Seoul Administrative Court-2014-Gu Group-56096 ( October 28, 2016)

The instant disposition to which the provision of wrongful calculation is applied is legitimate.

The provision of the wrongful calculation excluding duplicate application of corporate tax and transfer income tax does not constitute double taxation unless there is a special provision excluding double application.

2016Nu36637

BaO et al.2

○ Head of tax office

August 24, 2016

September 21, 2016

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked. Each disposition of imposition of capital gains tax of KRW 172,337,70 (including additional taxes), capital gains tax of KRW 258,119,870 (including additional taxes) made by the Defendant against Plaintiff Ba on September 16, 2013, and capital gains tax of KRW 66,407,580 (including additional taxes) against Plaintiff BaB shall be revoked.

1. Details of the disposition;

A. On December 2, 2004, 1-67 square meters of 1,877 square meters of YY and 1,488 square meters of 1-70 square meters of YYYYYYYYYYYYYYY, Kimpo-si, Gopo-si, Kimpo-si, and 1-69 square meters of 1,766 square meters of ri-74 forest and 3,250 square meters of ri-74 forest and 1-77 square meters of ri-74 forest in the name of the Plaintiff on December 2, 2004, and 1-68 forest and 1,37 square meters of ri-7 square meters in the name of the Plaintiff on December 2, 2004, each ownership transfer registration was filed under the name of the Plaintiff B on December 2, 2004 (hereinafter referred to as the “instant land”).

B. The Plaintiffs reported the transfer income tax calculated on the basis of the transfer of the instant land toCC (Plaintiff 140,000,000,000,000, Plaintiff 210,000,000, and Plaintiff B 58,000,000).

C. On September 16, 2013, the Defendant: (a) deemed the purchase price at the market price at the time of the transfer of the instant land to the Plaintiffs; (b) deemed the Plaintiffs as the market price at the time of the transfer of the instant land; and (c) deemed that the Plaintiffs transferred the instant land toCC, a related corporation, at a low price, pursuant to the wrongful calculation and calculation clause, the Defendant issued a correction and notification (hereinafter referred to as the “instant disposition”) of the total amount of KRW 496,865,150 (including Plaintiffs 172,37,700, Plaintiff 1700, Plaintiff 258,119,870, Plaintiff 258, 119,870, Plaintiff 266,407,580, respectively, and additional tax for the transfer of the instant land.

D. The Plaintiffs were dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal, but the said claim was dismissed on June 12, 2014.

[Reasons for Recognition] Unsatisfy, Gap 1, 2, 13, 14 evidence, Eul 1 to 4 (including each number)

each entry, the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1)CC purchased the instant land from the Plaintiffs and developed it as a factory site. Around July 1, 2010, it received a written consent from the Plaintiffs to newly construct a building from the Plaintiffs. On March 10, 2010, it concluded a design service contract to construct a factory site for the instant land as a factory site, and on July 13, 2010, a factory building design service contract was concluded.CC applied for approval for the establishment of a factory and permission to occupy and use the instant land along with the written consent to use the said site granted from the Plaintiffs. On August 2, 2010, it obtained approval for the establishment of a factory around March 18, 201 from the Kimpo-si market. Accordingly, since the Plaintiffs were subject to approval for the establishment of a factory, not the Plaintiffs, but the economic benefits, such as the right to approval for the establishment of a factory, and the economic benefits of the instant land, including the instant 0-D and the instant 0-D and the instant land, 000- 0.

2) Even if economic benefits, such as the right to approve the establishment of a factory, belong to the plaintiffs, it is separate from the land and the administrative agency's economic benefits, such as the economic benefits obtained from the permission, permission, license, etc., and if the goodwill or other assets transferred along with the land as fixed assets for business fall under the transfer income but do not fall under the transfer income, it is only other income. The land in this case does not fall under the plaintiffs' fixed assets for business, and thus, the disposition in this case, which was taxed as transfer income, should be imposed as other income, is unlawful.

