[1] Whether Article 100(2) of the former Income Tax Act and Article 166(6) of the former Enforcement Decree of the Income Tax Act apply only where land, buildings, etc. are acquired or transferred en bloc, but the distinction between the value is unclear (affirmative)

[2] The case holding that in a case where Party A and Party B separately transferred Party B’s real estate to Party B, in light of the overall circumstances, and Party A and Party B separately transferred Party B’s real estate to Party B, and Party B and Party B respectively transferred the real estate owned by Party B on the same day, and Party A reported and paid capital gains tax on the part corresponding to Party B’s transfer value, but Party A and Party B reported and paid capital gains tax on the part corresponding to Party B’s transfer value, the tax authority calculated the transfer value by the method of calculated calculation by deeming that Party A and Party B transferred the entire land and building collectively, and Party A corrected and notified capital gains tax to Party B, the case holding that Party B and Party B separately transferred the

[1] Article 100(2) of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014); Article 166(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016) (hereinafter “the former Enforcement Decree”) provides that where the transfer value or acquisition value is based on the actual transaction value in calculating transfer margin for imposition of transfer income tax and where the land and buildings are acquired or transferred along with such land and buildings, they shall be kept separately, and where the distinction between the value of the land and buildings is unclear, it shall be calculated in proportion to the value calculated according to the standard market price at the time of acquisition or transfer. The provisions of the calculated calculation method provide a general and reasonable method to calculate the common acquisition value or transfer value, and in light of its content and purport, it shall apply only where the land and buildings, etc. are acquired or transferred en bloc, but the

On the other hand, a taxpayer may choose one of the several legal relations to achieve the same economic purpose when conducting economic activities, barring any special circumstance, the tax authority should respect the legal relations chosen by the parties.

[2] In a case where Party A owned a part of the land 1/2 shares and above-ground building and Party B’s father owned the remaining parts of the land 1/2 shares and the building on the same day, and Party A and Party B reported and paid capital gains tax on the part corresponding to Party B’s transfer value, but the tax authority calculated the transfer value by calculating the method of calculated calculated by deeming Party A and Party B as a blanket transfer of the entire land and building, and notified Party A’s correction and notification of capital gains tax, the case held that the lower court erred by misapprehending the legal principles, on the grounds that Party A and Party B separately transferred Party B’s real estate in light of all the circumstances, it is reasonable to deem that Party B transferred the said land to Party B, etc., and that the date of preparation of each sales contract, the purchaser, document form, and other provisions are identical, or that Party B shared 1/2 shares each of the land and the building by completing the merger registration after acquiring the land and the building, and thus, the aforementioned disposal is unlawful.

[1] Article 100 (2) of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Article 166 (6) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26982, Feb. 17, 2016) / [2] Articles 96 and 100 (2) of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014); Article 166 (6) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26982, Feb. 17, 2016)

[1] Supreme Court Decision 92Nu1155 Decided December 8, 1992 (Gong1993Sang, 482), Supreme Court Decision 2000Du963 Decided August 21, 2001, Supreme Court Decision 2015Du3270 Decided January 25, 2017 (Gong2017Sang, 475), Supreme Court Decision 2017Du57516 Decided December 22, 2017 (Gong2018Sang, 363)

Plaintiff (Law Firm Chungcheong, Attorneys Song Jong-ho et al., Counsel for the plaintiff-appellant)

head of Sung Dong Tax Office

Seoul High Court Decision 2018Nu37986 decided August 23, 2018

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 100(2) of the former Income Tax Act (amended by Act No. 12852, Dec. 23, 2014; hereinafter the same) and Article 166(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same) (hereinafter “instant calculated provision”) provide that where the transfer value or acquisition value is based on the actual transaction value when calculating transfer margin for imposition of transfer income tax and the land and buildings are acquired or transferred together, they shall be kept separately. If the distinction between the land and buildings is unclear, they shall be kept separately. The instant calculated provision provides that the general and reasonable method for calculating the common acquisition value or transfer value is prescribed in proportion to the value calculated according to the standard market price at the time of acquisition or transfer, and it shall apply only where the land and buildings, etc. are acquired or transferred en bloc in light of their substance and purport, but the distinction of such value is unclear.

Meanwhile, a taxpayer may choose one of the several legal relationships to achieve the same economic purpose when conducting economic activities, barring any special circumstance, the tax authority should respect the legal relationship chosen by the parties (see Supreme Court Decision 2000Du963, Aug. 21, 2001).

