Cho-2017-China-1083 (24 April 2017)

Where the total amount of salaries is at least 37 million won in a taxable period, it shall be excluded from the self-employed period.

In the event that the total amount of gross pay is at least 37 million won in a taxable period, the provision of the Enforcement Decree of this case, which excludes the period of self-defense, does not extend the period of cultivation (8 years) under Article 69 (1) of the Restriction of Special Taxation Act, so it does not

Enforcement Decree of the Restriction of Special Taxation Act Article 66 (Reduction or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

2017Guhap51059 Revocation of Disposition of Imposing capital gains tax, etc.

○ ○

○ Head of tax office

March 20, 2018

April 17, 2018

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 5,938,260 for the Plaintiff on July 1, 2016 shall be revoked.

1. Details of the disposition;

A. On November 4, 1999, the Plaintiff acquired ownership of ○○○○○-gun, Gangwon-do, ○○○○○○-gun, 11,253 square meters of forest land (11,253 square meters of forest land) prior to the division. On July 11, 200, the Plaintiff completed the registration of ownership transfer on the ground of a donation agreement with respect to ○○-gun, Gangwon-do, ○○○-gun, 383 square meters prior to the division (1,577 square meters prior to the division), ○○-ri, 386 square meters prior to the division (387 square meters prior to the division), ○○-ri, 389 square meters prior to the division (1,779 square meters), ○○-ri, 390 square meters prior to the division (2,2287 square meters prior to the division), ○○-ri, 391, 1491 square meters prior to the division).

B. On September 1, 2014, the Plaintiff completed the registration of ownership transfer under the name of the Korea Rail Network Authority on the land indicated in the said paragraph (including ○○○○○-4 Forest and 2,167 square meters divided among forest land 11 forest land before the division, and limited to 383-1 square meters divided among forest land 383 square meters before the division, including ○○-ri 383-1 square meters divided among forest land 11 forest land before the division; hereinafter referred to as “each of the instant land”), on the ground of an agreement on the land for public use on August 28, 2014, and on October 28, 2014, the Plaintiff filed a report with the Defendant by applying the reduction or exemption of capital gains tax on the ground of farmland under Article 69 of the Restriction of Special Taxation Act.

C. The Defendant conducted a survey of capital gains tax on the Plaintiff, and confirmed that the amount of gross income after 2006 was at least KRW 37 million during the period in which the Plaintiff owned each of the instant land, and excluded the period in which the amount of gross income is at least KRW 37 million from the period in which the Plaintiff owned each of the instant land pursuant to Article 6(14) of the Enforcement Decree of the Restriction of Special Taxation Act, the Defendant excluded the application for reduction and exemption from the application for reduction and exemption on July 1, 2016 on the ground that the remaining period in the possession of each of the instant land was only five years and does not meet the requirements for self-sufficiency for at least eight years (hereinafter “instant disposition”).

(3).

D. On February 10, 2017, the Plaintiff filed an objection and filed an appeal with the Tax Tribunal on February 10, 2017, but dismissed on April 24, 2017.

Facts without dispute over the basis of recognition, Gap evidence 1, 2, 3, 13, 14, Eul evidence 1 and 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

For the following reasons, the instant disposition is unlawful.

1) In accordance with Article 66(14) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 27848, Feb. 7, 2017; hereinafter referred to as the “former Enforcement Decree of the Restriction of Special Taxation Act”), the Defendant denied the reduction or exemption on the ground that if the Plaintiff excludes the period in which the Plaintiff’s total amount of salaries is at least KRW 37 million, it cannot be deemed that the Plaintiff has replaced each of the instant land for at least eight years, if the Plaintiff excluded the period in which the Plaintiff’s total amount of salaries is at least KRW 37 million.

① Since the key issue clause of this case limits the property rights of the people without statutory delegation, it goes against the principle of statutory reservation or the principle of prohibition of comprehensive delegation. ② Even if it is possible to do so according to individual circumstances, the taxable periods with gross pay exceeding KRW 37 million are excessively limited according to the uniform standard, and thus, it goes against the principle of excessive prohibition. ③ Since the Plaintiff, who met the requirements for self-farmland, obtained each of the instant land of this case, was excluded from capital gains tax reduction through the provisions newly established ex post facto for at least eight years, it goes against the principle of retroactive prohibition. Therefore, the key issue clause of this case, which is the basis provision of the instant disposition, is invalid.

