Methods of calculating gains on transfer when transferring real estate within the designated area;

The standard market price assessment basis for the determination of the standard market price at the time of the transfer of real estate in the designated area (Songmun-gu) shall be the public announcement of business authorization

Article 85 of the Restriction of Special Taxation Act on Real Estate for Public Works in Designated Area:

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of capital gains tax of KRW 154,728,020 against the Plaintiff on January 2, 2006 shall be revoked.

1. Details of the disposition;

A. On November 28, 2003, the Plaintiff owned one fourth share (hereinafter “instant land”) out of 2,836 square meters prior to ○○○○-dong ○○○○○○○○○-dong ○○○○○○○○○, a father of the Plaintiff, by donation from ○○○, the Plaintiff’s father, but the Seoul Special Metropolitan City Mayor designated the instant land as the Seoul East-dong Distribution Complex under the Distribution Complex Development Promotion Act on November 15, 2004 and announced the designation on November 25, 2004, the Plaintiff consulted on May 12, 2005 pursuant to the Act on Acquisition of and Compensation for Land for Public Works Projects (hereinafter “Land Compensation Act”).

B. Meanwhile, on February 26, 2004, the Minister of Finance and Economy designated Songpa-gu Seoul Metropolitan Government where the land of this case is located as a designated area under Article 96 (1) 6-2 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) and Article 97 (1) 1 (a) (proviso) of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) where the transfer value and acquisition value are calculated based on the actual transaction value.

C. On June 29, 2005, the Plaintiff calculated the transfer value and acquisition value of the land of this case as the standard market price, calculated gains on transfer based on such calculation, made a preliminary return on the tax base of transfer, and paid KRW 18,314,468.

D. The Defendant: (a) calculated the transfer value of the instant land as the actual transaction value and notified the transfer value of KRW 154,728,020 on January 2, 2006 based on the transfer margin calculated as the standard market price at the time of acquisition based on Article 163(9) of the Enforcement Decree of the Income Tax Act (hereinafter “instant provision”), while the transfer margin should be calculated based on the actual transaction value, since the instant land falls under a designated area; and (b) notified the transfer margin of KRW 154,728,020 on January 2, 2006.

E. On March 27, 2006, the Plaintiff appealed and filed a request for examination on July 31, 2006, but received a decision of dismissal from the Commissioner of the National Tax Service on December 13, 2006.

[Reasons for Recognition] The purport of Gap evidence 1 to Gap evidence 3, Eul evidence 1-1 to Eul evidence 6 as a whole

2. The legality of the instant disposition

A. The plaintiff's assertion

(1) Article 85 of the former Restriction of Special Taxation Act (amended by Act No. 7839 of Dec. 31, 2005; hereinafter the same shall apply) provides that the transfer value and acquisition value of real estate within the designated area may be determined based on the standard market value of the former area, notwithstanding the provisions of Articles 96 (1) 6-2 and 97 (1) 1 (a) of the former Income Tax Act, where the date of public announcement of the public announcement of the public announcement of the public announcement of the announcement of the announcement of the designation is within 2 years retroactively from the date of the public announcement of the announcement of the announcement of the announcement of the designation where the date of announcement is within 2 years retroactively from the date of announcement of the public announcement of the announcement of the designation of the designated area where the transfer income tax was acquired before December 31, 2006 to the relevant business operator under the Land Compensation Act or other Acts (including the date of designation of the designated area where the date of announcement of the public announcement of the announcement of the announcement of the designation becomes invalid within 2 years retroactively from the date of the designation.

(2) In rendering the instant disposition, the Defendant calculated the acquisition value of the instant land based on the standard market price at the time of acquisition based on the instant provision. Since the instant provision is null and void as it does not have any ground to delegation to the mother law, it should calculate the transfer margin based on the acquisition value converted under the proviso of Article 97 (1) 1 (a) and (c) of the Income Tax Act, which is not the standard market price at the time of acquisition, and Article 163 (12) of the Enforcement Decree of the Income Tax Act, not the standard market

(b) Related statutes;

