Cho-2015-China-915 ( October 15, 2015)

Whether the Plaintiff constitutes the requirements for reduction and exemption from large land by cutting down the instant land.

The plaintiff's assertion alone is difficult to see that sufficient proof of farmland and self-defense has been made, and there is no evidence to find any illegality in the recognition of other necessary expenses, acquisition value, and transfer value.

Articles 97 and 100 of the Income Tax Act (Calculation of Necessary Expenses for Transfer Income)

Suwon District Court 2015Gudan33619 Revocation of Disposition of Imposing Capital Gains Tax

OraA

BB Director of the Tax Office

August 17, 2016

October 5, 2016

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 311,06,990 to the Plaintiff on February 12, 2014 shall be revoked.

1. Details of the disposition;

A. On April 16, 2004, the Plaintiff: (a) on April 16, 2004, CC-dong 595-2, 1,317 square meters (hereinafter “land”).

The same 595-6 319 m2 (hereinafter referred to as "B") and 596 m3m2 (hereinafter referred to as "land") of the same 596 m2 (hereinafter referred to as "third m2") were acquired and owned, and (1) land was owned by non-party DD Construction Co., Ltd. (hereinafter referred to as "non-party DD Construction") on June 16, 201; (2) land was registered for transfer of ownership on September 22, 201.

B. On December 30, 201, the Plaintiff acquired 1,309 square meters (hereinafter referred to as “alternative farmland”) prior to YYari 146,00,000 square meters in the relevant land at BB, and applied for reduction or exemption of capital gains tax by applying the provision on reduction or exemption of capital gains tax for substitute land after calculating the transfer income tax amount of KRW 1,336,00,000 upon filing a report on the transfer income tax of the instant land on May 31, 2012 (=(i) land 716,00,000 + ② land 62,632,116, and necessary expenses as KRW 450,658,560, and then calculating the transfer income tax amount of KRW 81,749,128.

C. On October 2013, the Defendant denied the application amount for reduction or exemption of capital gains tax for farmland substitute land on the ground that the Plaintiff did not have any minor knowledge by conducting a field investigation on the instant land, and subsequently denied the application amount for reduction or exemption of capital gains tax for farmland substitute land, and denied KRW 327,458,55 among necessary expenses reported by the Plaintiff, thereby imposing capital gains tax of KRW 31,006,990 on the Plaintiff on February 12, 2014.

D. On January 3, 2015, the Plaintiff filed an objection and filed an appeal with the Tax Tribunal on January 3, 2015. On May 15, 2015, the Tax Tribunal rendered a decision that “The tax base and tax amount should be corrected according to the results of re-investigation of the transfer time and transfer value of the instant land, and the remaining appeal is dismissed.”

E. Accordingly, the Defendant conducted a reinvestigation of capital gains tax on June 2015, but confirmed that the transfer value and transfer time are the same as the initial investigation, and sent a notice of the results of reinvestigation to the Plaintiff on August 27, 2015 that the initial disposition is justifiable.

[Ground of recognition] No dispute, Gap 1 through 3, 19, Eul 1 through 8, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff’s actual acquisition in the course of the instant land transaction is merely KRW 71,00,00,000 merely because the difference between KRW 1,36,00,000,00 that was transferred by KimGG, the actual transferor of the instant land, and KRW 711,00,000 that was acquired by the Plaintiff, should be taxed on KimG. However, the Defendant issued the instant disposition on the premise that the transfer price is KRW 1,336,00,000,00, on the premise that the transfer price is KRW 1,336,00,000, and the Plaintiff violated the principle of substantial taxation (On the other hand, the Plaintiff’s assertion that the transfer registration was completed first than the balance liquidation with respect to the instant land, and thus, the time of transfer should be deemed the date of receipt of ownership transfer registration. However, in rendering the instant disposition by the Defendant, it is apparent that the transfer price was calculated based on June 16, 2011 and September 22, 20111.

