2019Du5896 Revocation of Disposition of Imposing capital gains tax

Plaintiff

Law Firm (LLC) LLC et al.

Attorney Park Jae-soo et al., Counsel for the plaintiff

Head of Central Tax Office

Seoul High Court Decision 2019Nu49030 Decided November 6, 2019

December 10, 2020

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

The grounds of appeal are examined.

1. Case summary

A. On August 9, 1997, the Plaintiff acquired five parcels of land in the ○○ Dong-dong, Seoan-si, ○○ in the name of Nonparty, but transferred a part of the land (hereinafter “instant land”) at the Yanan-si on June 21, 201, April 5, 201, and May 12, 2014.

B. With respect to the transfer of the instant land, the Plaintiff reported and paid capital gains tax for the year 2010, 2011, and 2014 in the name of the Nonparty within the preliminary return deadline. The Plaintiff thereafter reported and paid capital gains tax for the transfer of the instant land in the name of the Nonparty. On December 31, 2015, the Plaintiff filed a return after the deadline for capital gains tax for the year 2010 and 2014, and the revised return of capital gains tax for the year 2011, under the name of the Plaintiff. As regards the subsequent return, with respect to the subsequent return, the amount calculated by applying 20% of the amount calculated by deducting the tax amount reported and paid under the name of the Nonparty from the calculated tax amount, from the calculated tax amount. Moreover, in the case of capital gains tax for the year 2011, the Plaintiff filed and paid capital gains tax by transferring an officetel in the name of the Plaintiff on October 2011.

D. The Defendant: (a) deemed that the Plaintiff failed to report or under-reported the transfer income tax on the instant land due to unlawful acts, such as title trust, etc.; (b) rendered a disposition of imposition of transfer income tax for the year 2010, 2011 and 2014 on the ground that each transfer income tax for the year 2010 and 2014 accrue; and (c) imposed a non-reported additional tax for the transfer income tax for the year 2010, 2011 and 2014 on the transfer income tax for the year 2011; (d) subsequently, the Defendant corrected the illegal under-reported additional tax on the transfer income tax for the year 201, while the instant lawsuit is pending, and partly corrected the disposition of imposition of transfer income tax for the year 2011 (hereinafter referred to as “instant disposition”).

2. Regarding ground of appeal No. 1

A. Article 47-2(2) of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014) provides that where a taxpayer fails to file a tax base return under the tax-related Acts by the statutory due date of return due to “unlawful act”, an amount equivalent to 40/100 of the calculated tax amount, etc. shall be the additional tax.

In addition, Article 47-3(2)1 of the same Act provides that the aggregate of an amount equivalent to 40/100 of the amount calculated by multiplying the underreported tax base by unlawful act by the ratio of the tax base to the calculated tax amount shall be the penalty tax (see, e.g., Article 47-2(2) of the former Framework Act on National Taxes before amended by Act No. 11124, Dec. 31, 201; Article 47-3(2) of the former Framework Act on National Taxes (see, e.g., Article 47-2(2) and 47-3(2) of the former Framework Act on National Taxes). Article 47-2(2)1 of the former Framework Act on National Taxes (see, e.g., Article 47-3(2)1 of the same Act) provides that where a taxpayer underreporting all or part of his/her income tax base by unlawful act is “unlawful act” and Article 47-3(2)1 of the former Framework Act on National Taxes does not constitute an active act of preparing or concealing tax return under the name or fraudulent act.

