Whether the commencement of business and the application of simple expenses of housing construction and sales business operators are appropriate

The commencement of the business of the Housing Construction and Sales Business Act is the time of commencing the sale of a house on which the supply of goods is commenced under Article 6 subparagraph 3 of the Enforcement Decree of the Value-Added Tax Act. Therefore, the disposition of exclusion from the application of simple expense rate is legitimate because the revenue of the by

Article 143 of the Enforcement Decree of Income Tax Act

Seoul Administrative Court 2018Guhap89213 global income and revocation of disposition

leap*

○ Head of tax office

.08.27

1. All of the plaintiff's claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of global income tax of KRW 66,447,950 (including additional tax) for the year 2013 owed to the Plaintiff on September 1, 2017 and global income tax of KRW 205,406,170 (including additional tax) for the year 2015 shall be revoked.

1. Details of the disposition;

A. The Plaintiff, a business operator operating the housing construction and sales business, constructed each house (referred to as “the instant ○ house by sequence Nos. 1 and hereinafter collectively referred to as “the instant house”) as listed in the following table, and sold it by obtaining approval from the head of the competent Gu.

B. In 2012 and 2014, which was the taxable period immediately preceding 2013 and 2015, where the Plaintiff sold the by-products of the previous building and accrued below the amount stipulated in Article 143 (4) 2 (b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereafter the same shall apply in this Act), the Plaintiff calculated estimated income by applying the simple expense rate under the above provision, and calculated estimated income by applying the special tax reduction and exemption for small and medium enterprises pursuant to Article 7 (1) of the former Restriction of Special Taxation Act (amended by Act No. 1527, Dec. 19, 2017; hereinafter the same shall apply).

C. From April 26, 2017 to June 9, 2017, the director of ○○○ Regional Tax Office: (a) conducted a personal consolidated investigation on the Plaintiff with respect to the Plaintiff; and (b) the Plaintiff, as a new business entity that commenced a private business in each of the pertinent years in which the sales revenue of the instant house occurred, notified the Defendant of the taxation data that the amount of income should be calculated by applying the standard cost rather than the simple expense rate, as the amount of income exceeds the standard amount under Articles 143(4)1 and 208(5)2 of the former Enforcement Decree of the Income Tax Act; (c) the Plaintiff did not engage in a construction business; and (d) the Plaintiff failed to engage in a construction business, so, the Plaintiff notified the Defendant of the taxation data that the special tax reduction and exemption

D. Accordingly, on September 1, 2017, the Defendant issued a correction and notification of the global income tax of KRW 66,447,950 (including additional tax), and global income tax of KRW 205,406,170 (including additional tax) for the year 2015, respectively, to the Plaintiff (hereinafter “instant disposition”).

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on April 6, 2018, upon filing an objection on December 4, 2017, but the Tax Tribunal dismissed the appeal on October 18, 2018.

[Reasons for Recognition] The facts without dispute, Gap evidence Nos. 1 through 8 (including branch numbers, hereinafter the same shall apply), Eul evidence Nos. 1 and 2, and the purport of the whole pleadings

2. Relevant statutes;

It is as shown in the attached Form.

3. Whether the instant disposition is legitimate

1) As to application of standard expense rate

The time of commencement of the business of the Plaintiff is not the time of commencement of sale, but the time of commencement of the business of the Plaintiff as a business operator who newly constructs and sells residential buildings, and the time of commencement of the business is the time of commencement of the construction of new buildings after completing business registration, or the time of the Plaintiff’s sales of by-products

Therefore, the Plaintiff’s business commences in 2012 (the first house of this case) and 2014 (the second house of this case) from sales of by-products generated in the process, as well as the commencement of construction of new construction of the instant house. However, since the Plaintiff’s revenue in 2012 and 2014 from sales of by-products does not exceed 36 million won, the Plaintiff constitutes “persons subject to the application of simple expense rate pursuant to Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act.” Ultimately, the instant disposition that applied the standard expense rate to the Plaintiff on different premise is unlawful. (2) The instant disposition that applied the standard expense rate to the Plaintiff is unlawful. However, according to Article 7(1) of the former Restriction of Special Taxation Act related to special tax reduction and exemption for small and medium enterprises, the Plaintiff is not a contractor of the instant house, but a construction business entity under the name of the Plaintiff, and thus, the Plaintiff’s disposal of the instant house should be deemed unlawful.

