Whether the " grassland under the Grassland Act" under Article 68 (2) of the former Restriction of Special Taxation Act is limited to the grassland for which a grassland development permit is granted pursuant to Article 5 of the former Grassland Act (negative) and the meaning of the " grassland under the Grassland Act"

Article 68(2) of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; hereinafter the same) provides that one of the objects of exemption from capital gains tax shall be “ grassland under the Grassland Act.” Furthermore, exemption is not limited to “ grassland for which permission for the creation of grassland has been obtained pursuant to Article 5 of the Grassland Act.” The legislative purpose of Article 68 of the former Restriction of Special Taxation Act, which introduced special taxation for agricultural corporations, is to actively support the establishment and fostering of agricultural corporations so as to compensate for problems arising from deepening production manpower in rural areas in order to promote collaborative and corporate management. Thus, there is no reason to regard it differently depending on whether permission for the creation of grassland is subject to exemption from capital gains tax under Article 68(2) of the former Restriction of Special Taxation Act. Considering that Article 68(2) of the former Grassland Act (amended by Act No. 11690, Mar. 23, 2013; hereinafter the same shall apply), the legislative purpose and other provisions of Article 5 of the former Grassland Act are granted permission for the creation of grassland.

Article 68(2) of the former Restriction of Special Taxation Act (Amended by Act No. 9921, Jan. 1, 2010); Article 2 Subparag. 1 and Article 5 of the former Grassland Act (Amended by Act No. 11690, Mar. 23, 2013)

Plaintiff 1 and two others (Law Firm LLC, Attorneys Shin Hyun-chul et al., Counsel for the plaintiff-appellant)

The Director of the National Tax Service

Daejeon High Court Decision 2014Nu11425 decided April 30, 2015

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 68(2) of the former Restriction of Special Taxation Act (amended by Act No. 921, Jan. 1, 2010; hereinafter the same) (hereinafter “instant provision”) provides that any income accruing from an investment in kind by a farmer prescribed by the Presidential Decree in an agricultural corporation in the form of farmland or grassland pursuant to the Grassland on or before December 31, 2009 shall be exempted from capital gains tax.

Meanwhile, Article 2 Subparag. 1 of the former Grassland Act (amended by Act No. 11690, Mar. 23, 2013; hereinafter the same) provides that "the term "the grassland" means the land used for cultivating perennial trees, the place for growing livestock products, and the land for wooden roads, access roads, livestock pens, and incidental facilities prescribed by Ordinance of the Ministry for Food, Agriculture, Forestry and Fisheries," and Article 5(1) provides that "the person who intends to develop grassland shall file an application for permission to create grassland with the head of a Si/Gun having jurisdiction over the location of the relevant land, as prescribed by Presidential Decree," and Article 2(2) of the same Act provides that "the head of a Si/Gun may attach conditions prescribed by Ordinance of the Ministry for Food, Agriculture, Forestry and Fisheries, such as the period for developing grassland, when he/she grants permission to create grassland

2. According to the reasoning of the judgment below, in full view of the adopted evidence, the court below acknowledged the following facts: (a) on November 19, 2009, when the plaintiffs invested each of the land of this case in kind in an agricultural corporation in the forest ditch limited company, the plaintiffs did not pay capital gains tax on the ground that each of the land of this case falls under the " grassland under the Grassland Act" as stipulated in the provisions of this case; (b) on April 2, 2013, the defendant issued the disposition of this case imposing capital gains tax on the plaintiffs on the ground that each of the land of this case does not fall under the category of grassland subject to exemption from capital gains tax as stipulated in the provisions of this case; (c) although each of the land of this case falls under the grassland stipulated in subparagraph 1 of Article 2 of the former Grassland Act,

Next, the lower court rejected the Plaintiffs’ assertion that: (a) comprehensively taking account of the following facts: (i) the former Grassland only regulates the “ Grassland permitted pursuant to Article 5” as a whole, and does not regulate other grassland; (ii) land that meets the definition of grassland under Article 2 Subparag. 1 of the former Grassland Act cannot be deemed a grassland under the former Grassland Act, which is created in violation of Article 5 of the former Grassland Act; and (iii) if it is interpreted that any grassland that is not permitted to develop grassland is included in the “ Grassland” under Article 5 of the former Grassland Act, may be used as a means of tax avoidance irrespective of the legislative intent of the instant provisions; and (b) the “ Grassland under the Grassland Act” under Article 5 of the former Grassland Act refers to the “ Grassland for which the permission to create grassland is granted pursuant to Article 5 of the former Grassland Act”, each of the instant lands constitutes the subject of capital gains tax exemption under Article 5 of the former Grassland Act.

3. However, the lower court’s determination is difficult to accept for the following reasons.

Article 68 of the former Restriction of Special Taxation Act that introduced special taxation for agricultural corporations does not limit the scope of exemption from capital gains tax to “ grassland pursuant to the Grassland Act.” The legislative purpose of Article 68 of the former Restriction of Special Taxation Act that introduced special taxation for agricultural corporations is to actively support the establishment and fostering of agricultural corporations so that agricultural business can be conducted in a collaborative and corporate manner in order to supplement the problem of lack of human resources in production in rural areas. As such, there is no reason to regard whether it falls under “the grassland” subject to exemption from capital gains tax under the instant provision differently depending on the existence of permission to create grassland. The former Grassland does not prohibit the creation of grassland without the permission to create grassland under Article 5 of the former Grassland Act. However, if permission to create grassland is obtained under Article 5 of the former Grassland Act, various benefits, such as various permissions, authorizations, etc. are deemed granted, and all or part of the funds necessary for the creation of grassland are restricted, considering the language and purpose of the instant provision and the purport of Article 5 of the former Grassland Act as well as the purport of the permission under Article 15 of the Grassland Act.

Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the instant disposition was lawful by deeming that each of the instant lands does not fall under the scope of exemption from capital gains tax under the instant provision. In so doing, the lower court erred by misapprehending the legal doctrine on the interpretation of “ grassland pursuant to the Grassland Act” as stipulated in the instant provision, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on

4. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)