Appellate Court 2017-Divisions-4088 ( November 28, 2017)

A period exceeding 37 million won shall not be deemed a self-employed period.

Since the period exceeding 37 million won cannot be deemed to be the period of self-defense, the original disposition that was deducted from the special tax amount of long-term possession by deeming the exclusion of self-defense and the transfer of non-business land shall

Article 66 of the Enforcement Decree of the Restriction of Special Taxation Act on Self-Cultivating Farmland

2017Guhap22894 (Revocation of Disposition of Imposing Transfer Income Tax)

AA

BB Director of the Tax Office

July 26, 2018

September 6, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

1. The primary purport of the claim

The Defendant’s imposition of capital gains tax of KRW 1,162,273,150 against the Plaintiff on June 1, 2017 is revoked.

2. Preliminary purport of claim

The Defendant imposed capital gains tax of KRW 1,162,273,150 on the Plaintiff on June 1, 2017.

The portion exceeding 159,898,870 won shall be revoked.

1. Details of the disposition;

A. On April 19, 2007, the Plaintiff acquired 1/3 shares in the 319 square meters in the 319 square meters in the 319 square meters, 271/100 shares in the 2,054 square meters in the 2,054 square meters in the same address (hereinafter “instant land”), and 1/2 shares in the 377 square meters in the 377 square meters in the same road located in the same area on the ground of inheritance, but transferred all of the said land to the Hael District Housing Association on May 27, 2016.

B. The Plaintiff, on the ground that “the instant land constitutes self-arable farmland for at least eight years, which is subject to reduction or exemption of capital gains tax under Article 69 of the former Restriction of Special Taxation Act (amended by Act No. 14390, Dec. 20, 2016; hereinafter the same)”, made a preliminary return to the Defendant exempt from capital gains tax.

C. Accordingly, on June 1, 2017, the Defendant issued the instant disposition imposing and notifying capital gains tax of KRW 1,162,273,150 to the Plaintiff on the ground that the Plaintiff did not directly cultivate the instant land in accordance with Article 66(14) (hereinafter “instant provision”) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 27848, Feb. 7, 2017; hereinafter the same) since the Plaintiff’s total amount of wages each year from 2007 to 2016, the holding period of which was at least KRW 37 million.

D. The Plaintiff appealed and filed an administrative appeal with the Tax Tribunal on September 4, 2017, but was dismissed on November 28, 2017.

E. Meanwhile, the Plaintiff’s total benefits from 2007 to 2016 are as follows.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1-4, Eul evidence Nos. 1-2 and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) Violation of the principle of retroactive taxation prohibition

From April 19, 2007 to May 27, 2016, the Plaintiff: Provided, however, the Defendant excluded the Plaintiff from the reduction and exemption based on the instant provision enforced on July 1, 2014. This is subject to retroactive taxation by considering the past income benefits pursuant to the amended Act and subordinate statutes after the establishment of the tax liability. Accordingly, the instant provision is unconstitutional, and the instant disposition under the unconstitutional provision is also unlawful.

2) Violation of the limit of delegated legislation

Article 59 of the Constitution provides that "the items and rates of taxation shall be determined by law," and Article 69 (1) of the former Restriction of Special Taxation Act as the mother of the provision of this case delegates to the Enforcement Decree concerning residents, farming methods, land, etc., so the provision of this case that a resident with a certain income or income can be excluded from the period of cultivation is null and void beyond the limit of delegated legislation. Therefore, the disposition of this case based on the above provision is also unlawful.

(iii)an infringement of equal rights, freedom of occupation, and property rights;

The instant provision infringes on the right to equality by discriminating against those who have business income or earned income of not less than 37 million won per annum and those who do not do so without any justifiable reason, and it infringes on the freedom of occupation by forcing the disposition of farmland or restricting the right to choose another occupation in order to be exempted from the transfer income tax if the farmland owner has another occupation, and by not recognizing the period of self-sufficiency on the ground that the farmland owner has income of not less than 37 million won, it infringes on the property right by deprived of the right to be exempted from the transfer income tax by proving the period of self-reliance, so it is invalid as unconstitutional, and thus, the instant disposition is also unlawful.

