Appellate Court 2015No2332 (Law No. 1358, 2015)

Real estate rental income shall not be deducted from the acquisition value of capital gains tax for depreciation costs included in necessary expenses in the taxable period, which is a deficit.

The fact that real estate rental income cannot be deducted from the acquisition value of the transfer income tax in the taxable period in which the real estate rental income is a deficit cannot be viewed as a violation of the constitutional property right or a violation of the principle of no taxation without law.

Article 97 (Calculation of Necessary Expenses for Transfer Income)

2015Gudan61231 Revocation of Disposition of Imposing capital gains tax

OraA

BB Director of the Tax Office

August 17, 2016

oly 21, 2016

1. The Defendant’s imposition disposition of capital gains tax of KRW 00,000,000 for the year 2014 imposed on the Plaintiff on October 1, 2014 exceeds KRW 00,000,000 shall be revoked.

2. The plaintiff's remaining claims are dismissed.

3. Of the litigation costs, 75% is borne by the Plaintiff, and the remainder is borne by the Defendant.

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 00,000,000, which was rendered to the Plaintiff on October 1, 2014, shall be revoked.

1. Details of the disposition;

A. On October 31, 2006, the Plaintiff: (a) acquired 00 square meters of land 697.5 square meters and its ground (hereinafter referred to as “the instant building”; and (b) operated the leased business under the trade name of ○○ building by combining land and buildings; and (c) reported the total depreciation costs of 133,194,740 won (hereinafter referred to as “the instant depreciation costs”) as indicated below at the time of filing a final tax base return on global income tax base for 2006 to 2012 as follows.

B. After transferring the instant real estate on January 28, 2014, on March 31, 2014, the Plaintiff: (a) calculated the transfer value of the instant real estate to the Defendant as KRW 0,000,000,000; (b) acquisition value of the instant real estate; (c) KRW 0,000,000,000; (d) necessary expenses; and (e) calculated the special long-term holding deduction amount as KRW 00,000,000; and (e) calculated the tax base amount as KRW 00,000,000; and (e) calculated the tax amount as KRW 0.0,000.

C. The Defendant, upon filing a final report on the tax base of global income tax from 2006 to 2012, deducted the depreciation costs of the instant building that was appropriated as necessary expenses for real estate rental income from the acquisition value of the instant building, and excluded the special long-term holding deduction of KRW 93,337,767, which was calculated excessively in accordance with the calculation of gains from transfer, from the special long-term holding deduction, by excluding the transfer value from the special long-term holding deduction of KRW 0,000,000, acquisition value of the instant real estate from the Plaintiff on October 1, 2014, by calculating the transfer value of the instant real estate from KRW 0,000,000, and the special holding deduction of KRW 00,000,000, and the special holding deduction of KRW 200,000,000 for the year 200,000 for additional tax (including additional tax payment of KRW 00,000,00).

D. The Plaintiff completed the pre-trial procedure.

[Ground of recognition] Facts without dispute, Gap 1, 2, 10 evidence, Eul 1 through 4 (including additional numbers), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) From 2008 to 2012, since losses were incurred from real estate rental income, there was no impact on the global income tax to be paid by the Plaintiff even if the Plaintiff did not include the depreciation costs of the instant building in calculating the global income tax base accrued from 2008 to 2012. The purport of Article 97(3) of the Income Tax Act (hereinafter “instant provision”) is to include necessary expenses only once in calculating global income tax and transfer income tax in order to prevent double deduction. The purport of the instant provision, which provides that depreciation costs should be deducted from the acquisition value in calculating transfer income without considering whether the depreciation costs had impact on the global income tax and transfer income tax, is unconstitutional. Accordingly, the Defendant’s disposition based on the instant provision is unlawful.

2) Article 18(1) of the Framework Act on National Taxes is contrary to the purport of the instant provision to interpret the instant provision on the ground that: (a) the purpose of the instant provision is for not deducting double necessary expenses when calculating global income tax and capital gains tax; (b) the faithfully kept book is for not deducting the acquisition value solely on the ground that the person who entered the book was aware that the loss was incurred and omitted the book; or (c) the book keeping businessman who prepared the statement of depreciation costs was not deducted from the acquisition value, even though the depreciation costs appropriated on the real estate rental income as the Plaintiff did not decrease global income or tax amount; and (d) the fact that the depreciation costs appropriated on the real estate rental income as the necessary expenses were appropriated as the real estate rental income, even though the depreciation costs were not reduced, would be deducted from the acquisition value at the time of calculating capital

3) The Plaintiff awarded a contract to the ○○○land (hereinafter referred to as “non-party company”) in charge of the representative director, and constructed a remodeling project on the instant building twice. In addition to those deemed necessary expenses at the time of the instant disposition, the Plaintiff paid ① construction design and supervision expenses, ② KRW 18 million with the cost of building construction, ③ KRW 3 million with the cost of removal, ④ KRW 1483,000 with the cost of construction works, ④ interest expenses borrowed from the construction fund, ⑤ The said cost should be additionally recognized as necessary expenses. Accordingly, the Defendant’s disposition on a different premise is unlawful.