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

C. Determination

(1) Determination as to the assertion

Article 85 of the former Restriction of Special Taxation Act provides that a resident may apply the value of transfer and acquisition to a designated area according to the standard market price on the date prescribed in any of the following subparagraphs (where the date of public announcement in the Official Gazette or the official bulletin is within two years retroactively from the date of public announcement, referring to the date of designation of the designated area where the date of public announcement arrives after the date of designation under Article 96 (1) 6-2 of the Income Tax Act comes after the date of designation of the designated area under Article 96 (1) 6-2 of the Income Tax Act) and where he transfers such real estate to the relevant project operator pursuant to the Land Compensation Act or other Acts on or before December 31, 2006, Article 96 (1) 6-2 of the former Income Tax Act and the proviso of Article 97 (1) 1 (a) of the former Enforcement Decree of the Restriction of Special Taxation Act, and Article 85 of the former Enforcement Decree of the Housing Site Development Promotion Act provides that the date of designation of the designated area under Article 97 (2) of the former Enforcement Decree of the Housing Site Development Promotion Promotion Act shall be similar to the date.

Therefore, if Article 85 of the former Restriction of Special Taxation Act provides that "if the date of the public announcement is within two years retroactively from the date of the public announcement of the public announcement, the second anniversary retroactively from the date of the public announcement of the public announcement," and "if the date of the designation of the designated area arrives after the date of the public announcement, the date of designation of the designated area" concurrently, but the legislative intent of Article 85 of the former Restriction of Special Taxation Act provides that even real estate in the designated area shall be transferred or expropriated for the public interest regardless of the intention of the owner of the real estate, the taxpayer's tax burden shall be reduced by imposing tax on the standard market price instead of the actual transaction price, and if the project is implemented by the public announcement of the public announcement of the public announcement of the public announcement of the public interest, it is highly probable that a considerable demand for speculation of development gains from the designation of the designated area would occur if the project is implemented by the public announcement of the public interest, and real estate acquired after the designation of the designated area is substantially high, the date of public announcement of the public announcement of the public announcement of the designation shall be interpreted within 2 years retroactively.

Therefore, the instant imposition disposition that held that the transfer of the instant land did not constitute a special taxation of capital gains tax under Article 85 of the former Restriction of Special Taxation Act on the ground that the Plaintiff acquired the instant land only before the date of designation of the designated area and the Plaintiff acquired it on November 28, 2003, which was later two years retroactively from November 25, 2004, which is deemed as the date of public announcement of project approval.

(2) Determination as to the assertion

In light of the fact that the provision of this case is based on Article 97 (5) of the former Income Tax Act, which delegates the scope of the actual transaction price required for acquisition so that it can be prescribed by the Presidential Decree, and thus, cannot be deemed as invalid without delegation of the mother law. In the event that assets inherited or donated are transferred, the value corresponding to the tax base of inheritance tax or gift tax (value assessed pursuant to Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencement of inheritance or donation) can only be imposed where the relevant assets are recognized as necessary expenses and the transfer value exceeds the above value in calculating transfer margin and it can prevent tax evasion or double taxation (see Supreme Court Decision 2005Du15380, Sept. 20, 2007).

Therefore, the Plaintiff’s claim disputing the illegality of the instant disposition on the ground that the instant provision is null and void is not justifiable.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

(Attached Form)

Related Acts and subordinate statutes

○ Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005)

Article 94 Scope of Transfer Income

(1) Transfer income shall be the following incomes generated in the relevant year:

1. Income accruing from transfer of land (referring to a lot of land subject to registration of land category in the cadastral record under the Cadastral Act) or buildings (including the facilities and structures annexed to such buildings);

○ Article 96 Transfer Value

(1) The transfer value of assets as prescribed in subparagraphs of Article 94 (1) 1 shall be based on the standard market price at the time of the transfer of the relevant assets: Provided, That where the assets fall under any of the following subparagraphs, it shall be based on the actual transaction price between the transferor and the Arabic (hereinafter referred to as the "actual transaction price"):

6-2. Where the rate of increase of real estate prices in the relevant area is higher than the national consumer price inflation rate, and falls under real estate prescribed by the Presidential Decree from among the real estate located in the area designated by the Minister of Finance and Economy according to the standards and methods prescribed by the Presidential Decree, because the prices

§ 97. Necessary expenses for capital gains

(1) In calculating gains on transfer of a resident, necessary expenses to be deducted from the transfer value shall be as follows:

1. Acquisition value:

(a) In case of assets as prescribed in subparagraphs 1 and 2 of Article 94 (1), the standard market price at the time the assets are acquired: Provided, That in case where the assets concerned fall under any of subparagraphs of Article 96 (1), it shall be based on the actual transaction price required for the acquisition of such assets;

(c) In case of the proviso of item (a) or (b), where it is impossible to confirm the actual transaction value at the time of acquisition, the transaction example value or conversion value

(5) Matters necessary for calculation of necessary expenses, such as the scope of actual transaction price required for acquisition and gift tax amount shall be prescribed by Presidential Decree.

Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18850 of May 31, 2005)

Article 162-3 (Criteria for Designated Area, etc.)

(1) The term “area designated according to the standards and methods as prescribed by the Presidential Decree” in Article 96 (1) 6-2 of the Act means an area designated by the Minister of Finance and Economy after going through a deliberation of the Deliberation Committee on Real Estate Price Stabilization under the provisions of Article 162-4 (hereinafter referred to as the “designated area”) where the Minister of Construction and Transportation makes a request for designation because he deems that there exists a possibility that the increase of real estate prices in the relevant area may continue or might spread to other areas in view of the real estate price trend, organization characteristics, etc. nationwide from among the areas falling under any of the following subparagraphs. In this case, with respect to an area which falls under any of the following subparagraphs but is not requested for designation by the Minister of Construction and Transportation, the Minister shall refer it to the Minister of Construction and Transportation for deliberation

§ 163. Necessary expenses of transferred property

(9) In the application of the provisions of Article 97 (1) 1 (a) (proviso) and (b) of the Act to the assets received by inheritance or donation (excluding the donation under the provisions of Articles 33 through 42 of the Inheritance Tax and Gift Tax Act), the value assessed under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation shall be considered as the actual transaction value at the time of its acquisition: Provided, That in the

1. In the case of the land inherited or donated under the Public Notice of Values and Appraisal of Real Estate Act before a publicly announced individual land price was published on August 30, 1990, the larger amount between the value assessed under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation, and the value under the provisions of Article 164

2. In cases of the building inherited or donated before the standard market value of the building was published under the provisions of Article 61 (1) 2 through 4 of the Inheritance Tax and Gift Tax Act, the larger amount between the value assessed under the provisions of Articles 60 through 66 of the Inheritance Tax and Gift Tax Act as of the date of commencing an inheritance or of donation, and the value under the provisions of Article 164 (5)

(12) The term “business example amount, appraisal value or conversion value prescribed by the Presidential Decree” in Article 97 (1) 1 (b) of the Act means the value provided in the provisions of Article 176-2 (2) through (4).

○ Article 176-2 Estimation and Revisions

(2) The term “acquisition price converted by the method prescribed by the Presidential Decree” in Article 114 (5) of the Act means the acquisition price converted by the method in the following subparagraphs:

2. In the case of the rights to acquire the land, buildings and real estate under Article 96 (1) and (2) 1 through 9 of the Act (the provisions of subparagraph 6 shall apply only to the assets acquired before a fictitious acquisition date under paragraph (4)), the amount calculated by the following formula:

The actual transaction price at the time of transfer, and the standard market price at the acquisition

Paragraph 3 (1) 1 transaction example X------------- any of the following cases:

Standard market price at the time of transfer (in case of the determination under Article 164 (8), the standard market price at the time of transfer under the provisions of the same paragraph) of the same paragraph.

(3) In case where the transfer value or acquisition value is estimated, determined or revised under Article 114 (5) of the Act, the method falling under each of the following subparagraphs shall be applied in sequential order: Provided, That in case where the transaction example under subparagraph 1 or the appraisal value under subparagraph 2 is deemed to be objectively unreasonable and unjust, etc. in view of the amount, etc. accruing from the transaction with the related parties under Article

1. In case where there are transaction examples of assets bearing the identity or similarity with the relevant assets (excluding stocks, etc. of stock-listed corporations or KOSDAQ-listed corporations) within 3 months before and after the date of transfer or acquisition respectively, such value;

2. Where there exist the appraisal values which are appraised by two or more certified public appraisal corporations on the relevant assets (excluding stocks, etc.) within three months before and after the date of transfer or acquisition respectively, and deemed to bear credibility (limited to those whose standard date of appraisal is within three months before and after the date of transfer or acquisition respectively), the average value of such appraisal

