Cho High Court Decision 2017Da2244, 28 June 2017

The necessary expenses are consistent with the concept of fairness to recognize the necessity of proof to the taxpayer.

The burden of proof on the fact that the instant real estate was disbursed for the purpose of the alteration, improvement, or convenience of use is the Plaintiff, but the disposition that did not recognize the instant construction cost as the necessary expense is lawful because there is no proof of capital expenditure and lack of recognition.

Article 97 (Calculation of Necessary Expenses in Transfer Income Tax)

2017Guhap23606 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

April 19, 2018

May 31, 2018

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 13,873,540 for the Plaintiff on November 2, 2016 shall be revoked.

1. Details of the disposition;

A. On September 5, 2014, the Plaintiff acquired from the KimCC on DDdong 401-7 large 50.2 square meters of DDdong 401-7 large 50.2 square meters of the above ground block structure reinforced concrete roof (hereinafter “instant real estate”) and sold it to the E on July 23, 2015, after changing the use of the first floor into two-class neighborhood living facilities.

B. On May 18, 2016, the Plaintiff: (a) filed a preliminary return of capital gains tax with the Defendant on the amount of KRW 220,814,740, including the transfer value of the instant real estate as KRW 230,000; and (b) necessary expenses, including the acquisition value: KRW 148,264,740 + Other necessary expenses + KRW 72,550,000).

C. On July 27, 2016, the Defendant denied the construction cost of KRW 66,420,000 for the interior repair of the building and the alteration of the purpose of the use of the housing of the first floor (hereinafter “instant construction cost”) among the necessary expenses, and notified the Plaintiff of a pre-announcement of taxation that capital gains tax of KRW 14,671,413 attributed to the year 2016 shall be imposed on the Plaintiff on July 27, 2016, but upon the Plaintiff’s request for pre-assessment review, the Defendant, upon recognizing only three million won as necessary expenses, corrected and notified the Plaintiff of KRW 13,873,540, capital gains tax belonging to the year 2016 (hereinafter “instant disposition”).

D. On December 8, 2016, the Plaintiff filed an objection with the commissioner of the Regional Tax Office against the instant disposition, but was dismissed on January 3, 2017. On April 10, 2017, the Plaintiff filed a request for a trial with the Tax Tribunal.

On June 28, 2017, it was dismissed.

[Reasons for Recognition] Facts without dispute, entry of Gap evidence 1 through 5 and evidence 12 (including each number, hereinafter the same shall apply), entry of Eul evidence 1 and 2, and purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant construction cost is cost disbursed for the alteration, improvement, or convenience of the use of the instant real estate, i.e., capital expenditure recognized as necessary expenses, but the instant disposition based on a different premise should be revoked in an unlawful manner.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Article 97(1) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) provides for necessary expenses to be deducted from the transfer value when calculating gains on transfer of a resident, such as acquisition value ( Subparagraph 1), capital expenses, etc. prescribed by Presidential Decree ( Subparagraph 2), transfer expenses, etc. prescribed by Presidential Decree ( Subparagraph 3). Article 163(3)3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same) provides that “expenses disbursed for the alteration, improvement, or convenience of the use of transferred assets” as capital expenses, etc.

2) Meanwhile, in a lawsuit seeking revocation of income tax assessment, the burden of proof on the tax base, which is the basis of taxation, is the tax authority, and the tax base is deducted from necessary expenses, so the tax authority shall bear the burden of proof on revenue and necessary expenses in principle. However, since most of the facts that generated necessary expenses are in the territory under the control of the taxpayer, and the tax authority is difficult to prove, it accords with the concept of fairness where it is reasonable to have the taxpayer prove the burden of proof in consideration of difficulty in proof or equity between the parties (see, e.g., Supreme Court Decision 2006Du16137, Oct. 26, 2007).

3) In light of the above legal principles, the Plaintiff bears the burden of proving that the construction cost of the instant case was spent for the purpose of using, improving, or using the instant real estate. The following circumstances, which are acknowledged as follows: (i) evidence that conform to the Plaintiff’s assertion was written by ParkF; (ii) construction specifications prepared by the construction work specifications; (iii) Kim HH and sulfur II written by the Plaintiff (the Plaintiff first submitted construction specifications that ParkF was written by the Tax Tribunal; and (iv) the Plaintiff submitted additional written confirmations of construction specifications, Kim HH and Yellow II as well as written by the Plaintiff’s request for adjudication; and (v) there was no other objective evidence that the Plaintiff’s use of the instant construction cost was written and no other evidence was presented to the Plaintiff, in light of the fact that ParkF’s signature and seal was written, and there was no other specific evidence that the Plaintiff’s use of the instant construction cost was written and no other evidence was found to acknowledge that the Plaintiff’s use of the instant work cost was written by ParkF.

3. Conclusion

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