Whether capital gains tax on joint business investment is levied

It is reasonable to view that the previous house owners constituted an association while entering into a partnership agreement on the new construction and sale of multi-household houses, and that the Plaintiff contributed to the association part of the shares in the land owned by themselves. Therefore, the transfer of this case is deemed as the transfer of assets at a cost. Therefore, the transfer income tax is legitimate.

2015Gudan57444 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

December 23, 2015

February 17, 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 00,000,000 for the year 2012 against the Plaintiff on October 00, 2014 is revoked.

1. Details of the disposition;

A. The Plaintiff acquired and owned 90.875/727 shares of the instant land among 203 m204, 447.3m2, OO-dong OO-dong, Seoul, 00-00, 447.3m2, and 90.875/727 shares among the instant land. The instant previous housing was divided by eight households, including the Plaintiff.

B. On October 0, 201, the owners of the previous houses of this case agreed to remove the previous houses of this case and newly construct the 12 households of multi-household houses on the ground to carry out a joint business with the remainder of 4 households other than the eight households of the previous houses of this case, and set the managers as TT.

C. On October 0, 201, the owner of the previous house of this case entered into a contract for construction work with KKK construction company with the content of giving a contract for the construction work of the previous house of this case at KRW 1.6 billion. In relation to the preparation of the construction work, the owner of the previous house of this case agreed to pay the construction work price to KK construction company in lieu of the new construction work price, and the four households to be sold in lieu of the new construction work price shall be paid to TT in lieu of the new construction company of this case, and the remaining sales price shall be appropriated for the payment of the construction price paid in lieu of the remaining seven households, and shall be distributed in proportion

D. After completing a new construction, the owners of the previous house of this case completed a registration of ownership transfer in the TPP for the remaining four generations except eight households owned by the owners of the previous house of this case for the registration of ownership ownership of the remaining four generations after adjusting the ownership of the previous house of this case. However, on October 0, 2012, the Plaintiff completed a registration of ownership transfer on the ground of sale as of October 0, 2012 as to the 18.21 square meters (21 square meters (29.601/727 shares) of the instant land of this case, which is part of the 90.875/727 shares (hereinafter “transfer of this case”).

E. The Plaintiff did not report the transfer income tax on the transfer of this case to the Defendant. On October 0, 2014, the Defendant decided and notified the Plaintiff of the transfer income tax of KRW 00,000,000 (including penalty tax of KRW 0,000,000, and penalty tax of KRW 0,000,000 for failure to report) for the year 2012 on the premise that the transfer of this case was deemed to have been invested in kind in the joint business (hereinafter “instant disposition”).

F. The Plaintiff underwent the pre-trial procedure.

[Ground of recognition] Facts without dispute, Gap 1, 3, 5 through 9, Eul 1 (including paper numbers) and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The transfer of this case does not constitute a commercial transfer of assets, because it is for the grant of a share of a site and the registration of a site ownership to an increased household among joint owners who have acquired new buildings at a cost. The Plaintiff’s joint implementation of a reconstruction project with TT, etc. does not contribute a share of a site to a third party, but does not transfer a share of a site to a third party in lieu of a construction cost. Income acquired in relation to a share transfer to grant a share of a site to a fourth household extended between joint owners of a business and a third party should be deemed business income. Accordingly, the Defendant’s disposition of this case on a different premise is unlawful.

B. Determination

(1) Article 4(1) of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013) provides that a resident’s income is classified into global income, retirement income, and capital gains, and thus, the transfer of assets is “income accruing from the transfer of assets” (Article 88(1)). Article 88(1) of the Income Tax Act provides that a transfer subject to capital gains tax means a transfer of assets at a price by means of sale, exchange, investment in kind to a corporation, etc., regardless of registration or enrollment of the assets. The sale, exchange, investment in kind to a corporation, etc.

Even if the property is actually transferred at a cost due to reasons other than sale, exchange, or investment in kind in a corporation, the transfer which is the taxable cause of the transfer income tax should be considered to have been made.

Meanwhile, the assets invested in a union are separate assets that are separate from the assets of investors, and the investors acquire the status of partners in return for the investment. Thus, the assets invested in kind in a union constitutes the transfer, which is the taxable cause of capital gains tax, as the assets are transferred for consideration (see Supreme Court Decision 2000Du5852, Apr. 23, 2002).

(2) As seen earlier, the owners of the previous house of this case agreed to remove the previous house of this case and newly construct 12 households on the ground that they will sell the remaining four households on the ground of the previous house owner, and agreed to pay the construction price to KK Construction Co., Ltd., first of all, to pay the construction price to the 4 households, and to distribute the remaining sales price after appropriating the construction price paid by TT with the sale price paid by the 4 households. Accordingly, after the completion of the construction, the previous house of this case was eight households, while the ownership registration of the new house of this case was newly constructed, the previous owners of the previous house of this case had completed the registration of ownership transfer of part of the share in the land of this case, and the previous owners of the new house of this case owned one new house of this case. According to the agreement on the new house of this case, the owners of the previous house of this case, including the Plaintiff, were to own a portion of the share in the new house of this case.

Therefore, since the transfer of this case is deemed as the transfer of assets at a cost, the Plaintiff’s assertion is without merit.

3. Conclusion

Thus, the plaintiff's claim is dismissed for lack of reason.