B. Examining the facts and records as seen earlier in light of the legal principles as seen earlier, it is difficult to view the Plaintiff’s act of title trust, etc. of the instant land as an active act derived from the purpose of evading tax, and thus, it is unlawful in the disposition of this case that the general non-declaration of the instant disposition exceeds the calculated tax or the amount of the general underreported penalty tax, and the imposition of non-reported penalty tax

1) Although the Plaintiff: (a) around August 1997, held title trust with the Nonparty on the instant land; and (b) maintained that the instant land was transferred in order from June 2010 to May 2014, the Plaintiff maintained that real estate was transferred in the astronomical period; (c) there is no circumstance suggesting that such title trust was derived from the purpose of evading capital gains tax on the transfer of real estate in addition to the property tax, etc. arising from the possession of the borrowed real estate

2) Although the Plaintiff acquired capital gains by transferring the instant land, the instant land was only sold through consultation for the purpose of performing public projects in the astronomical City, and there is no circumstance to deem that the Plaintiff committed an active act arising from the purpose of tax evasion in the process.

3) Although the Plaintiff reported each transfer income tax related to the transfer of the instant land in the name of the Nonparty, it is an incidental act ordinarily followed by the title trust, not an active act attributable to the purpose of tax evasion. Furthermore, the Plaintiff cannot be deemed to have falsely reported the transfer value, acquisition value, etc.

4) However, there is a partial difference between the tax amount reported and paid in the name of the Plaintiff and the tax amount reported and paid in the name of the Nonparty.

However, even based on the facts acknowledged by the lower court, the transfer income tax for the year 2010 for which the tax amount to be paid was not deducted due to the circumstance that the transfer income tax for the year 2014 reverts only to the circumstances unrelated to the title trust, such as the mistake of the ceiling on reduction or exemption on the transfer income from land for public services, was generated. Each land located in the ○○○○-si, Incheon-si, the Plaintiff held in title trust with the Nonparty, including the instant land, was transferred in order from June 2010 to May 2014, and there was no difference in the tax amount in the case of the transfer income tax for the year 2012 and 2013 for which the preliminary tax credit system was abolished.

On the other hand, in the case of the transfer income tax reverted to year 201, some of the tax amounts were avoided by receiving the basic deduction and the progressive deduction due to title trust. However, since the expropriation of the instant land on April 5, 201, it was only based on the result of calculating the tax base and the tax amount by summing up all the transfer income tax accrued during the pertinent taxable period with respect to the transfer income tax to which the period and the three principles apply by transferring the officetels under the Plaintiff’s name from April 5, 201.

In light of the above, insofar as no circumstance exists, such as that capital gains tax rate has changed due to the title trust, it cannot be deemed that there was an active act attributable to the purpose of tax evasion by the parties to a title trust based solely on the difference in such partial tax amount. If so, the lower court should have deliberated on the penalty tax for general failure or general underreporting in relation to the instant disposition and revoked only the portion of imposition of penalty tax for non-declaration and non-declaration of report in excess thereof, but the lower court determined that the instant disposition was lawful on the grounds stated in its reasoning without deliberation thereon. In so determining, the lower court erred by misapprehending the legal doctrine on “Fraud or other wrongful act” or “unlawful act” as stipulated in Articles 47-2(2) and 47-3(2)1 of the former Framework Act on National Taxes, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit.

3. Of the grounds of appeal No. 2, the lower court, on the grounds indicated in its reasoning, determined that the amount of capital gains tax reported and paid by the Plaintiff under the name of the Nonparty does not constitute the already paid tax amount under Article 47-2(5) of the former Framework Act on National Taxes, and thus, cannot be deducted in calculating the non-reported additional tax related to the transfer income tax reverted to year 2014, on the grounds that the amount of capital gains tax returned and paid by the Plaintiff under the name of the Nonparty does not fall under

In light of relevant provisions, legal principles, and records, although the reasoning of the court below was partially inappropriate, the conclusion of the court below that the amount of capital gains tax returned and paid under the name of the non-party was not the already paid tax amount under Article 47-2 (5) of the former Framework Act on National Taxes is justifiable. In so doing, contrary to what is alleged in the grounds of appeal,

4. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, 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.

Supreme Court Decision 200

Justices Park Sang-ok

Justices Noh Jeong-hee

Justices Kim Jae-hwan in charge