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

(1) Of the land in Gangnam-gu Seoul (hereinafter “instant land”), the Plaintiff owned 1/2 shares in the 1/2 share and the building on its ground (hereinafter “instant building”), among the buildings (hereinafter “instant building”), 37.2 shares in (No. 1 omitted, 2 omitted, 37.1 shares in (No. 4 omitted), 118.32 shares in (No. 6 omitted) No. 1/306 among (No. 6 omitted) and (No. 1/2 shares in the instant land and buildings (hereinafter “the instant real estate”), and Nonparty 1 owned 1/2 shares in the instant land and 1/7 shares in (No. 7 omitted), (No. 8), 9 (No. 9), 10 (No. 10) and 58 (No. 78) shares in the instant building, and (No. 168) shares in (No. 76/178) and (No. 78) shares in the instant building.

(2) On September 16, 2014, the Plaintiff transferred the instant real estate to Nonparty 2 and Nonparty 3 (hereinafter “the assignee”), and Nonparty 1 transferred the instant real estate to Nonparty 6.5 billion won on the same day. As to the instant real estate, the sales contract with the Plaintiff as the seller; as to the instant real estate, the sales contract with Nonparty 1 as the seller was separately prepared; and as to the instant real estate, the sales contract with Nonparty 1 as the seller, respectively, was set out in each of the above sales contract. The sales price for the instant real estate was set at KRW 4.5 billion, and the sales price for the instant real estate was set at KRW 6.5 billion.

(3) As to the developments leading up to the purchase of the instant real estate, the transferee, around October 2016, stated in the fact-finding statement that “Around August 2014, Nonparty 1 had negotiated negotiations to purchase Nonparty 1’s real estate at a price lower than the market price, which was 6.5 billion won via a series of adjustments and several times, the Plaintiff received a request to request the acquisition of the instant real estate as to the instant real estate owned by the Plaintiff, and presented KRW 4.5 billion as the purchase price for the instant real estate, and the Plaintiff was accepted and traded.”

(4) Meanwhile, Nonparty 1 was deposited the remainder of KRW 6,193,540,000, excluding KRW 306,460,000,000 from Nonparty 1’s purchase price of Nonparty 1’s real estate, into an account in the name of Kim & Yang, Kim & Kim LLC, which he operated, and used it to repay the company’s debt to the financial institution and to refund the rental deposit to the lessee. There is no evidence that the Plaintiff received or used part of the purchase price of Nonparty 1’s real estate.

(5) Thereafter, the Plaintiff reported and paid the transfer income tax to the Defendant with the transfer value of the instant real estate as KRW 4.5 billion. However, the Plaintiff and Nonparty 1 considered that the entire transfer value of the instant land and buildings was collectively transferred at KRW 1.1 billion, and that the distinction between the value of the land and buildings is unclear. Therefore, the transfer value of the instant land and buildings is divided in proportion to the standard market price of the entire land and the entire building; and the amount of each of the instant land and the entire buildings calculated as such is divided in proportion to the ratio of the Plaintiff’s share and the standard market price of the entire building; and then, on July 12, 2016, the Plaintiff corrected and notified the Plaintiff of KRW 317,694,050, the transfer income tax for the year 2014 (hereinafter “instant disposition”).

3. Examining these facts in light of the aforementioned provisions and legal principles, it is reasonable to view that the Plaintiff among the instant land and buildings, the Plaintiff transferred the instant real estate in KRW 4.5 billion, and Nonparty 1’s real estate in KRW 6.5 billion separately to the assignee, respectively. As cited by the lower court, the Plaintiff and Nonparty 1 cannot be deemed to have transferred the instant land and buildings en bloc, solely on the grounds that the date of preparation of each sales contract, the buyer, document forms, and other provisions are identical, or the assignee share 1/2 shares each of the instant land and buildings after the acquisition of the instant land and buildings, and the instant land and buildings after the acquisition of the instant land and buildings. As such, the instant disposition on a different premise is unlawful.

Nevertheless, solely based on the circumstances indicated in its holding, the lower court: (a) premised on the erroneous premise that the Plaintiff and Nonparty 1 transferred the instant land and buildings en bloc; and (b) determined that the transfer value of the Plaintiff’s portion of the instant land should be calculated by applying the instant calculated division provision. In so determining, the lower court erred by misapprehending the legal doctrine on the scope of “where land, building, etc. are transferred together with another person” under Article 100(

4. Therefore, without examining the remaining grounds of appeal, the part against the plaintiff among the judgment below is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Min You-sook (Presiding Justice)