1) Determination as to whether standard expense rate is applied

A) According to the proviso of Article 80(3) of the former Income Tax Act (amended by Act No. 15225, Dec. 19, 2017; hereinafter the same) and Article 143(3) of the former Enforcement Decree of the Income Tax Act, when the amount of income is estimated, the amount of income shall be determined or corrected by deducting the amount calculated by multiplying the purchase cost, rent, labor cost, and income amount by the standard border rate from the income amount. However, for a person subject to simple expense rate, the amount of income shall be determined or corrected by deducting the amount calculated by multiplying the income amount by the simple expense rate from the income amount. "person subject to simple expense rate" of the above provision means a new business operator who has commenced a business in the pertinent taxable period, and the constructor (including a residential building development and supply business) whose business income falls short of 150 million won, or the constructor (including a person subject to the above provision under Article 143(4)1 and Article 208(5)2(2) of the former Enforcement Decree of the Income Tax Act) and Article 148(2) of the former Enforcement Decree of the Income Tax Act shall not apply mutatis mutandis.

Meanwhile, under the principle of no taxation without representation, tax laws must be interpreted as the text of the law, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, barring any special circumstances. However, even in the language and text of the tax laws itself, if their meaning is not clear or if it appears to be contrary to or conflicting with the other provisions of the law, the court must naturally indicate the true meaning of the language and text at issue through harmonious interpretation among the provisions of the law. In this case, a judge can make a combined interpretation of the law that takes into account legislative intent and purpose within the scope of harming the legal stability and predictability oriented by the principle of no taxation without representation (see Supreme Court en banc Decision 2011Du551, Apr. 16, 2015).

B) In full view of the contents of the relevant statutes and the evidence and the purport of the entire pleadings, it is reasonable to view the Plaintiff’s business commencement date as the starting point of the Plaintiff’s business to be the year 2013 and 2015, which is the starting point of the sale of the instant housing, rather than the starting point of the Plaintiff’s business registration and the starting point of the construction of the instant housing, by selling the by-products.

(1) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) provides that Article 143(4)2 of the former Enforcement Decree shall apply simple expense rate to a business operator who newly starts a business in the pertinent taxable period, other than a business operator who newly starts a business in the pertinent taxable period, and that Article 143(2)2 of the former Enforcement Decree of the Income Tax Act applies to a business operator who fails to reach the standard amount of income (including the amount increased by determination or revision) for the immediately preceding taxable period. After that, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) provides that a business operator who newly starts a business in the pertinent taxable period shall be subject to the application of simple expense rate of 10 days before the date of commencement of the construction business, with the aim of preventing the reduction of income tax amount through simple expense application.

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income in the taxable period that begins after January 1, 2019, which was amended by Presidential Decree No. 28637, Feb. 13, 2018, provides that the standard expense rate shall be applied by excluding it from the application of simple expense rate in cases where the total amount of income in the immediately preceding taxable period is less than the standard amount, as well as the business operator (paragraph (1) 1) who starts a new business between the taxable periods concerned, in cases where the income in the relevant taxable period is less than the standard amount.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system to minimize the tax payment costs of small small-scale small-scale business operators who lack the capacity to keep records on the evidence of disbursement of major expenses required by the standard expense rate system. Furthermore, according to the text of the provisions of the Addenda, legislators seem to have gradually reduced the scope of business operators subject to the application of the simple expense rate. Furthermore, according to the text of the provisions of the Addenda, legislators seem to be able to understand "the commencement of construction, construction business, and commencement of real estate development and supply business.

Therefore, considering these legislative intent, in the case of housing construction and sales business that operates a business for a long period exceeding a certain scale due to its characteristics, it is necessary to grasp the commencement date of the business as objective and practical time for the supply of housing subject to sale rather than the commencement date that can be determined according to the intention of the

(2) The commencement date of the business of the Housing Construction and Sales Business shall not be formally determined on the basis of the date of business registration, etc., but be substantially determined on the basis of the time when the preparation of the business was completed and the preparation of the business was performed or is able to perform the original business (see Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial purpose of the Housing Construction and Sales Business Act is to include the housing in real estate sales business in its nature (see Supreme Court Decision 2008Du21768, Jul. 22, 2010).