2) The proviso of Article 1 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 25211, Feb. 21, 2014; Presidential Decree No. 25211; hereinafter referred to as the “the Addenda of this case”) provides that the key provision of this case, which is a provision that restricts citizens’ fundamental rights, shall enter into force on July 1, 2014, shall be effective with an excessive grace period, and thus, it is null and void against the excessive prohibition principle. Even if the proviso of Article 1 of the Addenda of this case is lawful, the transfer of each land of this case shall be deemed to have been made at the time when the Plaintiff consented to use each land of this case (the date of December 25, 2013, which is prior to the enforcement date of the instant main provision) or at the time of exercising the right to purchase the remaining land ( May 2014). Accordingly, the issues of each transfer of the Plaintiff’s land of this case shall not be applicable.

3) Each of the instant lands ought to be deemed to have been transferred on May 2014, when the Plaintiff filed a claim for purchase of remaining land, rather than on September 1, 2014 when the ownership transfer registration was completed (on September 1, 2014), and thus, the taxation requirement prior to the enforcement of the instant issues clause ought to be deemed to have been completed. Nevertheless, the instant disposition that deemed the taxation requirement was completed on September 1, 2014 goes against the principle of retroactive taxation prohibition.

4) Even if the key issue clause of this case is applied to the transfer by the Plaintiff of each of the instant land, it should be based on the amount of actual receipt, not total salary, for specific feasibility and substantial equity in calculating the taxation standard excluded from the key issue clause of this case.

5) The Plaintiff continued to do so after acquiring each of the instant land.

(b) Indication of relevant regulations;

It is as shown in the attached Form.

C. Whether the main issue provision of this case is invalid

1) Whether the key issues of the instant case are contrary to the principle of statutory reservation

Article 69 (1) of the Special Taxation Restriction Act provides that a tax amount equivalent to 100/100 of capital gains tax shall be reduced for income accruing from the transfer of land prescribed by Presidential Decree, among land cultivated directly by a resident prescribed by Presidential Decree for at least eight years, among land cultivated directly by a resident prescribed by Presidential Decree. This Act explicitly delegates the concept, method, and method of tax reduction or exemption to subordinate statutes, but does not delegate it to subordinate statutes for eight years, which is the period of cultivation.

However, considering the following circumstances, it is reasonable to deem that the instant key provision was enacted based on the delegation provision of “land cultivated by a resident prescribed by Presidential Decree residing in the seat of farmland for at least eight years” under Article 69(1) of the Restriction of Special Taxation Act, and therefore, it cannot be deemed that the instant key provision contravenes the principle of statutory reservation (the Plaintiff asserts that the instant key provision contravenes the principle of statutory reservation, but the assertion is contrary to the principle of statutory reservation, while the instant key provision is merely the assertion that the content of the assertion is contrary to the principle of statutory reservation, and therefore, it cannot be deemed that the instant key provision contravenes the principle of statutory prohibition on comprehensive delegation.

A) Article 20(2) of the Income Tax Act provides that a taxable period in which the total amount of gross income of a resident under Article 20(2) is at least KRW 37 million shall be excluded during the cultivation period. This is merely a limitation on the requirements that a resident has been engaged in farming for at least eight years under Article 69(1) of the Restriction of Special Taxation Act as "a resident with a total amount of 37 million won or less who has been engaged in farming for at least eight years." Since Article 69(1) of the Restriction of Special Taxation Act does not extend the cultivation period (8 years) itself, the key provision of the instant case shall be deemed to be prescribed in accordance with the explicit delegation provision (hereinafter referred to as "resident prescribed by Presidential Decree").