2) In recognizing the acquisition value of the instant land, the Defendant determined the acquisition value according to the ratio of the amount converted based on the officially assessed individual land price, not the area ratio, because the Plaintiff acquired the instant land in a lump sum including the instant land, is confirmed to be the actual transaction value, and thus, the amount calculated by dividing the total actual transaction value by the ratio of the area occupied by the instant land among the entire acquired land.

3) The Plaintiff acquired substitute farmland and cultivated dry field crops with her husband within one year after completing the registration of transfer of ownership of the instant land. As to the instant land, the Plaintiff was unable to temporarily grow from the time of acquisition due to the problem of the remainder payment between the mortgagee of the right to collateral security, Kim II and the mortgagee, who acquired the buyer’s status from the buyer, and construction of adjoining land. However, it was erroneous that the Defendant denied the Plaintiff’s self-defense and did not receive the application for reduction or exemption for substitute farmland.

4) In the BB near the instant land,CC 595-1 road 44 square meters, 596-1 road 596-1 road, 124 square meters and 152 square meters and 595-7 road 152 square meters and 596-3 road 45 square meters, which are a passage for building permission related to the transfer of the instant land, and are obviously used by neighboring land residents together. Therefore, the Defendant erred by failing to reflect the acquisition value of the said land in the necessary expenses pursuant to Article 79 of the Enforcement Rule of the Income Tax Act, even though it was included in the necessary expenses.

B. Relevant statutes

Attached Form is as shown in the attached Form.

C. Determination

1) As to the first argument

Article 14(1) of the Framework Act on National Taxes explicitly states the principle of substantial taxation. If the ownership of income is nominal and there is another person who actually obtains such income, income tax shall be imposed on the person who actually obtains such income. As such, the fact that the ownership of income is nominal and is actually a person who has actually obtained such income has the burden of proving that there is another person who asserts it (see, e.g., Supreme Court Decision 84Nu505, Dec. 11, 1984). In addition, if the ownership transfer registration of real estate is completed, it is presumed that not only the third person but also the former owner has acquired ownership through legitimate grounds for registration. Therefore, the title holder of the registration should assert and prove the grounds for invalidation (see, e.g., Supreme Court Decision 2010Da75044, Jan. 10, 2013).

In light of the above legal principles, the Plaintiff voluntarily filed a transfer income tax return with respect to the instant land at KRW 1,36,00,00 with respect to the Plaintiff, the transfer value of which is KRW 1,336,00,00 with respect to each of the following circumstances, namely, the Plaintiff: (a) submitted a sales contract and a real estate register attached to the said transfer value; and (b) even with respect to the Plaintiff’s assertion, the Plaintiff prepared a written confirmation of full payment of the land price to the effect that “as of February 23, 2011, it would confirm that the Plaintiff was paid in full with respect to the instant land transaction and for any of the following reasons, it would not demand any more money or valuables for the Plaintiff; (c) all of the sales contracts on the instant land attached at the time of application for ownership transfer registration; and (d) insofar as it is objectively apparent that there is no possibility to realize the balance of land purchase and sale claims, it is a principle that the transfer value of the instant land is imposed on the entire transfer value reported in accordance with the principle of rights.

C. The plaintiff's above assertion is without merit.

2) As to the second argument

According to Article 100(2) of the former Income Tax Act (amended by Act No. 10900, Jul. 25, 2011; hereinafter the same), Article 166(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 23218, Oct. 14, 201; hereinafter the same shall apply) and Article 48-2(4)1 proviso of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23162, Sept. 29, 2011); if the distinction between the value of land and buildings is unclear, it shall be calculated in proportion to the value calculated according to the standard market price as of the date of the supply contract.

However, according to the sales contract (A) submitted by the Plaintiff at the time of filing a transfer income tax return in this case, the Plaintiff’s total amount of 4,211 square meters of five parcels, including three parcels of land in this case, including the land in this case, shall be 362, 595, 595-1, 596, 596-1, and 596-1, and the total amount of 4,211 square meters of land shall be 1,00,000 won, and there is no distinction between the size and acquisition value of the lot number, but there is a substantial difference between the use of the lot and the standard market price of the land, and there is no reason to view that the sale price was determined by the same assessment of the usual price of the land in this case. Thus, it can be deemed that the Defendant calculated the conversion price of each parcel of land at the time of the entire acquisition of the land in this case based on the officially assessed individual land price at the time of the total acquisition.

