The plaintiff shall be a domestic resident who has a domicile or residence in the Republic of Korea for at least five years continuously from the date of transfer of stocks overseas.

In light of the number of days of stay, resident registration, domestic holder, etc., if the plaintiff has a domicile or residence in Korea continuously for at least five years from the date of transfer of stocks overseas, the plaintiff shall be a domestic resident.

Scope of capital gains under Article 118-2 of the Income Tax Act

Suwon District Court 2016Gudan8702 Revocation of Disposition of Imposing Capital Gains Tax

AA

00. Head of tax office

on October 21, 2016

on 21, 2015

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 949,976,960 (including additional tax) for the Plaintiff on October 1, 2014 shall be revoked.

1. Details of the disposition;

A. On August 18, 2009, the Plaintiff transferred 90,000 shares (hereinafter “instant shares”) issued by 00,000 shares, a corporation located in Hong Kong (hereinafter “ Hong Kong”) to Hong Kong LL, and did not report the transfer income tax on the grounds that the transfer date is not subject to the transfer income tax for the transfer of assets abroad by a domestic resident located in Korea for less than five years as of the transfer date.

B. From June 16, 2014 to September 5, 2014, the director of the Central Regional Tax Office: (a) conducted a tax investigation; (b) notified the Plaintiff as a domestic resident who has his/her domicile or residence in Korea for at least five years as of the date of the transfer of the instant shares; (c) accordingly, on October 1, 2014, the Defendant notified the Plaintiff of KRW 949,976,960 (including additional taxes) of the transfer income tax for the year 2009 (hereinafter “instant disposition”).

C. The Plaintiff appealed and filed an appeal with the Tax Tribunal on November 20, 2014, but was dismissed on July 27, 2016.

[Ground of recognition] No dispute, Gap 1 to 4, Eul 1's each entry, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Under the Income Tax Act, only a domestic resident who has a domicile or residence in the Republic of Korea for not less than five years before the date of transfer of the pertinent asset shall be subject to the taxation of capital gains tax on the transfer of overseas assets. The plaintiff acquired a permanent residence certificate on around 1992 to Hong Kong, continued to work as a foreign earned income earner after being employed in Hong Kong 00, and there was no particular assets in Korea other than the apartment acquired before the immigration. The plaintiff constitutes a non-resident under the Income Tax Act until November 18, 2004, which is the day before the last entry into the Republic of Korea with his spouse for domestic residence after the immigration of Hong Kong. However, the disposition of this case on the premise that the plaintiff is a resident at the time of August 31, 2004, which is the tax base date, should be revoked.

B. Relevant statutes

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

1) On February 00, 1979, the Plaintiff graduated from approximately 00 abuse, and received the number of wooden cases around 1982, but was a professional owner in Korea without any particular occupation. Around May 1992, the Plaintiff acquired the Hong Kong sovereignty, along with HH and two children of his spouse (8 Ha and 5 Do at that time), who moved to Hong Kong and moved to HH around October 1992.

2) The Plaintiff’s resident registration was registered in the main apartment 00,000,000,000 Jeju apartment 00,000 (hereinafter “the apartment of this case”) from June 198 to June 24, 2005, and was cancelled ex officio on the ground of “local migration on September 30, 2003, but was re-registered as the above apartment on April 21, 2005. The details are as follows. Meanwhile, the Plaintiff’s spouse’s resident registration was continued as the apartment of this case from June 198 to May 24, 2005, where the Plaintiff’s address was transferred to 00,000,000 from May 24, 2005.

Transfer Date

Date of Change

Grounds for change

Address

April 8, 1980

oly 2, 1988

Transfer

00 Do 00 00 Do 00

00 apartment 000 Dong 000

July 5, 1988

July 5, 1988

Joint-household Price

Sang Dong-dong

February 5, 2003

September 30, 2003

Local migration Cancellation

Sang Dong-dong

April 21, 2005

April 21, 2005

Re-registration

Sang Dong-dong

may 24, 2005

may 24, 2005

Transfer

00 Do 00 00 Do 000

3) The Plaintiff and HH’s domestic real estate holding status are as listed below. According to this, the Plaintiff owned the instant apartment before moving to Hong Kong, even after moving, and disposed of on June 15, 2015, which was after the date of permanent returning to the Republic of Korea.