3) Even if the instant land was transferred at low price toCC,CC reported and paid corporate tax on the premise that it purchased the instant land in KRW 408,000,000 and transferred it in KRW 2,100,000,000. If the market price of the instant land is KRW 2,100,000,000 and the transfer income tax is imposed on the Plaintiffs, it would result in a double taxation on the difference in the transfer of the instant land. Therefore, the instant disposition is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

(i) the status of the parties and persons concerned;

A)CC was registered as a company established for the purpose of manufacturing and selling steel products on June 5, 1992 and as a real estate development business entity on December 3, 2009.

B) The Plaintiff BaO is the representative director ofCC, and the Plaintiff is the Plaintiff’s spouse and the CC’s auditor, and the Plaintiff is the Plaintiff BaB’s representative director and the internal director ofCC.

2) The details of the division and sale of the instant land

A) On December 2, 2004, Plaintiff Doo-O purchased 86-6 forest land in Jeju Jeju Doo-si, Kimpo-si, Doo-si, Doo-si, Doo-si, Doo-si, Doo-si, Doo-si, Doo-si, Doo-si, Doo-si, 86-8 forest land in Doo-si, 10,400 square meters, and Doo-B purchased Doo-

B) On August 3, 2012, the said land became subject to registration conversion as follows.

C) On August 6, 2012, land after the said registration conversion was re-divided as follows (hereinafter collectively referred to as “the entire forest of this case”).

D) On August 17, 2012, the Plaintiffs sold the instant land toCC. However, each real estate sales contract does not contain any provision on the approval for establishing a factory.

(E) On August 28, 2012,CC sold the instant land to UDR in KRW 2,100,000,000. The main contents stated in the sales contract are as follows.

F) As to the instant land, the registration of ownership transfer was completed in the name ofCC on August 27, 2012 on the grounds of sale as of August 17, 2012, and on October 12, 2012 on the grounds of sale as of August 28, 2012.

3) Details of the project on the instant land ofCC

가) CCCC은 2010. 3. 10. 주식회사 QQQQQQ공사와 대금 2,400만 원(부가가치세 별도)에 김포시 대곶면 석정리 산86-6, 산86-7, 산86-8 10,000㎡에 관하여 공장부지조성을 위한 설계를 하도록 하는 설계용약계약을 체결하였다.

B) On July 1, 2010, the Plaintiffs prepared a written consent on the use of the site that consented to use as a building site with respect to 1,766 square meters and 3,250 square meters among 1,87 square meters of 1,877 square meters of 1,877 and 1,488 square meters of 10,400 square meters of 10,86-8 forest land of 10,400 square meters of 10,766 and 3,250 square meters of 1,377 square meters of 1,377 square meters of 86-7 forest land of 5,963 square meters of risan-si,

C) On July 13, 2010,CC entered into a design service agreement on a factory building of the size of 1,786 square meters to be constructed on the Dot Jeju Jeju Jeju District, Kimpo-si, Kimpo-si, Kimpo-si, Kimpo-si, Kimpo-si, Kimpo-si and 15 million won (excluding value-added tax).

D) On July 23, 2010, CCTV filed an application for approval of factory construction with a written consent to the use of the site of the instant land from the Kimpo-si Mayor of Kimpo-si, Kimpo-si, Kimpo-si, Kimpo-si, Gpo-si, Kimpo-si, Kimpo-si, accompanied by 86-6, 86-7, and 86-8, and applied for permission to occupy

(E) On August 2, 2010,CC received notification from the Kimpo-si Mayor of the Kimpo-si on the acceptance of permission to occupy and use a road for the purpose of entering into and departing from the 1-21 and 3 lots of Jeju Gopo-si.

f) On November 11, 2010,CC entered into a service contract with one environmental industry and twenty-four million won (excluding value-added tax) for prior examination of environmental feasibility and prior examination of factors influencing disasters.

