Examination-Income-2017-0093 (Law No. 18, 2018)

Under the principle of substantial taxation, whether a person is a new business entity or a continuing business entity must be determined by the substance of the transaction.

The issue of whether a taxpayer is a new business entity or a continuing business entity under the principle of substantial taxation shall be determined by the substance of the transaction, and shall be determined by whether a taxpayer has continuously and repeatedly supplied goods and services according to commercial practices in consideration of the new business registration, the characteristics, forms, etc. of the type of business regardless of business closure or closure.

Article 143 of the Enforcement Decree of the Income Tax Act: Estimation and correction

2018Guhap14870 global income and revocation of such disposition

○○

○ Head of tax office

December 11, 2018

o2, 2019.12

1. The Defendant’s imposition of global income tax of KRW 126,617,840 (including additional tax) on September 21, 2017 against the Plaintiff on September 21, 2017 shall be revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. On September 14, 2015, the Plaintiff opened the Housing Construction and Sales Business with the trade name, i.e., ○○○○-dong, 157-6 and one parcel of land (hereinafter “instant place of business”) located at the place of business, and changed the place of business into △△△△△△△△, 628-1 and 2 parcels of land, 631-15 "△△△△△△△, 631-15", and changed the trade name to △△△△△△△△△, △△△△△△△, and ○○○-si, ○○○○-si, △△△△△△△△△, 102, 903, which are the Plaintiff’s domicile.

B. On May 31, 2016, the Plaintiff newly built a multi-household house at the instant workplace in 2015 and sold KRW 2.296.5 million to the Defendant. On the grounds that construction income did not accrue in the immediately preceding year, the Plaintiff calculated estimated income subject to the “simplified expense rate” pursuant to Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter “former Enforcement Decree of the Income Tax Act”) and reported and paid KRW 70,972,066 of global income tax for the year 2015.

C. On September 21, 2017, the Defendant calculated estimated income by applying “standard expense rate” pursuant to Articles 143(3), 143(4)1, and 208(5)2 of the former Enforcement Decree of the Income Tax Act on the grounds that the Plaintiff constitutes a new business operator in 2015 and the amount of annual income in 2015 exceeds KRW 150 million (hereinafter “instant disposition”). The Defendant corrected and notified global income tax for 2015 and KRW 126,617,844 (including additional tax) for global income tax for 2015 (hereinafter “instant disposition”).

[Reasons for Recognition] Facts without dispute, Gap evidence 3-1, 2, and 4-1, 5, 6-6, Eul evidence 1 and 2, the purport of the whole pleadings

2. Determination on the legitimacy of the instant disposition

A. Summary of the plaintiff's assertion

The Plaintiff merely repeated the discontinuance of business after the completion of new business registration at each time of new construction of multi-household housing because it was not well aware of the laws and regulations, and actually continues to engage in the housing construction and sales business, real estate rental business, etc. since 2010, and thus, it cannot be deemed a new business operator. Since the amount of income in the year immediately preceding the business year 2015 falls short of 36 million won, the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

The following facts may be acknowledged in full view of the evidence and evidence as well as evidence Nos. 1, 2-1, and 2-2 of the parties to the dispute, or the whole purport of the pleading.

1) 원고는 2010. 8. 20. ◎◎시 ◎◎동을 사업장 소재지로 하여 '◎◎빌라'라는 상호로 주택신축판매업을 개업하였다가 2010. 12. 31. 폐업하였고, 2013. 6. 25. ○○시 ▲▲동을 사업장 소재지로 하여 '▲▲빌라'라는 상호로 주택신축판매업을 개업하였다가 2013. 12. 15. 폐업하였다.

2) In other words, on September 14, 2015, the Plaintiff opened the housing construction and sales business with the location of the instant place of business as its location, and registered its business on September 17, 2015 with the business operator’s status as a continuous business operator, the name of the main business owner, and the name of the main business owner as a new house sales.

3) 한편, 원고는 2009. 12. 1. ◎◎시 ◎◎동 304 토지를 취득하여 2010.경 다세대주택인 ◎◎빌라를 신축, 분양하였고, 2011. 9. 22. ○○시 ▲▲동 121-3 토지를 취득하여 2013.경 ▲▲빌라를 신축, 분양하였으며, 2015. 8. 25. ○○시 ○○동 157-6 토지를 취득하여 2015.경 ○○빌라를 신축, 분양하였고, 2014. 12. 30. △△시 △△동 628-1 외 2필지를 취득하여 2017.경 △△빌라, ◇◇빌라를 신축, 분양하였다.

