Reduction or exemption of capital gains tax, non-business land, and legitimacy of imposition of additional tax;

Since farmland for which three years have elapsed since the date of incorporation into a residential area is deemed land for non-business use, capital gains tax shall be imposed heavy thereafter, and even if a decision was made on a reduced or exempted tax amount due to lack of awareness of incorporation into a residential area, additional tax shall be imposed;

Capital gains tax reduction or exemption for self-Cultivating farmland under Article 66 of the Enforcement Decree of the Income Tax Act.

2016Guhap23913 Revocation of Disposition of Imposing capital gains tax

A Kim a

(b) the Director of Central Tax Office

March 23, 2017

April 6, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 310,698,030 against the Plaintiff on July 1, 2016 shall be revoked.

1. Basic facts

가. 원고는 2006. 2. 20. 진cc로부터 부산 강서구 ##동 186-3 답 1,750㎡를 매수

하였다. 부산 강서구 ##동 186-3 답 1,750㎡는 그중 43㎡가 2006. 11. 23. 같은 동

1,707 square meters remaining after being divided into 186-18 (hereinafter referred to as “the land remaining after division”)

On November 25, 2014, the Plaintiff sold the instant land to Korea*** Korea.

B. On January 31, 2015, the Plaintiff directly cultivated the instant land for at least eight years, and filed a preliminary return on the tax base of capital gains in 2014 by applying the special deduction for long-term holding under Article 95 of the former Income Tax Act (Amended by Act No. 12852, Dec. 23, 2014; hereinafter the same shall apply) and the reduction or exemption of capital gains tax under Article 69 of the former Restriction of Special Taxation Act (Amended by Act No. 13560, Dec. 15, 2015; hereinafter the same shall apply).

C. The R&D regional tax office conducted a tax investigation with respect to the Plaintiff, and determined that the instant land is incorporated into a residential area under the National Land Planning and Utilization Act (hereinafter “National Land Planning Act”) on February 22, 2006, and it is difficult to view it as being subject to the special deduction for long-term holding as being subject to the special deduction for non-business land under Article 69 of the former Restriction of Special Taxation Act.

D. Accordingly, the Defendant calculated capital gains tax of 310,698,030 won to the Plaintiff on July 1, 2016 (i.e., calculation)

The tax amount of 263,486,384 + additional tax of 6,344,909 + additional tax of 40,866,738) was corrected and notified (hereinafter referred to as the "disposition of this case").

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on September 22, 2016, but was dismissed on December 7, 2016.

[Ground of recognition] Facts without dispute, entry of Eul's evidence Nos. 1 to 4, purport of the whole pleadings

2. The plaintiff's assertion and judgment

A. The plaintiff's assertion

1) The primary argument

Since the Plaintiff directly cultivated the instant land for not less than eight years, and the said land was entirely unaware of the fact that it was incorporated into a residential area under the National Land Planning Act, it constitutes reduction or exemption of capital gains tax under the main sentence of Article 69(1) of the former Restriction of Special Taxation Act. In other words, Article 69(1) main sentence of the former Restriction of Special Taxation Act and Article 66(1) and (4)1 of the Enforcement Decree of the same Act are excluded from the reduction or exemption in consideration of the fact that if farmland is incorporated into a residential area under the National Land Planning Act, even though the owner of the farmland resides in the location of the farmland, it may be highly likely to increase the farmland price, and thus, even if the owner of the farmland does not own it, it would be subject to speculative transactions. Furthermore, as the Plaintiff did not know of the fact that the farmland was incorporated into a residential area under the National Land Planning Act, it is more reasonable to treat the said land differently from the perspective of tax equality. Accordingly, if the Plaintiff did not know at all, as the Plaintiff, the Plaintiff does not apply the capital gains tax provision of this case.

2) Preliminary assertion

Even if the instant land is excluded from the reduction or exemption of capital gains tax, so long as the Plaintiff duly reported the calculated tax amount calculated by multiplying the tax base of capital gains tax by the tax rate of capital gains tax, the Defendant may not impose penalty tax on the Plaintiff. In addition, in light of the fact that the payment deadline for the Plaintiff’s capital gains tax was set through the Defendant’s disposition, etc., the Defendant may not impose penalty tax on the Plaintiff on the Plaintiff on the ground that he/she failed to pay capital gains tax. Even if the Defendant imposes penalty tax on the Defendant, the initial date of calculation of penalty tax due to nonperformance shall be “ July 1, 2016,” which is the date of the instant disposition, or “the date of calculation of penalty tax due to nonperformance” on the basis of the transfer income tax payment deadline (from May 31, 2015) based on the date of the transfer of the instant land

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Judgment on the main argument

1) Article 69(1) of the former Restriction of Special Taxation Act provides that capital gains tax shall be fully exempted on any income accruing from the transfer of land directly cultivated by a person who resides in a location of land for not less than eight years. However, the proviso stipulates that only the income prescribed by Presidential Decree, which accrues from the date of incorporation into a residential area, commercial area, and industrial area under the National Land Planning Act (hereinafter referred to as “residential area, etc.”) or the date of designation of a land reserved for replotting other than farmland before a disposition of replotting is taken pursuant to the Urban Development Act or other Acts, shall be exempted. In addition, Article 66 of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26922, Jan. 22, 2016; hereinafter the same

Paragraph 4 (1) 1 shall be the Special Metropolitan City, Metropolitan City (excluding Guns in Metropolitan Cities) or Si (excluding Guns in Metropolitan Cities) as of the date of transfer.

