When concluding a real estate management trust contract, it can be deemed that the transfer of land to perform the obligation of investment in kind.

Since it can be deemed that the transfer of land and the performance of the duty of investment in kind upon the conclusion of a real estate management trust contract, it cannot be deemed unlawful since it was made within seven years from the expiration date of the period of imposition of transfer income

2016Gudan5305 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

December 14, 2016

March 7, 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 capital gains tax of KRW 105,029,00 for the Plaintiff on May 7, 2015 shall be revoked.

1. Details of the disposition;

A. The Seoul Metropolitan City Mayor, from March 2005 to July 2, 2005, provided that the Seoul Metropolitan City Mayor, a special supply of the land for living measures ( approximately KRW 165m2 per person) to the natives, including the DaD fishing village fraternity members, as a long-term installment transaction for 10 years, allowed the buyer to change the buyer’s name only once before full payment due to the special agreement.

B. On July 12, 2005, 1/44 shares of 70,816,860 won in the land of this case among 7,39.2m2m2 (hereinafter “instant land”) located in 22-21m2 located in CC FF-dong 22-21, 100, 200, 1/40 of 70,816,860 won.

C. On January 25, 2006, the Plaintiff entered into a contract with 335,00,000 won to which the rights and obligations of the instant land are succeeded from EE, and paid the remainder to E on February 10, 2006, and paid KRW 70,816,860 to CC Metropolitan City on the same day, and completed the registration of ownership transfer from CC Metropolitan City.

D. On February 10, 2006, the Plaintiff and the Plaintiff jointly developed the land for taking measures against the living of the Haak apartment (hereinafter “the apartment of this case”). The Plaintiff entered into a prop joint business agreement with the Plaintiff on February 10, 2006 with the GG new construction of the main complex in Zone 2-1, and upon receiving KRW 50,000,000 in cash and KRW 70,000,000 in return, the trust registration was made on February 26, 2007 with the J Real Estate Trust Co.,, Ltd. (hereinafter “J Real Estate Trust”). On July 27, 2007, the above trust registration was terminated, and on the same day, K Asset Trust Co., Ltd. (hereinafter “K Asset Trust”).

E. On September 3, 2007, the Plaintiff registered the business (the opening date: May 1, 2007) of GG 22-21 Joint Building Association (hereinafter “instant Partnership”) with other co-ownership owners of the instant land.

F. On July 27, 2007, the Defendant reported that the Plaintiff invested in kind the instant land in kind in the instant association, and notified the Plaintiff of KRW 225,240,950 for the transfer income tax accrued in May 7, 2015, and notified the Plaintiff of KRW 11,703,150 for the transfer income tax accrued in May 8, 2015 (hereinafter “instant disposition of imposition of two transfer income tax”).

G. The Plaintiff, who was dissatisfied with the instant disposition, filed an objection against the Defendant on July 3, 2015, but was dismissed on October 15, 2015, and filed an appeal with the Tax Tribunal on October 22, 2015, but was dismissed on December 22, 2015.

H. Meanwhile, in the instant disposition, the Defendant: (a) deemed that it is impossible to verify the actual acquisition value at the time of calculating the acquisition value in the instant disposition; and (b) determined KRW 161,383,168, which is the acquisition value converted according to the method prescribed in Article 176-2(2) of the Enforcement Decree of the Income Tax Act as the actual acquisition value; (c) however, upon the Plaintiff’s submission of evidentiary materials as to the real acquisition value, notified that the transfer income tax for the year 2007 should be reduced to KRW 405,816,860 for the acquisition value as of October 19, 205 (hereinafter “the remaining part of the instant disposition”).

Facts without any dispute arising in recognition, Gap's 1 through 8, Eul's 1 through 5 (including additional numbers), and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

A. Summary of the assertion

1) As the Plaintiff invested in kind the instant land on February 10, 2006, the disposition of this case was made after the lapse of the exclusion period for imposition of seven years, and is unlawful.