4) Meanwhile, HH established DD on April 4, 1990 and converted it to DDD Co., Ltd. (hereinafter “DDD”) on April 1, 199, and established Hong Kong0 on May 1, 1992, and on March 13, 2002, HH resigned the representative director of Hong Kong 00 on March 12, 2003 after establishing the Republic of Korea, a Korean corporation of Hong Kong 00 in the Republic of Korea on March 13, 2002. The Plaintiff was staying in the U.S. mainly before he returned to the Republic of Korea on November 19, 204.

“5) The current status of the Plaintiff, HH, and its related companies holding shares is as listed below, and the transaction structure between the above companies is as listed below. According to this, HH and their families hold 100% shares in DD located in Korea. While HH and its families hold 100% shares in DD through DD, HH and its families are controlling and operating Korea0,000 (hereinafter referred to as “China00”), as seen above, although it held the shares of a domestic corporation during the Hong Kong migration period, the Plaintiff was paid a considerable amount of wages from the domestic corporation as seen below while holding the shares of the domestic corporation during the Hong Kong migration period. The Plaintiff and HH reported at home from 2000 to 2006 and their year 2006 are as listed below:

7) The family members, including HH and the Plaintiff, revised and paid income tax as non-resident on the disposal of income for the year 2002 and 2003, and DD also withheld income and dividend income for the Plaintiff and its family members as non-resident. On the other hand, the Defendant, on April 1, 2005, paid 63,312,500 won (293,352,930 won in the case of HH) that the Plaintiff received from Hong Kong 00 on April 1, 2005 as dividend for the year 2004 as overseas dividend income of domestic resident and paid H in full without raising any objection to the Plaintiff or its family members.

8) The number of days of stay of the Plaintiff and their families in Korea from 2001 to 2009 are as listed in the following table. The period of stay of the Plaintiff in Hong Kong and China in 2002 reaches 358 days, and the Plaintiff was staying in the United States for 161 days in 2003 and for 173 days in Hong Kong and China for 163 days in 203. As of August 30, 2004, the period of stay in Korea of the Plaintiff is 88 days.

9) The Plaintiff and HH’s entry into and departure from the Republic of Korea in 2004 are as listed below. According to this, the Plaintiff first entered on July 2, 2004 and repeated entry into and departure from China and Hong Kong, and continued to reside in Korea on and after November 19, 2004. HH entered first on April 9, 2004 and repeated entry into and departure from China and Hong Kong, and continued to stay in Korea on and after September 8, 2004.

D. Determination

1) Relevant legal principles

Article 1(1)1 of the former Income Tax Act (amended by Act No. 7319 of Dec. 31, 2004) provides that a resident is obligated to pay income tax on his own income, i.e., an individual who has either a domicile in the Republic of Korea or a domicile in the Republic of Korea for not less than one year. Article 2(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005) provides that the address shall be determined based on objective facts of his/her living relationship, such as the existence of a family living together in the Republic of Korea and an asset located in the Republic of Korea. Meanwhile, Article 1(2) provides that a place where a person resides in the Republic of Korea for a considerable period of time outside his/her domicile means a place where a person resides in the Republic of Korea for a considerable period of time outside his/her domicile and where a national has resided in the Hong Kong for a considerable period of time.

2) In the instant case:

According to Article 118-2 subparagraph 3 of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009), which applies at the time of the disposition of this case, the transfer income tax shall be imposed on the income from the transfer of overseas assets, i.e., a resident, a person who has his domicile or residence in a foreign country for at least five consecutive years prior to the date of transfer of the pertinent assets. In the case of the stocks issued by Hong Kong corporations falling under overseas assets, the transfer date shall be August 31, 2009, the transfer date shall be August 31, 2009, and the five-year period from August 30, 2004 to August 31, 2009, the issue of whether the Plaintiff’s resident is the resident (hereinafter “the dispute period”) does not conflict between the parties. Accordingly, in order to be legitimate for the Defendant’s disposition of this case, it depends on whether the Plaintiff can be deemed a domestic resident from at least the point of issue period to the date of transfer.

