Cho High Court Decision 2007Du4896 (Law No. 11, 2008)

Whether the owner of one house for one household to which the special deduction for long-term holding (45%) applies may include non-residents.

It is reasonable to apply the special long-term holding deduction in the proviso of Article 95 (2) 3 of the Act to non-residents, because there is no special reason to limit the amount of increase in price for the holding period to residents, if one household is deemed a limited concept to residents, it is not possible to apply the heavy taxation rate to non-residents.

The contents of the decision shall be the same as attached.

Article 89 (Non-Taxable Transfer Income Tax)

Article 95 (Transfer Income Amount)

1. The defendant's disposition rejecting the correction of capital gains tax against the plaintiff as of August 27, 2007 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Basic facts

A. On June 27, 1986, the Plaintiff, a non-resident, acquired and owned ○○○○○-dong, Seoul, ○○○○-dong, and 203 Dong-dong, 203 (hereinafter “instant real estate”) located in two parcels, and transferred 850.00 won to Kim○-ri on April 16, 2007.

B. On March 12, 2007, the Plaintiff appropriated gains from transfer as KRW 778,281,804 in relation to the disposal of the instant real estate, and calculated capital gains tax of KRW 165,174,310 by applying the special deduction for long-term holding of capital gains tax by 30%.

C. After making the preliminary return of capital gains tax as above, the Plaintiff filed a request for correction of KRW 37,824,490 to refund capital gains tax by applying the special deduction rate for long-term holding under the proviso of Article 95(2)3 of the former Income Tax Act (amended by Act No. 8541 of Dec. 31, 2007) as the period of holding the instant real estate was not less than 15 years.

D. On August 27, 2007, the Defendant rendered a disposition rejecting the claim for correction on the ground that the proviso of the former Income Tax Act only applies to a resident who is a non-resident and does not apply to the Plaintiff who is a non-resident (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 to 6, purport of the whole pleadings

2. Whether the allegations and dispositions by the parties are legitimate;

(a)The master of the Party;

Article 159-2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008) provides that "one house for one household as prescribed by Presidential Decree" in the proviso of Article 95 (2) 3 of the Act means a house (including a house considered as one house for one household pursuant to Articles 155, 155-2, 156-2 and other provisions) where one household owns one house in Korea as of the transfer date as of the transfer date." It does not expressly define "one household", and therefore, it cannot be seen as the same as the concept of "one household" in Article 154 of the former Enforcement Decree of the Income Tax Act, because Article 121 (2) of the former Income Tax Act provides that the proviso of Article 95 (2) 3 of the former Income Tax Act applies to non-residents by the same method as residents, so the disposition of the plaintiff in this case is unlawful since the defendant refused to request for correction.

In this regard, the defendant asserts that the proviso of Article 95 (2) 3 of the former Income Tax Act provides that "one house for one household as prescribed by the Presidential Decree" shall apply the special deduction rate of 45% for long-term possession, and that the single household refers to "one household comprised of the residents and their spouse together with the family members who live together with the same family members at the same domicile or residence that is uniform with them" as provided by Article 154 (1) of the former Enforcement Decree of the Income Tax Act, so the special deduction rate of long-term possession is 45% for non-residents, so the disposition of this case

(b) Related statutes;

Article 89 (Non-Taxable Transfer Income Tax)

Article 95 (Transfer Income Amount)

Article 121 (Method of Taxation on Nonresident)

Article 154 (Scope of “One House for One Household”)

Enforcement Decree of the Income Tax Act (one house for one household to which the special deduction for long-term holding of stocks is applied for 15 or more years)

C. Determination

Unlike residents, the general provision that "tax is imposed in the same manner as residents" under Article 121 (2) of the former Income Tax Act without providing any individual provision unlike residents. The issue of this case is how to understand the meaning of "tax is imposed in the same way as residents" and whether the proviso of Article 95 (2) 3 of the former Income Tax Act should be applied.

(1) The term "one household" under the proviso of Article 89, Article 95 (2) 3 of the former Income Tax Act and Articles 154 and 159-2 of the Enforcement Decree of the same Act is a conceptual definition premised on residents as a matter of course, since Chapter 3 of the former Income Tax Act provides for a tax liability for capital gains of "resident", and the term "one household" under Article 89, the proviso of Article 95 (2) 3 of the former Income Tax Act and Article 154 and Article 159-2 of the Enforcement Decree of the same Act is merely a conceptual definition based on the premise of residents. (2) The term "special long-term holding deduction" is a system that deducts certain portion of gains from transfer of real estate held for a certain period of time in the calculation of capital gains from the transfer of real estate held for a certain period of time, taking into account the excessive cumulative accumulation of profits from the increase in prices

The purpose of the system or its nature is that there is no special reason to apply only to residents who are non-taxable or tax reduction or exemption, ③ ‘taxation of transfer income tax' should be understood as wide meaning by calculating transfer income tax, transfer income, tax base, tax amount, etc. ④ Despite Article 104(1) of the former Income Tax Act which provides for heavy taxation rate and the relevant Enforcement Decree (Article 167-4 through 6 of the Enforcement Decree of the Income Tax Act), it is a general interpretation and practice that tax rate should be applied to residents as well as non-residents (in case of a non-resident with a limited concept, it is difficult to apply heavy taxation rate to the non-resident with the same tax base as that of the non-resident, but it is not reasonable to apply Article 9 of the former Income Tax Act to the non-resident with the same tax base as that of the non-resident with the same tax base as that of the non-resident.

In short, the special long-term holding deduction under the proviso of Article 95 (2) 3 of the former Income Tax Act shall be deemed to apply to non-residents. Accordingly, the instant disposition that deemed that the said proviso is not applicable to non-residents is unlawful, and the Plaintiff’s assertion is with merit.

3. Conclusion

If so, the plaintiff's claim seeking the cancellation of the disposition of this case is reasonable, so it is so decided as per Disposition by the assent of all participating Justices.