National Tax Service Review and Transfer 2009-0054 (Law No. 9.15, 2009)

Land for non-business use due to changes in urban planning, etc.

Land not used for business due to justifiable reasons, such as change in urban planning after acquisition of land, shall not fall under land for non-business;

2011Guhap949 Revocation of Disposition of Imposing capital gains tax

XX Kim

O Head of tax office

April 14, 2011

May 19, 2011

1. The Defendant’s imposition of capital gains tax of KRW 91,957,720 against the Plaintiff on December 10, 2008 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 December 10, 2001, the Plaintiff acquired and owned a site of 206-3, Incheon XX-dong 206-3, and transferred it to KimA on November 22, 2007.

B. On December 31, 2007, the Plaintiff reported and paid KRW 59,780,178 for the transfer income tax for the year 2007 by deeming the instant land as land for business and applying 36% of the general accumulated rate as land for business.

C. The Defendant deemed that the instant land constitutes land for non-business under Article 104-3(1) of the former Income Tax Act (amended by Act No. 9270 of Dec. 26, 2008; hereinafter “Income Tax Act”), and thus, applied 60% of the heavy tax rate and imposed capital gains tax on the Plaintiff on December 10, 2008 by applying 91,957,724 won for the transfer income tax of 2007.

D. The Plaintiff dissatisfied with the instant disposition and filed a request for examination with the Commissioner of the National Tax Service on March 2, 2009, but the Commissioner of the National Tax Service dismissed the said request for examination on July 15, 2009.

[Reasons for Recognition] In the absence of dispute, Gap evidence Nos. 1.3, Eul evidence Nos. 1, 2, and 3 (including numbers, if any; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

① Since the Plaintiff’s land at the place where an urban development project is implemented by the replotting method and the construction of water supply system was completed on November 2004 and around that time, it is possible to construct the land. As such, the Plaintiff’s land falls under the case where the land is not deemed the land for two years from the time it is possible to construct pursuant to Article 83-5(1)8 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 74 of Apr. 14, 2009; hereinafter “Enforcement Rule of the Income Tax”), or is not deemed the land for two years from the time it is possible to construct (i.e., the land for two years from Nov. 1, 2004 to 2007). In this case, the Plaintiff’s disposal of the land should not meet the standards prescribed in subparagraph 1(b) of the Enforcement Rule of the Income Tax Act from the date of transfer to Nov. 22, 2004.

B. Relevant statutes

The entries in the attached Table-related statutes shall be as follows.

C. Determination on the assertion 1

There is no evidence to acknowledge that the construction of the water supply system was completed on November 2004 with respect to the business partition containing the land of this case and possible from that time. Rather, according to the fact inquiry by the Seo-gu Incheon Metropolitan City Office, the date of completion of the construction of the infrastructure for the land readjustment project of this case can be recognized as the fact-finding on April 3, 2007. Thus, without need to further examine, the Plaintiff’s assertion on this part is rejected.

D. Judgment on the assertion ②

1) Facts of recognition

A) On December 28, 1994, the Mayor of Incheon Metropolitan City (the head of Incheon Metropolitan City at that time) authorized and publicly announced the implementation of the land readjustment project of the Gyeonggu Incheon Metropolitan City (the head of Incheon Metropolitan City and the head of Incheon Metropolitan City) to implement the land readjustment project of 343,700 square meters in the area of enforcement from December 12, 1997, the location of implementation under Article 1994-365 of the public announcement of Incheon Metropolitan City and the head of Incheon Metropolitan City and the head of Incheon Metropolitan City (the head of the Incheon Metropolitan City and the head of the Incheon Metropolitan City).

B) After that, the head of Incheon Metropolitan City announced on December 5, 1997, as the Incheon Metropolitan City Notice No. 1997-374, the head of the relevant Incheon Metropolitan City changed the project period of the land readjustment project by December 27, 200, and announced the modification of the project plan and the announcement of the modification of the project plan to extend the project period by December 27, 2003 at the Incheon Metropolitan City Notice No. 2000-348 on August 23, 2000, and thereafter authorized the land readjustment project of this case as the Incheon Metropolitan City Notice No. 2001-382 on September 18, 2001.

C) The Plaintiff acquired the instant land by auction on December 10, 2001.

D) The Mayor of Incheon Metropolitan City announced the project period of the land readjustment project of this case as of December 27, 2004 by the Incheon Metropolitan City public announcement No. 2003-153 of April 19, 2003, as of December 10, 2004, as of December 27, 2006, Incheon Metropolitan City public announcement No. 2004-850 of December 10, 2004, as of December 27, 2006, as of October 27, 2006 of Incheon Metropolitan City public announcement No. 2006-1237 of October 10, 2007, as of October 10, 2007, by the Incheon Metropolitan City public announcement No. 2007-1033 of December 22, 2008, the public announcement was made as of December 36, 2007, by the Incheon Metropolitan City public announcement No. 2008-1379, Dec. 29, 2019, 2007.