(iv) application of special long-term holding deduction;

Preliminaryly, even if the Plaintiff did not have been aware that it was less than eight years, the instant land constitutes the land for business, and thus applying the special deduction for long-term holding. Since capital gains tax calculated by such method is KRW 159,898,870, the portion exceeding the special deduction out of the instant disposition should be revoked illegally.

B. Relevant statutes

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

C. Determination

1) Determination on the assertion of violation of retroactive taxation prohibition

A) The main sentence of Article 69(1) of the former Restriction of Special Taxation Act provides that "the tax amount equivalent to 100/100 of capital gains tax shall be reduced or exempted on the income accruing from the transfer of land prescribed by Presidential Decree among the land cultivated by a resident prescribed by Presidential Decree who resides in the seat of farmland for at least eight years, and Article 66(4) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that "the land prescribed by Presidential Decree" means the land cultivated by himself/herself for at least eight years from the time of acquisition to the time of transfer, except that falling under any of the following subparagraphs, as the land cultivated by himself/herself for at least eight years from the time of transfer." However, the provision of this case provides that where the total sum of the amount of business income under Article 19(2) of the Income Tax Act of the relevant decedent or resident and the amount of gross income under Article 20(2) of the same Act is during the period cultivated under paragraph (4), such period shall be excluded from the period cultivated by the decedent or resident.

According to the above relevant provisions, in order to obtain reduction or exemption of capital gains tax on self-Cultivating farmland pursuant to Article 69(1) of the former Restriction of Special Taxation Act, it shall be the case where the farmland he/she cultivated for at least eight years is transferred, and where the transfer was made after July 1, 2014, the enforcement date of the provisions of this case, if there is a taxable period in which the total amount of gross pay to the resident is at least 37 million won, the period shall be excluded from the period cultivated by the resident even if the period is prior to the enforcement date of the above

B) The principle of retroactive taxation prohibition, one of the basic principles of tax-related Acts, refers to the principle that no tax shall be levied retroactively by new tax-related Acts after its establishment with respect to income, profit, property, act or transaction for which a tax obligation is established (Article 18(2) of the Framework Act on National Taxes). In addition, in a case where a tax obligation is established after the enactment or amendment of the tax-related Acts, this principle does not apply (see Supreme Court Decision 88Nu11957, Sept. 29, 1989). Since transfer income tax is a requirement for taxation and is subject to transfer gains, it shall be determined on the basis of the time of transfer, and insofar as there is no clear provision that the previous provision is retroactively applied in the Addenda to the amended Act, its scope shall not be extended without permission (see Supreme Court Decision 2007Du15124, Jun. 12, 2008).

C) The Plaintiff’s liability to pay capital gains tax on the transfer of the instant land does not have already been established before the enactment of the instant provision, but it was established on May 27, 2016 after the establishment of the said provision. Thus, even if the Defendant rendered the instant disposition imposing capital gains tax by applying the said provision, it does not violate the principle of prohibition of retroactive taxation (see, e.g., Supreme Court Decisions 89Nu1858, Sept. 12, 1989; 88Nu11957, Sept. 29, 1989). If it is deemed that the Plaintiff’s claim had not been applied to the self-defense prior to the enforcement of the instant provision, it would result in the previous provision as to whether to grant capital gains tax reduction or exemption, notwithstanding the existence of a cause of taxation after the enforcement of the said provision that limits the scope of reduction or exemption, and thus, it would be contrary to the purport of the former Addenda of the Restriction of Special Taxation Act (No. 25211, Feb. 21, 2014).

Therefore, this part of the plaintiff's assertion is without merit.

