In a case where Company A reported corporate tax after the completion of an apartment house for at least five years, and the tax authority issued a disposition to correct and notify corporate tax, the case affirming the judgment below that Company A did not have to be subject to corporate tax reduction or exemption on income for each business year in relation to gains on transfer acquired from the sale of apartment units, and that measures such as the selection of a person subject to tax investigation and the omission of prior notice are not unlawful.

Article 67(1) of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 584, Dec. 28, 1998; see current Article 97(1) of the Restriction of Special Taxation Act); Articles 14(1), 15(1), and 55-2(1)2 of the former Corporate Tax Act (Amended by Act No. 12166, Jan. 1, 2014); Article 92-2(2)1-2 of the former Enforcement Decree of the Corporate Tax Act (Amended by Presidential Decree No. 26763, Dec. 28, 2015); Article 81-6(3)4, and 81-7(1)2 of the former Framework Act on National Taxes (Amended by Act No. 14382, Dec. 20, 2016);

Aju Construction Co., Ltd. (Attorney Or-seok, Counsel for the plaintiff-appellant)

The director of Gwangju Tax Office

Gwangju High Court Decision 2017Nu4566 decided July 12, 2018

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. The main text of Article 56(3) of the former Framework Act on National Taxes (amended by Act No. 14382, Dec. 20, 2016; hereinafter the same) provides that “Administrative litigation shall be instituted within 90 days from the date the decision on a request for adjudgment is notified” with regard to the period for filing a lawsuit of administrative litigation.

B. On December 26, 2015, the lower court determined that: (a) the Plaintiff filed the instant lawsuit within 90 days after having been notified of the decision on the request for adjudication through an agent for the request for adjudication on December 26, 2015; (b) as such, the instant lawsuit was filed on May 20, 2016; and (c) accordingly, determined that the Plaintiff’s claim for revocation of the imposition of income tax and penalty tax not submitted

C. In light of the above provisions and records, the lower court did not err in its judgment by failing to exhaust all necessary deliberations or by misapprehending the legal doctrine regarding the starting point of the filing period.

2. Regarding ground of appeal No. 2

A. The lower court acknowledged the following facts: (a) the Plaintiff leased at least five years after completion of the instant apartment around March 1998, and (b) the Plaintiff sold 230 households and 350 households among the instant apartment units in 201 and 2012.

B. For the following reasons, the lower court determined that the Plaintiff’s corporate tax on the Plaintiff’s income for each business year should not be reduced or exempted.

(1) Article 67(1) of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter the same) only reduces capital gains tax and special surtax, and does not include a provision that reduces general corporate tax on income for each business year.

(2) Article 92-2(2)1-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 26763, Dec. 28, 2015); Article 55-2(1)2 of the former Enforcement Decree only provides for a house to which the special taxation on capital gains is not applicable, such as land under Article 55-2(1)2 of the Corporate Tax Act (amended by Act No. 12166, Jan. 1, 2014; hereinafter the same), and does not provide for the non-taxation of general corporate tax on income for each business year

C. In light of the above circumstances and the purport of the relevant provisions such as Articles 14(1) and 15(1) of the former Corporate Tax Act (amended by Act No. 67(1) of the Regulation of Tax Reduction and Exemption Act (amended by Act No. 6721, Jul. 20, 2000; see Constitutional Court en banc Decision 98Hun-Ba99, Jul. 20, 2000). The lower court did not err by failing to exhaust all necessary deliberations or by misapprehending the legal doctrine regarding the application of the provisions on tax reduction and exemption, etc. in its judgment on this part, inasmuch as it is recognized as reasonable to achieve the legislative purpose of preventing real estate speculation (see Constitutional Court Decision 98Hun-Ba99, Jul.

3. Regarding ground of appeal No. 3

A. (1) Article 81-6(3) of the former Framework Act on National Taxes provides that “Tax officials may conduct a tax investigation in the case falling under any of the following subparagraphs, in addition to the investigation by periodic selection pursuant to paragraph (2).” Article 81-6(3) of the former Framework Act on National Taxes provides that “The details of a tax return have evident data to prove a suspicion of omissions or errors.”

(2) Article 81-7(1) of the former Framework Act on National Taxes provides, “Where a tax official conducts a tax investigation, he/she shall notify the taxpayer subject to the investigation of the tax items to be investigated, the period and reason for the investigation, and other matters prescribed by Presidential Decree ten days prior to the commencement of the investigation.” The proviso provides, “However, this shall not apply where it is deemed that a prior notice would result in the destruction of evidence, etc.

B. The lower court determined as follows.

(1) The Defendant deemed that there was an omission or error in the Plaintiff’s report and the Plaintiff’s selection of the Plaintiff as an object of non-regular investigation based on the materials fully supported objectivity and rationality, such as corporate tax return, list of total tax invoices, value added tax return, wage and salary income and retirement income statement, business registration, corporate register, etc. submitted by the Plaintiff.

(2) In light of the commencement and progress of the tax investigation, the Defendant’s prior notice omitted was suspected of omission or error in the Plaintiff’s details of the tax investigation and was made in a situation where the Plaintiff’s destruction of evidence is likely to occur. Therefore, such Defendant’s measures cannot be deemed unlawful since they considerably lose rationality. The Defendant accepted the Plaintiff’s application for suspension of the tax investigation to submit the explanatory materials during the period of the tax investigation and provided sufficient opportunity to submit the explanatory materials, and there is no data to deem that the Defendant actually carried out the investigation during the suspension period.

C. Examining the foregoing provisions and the relevant legal principles and records, the lower court did not err by failing to exhaust all necessary deliberations on procedural defects, etc. in the tax investigation or by misapprehending the legal doctrine.

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jung-hwa (Presiding Justice)