In the formula of calculating the “transfer income accrued for five years from the date of acquisition of the newly-built house” under Articles 99-3(2) and 40(1) of the Enforcement Decree of the Restriction of Special Taxation Act concerning the special taxation for the person acquiring the newly-built house, whether the standard market price of the immediately preceding year should be applied on the grounds that the standard market price of the year was not publicly announced on the fifth anniversary from the date of acquisition (negative)

Considering the provisions of Article 99-3 (1) and (4) of the former Restriction of Special Taxation Act (amended by Act No. 9921 of Jan. 1, 2010), Articles 99-3 (2) and 40 (1) of the former Enforcement Decree of the Restriction of Special Taxation (amended by Presidential Decree No. 22037 of Feb. 18, 2010; hereinafter the same shall apply), Article 99-1 (b) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009), Article 164 (3) of the Enforcement Decree of the Restriction of Special Taxation Act, whichever is applicable from the date of acquisition to the date of acquisition of the previous 5 year from the date of acquisition, to the date of acquisition of the new 5 year's standard market price from the date of acquisition until the date of acquisition, and thus, it is unreasonable to apply the provisions of each of the standard market price at the time of acquisition to the date of acquisition.

Article 99-3 (1) and (4) of the former Restriction of Special Taxation Act (Amended by Act No. 9921, Jan. 1, 2010); Articles 40 (1) and 99-3 (2) of the former Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 22037, Feb. 18, 2010); Article 99 (1) 1 (b) of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 164 (3) of the Enforcement Decree of the Income Tax Act

Plaintiff (Law Firm Taesan, Attorneys Kim Tae-hoon et al., Counsel for plaintiff-appellant)

Head of the District Tax Office

Seoul High Court Decision 2011Nu34193 decided March 21, 2012

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

Judgment ex officio is made.

Article 99-3(1) of the former Restriction of Special Taxation Act (amended by Act No. 921, Jan. 1, 2010; hereinafter the same) provides that where a resident acquires a newly-built house and transfers it after five years have elapsed from the date of acquisition, capital gains accruing for five years from the date of acquisition of the newly-built house shall be subtracted from his income amount subject to capital gains tax. Paragraph (4) of the same Article provides that the calculation of capital gains accruing for five years from the date of acquisition of the newly-built house and other necessary matters shall be prescribed by Presidential Decree. In addition, Articles 99-3(2) and 40(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010; hereinafter the same) by calculating “capital gains accruing for five years from the date of acquisition of the newly-built house” as referred to in the foregoing formula x (Standard market price at the time of acquisition - / the standard market price at the time of acquisition).

Meanwhile, Article 99 (1) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) provides that "the standard market price under the provisions of Articles 96 (2), 97 (1) 1 (a) (proviso), 100 and 114 (7) shall be as follows." As to "building" in subparagraph 1 (b) of Article 99 provides that "the value calculated and publicly announced by the Commissioner of the National Tax Service at least once a year taking into account the price of the new building, structure, purpose, location, new construction year, etc.," and Article 164 (3) of the Enforcement Decree of the Income Tax Act provides that "in the application of the provisions of Article 99 (1) 1 (a) of the Act, where a new standard market price is acquired or transferred before the new standard market price is publicly notified, it shall be based on the immediately preceding standard market price."

Based on the provisions of each of the above Acts and subordinate statutes, since the instant formula is divided in proportion to the increase in the standard market price from the acquisition date to the date of the transfer income to the date of acquisition, it is desirable to apply the standard market price of the year to which the date of acquisition date, the date of transfer date, and the date of acquisition belongs to each of the five years from the date of acquisition in order to increase the validity thereof, and Article 164(3) of the Enforcement Decree of the Income Tax Act provides that if the standard market price of the year is not publicly notified on the date of acquisition or the date of transfer, it is inevitable to apply the standard market price of the year to the year immediately before the date of acquisition, even if the standard market price of the year is not publicly notified on the date five years from the date of acquisition, if it is possible to ex post facto know of the standard market price of the year after the date of acquisition, it is not appropriate to apply the standard market price of the year to which the date five years have passed from the date of acquisition belongs, and it is not publicly notified on the date of acquisition.

After finding the facts as indicated in its reasoning based on the adopted evidence, the lower court determined that the amount of capital gains to be deducted from the amount of income subject to capital gains tax is an amount calculated by applying the method of calculating the standard market price at a specific point of time, such as the standard market price at the time of acquisition or transfer of a newly-built house, not the amount of capital gains accrued during a certain period from the acquisition date of a newly-built house, and thus, on the premise that the provisions of Article 161 of the Civil Act and Article 5 of the Framework Act on National Taxes are not applicable to determining the standard market price at the time of acquisition or period, the “standard market price on the fifth anniversary of the acquisition date of a newly-built house” in the instant formula refers to the “standard market price at a specific point of time from the date of acquisition of the newly-built house” which means the “standard market price at the fifth anniversary of the acquisition date of the newly-built house,” and that the standard market price at April 30, 2007,

However, in light of the above legal principles, the standard market price in 2007 was not publicly announced on April 29, 2007, which was the fifth anniversary of the acquisition date of the instant house, but was later publicly announced on April 29, 2007, so the instant formula should be applied to the standard market price in 2007. Nevertheless, the lower court determined that the standard market price in 2006 should be applied. In so doing, the lower court erred by misapprehending the legal doctrine on the special taxation for transfer income tax on the acquisitor of newly-built house under Article 99-3(1) of the former Restriction of Special Taxation Act.

Therefore, without further proceeding to decide on the 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.

Justices Lee Sang-hoon (Presiding Justice)