B) Article 69(1)1 of the former Restriction of Special Taxation Act (amended by Act No. 5584 of Dec. 28, 1998, and amended by Act No. 6538 of Dec. 29, 2001) provides that capital gains tax or special surtax shall be exempted on any income accruing from the transfer of land which a resident living in the seat of a farmland has continuously cultivated for not less than eight years as prescribed by the Presidential Decree. The legislative purpose of Article 69 of the same Act is to reduce the tax burden due to the transfer of farmland as part of the land farming policy. In particular, Article 69(1)1 of the same Act provides that the purpose of Article 69(1)1 of the same Act is to reduce the tax burden due to the transfer of farmland and to exempt self-employed farmers from the tax burden for eight or more years in order to promote agriculture and rural communities (see, e.g., Constitutional Court en banc Decision 2003Hun-Ba, Nov. 27, 2003).

2) Whether the key issues of the instant case are contrary to the excessive prohibition principle

The key issue clause of this case, without examining whether a person’s own competition, does not grant a benefit of reduction or exemption of capital gains tax if the cultivation period after excluding the period of taxation according to a specific standard falls short of eight years, thereby limiting the property right of a person whose total salary and business income during a certain period of not less than eight years is at least 37 million won. However, in full view of the following circumstances, the key issue clause of this case cannot be deemed as infringing on the essential contents of the property right guaranteed by the Constitution contrary to the excessive prohibition principle.

A) The key issue clause of the instant case is justifiable for the purpose of supplementing the method of calculating the period of self-sufficiency when capital gains tax is reduced or exempted for eight years by allowing a person to exclude the taxable period in which the total amount of gross pay and business income is at least 37 million won from the period of cultivation.

B) In calculating pursuant to the instant issues clause, the suitability of the means is recognized, as it is possible to determine whether the requirements for reduction or exemption of capital gains tax are satisfied by confirming only total wage and business income without examining whether the person is self-competitive or not.

C) The key issue clause of this case is related to non-taxation or tax exemption requirements, which are exceptional provisions of taxation requirements, and thus, there is a certain amount of discretion to the administration, unless the provision is remarkably unreasonable. ① The key issue clause of this case is to exclude the taxable period from the cultivation period in accordance with a specific standard is to be determined to a certain extent in light of its purpose (Supplementation method of calculating the period of self-sufficiency), efficiency in tax administration, and ② the key issue clause of this case is to determine whether the standard is "not less than 37 million won in total and business income," and it is reasonable compared to the average national income level; ③ a person with a total amount of not less than 37 million won is to cultivate the method prescribed in Article 6(13) of the former Enforcement Decree of the Restriction of Special Taxation Act (a person engaged in farming or cultivation in his own farmland or cultivate or cultivate not less than 1/2 of farming work with his own own labor). In light of the above, it is recognized that the key issue of this case also satisfies the minimum amount of infringement and legal interests.

3) Whether the key issues of this case are contrary to the principle of prohibition of retroactive legislation

In principle, an administrative disposition shall be based on the amended Act and subordinate statutes enforced at the time of the disposition, unless otherwise prescribed by the transitional provision. Even in cases where the amended Act and subordinate statutes provide a more unfavorable legal effect with respect to the property rights of the people while applying the existing facts or legal relations, if such facts or legal relations are not completed or terminated before the amended Act and subordinate statutes enforce, it shall not be deemed an infringement of property rights by retroactive legislation prohibited under the Constitution (see, e.g., Supreme Court Decision 2008Du9324, Sept. 10, 2009).

The key issue clause of this case is revised in a way that strengthens the requirements for reduction and exemption of capital gains tax as seen earlier, which provides for the legal effect unfavorable to the previous one in relation to the property rights of the people, and is applied from the division transferred after July 1, 2014 (proviso of Article 1 and Article 2(3) of the Addenda of this case), which is the acquisition, possession, and cultivation of farmland, subject to the application of the existing facts or legal relationship, but the key issue clause of this case is only applicable to the farmland transferred after the enforcement of the main issue clause of this case, and does not apply to the farmland which has already been transferred before its enforcement and whose legal relationship has been terminated.