2) The Plaintiff acquired the instant land in 2006 and transferred it through investment in kind, thereby not incurring capital gains. Moreover, it is unlawful to impose capital gains tax by discriminating against the Plaintiff even though it applies the same acquisition value and transfer value as the original fishermen, as the Plaintiff comprehensively succeeded to the rights and duties and legal status of the original fishermen by allowing the Plaintiff to change the ownership of only one time to the original fishermen.

B. Determination on the Exclusion Period and argument

1) Facts of recognition

The following facts are acknowledged in full view of the evidence and the purport of the entire pleadings as seen earlier.

A) From 2005 to 2006, HH secured the land owned by the props in the form of a prop joint business agreement (hereinafter “the first business agreement”) against each individual of the props of the instant land including the Plaintiff, and accordingly, the Plaintiff entered into a real estate security trust agreement with J real estate trust (hereinafter “instant real estate security trust agreement”) on February 26, 2007, and entrusted the ownership of the instant land in the name of J real estate trust.

B) On July 27, 2007, the Plaintiff entered into a new prop joint business agreement (hereinafter “the second business agreement”) with HHHH (Execution Agency), MM Construction (hereinafter “MM Construction”). On July 27, 2007, the instant real estate security trust agreement was terminated and the ownership transfer registration was completed in the name of the Plaintiff on the ground of the trust property’s attribution as to the instant land. At the same time, the instant real estate trust agreement was concluded between HHHH (Execution Agency), MM construction (trustee), K Asset Trust (trustee), NN Bank (AF), NN Bank (AF), and the Plaintiff and the instant real estate trust agreement were concluded with respect to the instant land (hereinafter “instant real estate trust agreement”).

C) Around 2007, the Defendant rendered the instant disposition by deeming that the Plaintiff’s investment in kind was made by concluding a real estate management trust contract for the instant land.

2) Determination

A) Investment in kind of assets in a cooperative constitutes the transfer of assets at a cost, which is the cause of taxation of capital gains tax, and the time of such transfer constitutes the transfer of assets (see, e.g., Supreme Court Decision 2000Du5852, Apr. 23, 2002). The partnership agreement under the Civil Act is a contract under which at least two persons mutually invest and agree to jointly operate a specific business, and can be deemed as a partnership agreement only for an agreement under which they jointly operate a specific business, and the degree of common achievement of the purpose does not meet the requirements for establishment of the cooperative (see, e.g., Supreme Court Decision 2003Da60778, Apr. 9, 2004

B) In full view of the following circumstances that can be acknowledged by adding the purport of the entire pleadings, the Plaintiff’s transfer of the instant land to the instant association at the time of concluding the instant real estate management trust agreement on July 27, 2007. Thus, the instant disposition was made within seven years from June 1, 2008, which was the day following the expiration date of the final return period of the capital gains tax base for the transfer income tax accrued in 2007, and thus, cannot be deemed unlawful.

① The instant real estate security trust agreement, which was concluded from 2005 to 2006, was concluded by the Plaintiff and the trust company as a party to the contract, intended to preserve and manage the trust real estate in order to guarantee the management of ownership of the trust real estate and the performance of obligations or responsibilities owed by the Plaintiff as a truster, and set the original of the trust as real estate in trust, etc. The scope of the loan principal and interest of the preferred beneficiary whose increase or decrease occurred as a credit transaction with respect to the beneficiary’s right to benefit, was determined as the scope of the loan principal and interest, but there is no provision at all on the newly constructed building. In addition, the Plaintiff and the executor, concluded the first business agreement prior to the conclusion of the instant real estate security trust agreement, and agreed to pay the remainder of the land payment for the loan the Plaintiff received with the remainder of money to pay expenses related to the acquisition of the land.

On the other hand, the real estate management trust contract of this case concluded on July 27, 2007 is not only the plaintiff, execution agent, and trust company but also the contractor, and the purpose of the trust is to build the building in the entire project site, to sell the land and the building as trust property, and to set the original of the trust as the sale price for the real estate and the trust property. First of all, the right to benefit is limited to the trust property (land and the building to be newly constructed on the land) and the trust profit after deducting the cost of the project and the trust fee from the operating income, and it also provides for the indication of the newly constructed building and its warranty liability.