2) Determination on the assertion of violation of the limit of delegated legislation

Article 69(1) of the former Restriction of Special Taxation Act explicitly limits the scope of land prescribed by Presidential Decree among land cultivated by residents residing in the location of land eligible for tax exemption for at least eight years by means prescribed by Presidential Decree, and delegates individual exemption to Presidential Decree. Considering the legislative purpose of Article 69(1) of the same Act for the protection of and support for agriculture and the limited scope of preferential measures for tax reduction or exemption from capital gains tax under the above provision, it can be predicted that the provision that exemption from capital gains tax is limited only to "where the necessity of land policies is met" among land cultivated by direct cultivation for at least eight years (see Constitutional Court Order 2002Hun-Ba2, Sept. 19, 2002). If the total amount of total salary, etc. in this case exceeds 37 million won, the provision that excludes the period from the period of cultivation has been established, and thus, the provision that excludes total salary, etc. from the period of cultivation is more than 70/100 of the Enforcement Decree of the Restriction of Special Taxation Act.

① However, in light of the fact that it is difficult for a resident prescribed by Presidential Decree residing in the location of a farmland to put in the above labor force, even if possible, it is more reasonable to consider that there is a need to grant capital gains tax exemption for the transfer of land prescribed by Presidential Decree among the "transfer of land directly cultivated by the method prescribed by Presidential Decree" for at least eight years, and that there is a lack of special exception for capital gains tax exemption only for the transfer of land prescribed by Presidential Decree, which meets the requirement of the re-village and self-sufficiency for eight years. Furthermore, the purport of the special exemption is clear only when the necessity of the land farming policy is satisfied. ② Considering that there is no choice but to require considerable effort and input of labor force in order to cultivate crops as well as the characteristics of the farming industry, which is a representative labor-intensive production activity, in addition to the characteristics of the farming industry, the total amount of wage, etc., which is at least KRW 37 million,000,000,000 from the total amount of wage, the Plaintiff's assertion that the above provision of this case can be excluded from the farming period.

3) Determination on the assertion of infringement of equal rights, freedom of occupation, and property rights

A) As seen earlier, the instant provision is legitimate within the scope of delegation under Article 69 of the former Restriction of Special Taxation Act, and as long as there are grounds for delegation of the parent law, there are discretion in administrative legislation regarding which standard is to be set within the scope of delegation. In light of the legislative intent of the parent law, the amendment of the above Enforcement Decree provides that setting the income standard of KRW 37 million per year for both business income and benefit income earners in consideration of the legislative intent of the parent law, etc., is not unreasonable or arbitrary standards, and therefore, the exercise of discretionary power in administrative legislation should be respected. Accordingly, the instant provision cannot be viewed as infringing the right of equality.

B) The instant provision cannot be deemed to be a provision that directly limits the freedom of a self-employed farmer to have other occupations than agriculture. However, in the event that a farmer who self-employed in farmland for not less than eight years is less than 37 million won a year’s income from other businesses, such exemption from capital gains tax is only an indirect limitation to the extent that such farmer may choose an occupation where the farmer is able to earn more than 37 million won, and therefore, if such annual income is selected as a occupation less than 37 million won or is borne by the burden of the transfer tax, it does not infringe on the freedom of occupation.

C) In addition, the infringement of property rights is not caused solely on the ground that the object of beneficial legislation, such as Article 69 of the Restriction of Special Taxation Act, is excluded from the object of beneficial legislation, and even if the expectation of economic benefits that can be gained when the object of beneficial legislation is the object of beneficial legislation has not been achieved, the expectation of such simple economic benefits does not include the area of property rights protected by the Constitution, and thus, the infringement of property rights in this case is not an issue (see Constitutional Court Order 2003Hun-Ba2, Nov. 27, 200

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

4) Determination as to whether a person was self-employed for eight years

As seen above, the provision of this case is valid, and the plaintiff has an annual gross income of at least 37 million won from 2007 to 2016. Based on the provision of this case, it should be examined whether the plaintiff satisfies the requirements for reduction and exemption of self-farmland for 8 years only for the remainder of the taxable period excluding the taxable period under the provision of this case. However, if the above taxable period is excluded, it is clear that the period of self-sufficiency of the plaintiff falls short of 8 years, and thus, the plaintiff did not meet the requirements for reduction and exemption of self

Even if the provision of this case does not apply, in order for the Plaintiff to be recognized as a self-employed fact as having been earned each year while working for another company while holding the land of this case, it should be proved that the Plaintiff cultivated at least 1/2 of the farming work with its own labor in accordance with Article 66(13)2 of the former Enforcement Decree of the Restriction of Special Taxation Act. However, in light of the following facts and circumstances acknowledged by adding up the descriptions and arguments of Nos. 5, 6, 19, 20, 21 (including the serial number; hereinafter the same shall apply), No. 2, 4, 5, 8, and 9 as well as the entire arguments and arguments, it is insufficient to recognize that the Plaintiff cultivated at least 5-18 of the farming work of this case with its own labor for 8 years or longer, and there is no clear evidence to acknowledge otherwise.