B. Relevant statutes

Income Tax Act

Article 97 (Calculation of Necessary Expenses in Transfer Income)

(1) Necessary expenses to be deducted from the transfer value when calculating gains on transfer of a resident shall be as follows:

1. Acquisition value:

(3) When necessary expenses are calculated pursuant to paragraph (2), if depreciation costs of assets held by the transferred asset and the amount of business income in each taxable period is included or to be included in the necessary expenses where business income in each taxable period is calculated, such amount deducted from the amount under paragraph (1) shall

C. Determination as to the assertion that the instant provision is unconstitutional

The purpose of this case is to prevent double deduction of necessary expenses when calculating global income and capital gains. In income tax, as a principle of tax return, a businessman may choose depreciation within the scope of depreciation, amount and time to include necessary expenses within the scope of depreciation, depending on his own decision, and only when the businessman can choose to include the depreciation costs of fixed property for business in the statement of accounts. Depreciation costs not included in the necessary expenses of business income can be included in the necessary expenses of capital gains by not deducting from the acquisition value at the time of calculating the necessary expenses of capital gains. Thus, there is predictability that a businessman can choose to include depreciation costs in the necessary expenses of business income and capital gains; depreciation costs appropriated in the necessary expenses of business income can be reflected in the transfer value when a businessman transfers depreciation assets; even if the depreciation costs appropriated in the necessary expenses have not actually affected global income, it can be deducted from real estate rental income generated after the taxable year (or a real estate rental business is operated again after closure of a harsh real estate rental business after closure). In full view of the fundamental rights principle or the principle of no taxation without law.

Therefore, this part of the plaintiff's assertion is without merit.

D. Determination as to the assertion that the provision of this case shall be interpreted only where the depreciation cost reduces the total income tax.

In interpreting and applying tax-related Acts, the tax authority shall ensure that property rights of taxpayers are not unfairly infringed in light of the equity of taxation and the purpose of the pertinent provision (Article 18(1) of the Framework Act on National Taxes). In applying the standards for interpreting the tax-related Acts, the interpretation of the tax-related Acts should be interpreted as the legal text, barring special circumstances, and the wide interpretation or analogical interpretation without reasonable grounds should be governed by the limit under the principle of no taxation without law.

On the other hand, the provisions of this case clearly provide that when the depreciation costs for the assets held in the period of holding the transferred assets and there are amounts included or to be included in the necessary expenses in calculating the business income in each taxable period, such amounts shall be deducted from the amount under paragraph (1) shall be deemed the acquisition value." And it shall not be allowed to expand or analogically interpret such amounts as "when there is an amount included or to be included in the necessary expenses" to "when there is an amount included or to be included in the necessary expenses."

Therefore, this part of the plaintiff's assertion is without merit.

E. Determination of necessary expenses assertion

1) Determination of construction design and supervision costs

Considering the following circumstances, Gap evidence Nos. 3 and 4, Gap evidence Nos. 11-1, and Eul evidence Nos. 13-3 and 13-2, the plaintiff entered into a construction design contract for the building of this case with the non-party company on August 20, 2007, before entering into the contract with the non-party company, with the construction design cost of 14 million won, the plaintiff entered into a contract with the non-party company on Oct. 17, 2007; the plaintiff entered into a supervision contract for the remodeling work of the building of this case with the non-party company on Oct. 17, 2007; the plaintiff's allegation that additional design work cost and construction review were paid to the non-party company's representative director on Jun. 7, 2010, the plaintiff paid the plaintiff's construction work cost of 300,000 won to the non-party company's account No. 3060,000 won.

2) Determination of the cost of construction, such as the cost of creative construction, removal cost, and bank protection

The statement in Gap evidence Nos. 4 through 6 alone is insufficient to recognize that the plaintiff paid the money claimed by the plaintiff for construction costs, such as creative construction, removal, and protection. Thus, this part of the plaintiff's assertion is without merit without further review.

3) Determination on interest expenses

In light of the fact that interest expenses incurred in lending construction costs do not fall under any of the necessary expenses listed in Article 97(1) of the Income Tax Act and Articles 67 and 163 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015) and that when construction works are conducted with loans, the interest expense is deducted from the necessary expenses and the interest expense is equitable with the person who performed the construction works without receiving the loan if it is deducted from the necessary expenses, the interest interest rate for the construction cost claimed by the Plaintiff cannot be recognized as necessary expenses. Thus, the Plaintiff’

(f) Calculation of legitimate capital gains tax;

Ultimately, the Plaintiff is recognized to have additionally disbursed KRW 18 million in addition to those recognized as necessary expenses in the instant disposition. Accordingly, based on this, when calculating the transfer income tax to be paid by the Plaintiff, it is as shown in the attached Form.

Therefore, the part of the instant disposition exceeding KRW 00,000 is unlawful.

3. Conclusion

Thus, the plaintiff's claim is accepted within the above scope of recognition, and the remaining claims are dismissed as they are without merit.