D. Whether the key issue provision of this case applies to the Plaintiff’s transfer of each land of this case

1) The key issue clause of this case was newly established on February 21, 2014 and newly established on and after July 1, 2014, and thus a grace period of about four months was given. The Plaintiff cannot be deemed to be excessively short in disposing of each of the instant land. Since the need for the State to flexibly and reasonably operate tax and financial policies in the tax law area is very high, the laws and regulations and systems on taxes have to change flexibly, barring any special circumstance that actively form a new legal relationship based on trust in accordance with the former law and order, a taxpayer cannot expect or trust that the current tax law will be maintained without changing (see, e.g., Constitutional Court en banc Decision 2009Hun-Ba67, Oct. 28, 2010).

2) Meanwhile, the Plaintiff did not submit evidence evidencing that the time when the Plaintiff consented to the land use of each of the instant lands (as of December 25, 2013) or the time when the right to purchase the remaining land was exercised (as of May 2014), should be viewed as the time of transfer of each of the instant lands.

Furthermore, we examine whether each of the instant lands can be deemed to have been transferred at the time the Plaintiff asserts. Article 88(1) of the former Income Tax Act defines that the relevant assets shall be transferred at a price by means of sale, exchange, investment in kind in a corporation, etc., regardless of the registration or enrollment of transfer B assets, and Article 74(1) of the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects (hereinafter “Land Compensation Act”) provides that the landowner may request the project operator to purchase the remaining land if it is substantially difficult to use the remaining land for its original purpose because part of a group of land belonging to the same owner is purchased or expropriated through consultation.

① The consent to land use is merely a mere transfer of the right to use and benefit from the ownership, ② The Land Compensation Act cannot be deemed as recognizing the right to purchase the remaining land as a right to form a sales contract by its unilateral declaration of intention to the landowner. Since the right to purchase the remaining land is merely an offer in a sales contract under private law, so long as the project operator did not enter into a sales contract by its unilateral declaration of intention, it cannot be deemed that a sales contract for the remaining land is established by the landowner’s unilateral declaration of intention (see, e.g., Supreme Court Decision 2002Da68713, Sept. 24, 2004). (3) In light of the fact that there is no evidence to deem that the Plaintiff gave consent to land use on December 25, 2013 and the Plaintiff exercised the right to purchase the remaining land on May 2014, it cannot be deemed that the requirements for taxation for the transfer of each of the land in this case are satisfied.

3) Furthermore, as seen earlier, the fact that the Plaintiff completed the registration of ownership transfer in the future of the Korea Land Infrastructure Corporation on the grounds of the acquisition of the land for public use as of September 1, 2014 as of each of the instant land on the grounds of consultation on the land held on August 28, 2014 is recognized as having been transferred on August 28, 2014 or September 1, 2014, which was the enforcement date of the instant issues clause. Accordingly, the instant issues clause applies to the Plaintiff’s transfer of each of the instant land.

E. Whether the instant disposition goes against the principle of retroactive taxation prohibition

1) The principle of prohibition of retroactive taxation is not to limit the application of new Acts and subordinate statutes, etc. to the facts of taxation requirements that have been pending before and after the enactment or amendment of the tax laws and subordinate statutes, even though the pertinent Acts and subordinate statutes, etc. cannot be applied to the facts of taxation requirements that have been closed before the enactment or amendment of the said Acts and subordinate statutes becomes effective (see, e.g., Supreme Court Decision 96Nu9423, Oct. 29, 196

2) As seen in the above D., since the transfer of each of the instant lands by the Plaintiff was completed after July 1, 2014, the enforcement date of the instant issues clause, it cannot be deemed that the instant disposition violated the principle of retroactive taxation prohibition on the ground that it applied the instant issues clause.

(f) Whether the taxable period excluded pursuant to the main issue of this case should be calculated based on the amount of actual receipt, not the total amount of salaries.

1) Under the principle of no taxation without law, the elements of taxation, non-taxation, or tax reduction and exemption shall be avoided, and the interpretation of tax laws and regulations shall not be extensively interpreted or analogically interpreted without reasonable grounds (see, e.g., Supreme Court Decision 2008Du11372, Aug. 20, 2009).