From this perspective, the instant case is examined in light of the relevant statutes and legal principles as seen earlier. In full view of the facts acknowledged earlier and the following circumstances acknowledged by the evidence revealed earlier, it is reasonable to deem that the Plaintiff constitutes a domestic resident, i.e., a domestic resident, if the Plaintiff had an address or residence in the Republic of Korea continuously for five years or longer

○○ recognized that from November 19, 2004 to August 31, 2009, the stock transfer date of the instant case, the Plaintiff is also a domestic resident for about four years and nine months, which is the permanent return date to the Republic of Korea. Accordingly, the Plaintiff accounts for most of the issues period (95%).

○ From April 8, 1988 to September 30, 2003, the Plaintiff was registered as a resident in the instant apartment from April 8, 1988 to September 30, 2003, and there is no evidence to find that the Plaintiff reported emigration due to his residence in Hong Kong. The Plaintiff re-registered the said apartment on April 21, 2005, after his permanent return to the Republic of Korea.

○ The Plaintiff owned 10% of the shares of DD during the Hong Kong migration period, received a considerable amount of benefits from DD while receiving the benefits from DD, and held ownership of the apartment of this case. In addition, the Plaintiff paid the total amount without filing any objection, even though the tax authority imposed the global income tax on the revenues received from Hong Kong 00 to 2004 as dividend income on domestic residents’ overseas dividend income.

Examining the Plaintiff’s domestic residence days (141 days) in 2004, a sudden increase compared to that (31 days) in 2003. As seen earlier, around November 19, 2004, the Plaintiff, together with his family members including HH, has left the Republic of Korea from Hong Kong to the United States, and has returned to the Republic of Korea permanently on November 19, 2004, and the number of domestic residence days in 2004 is remarkably higher than that of Hong Kong (9 days).

As of August 30, 2004, when determining whether the Plaintiff is a domestic resident in connection with the transfer of the instant shares, the issue is whether the Plaintiff is a domestic resident at that time. Since the Plaintiff was recognized by the Tax Tribunal as a non-resident until December 31, 2003, the Plaintiff asserts to the purport that the circumstances that occurred until August 30, 2004, which was the above reference date, should be considered mainly from that time. However, in the relevant tax judgment, the tax authority or this court cannot be deemed to be bound by the fact-finding that the Plaintiff was aware that the Plaintiff was a domestic non-resident in 2003. In light of the nature of income tax as a fixed-term taxation and the nature of the domicile or residence, which contains the concept of continuing the period of time as the basis of the income tax as well as the nature of the income tax as a basis of living, it cannot be said that the Defendant erred by taking into account all the circumstances after the transfer and the decision.

From the perspective of ○○○, as seen earlier, the Plaintiff, as the family head of home, had no particular occupation and most of his spouse’s residence and living relationship with H were in accord with the empirical rule to recognize whether H was the same as that of H. However, according to the facts acknowledged earlier, HH continued to have continued to reside in the Republic of Korea after moving to Hong Kong with the Plaintiff and his family members, including the Plaintiff, around 1992, and continued to hold the shares of the said company as a representative director of D during the Hong Kong migration period or as a director of Do 00, and continued to hold the shares of the said company. The fact that Do d 00 and Korea0 were controlled through D d d , which was the family head of the Republic of Korea, and paid the personal health insurance fee as a domestic resident, and that H was engaged in financial transactions through the personal account opened in the domestic bank, and that H’s spouse, including the Plaintiff, from 2003 to 194 to 2004 days in the Republic of Korea.

As seen earlier, in determining whether the Plaintiff had a domicile or residence in Korea as seen earlier, it does not mean that the Plaintiff is not a domestic resident on the ground of the Plaintiff’s asset relationship or family relationship located in a foreign country, which should not be determined in light of the domestic living relationship. Thus, there is no circumstance to reverse the judgment that the Plaintiff constitutes a domestic resident solely on the ground that the Plaintiff acquired Hong Kong sovereignty for a given period and received wage and salary income higher than that received from Hong Kong 00 from Korea.

3) Therefore, the instant disposition is lawful.

3. Conclusion

The plaintiff's claim is dismissed. It is so decided as per Disposition.