National Tax Service Review and Transfer 2010-0196 ( October 12, 2010)

Any disposition that excludes capital gains tax reduction or exemption for substitute farmland is legitimate.

Since it is insufficient to recognize that the area of new farmland to be acquired is at least 1/2 of the area of farmland to be transferred or that the value is at least 1/3 of the value of the farmland to be transferred, the disposition that excludes capital gains tax reduction or exemption

2011Revocation of disposition of revocation of imposition of capital gains tax

Shin XX

O Head of tax office

July 22, 2011

August 12, 2011

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of KRW 17,058,120 for the Plaintiff on April 1, 2010 and KRW 5,197,773 for the transfer income tax belonging to the year 2007 and the transfer income tax belonging to the year 2008 is revoked.

1. Details of the disposition;

A. On February 8, 2002, the Plaintiff acquired the instant farmland, and on December 31, 2007, the instant farmland was transferred to each other on January 10, 2008, and on March 26, 2008, the Plaintiff acquired 00-0-0-8 and 628 square meters (hereinafter referred to as “the instant substitute farmland”) of 00-0 and 562.9 square meters of ri,00-0 and 562.9 square meters of ri. (hereinafter referred to as “the instant farmland”).

B. Upon filing a final return of capital gains tax for the taxable year 2007 and 2008, the Plaintiff applied for reduction or exemption of capital gains tax under Article 70 of the Restriction of Special Taxation Act on the ground that the capital gains from farmland 1 through 3 in this case were income generated by substitute farmland for farmland. However, on April 1, 2010, the Defendant rendered a disposition to the Plaintiff on the following grounds: the land category of the instant substitute farmland is forest land; the Internet portal site taken around May 2008 on the Internet portal site (hereinafter referred to as “satellite photograph”) did not have been used as farmland; and the Plaintiff did molding work from October 2009 to the recent period; the Plaintiff did not apply the reduction or exemption provision on farmland 1 year on the ground that it did not engage in agriculture for a long period of time; and the Plaintiff did not impose capital gains tax on the Plaintiff on the ground that the reduction or exemption provision on farmland 1 through 3 in this case did not apply to the Plaintiff.

C. On June 28, 2010, the Plaintiff appealed and filed a request for review with the Commissioner of the National Tax Service on June 28, 2010. On October 12, 2010, the Commissioner of the National Tax Service rendered a decision to reduce capital gains tax base and tax amount from 16,049, 350 to 10,857,617 won (hereinafter referred to as “the portion of capital gains tax for 288.72m2”) among the instant substitute farmland on October 12, 2010, on the ground that the Plaintiff met the requirements for size as substitute farmland for 3 farmland of this case and the Plaintiff directly cultivated portion of 288.72m2m2. In the disposition imposing capital gains tax for 2008, the instant 3 farmland of this case satisfies the provisions on reduction and exemption of capital gains tax for substitute farmland of Article 70 of the Restriction of Special Taxation Act, and accordingly, the Defendant rendered a decision to reduce capital gains tax for 10,85707,708.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 3, Eul evidence No. 1-1 to 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The farmland area at the time of acquiring the instant farmland is not 288.72 square meters, but 1,420.15 square meters, and the Plaintiff’s transfer of farmland constitutes at least 1/2 of the total area of 1,585 square meters of farmland or 3 farmland transferred by the Plaintiff (the end of April, 2010 increased to 3,090 square meters) and the Plaintiff was directly engaged in farming in the said farmland. As such, the income from the transfer of farmland in the instant case or 3 is all subject to reduction of capital gains tax due to substitute farmland in the self-governing manner under Article 70 of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010; the same applies hereinafter) and the disposition of this case on a different premise is unlawful.

B. Relevant statutes

Attached Form 3 is as listed in the "relevant Acts and subordinate statutes".

C. Determination

(1) According to Article 70(1) of the former Restriction of Special Taxation Act and Article 67(1), (2), and (3)1 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 20620, Feb. 22, 2008) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 20620, Feb. 22, 2008) where a person who has resided in a location of previous farmland for not less than three years and has cultivated while residing in a new location of farmland for not less than three years after acquiring another farmland within one year from the date of transfer, and has resided in a new location of farmland for not less than three years, the tax amount equivalent to 10/100 of the transfer income tax on the transfer income accruing from the substitute farmland

(2) The purport of the provision that reduces capital gains tax on the substitute land of farmland under the former Restriction of Special Taxation Act is to protect a self-employed farmer and encourage agriculture by guaranteeing free substitution of farmland. Thus, the object of reduction or exemption is limited to cases where the farmland acquired by a self-employed farmer is to be substituted for cultivation necessity. Therefore, the requirements for reduction or exemption of capital gains tax on substitute land of farmland shall be farmland: ① the previous land and land newly acquired shall be farmland; ② the land shall be directly cultivated while residing in the previous location of farmland for not less than three years, and the farmland shall be cultivated directly while residing in the new location of farmland for not less than three years; ③ the residing and cultivation shall be commenced within one year from the date of transfer; ④ the period between the previous land transfer date and the newly acquired date of acquisition shall be within one year; ⑤ the area of farmland to be newly acquired shall be not less than 1/2 of the area of farmland or not less than the value of farmland to be transferred.

In addition, in order for the plaintiff to be exempted from capital gains tax on income generated from substitute land for farmland due to necessity for cultivation, it is necessary to prove the requirements of the above.

(3) First, as to whether the size of the farmland among the substitute farmland of this case acquired by the Plaintiff exceeds 288.72 square meters, exceeds 1/2 of the size of the farmland of this case or the value of the farmland of this case is not less than 1/3 of the value of the farmland of this case 1 through 3, it is not sufficient to recognize this only by the entries of Gap evidence Nos. 4 through 6, Gap evidence No. 7-1 through 4, Gap evidence No. 8-1 through 3, and Gap evidence No. 9, and there is no other evidence to acknowledge this.

Therefore, the Plaintiff’s above assertion based on the premise that the portion exceeding 288.72 square meters out of the land of this case is farmland is farmland is not reasonable without any further need to examine the remaining part of the land of this case. Thus, the instant disposition is lawful.

3. Conclusion

Thus, the plaintiff's claim is dismissed as it is without merit.