G) On March 18, 201,CC obtained approval from the Kimpo-si mayor for the new establishment of a factory with respect to the land portion of this case as a metal assembly material manufacturing business from the Dopo-si, Jeju Jeju Jeju Jeju Jeju District. On the same day, it paid KRW 5,905,000 in total, KRW 28,415,280 in total, and KRW 3 insurance premiums for restoration deposits, and KRW 6,430,150 in total, KRW 8,528,00 in court charges, and KRW 8,528,00 in court charges.

(h) On March 5, 2012,CC entered into a service contract with GGtow Co., Ltd. and KRW 100 million (excluding value-added tax) to arrange the tin located in the Jeju Jeju Jeju District, Kimpo-si, Kimpo-si, the 86-6, the Busan 86-7, and the Busan 86-8 to perform civil engineering works of the factory site.

4) Establishment of a right to collateral security and reimbursement of debts on the instant land

A) On May 20, 2011, Plaintiff Doo-O borrowed 1.4 billion won from Doo-gu Seoul Special Metropolitan City bank (hereinafter “Seoul Special Metropolitan City bank”) and completed the registration of the establishment of a collateral security (hereinafter “instant collateral security”) on May 20, 201, the registration of the establishment of a collateral security (hereinafter “instant collateral security”) was completed on August 26, 201 by borrowing additional KRW 300 million from Doo-gu Special Metropolitan City Bank, Do Do Do Do Do , the maximum debt amount, KRW 390,000,000,000 from Dori-gu Special Metropolitan City (hereinafter “Seoul Special Metropolitan City”).

B) On October 12, 2012, the above loans of Plaintiff BaO were fully repaid, and each registration of creation of a new mortgage was cancelled on the same day.

5) Appraisal value of the entire forest of this case

A) According to the appraisal report on the entire forest of this case, as of May 3, 2011, the part of the instant land of this case among the entire forest of this case was assessed as KRW 1,951,60,000 (20,000 per square meter) on the premise that the approval for the establishment of a factory was obtained, and the remaining part of 16,523 square meters of the farmland of this case was assessed as KRW 495,690,00 (30,000 per square meter) on the premise that the head of the Dong-dong branch of the Do-dong branch of the Do-dong branch of the Do-dong Bank of Seoul Special Metropolitan City with respect to the above loan of Plaintiff Do-

B) According to the appraisal report on the entire forest of this case made by the Plaintiff BaO as of July 1, 2010, the entire forest of this case was assessed as KRW 1,681,984,000 per square meter (64,000 per square meter) and KRW 1,734,546,000 per square meter (per 66,000 per square meter).

[Ground of recognition] A without dispute, Gap evidence Nos. 2 through 17 (including each number in the case of additional number), Eul evidence Nos. 4 and 6, the purport of the whole pleadings

D. Determination

1) Whether the calculation is subject to the avoidance of wrongful calculation

A) According to Article 101 of the Income Tax Act and Articles 98(1) and 167 of the Enforcement Decree of the Income Tax Act, if a person with a special relationship transfers assets to a person with a special relationship at a price lower than the market price (if the market price is at least 300 million won or more than the market price is at least 5/100 of the market price), such transfer value shall be calculated as the market price and imposed the transfer income tax.

Meanwhile, under Article 167 (5) of the Enforcement Decree of the Income Tax Act and Article 49 (1) 1 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 24638, Jun. 28, 2013), if there is a transaction of the property during the period of three months from the date of transfer of the property subject to imposition of capital gains tax, the transaction amount shall be the transaction amount.

B) As to the instant case, Plaintiff 1 is the representative director ofCC, Plaintiff 2 is the Plaintiff 1’s spouse, and Plaintiff 2 is the auditor ofCC. Plaintiff 2 is the Plaintiff 1’s intermediary and the internal director ofCC as seen earlier. Since the Plaintiffs exercise a dominant influence over the management ofCC directly or by blood relationship, the Plaintiffs are deemed to have a special relationship with the Plaintiffs (Article 1-2(3)1(a) of the Framework Act on National Taxes). Furthermore, since the Plaintiffs transferred the instant land toCC on August 27, 2012 (Article 97 of the Income Tax Act and Article 162(1)1 of the Enforcement Decree of the Income Tax Act, the Plaintiffs’ transfer of the instant land to 00 billion won and the market value of the instant land should be deemed as 00 billion won and 00 billion won, the Plaintiffs’ transfer of the instant land to 200 billion won and 200 billion won and 200.8.27.28.28,2012.

