Whether the instant disposition constitutes retroactive taxation

The principle of prohibition of retroactive taxation is not to limit the application of new Acts and subordinate statutes to the fact that the principle of prohibition of retroactive taxation has been pending before or after that.

Article 66 of the Enforcement Decree of the Restriction of Special Taxation Act (Egress of Transfer Income Tax on Self-Cultivating Farmland)

2017Guhap23393 Revocation of Disposition of Imposing capital gains tax

The AA

BB Director of the Tax Office

December 13, 2017

January 17, 2018

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s imposition of capital gains tax of KRW 119,739,660 against the Plaintiff on January 6, 2017 is revoked.

1. Details of the disposition;

A. On February 10, 2003, the Plaintiff acquired and owned 3,544mm2 (hereinafter “instant land”) of OOO-Eup OOO-type OO-type OO-type, and sold KRW 723,00,000 to EO, KimCC, and KimD on March 19, 2015, and then applied for reduction or exemption of capital gains tax on one’s own farmland for eight years under Article 69 of the former Restriction of Special Taxation Act (amended by Act No. 14390, Dec. 201; hereinafter the same).

B. After investigating the transfer income tax of the Plaintiff, the Defendant confirmed that the annual gross salary of each taxable period of 2005, 2006, 2007, 2009, and 2010 for the period of 12 years and 12 years and 2010 for which the Plaintiff owned the instant land was at least 37 million won, and then excluded the Plaintiff from the application for reduction or exemption on the ground that the Plaintiff did not meet the self-sufficiency requirement for at least eight years, on January 6, 2017, pursuant to Article 66(14) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 27848, Feb. 7, 2017; hereinafter “instant disposition”).

C. The Plaintiff filed an objection and filed an appeal with the Tax Tribunal on March 9, 2017, but was dismissed on June 30, 2017.

Facts without any dispute, Gap's 1 through 3 evidence, Eul's 1 through 3, the whole purport of the pleading, and the whole purport of the pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The key issue clause of this case was newly established on February 21, 2014 and came into force on July 1, 2014. Before the said dispute clause was newly established, the requirements for reduction and exemption of capital gains tax on self-arable land were only prescribed for resident requirements and self-reliance requirements, and no requirements on farmers’ income were prescribed. Since the Plaintiff had already owned the instant land for at least 12 years before the establishment and enforcement date of the instant key issue clause and met the requirements for reduction and exemption of capital gains tax, then the transfer income tax shall be finally reduced and exempted even if the instant land was transferred at any time thereafter, and such right shall not be deprived by amendment of the relevant Act and subordinate statutes. However, the key issue clause of this case is that capital gains tax may be imposed retroactively on a person who has already satisfied the requirements for reduction and exemption of capital gains tax, which is in violation of the principle for prohibition of retroactive legislation under Article 13(2) of the Constitution or prohibition of retroactive taxation under Article 18 of the Framework Act on National Taxes. Therefore, the instant disposition based on the issue of this case ought to be revoked.

2) Even if the instant key clause is valid, the disposition of the instant case is unlawful by excluding the period prior to the enforcement date from the cultivation period, even though the total amount of salaries is at least 37 million won after the enforcement date of the instant key clause ( July 1, 2014).

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Whether this case’s key issues are invalid

A) According to Article 69(1) of the former Restriction of Special Taxation Act and Article 66(1) and (4) of the former Enforcement Decree of the Restriction of Special Taxation Act, in order to obtain reduction of or exemption from capital gains tax, a person must directly cultivate the relevant farmland while residing within a Si/Gun/Gu where the relevant farmland is located, within a Si/Gun/Gu adjacent to the relevant farmland, or within a 30-km straight line from the relevant farmland. The key issue of this case is revised by Presidential Decree No. 25211 on February 21, 2014, and Article 19(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (including his/her spouse; hereinafter the same shall apply in this paragraph) or business income under Article 19(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (excluding income generated from agriculture and forestry, and side business income under Article 9(2) of the Enforcement Decree of the same Act, from 200,000 won to 106,000 won or more.

B) Article 13 of the Constitution of the Republic of Korea: (a) the principle of non-payment of tax statutes or the principle of prohibition of retroactive taxation, which is the realization of the principle of prohibition of retroactive legislation under the tax laws, are: (b) where any enactment or amendment of tax statutes, or any interpretation or any revision of guidelines by the tax authorities, the pertinent statutes, etc. cannot be applied to the taxation requirements that are closed prior to the entry into force; and (c) it does not restrict the application of new Acts, subordinate statutes, etc. to the facts of taxation requirements that have been pending before or after the entry into force (see, e.g., Supreme Court Decisions 96Nu9423, Oct. 29, 1996; 2008Du2736, Oct. 29, 209). Moreover, since transfer income tax serves as the taxation requirement and is subject to transfer gains, whether transferred assets meet the taxation requirements and the requirements of reduction or exemption shall be determined as of the time of transfer (see, e.g., Supreme Court Decisions 2007Du1274, Jun. 128.

C) In the instant case, even if the taxation requirement of acquisition, possession, and cultivation of farmland was already met prior to the establishment of the instant key clause, the taxation requirement of the transfer of the instant land was not yet completed. Therefore, the enactment of the instant key clause to apply the amended law in the direction of strengthening the taxation requirement upon completion of the taxation requirement cannot be deemed as going against the principle of prohibition of retroactive legislation. Therefore, the instant key clause cannot be deemed null and void, and the first Plaintiff’s assertion on a different premise is without merit.

2) Whether only the period in which the total amount of salaries is at least KRW 37 million after the enforcement date of the instant key issues clause should be excluded from the cultivation period (additional determination)

The key issue of this case is that a taxable period of at least 37 million won is excluded from the total amount of salaries of a resident during the cultivation period under Article 66 (4) of the former Restriction of Special Taxation Act, and Article 66 (4) of the same Act provides that the period from the acquisition to the transfer of the farmland shall be at least 8 years. Thus, the period to be excluded from the cultivation period pursuant to the main issue of this case is only the period from the acquisition of farmland to the transfer of the farmland, and there is no ground to view that only the period after the enforcement date of the main claim of this case should be excluded from the cultivation period, as alleged by the Plaintiff. Accordingly, the Plaintiff’s assertion on this part is without merit.

3. Conclusion

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