Whether Article 154(3) of the former Enforcement Decree of the Income Tax Act applies to cases where the converted acquisition value under Article 114(7) of the former Income Tax Act is followed in calculating gains on transfer of high-priced houses pursuant to Article 160(1)1 of the former Enforcement Decree of the Income Tax Act (affirmative in principle)

Article 89(1)3 of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; hereinafter the same) provides for “high-priced houses” excluded from the scope of non-taxation, as well as one house for one household subject to non-taxation of capital gains tax. Thus, Article 154(3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 25193, Feb. 21, 2014; hereinafter the same) does not mean that only one house subject to non-taxation of capital gains tax should be applied in light of the language and text of Article 156(2) of the former Enforcement Decree of the Income Tax Act. In addition, Article 156(3) of the former Enforcement Decree of the Income Tax Act also provides that where the total floor area of a house does not exceed KRW 90,000,000,000,000,000,000,000).

Articles 89(1)3, 95(3), 99(1)1, and 114(7) of the former Income Tax Act (Amended by Act No. 12169, Jan. 1, 2014); Articles 154(3), 156(1) and (2), 160(1)1, and 176-2(2)2 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 25193, Feb. 21, 2014);

Plaintiff (Attorney Jeon Sung-sung et al., Counsel for the plaintiff-appellant)

Head of Geumcheon Tax Office

Seoul High Court Decision 2014Nu51939 decided January 15, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. A. Article 89(1)3 of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; hereinafter the same shall apply) provides that no capital gains tax shall be imposed on the income accruing from the transfer of one house for one household prescribed by Presidential Decree, and the value of which exceeds the standard prescribed by Presidential Decree is excluded from taxation. Article 156(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 25193, Feb. 21, 2014; hereinafter the same shall apply) provides, upon delegation, that the sum of the actual transaction values at the time of transfer of a house and its appurtenant land exceeds KRW 90 million. Article 95(3) of the former Enforcement Decree of the Income Tax Act provides that “The actual market prices at the time of transfer of a new house and its appurtenant land shall be determined by the standard market prices at the time of transfer under Article 95(1)1 of the Income Tax Act 】 (2) of the former Enforcement Decree of the Income Tax Act at the time of transfer prices at the transfer price determined by 】 (3).

In addition, Article 154 (3) of the former Enforcement Decree of the Income Tax Act provides that "in applying Article 89 (1) 3 of the Income Tax Act, where a building is combined with a house other than a house and where there is a building other than a house on the land attached to a house, the entire house shall be deemed a house: Provided, That where the total floor area of a house is less than or equal to the total floor area of a house other than a house, the part other

B. Article 89(1)3 of the former Income Tax Act also provides for “high-priced houses” that are excluded from the scope of non-taxation, as well as one house for one household subject to non-taxation of capital gains tax. Thus, Article 154(3) of the former Enforcement Decree of the Income Tax Act does not necessarily mean that only one house for one household subject to non-taxation of capital gains tax, even if its language and text are in itself. Article 156(2) of the former Enforcement Decree of the Income Tax Act also provides that “high-priced houses” shall include the actual transaction value corresponding to the portion deemed as a house pursuant to the main sentence of Article 154(3) when determining whether a “high-priced houses” are “high-priced houses”. Accordingly, where the actual transaction value as at the time of the transfer of the entire house including the outside part of a house does not exceed KRW 90 million, it is reasonable to view that the transfer value as well as the outside part of a house is exempt from capital gains tax pursuant to Article 89(1)3 of the former Income Tax Act even if the total transfer value exceeds KRW 900 million.

2. A. According to the reasoning of the first instance judgment as cited by the lower court and the record, the Plaintiff acquired the instant building on September 28, 198, and transferred it to the Nonparty, etc. on February 21, 201, after acquiring the land site and the instant building on its ground; the Plaintiff was a single house owner at the time of transfer; the instant building was the first floor, the second floor, and the second floor, and the actual total floor area of the part of the housing was larger than the actual floor area of the commercial building. In light of the aforementioned legal principles, the above factual basis should be determined by deeming the entire individual housing price as a house pursuant to the main sentence of Article 154(3) of the former Enforcement Decree of the Income Tax Act, barring any special circumstance, in cases where the converted acquisition value is followed in calculating gains on transfer pursuant to Article 160(1)1 of the former Enforcement Decree of the Income Tax Act.

B. Nevertheless, under the premise that Article 154(3) of the former Enforcement Decree of the Income Tax Act cannot be applied to the instant building which is a “high-priced house”, the lower court determined that the instant disposition was lawful where the Defendant imposed capital gains tax by applying the building standard market price for the portion of the instant building, the individual land price for the appurtenant land, and the converted acquisition price for the portion of the housing and its appurtenant land by applying the individual housing price respectively. In so doing, the lower court erred by misapprehending the legal doctrine on the method of calculating the conversion acquisition value of “high-priced house” and thereby adversely affecting

3. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)