2) Determination as to the assertion that economic benefits from approval for the establishment of a new factory belong toCC

In full view of the facts acknowledged above and the overall purport of the pleadings, it is reasonable to deem thatCC obtained approval of factory construction on the land of this case from the Kimpo-market and transferred the land of this case, which includes such value, toCC. Therefore, the plaintiffs' assertion on this part is without merit.

① According to Articles 8 and 9 of the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”), factory sites shall be determined collectively according to the specific use area, manufacturing type, etc. of land pursuant to the relevant Acts and subordinate statutes, such as the National Land Planning and Utilization Act. According to Article 6(3) of the Enforcement Rule of the Industrial Cluster Act, whether to approve the establishment of a factory shall be determined by comprehensively examining whether the standards, requirements, etc. of land-related Acts and subordinate statutes, such as the National Land Planning and Utilization Act, are met. As such, the personal elements of individual applicants in determining factory establishment are deemed not to be the main criteria. According to Article 6(1)3 of the Enforcement Rule of the Industrial Cluster Act of the Industrial Cluster Act, where a person intends to obtain factory establishment approval by using land and buildings owned by another person, he/she shall submit a written application for approval, along

공장설립승인을 받은 자로부터 공장을 양수한 자가 공장에 관한 권리・의무를 승계하도록 규정(제10조 제2호)하고 있을 뿐 토지 또는 공장 건물의 양도・양수와 별개로 공장설립승인 자체를 승계할 수 있도록 하는 규정을 두고 있지 않은 점, ㉣ 따라서 토지에 관한 소유권이나 사용권과 분리하여 별도로 공장설립승인에 따른 권리・의무만을 취득하거나 양도하는 것은 허용되지 않고 공장설립승인에 따라 토지의 이용가치가 상승한 경제적 이익은 사실상 토지와 일체화되어 거래상 독립한 권리의 객체성을 상실한다고 볼 수 있는 점 등을 종합하면, 공장설립승인으로 인하여 토지의 이용가치가 상승한 경제적 이익은 공장설립승인 당시의 토지의 소유자에게 귀속된다고 봄이 상당하다.

Therefore, even in this case, even if the approval was granted in the name and responsibility ofCC, as long as the approval of the establishment was granted while the plaintiffs owned the land in this case, economic benefits arising from the increase in utility value of the land in this case shall be deemed to have accrued to the plaintiffs.

② According to the appraisal and evaluation conducted in the process of borrowing the instant land from the Seoul Special Self-Governing City bank by taking the instant land as collateral, the value as of May 3, 201 was assessed as KRW 1,951,600,000, and the Plaintiff HandO borrowed KRW 1,700,000 from the Seoul Special Self-Governing City bank based on the appraisal results as above. In light of these circumstances, the Plaintiff HandO and the Seoul Special Self-Governing City bank concluded a loan agreement as above on the premise that the economic benefits from the approval of factory construction of the instant land accrue to the Plaintiffs.

If the plaintiffs or the Seoul Special Metropolitan City Mayor bank considered that the economic benefits from the establishment of a factory belong to theCC, not the plaintiffs, it would have been provided as security in order to make a loan on the basis of the appraised value of the land on the premise of the establishment approval. There is no evidence to deem that theCC provided the security.

③ On August 17, 2012, the sales contract prepared by the Plaintiffs, when selling the instant land toCC, does not contain any particular content on approval of factory construction, whereasCC’s sales contract written by selling the instant land to UD on August 28, 2012, stating the fact that it received approval of factory construction as a special agreement, is as seen earlier.

