Cho High-2015-Seoul Government-0725 (O. 23, 2015)

Unless there is any material to deem that a business has been actually conducted, such as cutting and selling forest trees during the period of possession of forest land, such land shall not be deemed land for business.

No material exists to deem that a person actually engaged in business, such as cutting down and selling forest trees during the period of possession of forest land, and rather, it can be deemed that he/she is engaged in another business, such as real estate rental, etc., such forest land shall not be deemed a forest

Scope of land for non-business under Article 104-3 of the Income Tax Act

2015Gudan54783 Action Demanding revocation of Disposition of Capital Gains Tax Imposition

AAA

O Head of tax office

December 21, 2016

January 20, 2017

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 KRW 47,028,592 against the Plaintiff on September 1, 2014 is revoked.

1. Details of the disposition;

A. On September 15, 1988, the Plaintiff acquired 1/2 shares of 1/2 of 00 square meters of OO, OO, O, O, O, 500 square meters of forest (hereinafter “the instant forest”), but transferred the forest**** on April 18, 2013.

B. The instant forest management plan was authorized based on the Forest Resources Creation and Management Act from 2001 to 2010.

C. On June 30, 2013, the Plaintiff calculated the special long-term holding deduction amount to KRW 101,897,139 on the premise that the instant forest land is the land for business, and scheduled return was made on KRW 53,952,798 on the transfer income tax of the instant forest for the year 2013, but filed a revised return on the transfer income tax to KRW 67,687,833 on August 30, 2013.

D. On September 1, 2014, the Defendant issued a notice of correction and notification of KRW 72,667,495 for the Plaintiff on September 1, 2014, on the ground that the Plaintiff did not have re-established at the location of the instant forest and field, and that there was no fact that the Defendant obtained authorization for forest management after 2010, and the instant forest and field were excluded from special long-term possession deduction because it fell under the land for non-business use, and that the Plaintiff transferred other real estate than the instant forest and field, but the Plaintiff failed to add the amount of the previous return, and the tax rate was erroneously applied due to the omission of the tax rate, etc. (the part of the disposition of this case, which was decided and notified to additionally pay KRW 47,028,592 for the transfer of the instant forest on the ground that

E. The Plaintiff underwent the pre-trial procedure.

[Ground of recognition] Facts without dispute, Gap 5, 6, 8 evidence, Eul 1, 3, 4, 7, 8 evidence, and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) The instant forest falls under the land for business given that the Plaintiff is a forest in the process of a project with the approval of a forest management plan or that there are reasonable grounds for deeming that it was directly related to the project when considering the actual utilization status, holding period, area, location, etc. Therefore, the instant disposition that deemed the land for non-business use and excluded the special long-term holding deduction is unlawful.

2) If the instant forest land is a non-business land, as long as the Plaintiff engaged in growing activities in the instant forest for profit purposes, income from the transfer of forest trees planted on the instant forest land among the income accruing from the transfer of the instant forest land constitutes business income, and thus, the transfer income tax should be imposed only on the portion excluding the forest trees out of the transfer proceeds of the instant forest land. Accordingly, the instant disposition on a different premise is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Whether the forest land of this case constitutes land for business

A) To exclude the instant forest from the land for non-business use, it must fall under Article 104-3 (1) 2 (a) through (c) of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; hereinafter the same). ① As seen earlier, the period from 2001 to 2010, when the instant forest management plan was approved, was excluded from the land for non-business use as necessary for public interest under Article 104-3 (1) 2 (a) of the former Income Tax Act or for protecting and fostering the forest. ② The Plaintiff did not have resided in the location of the instant forest, and there is no room for the Plaintiff to fall under the forest owned by the person residing in the location of the forest as provided in Article 104-3 (1) 2 (b) of the former Income Tax Act (Evidence No. 5), and ultimately, the forest falls under the period from the completion of the instant forest management plan to the transfer of the forest.

B) The following circumstances, i.e., Gap 1 through 5, 9, 10 evidence, Eul 4 and 6 evidence (including virtual numbers) recognized by the overall purport of pleadings, i.e., the plaintiff merely obtained authorization of a forest management plan for 10 years from January 1, 2001 to December 31, 201, and there exists no further authorization after the above period expires. According to the above, it is difficult to view that the forest management plan was not established for 7 years after the above period under Article 168-6 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same shall apply) to be non-business if it is calculated according to the standards for determining the period of implementation of the forest management plan, * the fact that the plaintiff had no actual relation with the forest management plan of this case * the fact that it appears that the forest management plan of this case * the forest management plan was not established for the purpose of this case * the forest management plan.

C) Therefore, the Plaintiff’s assertion that this case’s forest land constitutes land for business is subject to special long-term holding deduction is without merit.

2) Whether the planted trees are subject to taxation of business income

A) Articles 19(1)1 and 94(1)1 of the former Income Tax Act provide that income generated from the transfer of land or buildings shall be capital gains, and income generated from forestry shall be business income. Article 51(8) of the former Enforcement Decree of the Income Tax Act provides that where the forest trees are not the business of cutting down or transferring the forest trees, but the forest trees are merely transferred along with the forest land, it shall not be deemed business income.

B) In other words, the following circumstances acknowledged by the aforementioned evidence and the purport of the entire pleadings, i.e., ① there is no evidence to deem that the Plaintiff actually operated the business by registering the business related to the planting of forest trees or cutting down and selling the forest trees during the retention period of the instant forest land, and rather, it appears that the Plaintiff would run the real estate rental business, etc., ② the Plaintiff’s forest****** at the time when the Plaintiff sold the forest land in this case, and did not deem only the forest trees planted on the ground as separate sale objects, and ③ the Plaintiff filed a return on the transfer value including the forest land in this case and the forest trees on its own at the time of the preliminary return of the transfer income tax base and the revised return, taking into account the following circumstances, it is reasonable to deem that the Plaintiff transferred the forest trees together with the forest land in this case, and therefore, the business income from the planting trees cannot be deemed subject to taxation.

C) Therefore, the Plaintiff’s assertion that the income from the transfer of trees planted on the instant forest land constitutes business income and should be excluded from the part of the transfer proceeds of forest land of this case is without merit.

3. Conclusion

Thus, the plaintiff's claim of this case is dismissed as it is without merit.