4) Furthermore, in order to continue to engage in the housing construction and sales business, the Plaintiff acquired each of 830 square meters of Bright Dong 830 square meters on June 19, 2015, and 1,365 square meters before December 21, 2017, respectively.

5) The Plaintiff obtained the revenue amount as listed below by either conducting a new construction and sales business of housing from 2010 to 2014 or running a rental business of housing.

D. Determination

1) Relevant legal principles

A) Article 14(1) of the Framework Act on National Taxes declares the principle of substantial taxation by stipulating that “if the ownership of the income, profit, property, act or transaction subject to taxation is nominal and there is a separate person to whom it actually belongs, the person to whom it actually belongs shall be liable to pay taxes,” and the above provision shall be applied to the Income Tax Act as a matter of course in accordance with

B) The business registration under Article 168(1) of the Income Tax Act and Article 8(1) of the Value-Added Tax Act is merely a system with the purport of enabling the tax authority to identify a taxpayer and secure taxation data, and it does not change the status as a business entity by its registration. Thus, whether a taxpayer is a new business entity or a continuing business entity under the substance over form principle should be determined not by whether a new business registration has been made or a report on temporary or permanent closure of business has been filed, but by the business entity. Therefore, whether a taxpayer has continuously and repeatedly supplied goods and services according to commercial practices should be determined by considering whether a business registration has been newly made, regardless of the business registration, the characteristics and form of a business type, etc. (see, e.g., Supreme Court Decisions 93Nu17355, Dec. 10, 1993; 2010Du8430, Sept. 9, 2010).

C) Furthermore, according to Articles 143(4) and (6), and 208(7) of the former Enforcement Decree of the Income Tax Act, in order to become a person subject to the application of simple expense rate (excluding construction business for non-resident buildings), the total amount of revenue for the immediately preceding taxable period should not exceed 36 million won, and in the case of real estate leasing business, the above amount should not exceed 24 million won. However, in the case of real estate leasing business, the type of business under Article 143(4)2(a) through (c) of the former Enforcement Decree of the Income Tax Act concurrently or the place of business is two or more, the amount of revenue for non-resident business + (the amount under each item of paragraph (5)2 of the same Article for non-resident business / the amount under each item of paragraph (5) 2 of the same Article for non-resident business) should be calculated by the formula of "the amount of revenue

2) Specific determination

A) Further to the above facts, the Plaintiff appears to have been engaged in the business of purchasing land over several years and newly building and selling multi-household houses on the site. In light of the characteristics of the Housing Construction and Sales Business and the Plaintiff’s individual entrepreneur, the Plaintiff’s business appears to have been inevitably carried out over several taxable years. Although the Plaintiff did not carry out the Housing Construction and Sales Business in the year 201 and 2014, it cannot be concluded that the business was suspended in the pertinent taxable year due to the nature of the business. Rather, the Plaintiff appears to have been preparing for the Housing Construction and Sales Business by acquiring land, etc. in each taxable year. In light of the following circumstances, even if the Plaintiff had been registered as the place of business in the instant case in 2015 after the construction of multi-household, it cannot be deemed that the Plaintiff continued to carry on the housing Construction and Sales Business as the main business in the year 2010 through 2017, the Plaintiff continued to carry on the housing Construction and Sales Business during the pertinent taxable period.

B) Furthermore, the Plaintiff’s income from the housing rental business in the year 2014, which is the year immediately preceding the business year in 2015, while running a construction business and a real estate rental business continuously falls short of the amount prescribed in Article 143(4)2 of the former Enforcement Decree of the Income Tax Act (Article 143(4)2 of the former Enforcement Decree of the Income Tax Act), and the Plaintiff’s income from the construction business and the real estate rental business operated by the Plaintiff falls under the category of business subject to the simple expense expense expense (Article 143(4)2 of the former Enforcement Decree of the Income Tax Act), and the Plaintiff’s income amount of KRW 16,195,00 from the income accrued in the year in 2014 falls short of the amount prescribed in Article 143(4)2 and (c) of the former Enforcement Decree of the Income Tax Act (Article 143(4) of the former Enforcement Decree of the Income Tax Act (Article 36 million won, real estate rental business).

C) Therefore, the instant disposition that determined the Plaintiff’s income by applying standard expense rate on a different premise is unlawful.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.