Review Division 2008-0171 (Law No. 25, 2009)

Criteria for judgment of real estate trading business

In determining real estate sales, it shall be determined in consideration of all the circumstances described above and following the time the relevant transfer took place throughout the entire real estate owned by the transferor.

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

1. All of the plaintiffs' claims are dismissed.

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

The Defendant’s disposition of imposition of value-added tax for the second period of 2002 against the Plaintiffs on January 3, 2008 is revoked.

1. Details of the disposition;

A. On January 3, 2002, the plaintiff Park Jong-chul purchased the land of 1.630 million won from the Seocho-gu Seoul Metropolitan GovernmentCC (hereinafter "the land of this case") from 140-83,000,000 won, and decided to operate a business by cutting the above land with the plaintiff Song Byung-D and cutting the leisure building of the 1st floor and the 8th floor above the above land (hereinafter "n of this case"). The plaintiffs completed the business registration of food industry on April 1 of the same year with the trade name "VVV," and thereafter entered into a construction contract with the FF agency at that time. The plaintiffs concluded the sale contract of the above land of this case on June 29, 2002 and concluded the sale contract of the 70,000,000,000 won and all of the rights and obligations related to the ownership of the above land of this case and the 47,000,000,000 won old land.

C. Plaintiff Park Jong-A reported capital gains tax of KRW 13,02,00 for the instant land. However, the Defendant: (a) deemed that the Plaintiff engaged in real estate sales business newly built and sold the instant leisure pipe and omitted any report on the amount of income accrued therefrom; and (b) on January 3, 2008, the Defendant issued the instant disposition imposing KRW 517,204,834 for the Plaintiff at KRW 246,112,612,612 (24,61,222 not submitted a list of the total tax invoices + KRW 24,611,222 + the excessive return of KRW 24,61,222 + the excessive return of KRW 24,61,222 + the amount of KRW 168 for the second period of value-added tax for the year 2002.

[Ground of recognition] Facts without dispute, Gap 1, 2, 4, 6, 17 evidence, Eul 1-5 evidence (including each number), the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

For the following reasons, there is no value-added tax orCC tax liability for the Plaintiffs, and the instant disposition is unlawful.

(1) In order to prepare for old age after retirement from an enterprise, Plaintiff Park Jong-A proposed to operate a club business with Plaintiff Song-D in the vicinity of the instant land in order to operate the club business, and Plaintiff Song-DD agreed to operate the club business. In response, the Plaintiffs were to operate the club business. During the new construction of the library in this case, Plaintiff Park Jong-A increased the health of Plaintiff Park Jong-A, and the dispute arises between the Plaintiffs due to construction cost sharing and profit sharing ratio, etc., it is merely transferred the above house to Eth Eth, etc., and it does not constitute “business entity” under Article 2(1) and (2) of the former Value-Added Tax Act (amended by Act No. 8142, Dec. 30, 2006; hereinafter referred to as “Act”).

(2) The transfer of the instant leisure club constitutes “transfer of the instant leisure club without any value-added tax imposed pursuant to Article 6(6)2 of the Act, Article 17(2) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 1930 of Feb. 9, 2006; hereinafter “Enforcement Decree”).

(3) Even if it is recognized that the Plaintiffs are liable to pay value-added tax, it is very difficult for the Plaintiffs, other than legal experts, to accurately determine whether they are subject to value-added tax by accurately assessing the substance of the transfer of then of this case, and thus, there is a justifiable reason that cannot be caused to breach of their duty. Therefore, CC tax 271,092,612 should be exempted.

(b) Related statutes;

It is as shown in the attached Table related statutes.

(c) Fact of recognition;

(I) On January 3, 2002, the Plaintiff Park Jong-chul purchased the instant land in KRW 1.63 million from SeoB, and completed the registration of ownership transfer on February 25, 2002, and decided to operate inn with Plaintiff SongD as well as inn with Plaintiff SongD. The Plaintiffs completed the business registration of food and drink with the trade name called “HH” on April 1, 2002 and entered into a construction contract between FFto Co., Ltd. and the FFto build inn building on the instant land.

(2) On June 29, 2002, when the above female was newly constructed, the plaintiffs prepared a comprehensive contract for transfer and takeover of the business (Evidence A) with the purport that the plaintiffs will transfer the rights and obligations with respect to the businesses newly established by the plaintiffs to EE, that is, the whole rights and obligations with respect to the inn's accommodation business, as of June 30, 2002, and at the same time sold the land and the inn's houses to EE, etc. for KRW 4.7 billion, while the remaining KRW 2.8 billion out of the purchase price was completed and occupied by the above female, the plaintiffs drafted a real estate sale contract (Evidence B 1-1) with the purport that the above female will be paid at the time of transfer.

(3) On July 1, 2002, EE, etc. registered its business with the trade name of JJ on July 1, 2002, and completed the registration of transfer of ownership and registration of preservation of ownership on September 27, 2002, which is the date when the ownership was completed, pursuant to the real estate sales contract of this case on September 15, 2002, and the Plaintiffs reported the closure of business as of June 30, 2002, which is the date when the business transfer contract of this case was completed.

(4) On December 8, 2003, after the transfer of the instantn, Plaintiff Park Jong-A newly constructed a 7th floor building located in Suwon-si LLLdong 368, Suwon-si, and completed registration of preservation of ownership with mamM, and thereafter, Plaintiff Park Jong-A operated a real estate rental business, and transferred the said building to mamk, etc. around January 13, 2004.