(3) Whether the Plaintiff constitutes business income under the Income Tax Act ought to take into account whether business activities are continuously and repeatedly conducted in light of the business profit purpose, the scale, frequency, and mode of business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, there is no evidence suggesting that the Plaintiff had objectively expressed his intent to engage in the housing construction and sales business for the purpose of profit prior to commencing the sale of the instant housing. The fact that the Plaintiff started or completed the instant housing for profit-making purposes alone is difficult to deem that the Plaintiff continuously and repeatedly conducted activities for profit-making purposes, solely on the ground that the Plaintiff sold the by-products generated from the removal of the existing building, and it is difficult to deem that the Plaintiff continuously and repeatedly conducted activities for profit-making purposes, and provided objective substance of the building as a newly-built housing seller. Moreover, in light of the size of business, it is questionable whether the Plaintiff actually realized the revenue stamp generated during the process of the sale of the previous building.

C) Furthermore, according to the purport of Eul evidence No. 1 and the entire pleadings, it is recognized that the Plaintiff’s report on the amount of revenue related to the instant housing was based on 1,030,500,000 won for the year 2013, and 3,251,500,000 for the year 2015. According to this, it is apparent that the Plaintiff was a business operator who newly commenced a business at the year 2013 and 2015, which was the starting point of the sale of the instant housing, and that the amount of revenue for each pertinent taxable period does not fall short of 150,000,000 won for the base amount. Accordingly, the Plaintiff does not fall under the subject of simplified expense under Article 143(4

D) Therefore, the Plaintiff’s assertion on this part is without merit.

2) Determination on whether to grant special tax reduction or exemption

A) Articles 2(3), 7(1)1(g) and 7(2)2 of the former Restriction of Special Taxation Act provide that an amount equivalent to the tax amount calculated by multiplying the income tax on income derived from the relevant workplace by 20/10 shall be reduced or exempted for a company running a construction business among small and medium enterprises, and the classification of the type of business used in this Act shall be in accordance with the Korean Standard Industrial Classification publicly announced by the Commissioner of the Statistics Korea pursuant to Article 2

However, according to the former Korean Standard Industrial Classification (amended by the Statistics Korea Notice No. 2015-311, Sept. 24, 2015; hereinafter the same), which applies to the disposition of this case in the taxable period of global income tax, "Housing Construction Business (Classification Code 4111)" refers to the industrial activities of constructing residential buildings, such as exclusive and multi-households, and Ampha, solely and multi-households. On the other hand, the industrial activities of constructing residential buildings without conducting direct construction activities and selling and selling real estate after entering into a contract for construction of the entire building in a lump sum are classified as "housing Development and Supply Business (Classification Code 68121)."

(B) In light of the following circumstances, which are acknowledged as comprehensively taking account of the entries in Gap's evidence Nos. 9 through 15, Eul's evidence Nos. 3 through 6 and the overall purport of arguments, the following: ① the contractor is not the plaintiff but the plaintiff, ② the plaintiff is not holding a construction business license, and there is no specific material to consider that the plaintiff is equipped with human resources, physical facilities, or capacity to be constructed under the overall responsibility of the construction work of the housing of this case; ③ the plaintiff is based on the report on the performance of withholding tax, daily income payment statement, the list of daily income payment, the total tax invoice, etc. (Evidence Nos. 9 through 15) submitted by the plaintiff, but it is difficult to view that the amount was not significantly less than the sales revenue amount of the housing of this case.

3) Sub-decisions

The instant disposition taken by deeming the Plaintiff as a new business operator who commenced business in 2013 and 2015 and calculating the amount of income for each corresponding year based on standard expense rate, and excluding special tax reduction and exemption for small and medium enterprises, is eventually lawful.

4. Conclusion

The plaintiff's claim is without merit, and all of them are dismissed. It is so decided as per Disposition.