3) As to the third argument

Pursuant to Article 70(1) of the former Restriction of Special Taxation Act (amended by Act No. 11133, Dec. 31, 2011) and Article 67 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 23590, Feb. 2, 2012), the burden of proving that the land subject to the reduction or exemption of capital gains tax is "farmland" and "a person who has claimed the reduction or exemption of capital gains tax for at least three years before the transfer of the relevant land" is the taxpayer.

However, according to the following circumstances acknowledged by the overall purport of the statements and arguments in Eul 9, 11, and 12, the land in this case appears to be a site, and the plaintiff has considerable wage and salary income during the holding period of the land in this case from June 2009 to May 2012, the plaintiff did not submit objective data on the purchase details of the seeds and farming materials necessary for cultivating crops or on the sales or use of the harvested crops, or on the basis of each statement in Gap 21 to 23 (including the serial number) submitted by the plaintiff, it is difficult to view that sufficient proof of the above "farmland" or "self-scopes" is not sufficient for the plaintiff's assertion solely on the ground that there is no inevitable reason for the plaintiff's assertion.

4) As to the fourth argument

According to Article 97 (1) 2 of the former Income Tax Act, Article 163 (3) 4 of the former Enforcement Decree of the Income Tax Act, and Article 79 (1) 4 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 224 of Aug. 3, 2011), the value of land acquired as a road at the time of acquisition shall be reflected in necessary expenses as capital expenses.

However, according to the overall purport of the statements and arguments in Section B-1, Section B-2 and Section B-2, in the case of each road of Section C-5-1 and Section 596-1, prior to the Plaintiff’s purchase of the instant land, the Plaintiff cannot be deemed to have newly constructed a road after its acquisition on January 2, 2003, prior to the Plaintiff’s purchase of the instant land. Since each road of Section B-5-7 and Section 596-3, including the said road, has not been transferred its ownership to the State or local governments, it cannot be deemed to have been granted to the State or local governments without compensation, the Plaintiff’s above assertion is without merit.

D. Therefore, we cannot accept all the Plaintiff’s assertion, and the instant disposition is lawful.

3. Conclusion

The plaintiff's claim is dismissed. It is so decided as per Disposition.

Relevant statutes

◈ 구 소득세법(2011. 7. 25. 법률 제10900호로 개정되기 전의 것)

§ 97. Calculation of necessary expenses of transfer income—

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

2. Capital expenses, etc. prescribed by Presidential Decree;

§ 100. Calculation of gains on transfer—

(1) Where the transfer value is calculated based on the actual transaction value (including the value under Article 96 (3) and the amount of transaction example value, appraisal value, etc. in cases where the amount of transaction example value, appraisal value, etc. is applied pursuant to Article 114 (7)), the acquisition value shall also be calculated based on the actual transaction value (including the value under Article 97 (7) and the amount of transaction example value, appraisal value, conversion value, etc. where the conversion value is applied pursuant to Article 114 (7)), and where the transfer value is calculated based on the standard market price,

(2) In applying paragraph (1), where the transfer value or acquisition value is calculated based on the actual transaction value and the land and buildings, etc. are acquired or transferred, they shall be separated and entered, but where the distinction between the land and the buildings, etc. is unclear, it shall be calculated in accordance with Presidential Decree in consideration of the standard market price, etc. at the time of acquisition or transfer. In such cases, common acquisition value and transfer

(3) Matters necessary for calculating gains on transfer shall be prescribed by Presidential Decree.