However, in light of the fact that since August 18, 2012, the term "CC and UDR agreed to have a buyer bear the debt of the land of this case", the above interest is deemed to have an interest on the secured debt of each of the instant mortgage, and if each of the instant mortgage was unrelated toCC, it is difficult to find reasons to add to the sales contract entered into with the CC, the special terms and conditions with which the Plaintiff BaO bears the secured debt of each of the instant mortgage of this case, which the Plaintiff BaO, who borrowed the instant land as collateral, and the date on which the Plaintiff BaO borrowed the instant land as collateral was repaid the remainder of the sales contract entered into between the CC and the CC. In view of the fact that there was no agreement on October 12, 2012 between the Plaintiffs and the CC regarding each of the instant secured debt of this case, even if each of the instant claims was received from each of the Plaintiffs.

Therefore, it is reasonable to view that the purchase price of the sales contract concluded between the plaintiffs andCC is close to KRW 2.18 billion, including the total of KRW 408,00,000 as stated in the actual contract and KRW 1.7 billion as the secured debt amount of each of the instant collateral security rights. Therefore, in this regard, the plaintiffs can be deemed to have transferred the instant land, including economic benefits from approval of factory construction, toCC.

3) Determination as to the assertion that economic benefits from approval for the establishment of a new factory constitute other income

A) Article 94(1)4(a) of the Income Tax Act provides that "business rights transferred along with the fixed assets for the business (referring to the assets referred to in subparagraphs 1 and 2) shall be subject to capital gains, and Article 21(1)7 of the Income Tax Act and Article 41(3) of the Enforcement Decree of the Income Tax Act provide that "business rights except the business rights transferred along with the fixed assets for the business shall be subject to other income."

B) According to the language and text of the above provision, the "fixed assets for business" under Article 94 (1) 4 (a) of the Income Tax Act refers to assets under Article 94 (1) 1 and 2 of the Income Tax Act. Thus, since the business rights transferred along with the land and the building are all subject to capital gains, the "fixed assets for business" shall be limited to the assets provided to the specific business of the transferor, unless there is any ground to interpret the "fixed assets for business" as limited to the assets provided to the specific business of

4) Determination as to the assertion that it constitutes double taxation

Article 101(1) of the Income Tax Act provides that “The tax payer’s wrongful calculation panel of capital gains tax shall regulate unfair tax avoidance acts in order to avoid or reduce the burden of capital gains tax based on high-rate progressive tax rates by taking a trading form as a means of reducing the increased capital gains from holding assets for a long time without any reasonable transaction form.” The legislative purpose is to realize the equality of taxation by correcting unfair tax burden that may arise according to the transaction form chosen by the taxpayer. If it is deemed that the tax burden has been unjustly reduced due to transactions with a specially related party, the calculation is conducted by re-calculation of income according to the reasonable and effective criteria, and it does not deny the legal act or calculation itself that has been duly and effectively formed between the taxpayer and the specially related party. In other words, in the case of low-price transfer as seen in the instant case, the Plaintiffs’ actual transfer value is denied and the market price is not the change of the sales contract itself between the Plaintiffs and theCC. Moreover, it does not constitute the requirements for establishing a transfer income tax and the transfer income tax liability.

Therefore, under the premise thatCC acquired the instant land in KRW 408,000,000, corporate tax was reported and paid on the premise that it denied KRW 408,00,000 from the sales price of the instant land as a wrongful calculation, and it cannot be deemed that imposing capital gains tax on the Plaintiffs constitutes double taxation. The Plaintiffs’ assertion on this part is without merit.

5) Sub-committee

Ultimately, since the plaintiffs' assertion is without merit, it is deemed that the tax burden on the income was reduced unfairly due to transaction withCC and so the disposition of this case is legitimate on the premise that the market price of the land of this case is KRW 2,100,000,000.

3. Conclusion

Therefore, the conclusion of the first instance judgment dismissing the plaintiffs' claims is justifiable, and the plaintiffs' appeal is dismissed in its entirety as it is so decided as per Disposition.