2) Article 20(2) of the Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) provides that a resident’s total amount of salary under Article 20(2) of the Income Tax Act during the cultivation period shall be excluded if there is a taxable period of not less than 37 million won. Article 20(2) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) provides that “total amount of salary” shall be excluded from the total amount of income under each subparagraph of paragraph (1) of the same Article, excluding the amount of non-taxable income among the total amount of income as alleged by the Plaintiff, and there is no other basis to support the Plaintiff’s assertion. Therefore, the taxable period excluded from the total amount of salary under the instant provision should be calculated based on the law.

G. Sub-determination

The key issue clause of this case and the proviso of Article 1 of the Addenda of this case cannot be deemed null and void. Since the Plaintiff transferred each of the instant land on August 28, 2014 or September 1, 2014 after the enforcement date of the instant key issues clause ( July 1, 2014), the Plaintiff’s transfer of each of the instant land is subject to the key issues clause, and the instant disposition cannot be deemed to contravene the principle of retroactive taxation prohibition.

In addition, the taxable period that is excluded from the amount of gross income under the Income Tax Act, rather than the amount of actual receipt, should be calculated based on the provision on the issue of this case. According to the evidence No. 2, since it is recognized that the annual gross income that the Plaintiff received while working in the ○○ Military Office is more than 37 million won during the period from 2006 to 2014, it cannot be deemed that the Plaintiff used the land of this case for the period of not less than 8 years if the Plaintiff excluded the period of not less than 37 million won (from 2006 to 2014) during the period of holding each of the land of this case.

Therefore, regardless of whether the Plaintiff continued to own each of the instant lands during the period, the Plaintiff cannot be deemed to have satisfied the requirements for reduction or exemption of capital gains tax on the ground of treasury farmland under Article 69 of the Restriction of Special Taxation

Since the instant disposition is lawful, we cannot accept the Plaintiff’s assertion.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Description of the relevant regulations

/ Restriction of Special Taxation

○ Article 69 (Reduction or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(1) Where a resident prescribed by Presidential Decree who resides in farmland at the seat of farmland transfers any farmland prescribed by Presidential Decree to the Korea Rural Community Corporation under the Korea Rural Community Corporation and Farmland Management Fund Act, which is prescribed by Presidential Decree (hereafter in this Article, referred to as an "agricultural corporation"), no later than December 31, 2018, three years where such farmland subject to direct payments prescribed by Presidential Decree is transferred to the Korea Rural Community Corporation under the Korea Rural Community Corporation and Farmland Management Fund Act or a corporation prescribed by Presidential Decree (hereafter in this Article, referred to as an "agricultural corporation"), the amount of tax equivalent to 100/100

(1) Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 27848, Feb. 7, 2017)

○ Article 66 (Reduction or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(1) The term "resident prescribed by Presidential Decree residing in the location of farmland" in the main sentence of Article 69 (1) of the Act means a person who has cultivated while living in an area (including an area which falls under the relevant area at the time of commencement of cultivation but comes not to fall under it due to a reorganization of administrative districts) falling under any of the following subparagraphs for at least eight years (three years from the date of commencement of cultivation in cases where farmland subject to the payment of management transfer subsidies under paragraph (3) is transferred to the Korea Rural Community Corporation under the Korea Rural Community Corporation and Farmland Management Fund Act (hereafter in this Article, referred to as the "Korea Rural Community Corporation") or a corporation under paragraph (2)) and who is a resident under Article 1-2 (1) 1 of the Income Tax

1. An area in a Si (including a Special Self-Governing City and an administrative city established pursuant to Article 10 (2) of the Special Act on the Establishment of Jeju Special Self-Governing Province and the Development of Free International City; hereafter the same shall apply in this paragraph), Gun, or Gu (referring to an autonomous Gu; hereafter the same shall apply in this