Eup/Myeon area and Jeju in a city in an urban and rural complex form established pursuant to Article 3 (4) of the Local Autonomy Act;

The Special Act on the Establishment of Special Self-Governing Province and the Development of Free International City (excluding Eup/Myeon areas in an administrative city established pursuant to Article 15 (2) of the Special Act on the Establishment of Special Self-Governing Province and the Development of Free International City) stipulates that "farmland within a residential, commercial and industrial area under the National Land Planning and Utilization Act and for which three years have passed from the date of incorporation into such area shall be excluded from the land

As such, limiting the scope of exemption from capital gains tax pursuant to the proviso of Article 69(1) of the Restriction of Special Taxation Act and Article 66(4)1 of the Enforcement Decree of the same Act is because, after the farmland is incorporated into a residential area, etc. or designated as a reserved land for replotting, the development gains do not differ from the land in fact other than farmland in terms of economic value, so it is unnecessary to grant exemption benefits from capital gains tax as farmland even to that part.

Considering that the regulatory structure, content and purport of the former Restriction of Special Taxation Act, the legislative intent thereof, the principle of no taxation without law, or the requirements for non-taxation or tax exemption and the interpretation of the tax law should be interpreted in accordance with the statutory text, barring any special circumstance, it is reasonable to deem that the above provisions apply regardless of whether the farmland owner knew that farmland was incorporated into a residential area, etc.

The fact that the instant land was incorporated into a residential area under the National Land Planning Act on February 22, 2006 falls under the farmland for which three years have passed from the date of incorporation into a residential area among the farmland located in Busan Metropolitan City as of November 25, 2014, and thus, it shall be excluded from capital gains tax reduction and exemption pursuant to Article 66(4)1 of the Enforcement Decree of the Restriction of Special Taxation Act. Accordingly, the Plaintiff’s assertion against this is without merit.

2) According to Article 95(1) and (2) of the former Income Tax Act, where certain assets are transferred after holding them for not less than three years, the amount of special deduction for long-term holding from gains from transfer should be deducted, and "land for non-business" under Article 104-3 of the same Act is excluded from the special deduction for long-term holding. According to Article 104(1)8 of the same Act, "land for non-business" under Article 104-3 of the same Act is subject to capital gains tax. In cases of rice paddy field, dry field and orchard (hereinafter referred to as "farmland") under Article 104-3(1)1 (b) of the former Income Tax Act, the period for over 20 years under the National Land Planning Act (excluding Eup/Myeon areas in the Metropolitan City) and Si areas (excluding Eup/Myeon areas in the form of rural complex under Article 3(4) of the Local Autonomy Act) is defined as land for non-business use during the period exceeding 10 years immediately before the date of transfer.

In light of the purport of the system that excludes special deduction for long-term possession of land for non-business purposes and imposes capital gains tax on the land, thereby promoting the stability of the real estate market and the balance of taxation by reducing the speculative demand for the land and recovering profits from speculation, and the above provisions of the former Income Tax Act should be interpreted in accordance with the principle of no taxation without law or the requirement of non-taxation or tax exemption, and the interpretation of the tax law should be interpreted in accordance with the legal text, barring special circumstances, it is reasonable to view that the above provisions apply regardless of whether the farmland owner knew of the fact that the farmland was incorporated into the residential area, etc.

On February 20, 2006, the Plaintiff acquired the ownership of the instant land and disposed of the said land on November 25, 2014, and on February 22, 2006, as seen earlier, the Plaintiff owned the instant land for not less than five years. As such, the instant land constitutes a land located in an urban area under the National Land Planning Act as farmland located in an urban area under the National Land Planning Act for a period exceeding two years from the transfer date, the period exceeding two years from the five years immediately preceding the transfer date, the period exceeding one year from the three years immediately preceding the transfer date, and the period exceeding 20/100 of the ownership period, and the land is non-business under Article 104-3 (1) 1 (b) of the former Income Tax Act. Accordingly, in calculating the transfer income amount of the instant land pursuant to Article 96 (2) of the former Income Tax Act, a long-term possession special deduction is not applicable, and the Plaintiff’s assertion is rejected.

D. Determination on the conjunctive assertion

Under the tax law, penalty taxes are administrative sanctions imposed pursuant to the individual tax law in cases where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim. The taxpayer’s intention and negligence is not considered, but does not constitute justifiable grounds that do not constitute a breach of duty (see, e.g., Supreme Court Decision 2016Du44391, Oct. 27, 2016).

The Plaintiff failed to properly calculate the transfer income amount, which is the basis of the special deduction for long-term holding among the transfer value, due to erroneous deduction. Moreover, even though the instant land does not fall under the reduction or exemption of transfer income tax under the main sentence of Article 69(1) of the former Restriction of Special Taxation Act, the Plaintiff did not make a preliminary return of tax base of transfer income on the premise that it falls under such a case, and accordingly did not pay transfer income tax at all accordingly. Therefore, it cannot be deemed as a justifiable ground for exemption of additional tax in light of the aforementioned legal doctrine. Therefore,

In addition, since the Plaintiff failed to properly implement the obligation to make a preliminary return under Articles 105 and 106 of the former Income Tax Act, it is legitimate to impose penalty taxes for the period from February 1, 2015 to July 1, 2016, which is the day following the scheduled return deadline, pursuant to Article 47-4 of the former Framework Act on National Taxes (amended by Act No. 12848, Dec. 23, 2014). The Plaintiff’s assertion on a different premise is acceptable.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so ordered as per Disposition.

shall be ruled.