① From January 21, 1990, the Plaintiff has been working as a business employee for ○ Automobile Co., Ltd. until now, and currently has been working in 76 square in Busan Seo-gu, Busan. Considering the fact that the Plaintiff’s business operation is not performed only within the office, but is able to move and perform outside the office, it is difficult to understand that the Plaintiff directly performed 1/2 or more of the work of ○ Automobile Co., Ltd. in the instant land as a business employee, while performing his duties as a business employee, and the Plaintiff received a commendation from ○ Automobile Co., Ltd. on the ground that the Plaintiff faithfully performed his duties.

② On April 2, 2007, the Plaintiff did not move his resident registration to 705, an area adjacent to the instant land, which was located in the city of Kimhae, to the date of transfer. However, on July 9, 2007, the Plaintiff’s wife and children moved to the Dong-gu, Busan, and on February 27, 2009, respectively. The Plaintiff’s wife and children moved to the Dong-gu, Busan, Busan, and from June 23, 2009 to the date of transfer.

③ On September 6, 2007, the Plaintiff first drafted the farmland ledger (No. 6), and indicated that the Plaintiff owned a single ownership of 28-4 m2,140 m2,140 m2,737 m2 in the instant land and Kimhae-si, Gan-si, Gan-si, and 787-6 m2,737 m2,737 m2 in the same year, and leased and cultivated 787-4 m27 m277-5 m278 m278 m278 m2 in the same year. The said farmland ledger was prepared by the Plaintiff and his brothers and sisters before completing the registration of ownership transfer on the instant land due to inheritance, and was written as the Plaintiff’s sole inheritance even after having succeeded to the instant land jointly with the g,250 m250 m2.

5) Determination as to whether to grant special deduction for long-term possession

Article 95(1) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) provides that the amount of special deduction for long-term holding shall be calculated by multiplying the amount of special deduction for long-term holding from gains from transfer deducting necessary expenses from total income of capital gains by the deduction rate by holding period for at least three years. Paragraph (2) of the same Article provides that the amount of special deduction for long-term holding shall be calculated by multiplying the amount of special deduction for long-term holding by the deduction rate by holding period. Paragraph (4) of the same Article provides that the period of holding of assets shall be the date of acquisition of the assets and the date of transfer of the assets acquired and held before January 1, 2016, which are non-business land under Article 104-3 of the Income Tax Act, shall be calculated by counting the holding period from January 1, 2016.

Paragraph 2 provides that "non-business land" refers to land excluding farmland that is directly cultivated under Article 66 Paragraph 13 of the Enforcement Decree of the Restriction of Special Taxation Act by a person who actually resides in an area within 30 kilometers in a straight line from the neighboring Si/Gun/Gu or farmland for a certain period, which is the same Si/Gun/Gu as the location of farmland, and the provision of this case is applied mutatis mutandis to the determination of the period.

As seen earlier, the Plaintiff’s annual gross income of at least KRW 37 million from 2007 to 2016 constituted land for non-business as the period of self-sufficiency of the instant land under the instant provision, and the Plaintiff’s holding period from January 1, 2016 to May 27, 2016, which is the date of transfer under Article 95(4) of the former Income Tax Act, is apparent in the calculation that the said period does not fall under at least three years. Therefore, in calculating the transfer income amount of the instant land, the instant disposition that imposed capital gains tax without deducting the amount of special deduction for long-term possession cannot be deemed unlawful.

The plaintiff's assertion on this part is without merit.

3. Conclusion

The plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.