In light of the contents of the above trust agreement, the real estate security trust agreement of this case concluded from 2005 to 2006 is merely the content of the Plaintiff’s obligation to contribute to the land of this case and the management of the trust real estate for the loan and interest of loan to be incurred in the future with the intent of the Plaintiff to secure the Plaintiff’s obligation to contribute to the land of this case through a loan from the original farmer, and was made without his participation as well as the confirmation of the loan financial institution or the Si construction. Thus, it cannot be deemed that the agreement to jointly operate a specific business that newly constructs a building on the land of this case and sell it to the public or that the association relationship to jointly operate such new business has been formed

② From 2005 to 2006, the first business agreement and the real estate security trust agreement of this case were concluded, the subsequent procedures accompanying the progress of the new construction did not proceed entirely. The Plaintiff entered into the second business agreement, which was a prop joint business agreement, with not only HHHH, an executing agent, but also the first business agreement, and was not a party in the first business agreement. On July 2007, 2007, the Plaintiff entered into the real estate management trust agreement of this case with HHHH and the previous real estate security trust agreement, which was not a party to the real estate management agreement of this case, with HHHH, MM construction, trustee asset management, and NN Bank, which was a financial institution, as at the time of the implementation of the project, and thus, the real estate management trust agreement of this case was concluded for 200 years from the date of the execution of the trust agreement of this case to the date of the acquisition of the real estate trust agreement of this case.

On the other hand, the instant association is a partnership with respect to land located in FF 22-21, FF 22-21, and its opening date is May 1, 2007. It is reasonable to view that the instant association, an executing agent, MM construction, K Asset Trust, loaning, and loan financial institution NF as a party to a contract for entrusted-management-type land trust business agreement was concluded on around 2007. Since MM construction, a contractor, made the public announcement of sale of GG apartment in December 2007 and completed January 201, it is reasonable to view that the instant association’s substantial progress of new apartment construction business by the instant association was conducted after 2007 after the second business agreement was concluded.

As seen above, in full view of the second business agreement concluded in 2007, the parties to the real estate management trust agreement and the land trust agreement concluded in July 2007 and its contents, the cancellation of the first business agreement from 2005 to 2006 and the registration of new trust under the real estate security trust agreement of this case, the opening date of the association of this case, the time when the land trust business agreement was concluded and the time when the real construction work was completed, etc., there was a cooperative relationship with the actual joint management agreement or a certain degree specified in the extent for the newly-built sale business on the land of this case through the second business agreement concluded in July 27, 2007. Accordingly, it is reasonable to view that the plaintiff invested in kind the land of this case in kind under the real estate management trust agreement of this case concluded in July 27, 2007.

C. Determination of illegality in calculating acquisition value

As seen earlier, the Plaintiff is deemed to have invested in kind the instant land on July 27, 2007. As such, it cannot be deemed that the Plaintiff acquired the instant land from the original farmer and transferred the instant land through investment in kind at the same time.

Furthermore, even if the right to change the purchaser's name is granted only once in supplying the land for livelihood measures against the original fishermen, and the Plaintiff concluded a contract to succeed to the rights and obligations from such original fishermen, the Plaintiff's succession to the Plaintiff under the contract is merely a right and duty to the land in this case itself and is granted to the original fishermen themselves or the original fishermen, and thus, it cannot be deemed that the Plaintiff succeeds to the benefits arising from the change in the purchaser's name premised on the fact that it belongs to them. Thus, in calculating the transfer margin, it is reasonable to separately determine the transfer margin pursuant to Articles 96 and 114 of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007), Article 176-2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008) and the acquisition value of the original fishermen who directly received the land for livelihood measures from the Seoul Metropolitan City cannot be said to be identical to the acquisition value of the Plaintiff's.

Therefore, as alleged by the Plaintiff, there may not be any error in the calculation of gains on transfer, solely on the basis of the difference between the acquisition value recognized or applied to the original fisher or the Plaintiff, or the standard thereof, in calculating gains on transfer.

3. Conclusion

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