2. An area within a Si/Gun/Gu adjacent to an area referred to in subparagraph 1.

3. An area within 30 kilometers in a straight line from the farmland concerned.

(4) "Land prescribed by Presidential Decree" in the main sentence of Article 69 (1) of the Act means the farmland that has been cultivated by himself/herself for at least eight years (three years where farmland eligible for the payment of management transfer subsidies under paragraph (3) is transferred to the Korea Rural Community Corporation or to a corporation under paragraph (2)) from the time of acquisition to the time of transfer (excluding the farmland falling under any of the following subparagraphs):

(13) "Direct farming by the methods prescribed by Presidential Decree" in the main sentence of Article 69 (1) of the Act means any of the following:

1. Where a resident is engaged in the cultivation of crops or the cultivation of perennial plants on his/her own farmland;

2. Where a resident cultivates or cultivates not less than a half of his farming work on his own farmland with his own labor;

(14) Where there is a business income under Article 19 (2) of the Income Tax Act (excluding income accruing from agriculture or forestry, income accruing from real estate rental business under Article 45 (2) of the same Act, and income accruing from side business of a farm household under Article 9 of the Enforcement Decree of the same Act) and a taxable period in which the total amount of gross income under Article 20 (2) of the same Act is not less than 37 million won during the period cultivated under paragraphs (4), (6), (1) and (12), such period shall be excluded from the period cultivated by the relevant decedent or resident.

Sub-Rules: Presidential Decree No. 25211, February 21, 2014>

○ Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation: Provided, That the amended provisions of Article 109-2 shall enter into force on April 1, 2014, and the amended provisions of Articles 66 (14), 66-2 (13), 67 (1), (4), (5), and (6), 116-2 (5), (6), (8), (19), (20 and (21) shall enter into force on July 1, 2014, and the amended provisions of Articles 63 (1), (2), (3), (7), (8), and (10), 64, 65, 10-2 (4), and 10-6 (2) 4 shall enter into force on January 1, 2015.

○ Article 2 (General Application Cases)

(3) The amended provisions concerning capital gains tax in this Decree shall apply to the portion transferred after this Decree enters into force.

(1) The former Income Tax Act (Amended by Act No. 14389, Dec. 20, 2016)

○ Article 20 (Earned Income)

(1) Earned income shall be the following income, generated in the relevant taxable period:

1. Salary, salary, remuneration, annual allowance, wage, bonus, allowance, and other benefits of a similar nature that are received by furnishing labor;

2. Income received as a bonus by a resolution of the general meeting of stockholders or general meeting of members of a corporation or similar deliberative organ;

3. The amount treated as a bonus under the Corporate Tax Act;

4. Income received upon retirement, which is not included in the retirement income.

(2) The amount of wage and salary income shall be calculated by deducting the amount pursuant to Article 47 from the total amount of income (excluding non-taxable income; hereinafter referred to as "total amount of wage") under the subparagraphs of paragraph (1).

§ 88. Definition of transfer

(1) Where a donee takes over any obligation of a donor of an onerous donation (excluding cases falling under the main sentence of Article 47 (3) of the Inheritance Tax and Gift Tax Act), regardless of any registration or enrollment concerning assets subject to transfer under Article 4 (1) 3 and this Chapter, such assets shall be actually transferred for price due to sale, exchange, investment in kind in a corporation, etc. In such cases, where a donee takes over any obligation of a donor of an onerous donation, the portion equivalent to the amount of

(2) Any of the following cases shall not be deemed transfer under paragraph (1):

1. Where a land category or lot number is changed due to a disposition of replotting under the Urban Development Act or other Acts, or appropriated for the reserved land;

2. Where land is exchanged according to the methods and procedures prescribed by Presidential Decree, such as dividing land under the Act on Land Survey, Waterway Survey and Cadastral Records, to change the boundary of land;

- Act on Acquisition of and Compensation for Land, etc. for Public Works Projects

§ 74. Requests for purchase and expropriation of remaining land

(1) Where it is substantially difficult to use the remaining land for its original purposes because part of a group of land belonging to the same landowner is purchased or expropriated through consultation, the relevant landowner may request the project operator to purchase the remaining land, and may request the competent Land Tribunal to expropriate it after project approval is granted. In such cases, a request for expropriation shall be made only if the consultation on purchase has not been effected, and it shall be made by the completion date of construction of such project.