In case where a resident acquires and possesses a house in the Republic of Korea and became a nonresident due to emigration under the Emigration, and transfers the relevant house after becoming a nonresident, the standard point of time for determining whether the proviso of Article 154(1)2(c) of the former Enforcement Decree of the Income Tax Act, which is a non-taxation provision for one household for the non-resident, applies to the non-resident (=transfer date)

Examining the provisions of Article 89 subparag. 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 154 subparag. 2(c) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18127 of Nov. 20, 2003), and Article 71(2) subparag. 1 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 357 of Mar. 5, 2004) in light of the purpose of and applicable requirements for the non-taxation system for one household, even if a resident acquired and owned a house in Korea and transferred the house after the non-resident went into Korea after moving into Korea after moving into Korea, regardless of whether the non-resident has the number of houses owned in Korea at the time of moving into Korea, the proviso to Article 154(1)2(c) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18127 of the former Enforcement Decree) applies.

Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 154 (1) proviso 2 (c) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18127 of Nov. 20, 2003) [see current proviso of Article 154 (1) proviso 2 (b) of the Income Tax Act], Article 71 (2) 1 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy of Mar. 5, 2004)

[Judgment of the court below]

The Director of the Pacific District Office

Seoul High Court Decision 2005Nu7756 delivered on December 9, 2005

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005; hereinafter “former Act”) provides that “income from the transfer of one house for one household as prescribed by the Presidential Decree” shall be non-taxation. Article 154 (1) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 18127 of Nov. 20, 2003; hereinafter “former Enforcement Decree”) provides that “one house for one household” in subparagraph 3 of Article 89 of the former Enforcement Decree of the Income Tax Act shall be applicable to cases where the resident and his spouse possess one house in Korea as of the date of transfer, and the period of possession of the house is not less than three years (in cases of a house located in Seoul Special Metropolitan City, the period of possession of the house is not less than three years and it shall be not less than one year, and it shall be deemed that the former Enforcement Decree of the Income Tax Act shall be more than 15 years, regardless of the period of entry into the country.

2. According to the reasoning of the judgment below, in full view of the relevant evidence, the court below acknowledged the fact that the plaintiff owned the share of the apartment house of this case and just apartment house of this case and the plaintiff left Korea for emigration, and acquired all of the remaining shares of just apartment, and thereafter transferred the above two apartment houses at the same time. Since the plaintiff owned two houses at the time of emigration, the court below determined that the transfer income from the transfer of the above two houses is subject to taxation regardless of whether the plaintiff transferred two houses at the same time or in succession after emigration.

However, according to the legal principles as seen earlier, even if two houses were owned at the time of emigration, if one house was owned in Korea at the time of transfer, the income from such transfer shall be deemed non-taxation. However, even according to the factual relations acknowledged by the court below, the plaintiff owned two houses at the time of emigration, but also transferred the apartment house of this case and jumical apartment at the same time after emigration. Thus, the court below should have determined whether the income from the transfer of the apartment of this case constitutes non-taxation of capital gains tax, after examining whether there was a practice of non-taxation of one house among the cases where two houses were transferred at the same time, and whether the plaintiff submitted relevant evidence by asserting that the apartment

Nevertheless, the court below did not examine the above matters and concluded that the income from the transfer of the apartment of this case was not subject to non-taxation of capital gains tax on the sole ground that the plaintiff owned two houses at the time of emigration. The court below erred by misapprehending the legal principles as to the application of non-taxation of one house for one household and the requirements, and failing to exhaust all necessary deliberations. The ground of appeal pointing this out has merit.

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Dai-hee (Presiding Justice)