3. Acquisition price converted under paragraph (2); and

4. The standard market price.

Restriction of Special Taxation Act (amended by Act No. 7839 of Dec. 31, 2005)

Article 85 (Special Taxation for Capital Gains Tax on Real Estate for Public Works in Designated Area)

Where a resident acquires real estate in a designated area under Article 96 (1) 6-2 of the Income Tax Act from the date prescribed in any of the following subparagraphs (referring to the date of public announcement by the head of the relevant administrative agency in the Official Gazette or the official bulletin, and where the date of public announcement is within 2 years retroactively from the date of public announcement, referring to the date of designation of the designated area where the date of public announcement arrives after the designation of the designated area under Article 96 (1) 6-2 of the Income Tax Act, referring to the date of designation of the designated area) before December 31, 2006, and transfers such real estate to the relevant project operator (including the case of expropriation; hereafter in this Article the same shall apply), notwithstanding the provisions of Articles 96 (1) 6-2 and 97 (1) (proviso) of the Income Tax Act, the transfer value and acquisition value under the provisions of the same Act may be based on the standard market price:

1. The date of designating the scheduled housing site development area under Article 3 of the Housing Site Development Promotion Act;

2. The date designated as the industrial complex under Article 7-3 of the Industrial Sites and Development Act;

3. The date on which the multi-regional development area is designated under Article 4 of the Balanced Regional Development and Support for Local Small

4. Date of public announcement of a compensation plan under Article 15 of the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor (referring to the United States Armed Forces stationed in the Republic of Korea under the Mutual Defense Treaty between the Republic of Korea and the United States of America);

5. In the case of the immovables transferred under the Acts other than subparagraphs 1 through 4, the planned area for the project area whereto the immovables belong under the relevant Acts. The designation of the regional development area, the plan for compensation, the public announcement and other similar dates as prescribed by

Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19888 of Feb. 28, 2007)

Article 79-2 (Special Taxation for Capital Gains Tax on Real Estate for Public Works in Designated Area)

(1) The term "other dates similar thereto, which are prescribed by Presidential Decree" in subparagraph 5 of Article 85 of the Act means the base date for assessment of the standard market price in attached Table 7, and where no base date for assessment exists, the date of public announcement of a plan for compensation under the Act on Acquisition of and Compensation for Land,

[Attachment VII] Standard market price assessment basis (related to Article 79-2)

8. The date on which the distribution complex is designated under Article 6 of the Promotion of Distribution Complex Development Act.

Promotion of Distribution Complex Development Act

Article 6 (Public Notice, etc. of Designation of Distribution Complex)

(1) The distribution complex designator shall, when he designates the distribution complex or modifies the contents of such designation under Article 5, publish the matters prescribed by Presidential Decree in the Official Gazette or the City/Do Official Gazette, and send copies of the relevant documents to the head of the competent Si/Gun/Gu (referring to the head of autonomous Gu;

Article 15 (Expropriation of Land, etc.)

(2) In applying the provisions of paragraph (1), when the designation of a distribution complex is publicly notified pursuant to the provisions of Article 6 (1) (where detailed items of land, etc. to be used are included in a distribution complex development plan after the designation of a distribution complex pursuant to the provisions of the proviso of the main sentence of Article 5 (4), referring to the time such public notice is made), the approval of the project and the public notice thereof pursuant to the provisions of Articles 20 and 22 of the Act on the Acquisition of

Finally.

[Seoul High Court Decision 2008Nu114, 2008)]

1. The plaintiff's appeal is dismissed.

2. Costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. The imposition of capital gains tax of KRW 154,728,020 against the plaintiff on January 2, 2006 by the defendant shall be revoked.

이 법원이 이 사건에 관하여 설시할 이유는 제1심 판결 제2면 11행 및 제3면 15행의 각 ‶가.목 단서‶로 정정하고 제4면 7행의 ‶이 사건 조항은‶을 삭제하며, 제6면 10행의 ‶해석함이 상당하고‶ 다음에 ‶(대법원 2007. 12. 27. 선고 2006두 16779 판결 참조)‶를 추가하는 외에는 제1심 판결의 이유 부분 기재와 같으므로 행정소송법 제8조 제2항, 민사소송법 제420조 본문에 의하여 이를 그대로 인용한다.

Therefore, the judgment of the court of first instance is legitimate, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.