of the implementation of the project, whether the truster has any justifiable reason for the discontinuance of construction work, and whether both the Plaintiff and the consignee are the owner of the E-E construction.

① According to Articles 4(1), 20(1) through (5), and 33 of the instant Trust Contract, and Article 1(2) of the Special Agreement, the ownership of real estate held in trust and the name of the owner of the building, etc. are transferred in the name of the Plaintiff, who is the trustee, to carry out the business of stable sale of real estate held in trust and the business of preserving ownership. However, even thereafter, the truster, as the actual owner of the instant land and the project implementer, bears the tax and business expenses imposed on the instant land as trust property, etc. as the trust property. Therefore, when determining whether there is a justifiable reason for the discontinuance of the instant construction, it is reasonable to reflect the circumstances such as whether the truster,

② In determining whether land belonging to trust property is subject to general aggregate taxation, Article 106(3)1 and 2 of the Local Tax Act does not include land belonging to trust property between the trustee’s proprietary property and the land belonging to the trustee’s proprietary property, and in cases of land belonging to trust property classified by truster, it is also considered that the truster is the actual owner and the project implementer’s status. In other words, even if the ownership of land is entirely transferred to the trustee inside and outside of Korea under a land trust agreement, it is necessary to reflect the characteristics of ownership transfer under a trust agreement in calculating comprehensive

③ The instant trust agreement grants the trustee the authority to procure costs for disposal of trust affairs and substitute payments (Articles 11 and 20), the termination of the trust agreement (Article 27), the right to select a new construction project (Article 16 of the special agreement) and the right to jointly or separately sell (Article 24 of the special agreement) a place of business when it is difficult for the trustee to proceed with the project due to the bankruptcy, bankruptcy, etc. of the truster or the contractor, and thus, the trustee should also endeavor to prevent the discontinuance of construction works.

④ If, as alleged by the Plaintiff, it is determined whether the truster made a serious effort on the ground of the external reason and the trustee’s internal reason only, as alleged by the Plaintiff, the justifiable reason may be acknowledged even if the truster, who is the land owner and the subject of the new construction project, did not make any effort to prevent the discontinuance of construction, when concluding the land trust agreement, such as the instant trust agreement.

3) In full view of the following circumstances revealed through the above recognition, it cannot be deemed that the EE Construction, the contractor, and the Plaintiff, the trustee, of the instant land, performed their normal efforts and implementation in order to prevent the discontinuance of the instant construction project. Therefore, it does not constitute a case where justifiable grounds exist in the suspension of construction.

① The EE Construction had taken over all the business status of the instant construction due to the default of DD, and was aware that it was difficult to continue the instant construction from the time of acquisition, and intended to sell the instant business rights, and actually attempted to sell the instant construction. However, solely on the ground that such sale attempt was made, it cannot be deemed that the EE Construction made a serious effort to prevent the discontinuance of the instant construction.

② The EE Construction suspended the instant construction without selling the instant business rights due to the shortage of funds, and led to the rehabilitation procedures through the workout program. There is no circumstance that the EE Construction, in the process, has made a significant effort to continue the instant construction.

③ According to Articles 11(2) and 20(1) through (5) of the instant trust agreement, and Articles 16(1), 24(1) and 24(1)3 and 4 of the instant special agreement, the Plaintiff could have attempted to resume the instant construction project by either re-electing construction works or selling the business entity’s status, etc. on the ground that the Plaintiff could not make such efforts for the resumption of the instant construction project on the ground that the Plaintiff was merely a trustee of the instant land, by either disposing of the trust property or setting collateral security, or by setting up the method of payment, construction period, etc. of construction expenses, or by filing an application for commencement of rehabilitation through the workout procedure.

E. Sub-committee

Therefore, the plaintiff's assertion that there are justifiable grounds for the suspension of the construction of this case is legitimate, and each of the dispositions of this case is legitimate.

3. Conclusion

Therefore, the plaintiff's claim against the defendants is dismissed in its entirety as it is without merit. It is so decided as per Disposition.