E) On November 22, 2007, the Plaintiff acquired the instant land and completed the registration of ownership transfer on November 22, 2007, when about five years and eleven months elapsed since the date of acquiring the instant land. The Plaintiff and the Plaintiff’s household members did not own another house from the time of acquiring the instant land until the time of transferring the instant land.

[Reasons for Recognition] The fact that there is no dispute, the development plan of Incheon Metropolitan City and the fact-finding inquiry conference on the urban development division of Seo-gu Incheon Metropolitan City, and the purport of

2) Determination

A) Criteria for determining "non-business land" under the Income Tax Act

(1) According to the main sentence of Article 104-3 (1) of the Income Tax Act and subparagraph 4 (c) of the same paragraph, "the period prescribed by Presidential Decree" means the period equivalent to 20/100 of the farmland, forest and land other than the land for stock farm, which is not the land for non-business purposes and is not the land prescribed by Presidential Decree as being directly related to residence or business in consideration of the situation of the use of the land, the fulfillment of the obligations of related Acts, the amount of income, etc. of the land. In addition, according to each item of subparagraph 1 of Article 168-6 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008, hereinafter referred to as the "Enforcement Decree of the Income Tax Act"), where the ownership period of the land is 5 years or more, the period prescribed by Presidential Decree means the period exceeding 5 years from the date immediately preceding the transfer date, 3 years from the immediately preceding three years, and 16/1000 of the land.

(2) On the other hand, according to Article 104-3 (2) of the Income Tax Act, in the case of land for non-business due to the prohibition of use due to the provisions of law after the acquisition of land or other inevitable reasons prescribed by the Presidential Decree, it may not be deemed land for non-business use under the conditions as prescribed by the Presidential Decree. Accordingly, according to Article 168-14 (1) 4 of the Enforcement Decree of the Income Tax Act and Article 83-5 (1) 12 of the Enforcement Rule of the Income Tax Act, "land not used for business due to justifiable reasons, such as the alteration of urban planning, after the acquisition of the land concerned, shall be deemed land that does not fall

(3) Ultimately, even if the land at issue falls under any of the subparagraphs of Article 104-3(1) of the Income Tax Act, it may not be deemed land for non-business use due to the inevitable reasons prescribed in Article 104(2) of the same Act and the subparagraphs of Article 168-14(1) of the Enforcement Decree of the Income Tax Act. The period shall not be deemed land for non-business use, if the land at issue falls under one of the subparagraphs of Article 104-3(1) of the Income Tax Act, and the period is at least three years immediately before the transfer date, or if the owner exceeds 80/100

B) Whether “land which is not used for business due to justifiable grounds” constitutes “land which is not used for business”

(1) In the event that a land readjustment project was already implemented at the time of acquiring the land as in the instant case, but a later project plan was modified and a later project plan was extended, this constitutes a case where the land could not be used for business, unlike the originally anticipated due to justifiable reasons not belonging to the Plaintiff’s responsibility, and thus, the land constitutes “land not used for business due to justifiable reasons” pursuant to Article 168-14(1)4 of the Enforcement Decree of the Income Tax Act and Article 83-5(1)12 of the Enforcement Rule of the Income Tax Act, and in this case, it does not constitute “the period during which the project period has been extended after the date

(2) On December 10, 2001, the Defendant: (a) as at the time of acquiring the instant land on December 10, 2001, the Plaintiff had already been in progress and its use was limited; (b) it does not fall under the requirements prescribed in Article 83-5(1)12 of the Enforcement Rule of the Income Tax Act, which provides that “the land which is not used for business due to justifiable reasons, after acquiring the relevant land.” (c) the Plaintiff did not meet the requirements prescribed in Article 83-5(1)12 of the Enforcement Rule of the Income Tax Act, and realized gains on transfer of the instant land for about 2.5 times the acquisition price after transferring the land for non-business, and immediately after the completion of the infrastructure construction, transferred the instant land to the Plaintiff on April 3, 2007. Since the ordinary land readjustment project was modified, the Plaintiff’s project plan was mostly subject to changes in its actual business plan, and thus, it cannot be accepted that the instant land could not be regarded as the land for non-business use period after the alteration of the instant land.

(3) As seen earlier, the business period of the land readjustment project of this case, which was scheduled by the Plaintiff at the time of acquiring the land of this case, was until December 27, 2003. However, since the Plaintiff changed the land readjustment project plan of this case on four occasions during the period from the time of acquiring the land of this case to the time of transfer, and the period of business operation was extended to December 27, 2008, it shall not be deemed that the land of this case, which is not used for business due to justifiable reasons, such as the change of urban planning after acquiring the land of this case from December 28, 2003 to November 22, 2007, which is the day following the end of the original business period, does not fall under the land for non-business use since the period of the land of this case does not meet the standard of the non-business land of each item of subparagraph 1 of Article 168-6 of the Enforcement Decree of the Income Tax Act (the period from November 22, 2004 to November 21, 2007).

3. Conclusion

Thus, the plaintiff's claim of this case is justified and accepted.