(5) 원고 송DD은 이 사건 여관을 양도하기 이전인 1988. 7. 21.경 서울 동대문구 WW동 336-2 소재 NN장여관을 신축하여 1988. 11. 25.경 양도하였고, 1989. 10. 30. 경 같은 구 신설동 25-44 소재 NN장여관을 신축하여 1990. 5. 20.경 양도하였으며, 1998. 1. 10.경 서울 강북구 PP동 87-1 소재 QQ파크 여관을 신축하여 1999. 10 26.경 양도하였고, 2000. 6. 30.경 서울 금천구 CC동 140-33 소재 RRR파크를 선축하여 2003. 3. 29.경 양도하였다. 또한 원고 송DD은 이 사건 여관을 양도한 이후에도 2003. 7. 31.경 의왕시 내손동 733-4 소재 모텔SSS를 신축하여 숙박업을 운영해왔다.

[Reasons for Recognition] Unsatisfy, Gap 1-7, 13, 14, 17, 18, and Eul 1-5 (each number distribution)

(2) Each entry and the purport of the whole pleading;

D. Determination

(1) As to the assertion that a person liable to pay value-added tax does not constitute a “business entity”, Article 2(1) of the Act provides that a person who independently supplies goods or services for business purposes shall be liable to pay value-added tax. Here, a person who independently supplies goods or services for business purposes satisfies the business type sufficient to create a value-added tax and continues to provide such goods or services with continuous and repeated intent (see, e.g., Supreme Court Decision 97Nu6100, Apr. 13, 199). Whether a real estate transaction constitutes a supply of goods subject to taxation under the Act should be determined based on social norms, taking into account not only the transaction purpose is profit-making, the degree of continuity and repetition of business activities that can be seen as business activities in light of the scale, frequency, mode, etc. of such business activities, the extent of transfer of the pertinent real estate’s income before and after the sale of the relevant real estate, the extent of transfer or acquisition of the relevant real estate by the transferor, the number of transfer or acquisition of the relevant real estate, and the relevant circumstances.

With respect to this case, the above facts of recognition and the following specifications revealed by the above evidence were newly constructed several occasions before the transfer of the leisure house of this case, that is, the plaintiff Song-D had transferred the leisure house of this case for a short time. Although the plaintiff Park Jong-A had been engaged in activities as an officer of the company for 30 years, it was immediately transferred the building of 7th floor after the transfer of the house of this case. The size of the leisure house of this case and the land of this case is considerably large as 4.7 billion won, and it is very short before the commencement of the construction of the new building, and it is difficult to view that the above leisure house of this case was inevitably transferred due to the improvement of livelihood of the plaintiffs, etc., and the plaintiffs' intention to acquire the transfer of the house of this case after the transfer of the houses of this case, and therefore, the plaintiffs' intention to obtain the transfer marginal profit of this case as part of the real estate sales business of this case is not reasonable.

(2) As to the assertion that the transfer of business is not subject to value-added tax

The term "transfer of business" in Article 6(6) of the Act and Article 17(2) of the Enforcement Decree of the Act means that the business shall not replace only the main body of business while maintaining the identity of the business by comprehensively transferring physical and human facilities, including business property, and rights and obligations. As such, the business must be separated from the main body of business as an organic combination of human and physical facilities so that social independence can be recognized. The fact that the object of transfer is not a simple physical facility, but such organic combination is not a value-added tax, the burden of proof shall be the person liable for duty payment (see Supreme Court Decision 2002Du8800, Jan. 10, 2003).

With respect to this case, it is difficult to view that the plaintiffs' business registration period remains more than three months, that is, the plaintiffs' business registration period has not been operated during that period. The plaintiffs completed the female building under their responsibility even after June 30, 2002, which constitutes the date of business closure and the date of business transfer, and then delivered it to EE, etc. on September 27, 2002. However, there is no evidence suggesting that the plaintiffs comprehensively agreed on the rights and duties of the female business as of June 30, 202, which is the date of business transfer transfer, and it is difficult to view that the above contracts are not fully mentioned on the amount of business transfer, and it is difficult to view that the plaintiffs' evaluation of assets and liabilities related to the business and stated on the balance sheet (Evidence 15) as well as on the balance sheet (Evidence 15) as well as on the fact-finding basis of Article 6 (2) of the Enforcement Decree of the Act, including evidence of business management relationship, confidential business relationship, and personal organization transfer.

(3) As to the assertion that there is a justifiable reason for not being able to imposeCC tax

In order to facilitate the exercise of taxation rights and the realization of tax claims under tax law, where a taxpayer violates various obligations, such as a declaration and tax payment, as prescribed by law without justifiable grounds, the tax imposed pursuant to the law does not constitute a justifiable reason that does not cause the taxpayer’s intentional or negligent breach of duty (see, e.g., Supreme Court Decision 2002Du10780, Jun. 24, 2004).

In full view of the facts of the recognition of the above facts and the plaintiffs' past occupation, scale of transaction, total amount of price, details of reports on capital gains tax, etc. as to this case, it is deemed that the plaintiffs' violation of their obligations such as report and tax payment is merely due to mistake or misunderstanding of the related Acts and subordinate statutes, such as the Value-Added Tax Act, and thus, it does not constitute a justifiable reason. Accordingly, the plaintiffs' above assertion is without merit.

3. Conclusion

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