◈ 구 조세특례제한법(2011. 12. 31. 법률 제11133호로 개정되기 전의 것)

-Article 70 (Reduction and Exemption of Transfer Income Tax on Substitute Land for Farmland);

(1) A tax amount equivalent to 100/100 of capital gains tax on any income accruing from substitute land which is cultivated directly by a resident prescribed by Presidential Decree as necessary for the cultivation of farmland, shall be reduced or exempted: Provided, That where the relevant land is incorporated into a residential area, commercial area or industrial area under the National Land Planning and Utilization Act (hereafter in this Article, referred to as "residential area, etc.") or has been designated as a land reserved for replotting other than farmland before a disposition of replotting is taken pursuant to the Urban Development Act or other Acts, only the income prescribed by Presidential Decree accrued until the date of such designation shall be exempted.

◈ 구 소득세법 시행령(2011. 10. 14. 대통령령 제23218호로 개정되기 전의 것)

§ 163. Necessary expenses of transferred assets—

(3) "Capital expenditure prescribed by Presidential Decree" in Article 97 (1) 2 of the Act means any of the following:

4. Other expenses determined by Ordinance of the Ministry of Strategy and Finance, which are equivalent to subparagraphs 1 through 3, 3-2 and 3-3.

—Article 166 (Calculation, etc. of Gains on Transfer)

(6) In applying Article 100 (2) of the Act, if the distinction between the value of land and that of buildings, etc. is obscure, it shall be computed in accordance with the proviso to Article 48-2 (4) of the Enforcement Decree of

◈ 구 부가가치세법 시행령(2011. 9. 29. 대통령령 제23162호로 개정되기 전의 것)

—Article 48-2 (Method of Calculating Tax Base)

(4) Where a business operator supplies land, buildings built on such land, and other structures (hereafter referred to as "building, etc." in this Article), the value of supply of the building, etc. shall be based on the actual transaction value: Provided, That where distinction between the value of land and the value of the building, etc. is unclear from among

1. Where there is all the standard market price under Article 99 of the Income Tax Act for land, buildings, etc. (hereafter in this Article, referred to as the "standard market price"), it shall be calculated in proportion to the value calculated according to the standard market price as of the date of supply contract: Provided, That where there is an appraised value [referring to the appraised value assessed by an appraisal corporation under the Public Notice of Values and Appraisal of Real Estate Act from the commencement date of the taxable period immediately preceding the taxable period to which the time of supply under Article 21 belongs (in cases of interim payment or long-term installment sale, the time of supply first) until the end of the taxable

◈ 구 조세특례제한법 시행령(2012. 2. 2. 대통령령 제23590호로 개정되기 전의 것)

—Article 67 (Requirements, etc. for Reduction or Exemption of Transfer Income Tax for Substitute Land for Farmland)

(1) A resident prescribed by Presidential Decree in Article 70 (1) of the Act means a person who has resided in any of the following areas (including an area corresponding to the relevant area at the time of commencement of cultivation, but not corresponding thereto due to a reorganization of administrative districts, etc.; hereafter in this Article, referred to as "location of farmland") for at least three years:

(2) For the purpose of Article 70 (1) of the Act, the term "self-Cultivating" means that a resident is engaged in cultivating crops or growing perennial plants on his/her own farmland at all times or carrying out at least half of farming works with his/her own labor.

(7) "Land prescribed by Presidential Decree" in Article 70 (2) of the Act means any of the following farmland (hereinafter referred to as "farmland"):

(8) Any person who intends to apply for reduction or exemption of capital gains tax under Article 70 (3) of the Act shall submit, to the head of tax office having jurisdiction over the place of tax payment, an application for tax reduction or exemption prescribed by Ordinance of the Ministry of Strategy and Finance, along with

◈ 구 소득세법 시행규칙(2011. 8. 3. 기획재정부령 제224호로 개정되기 전의 것)

§ 79. Calculation, etc. of necessary expenses of transferred assets

(1) The term "those determined by Ordinance of the Ministry of Strategy and Finance" in Article 163 (3) 4 of the Decree means the following expenses:

3. Where a road is newly constructed on the relevant land or the land owned by another person adjacent to the relevant land for the convenience of land use, the costs of such construction;

4. The value of land which is formed on the relevant land and has been granted to the State or a local government free of charge for the convenience of land utilization.