Cho Jae-2016-4340 ( October 15, 2017),

This disposition which excluded the application of special deduction for long-term holding from the application of reduction and exemption for 8 years

This disposition that excludes special deduction for long-term holding because it constitutes a non-business land as incorporated in a residential area and excluded from the application of reduction and exemption for 8 years.

Article 69 of the Restriction of Special Taxation Act: Reduction or exemption of transfer income tax for self-Cultivating farmland, Article 95 of the Income Tax Act

2017Guhap5160 Revocation of Disposition of Imposing capital gains tax

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00. Head of tax office

October 17, 2017

November 14, 2017

1. All of the plaintiffs' claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 221,228,210 for the Plaintiff on September 13, 2016 shall be revoked.

1. Details of the disposition;

A. On March 19, 192, the Plaintiff’s father (the Plaintiff’s father of October 8, 1998) acquired the instant land from the Plaintiff on March 19, 1992: FGri 59-2, 1,107 square meters; 106-1 square meters per ri, 106-2 square meters per ri; 1,121 square meters per ri; and on March 26, 1992, the Plaintiff acquired the instant land from the Plaintiff on March 29, 2015, for each of the following reasons: (a) the Plaintiff acquired the instant land from the Plaintiff on October 9, 1998 due to the inheritance; and (b) the Plaintiff transferred the instant land to the Plaintiff on March 13, 2015.

B. On October 31, 2014, the Plaintiff directly cultivated the instant land to the Defendant for at least eight years, and filed a return on capital gains tax for the year 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. After conducting an investigation of capital gains tax against the Plaintiff on May 2016, the Defendant determined that the instant land is incorporated into a residential area on January 14, 2004 and it is difficult to view it as being subject to reduction or exemption of capital gains tax under Article 69 of the former Restriction of Special Taxation Act, and that it is excluded from the special deduction for long-term holding under Article 95 of the former Income Tax Act because it falls under a non-business land, and notified the Plaintiff of the pre-announcement of capital gains

D. On June 22, 2016, the Plaintiff filed a request for pre-assessment review with the Defendant, and the Defendant, in accordance with the re-assessment decision as of August 9, 2016, conducted a re-audit from August 25, 2016 to September 7, 2016, determined that the initial disposition was lawful. Accordingly, the Defendant imposed KRW 221,228,210 on the Plaintiff on September 13, 2016.

E. After November 30, 2016, the Defendant: (a) as the instant land was incorporated into a residential area on January 14, 2004 with respect to the Plaintiff, the Defendant issued a reduction of capital gains tax of KRW 182,971 on the income accrued until January 14, 2004 (hereinafter “instant disposition”).

F. The Plaintiff appealed and filed an appeal with the Tax Tribunal on November 23, 2016, but was dismissed on March 15, 2017.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 4, 7, and 9, each of the statements (including branch numbers; hereinafter the same shall apply), the purport of the whole pleadings

2. Relevant statutes;

It is as shown in the attached Form.

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff’s land in this case from September 30, 2009 to March 20, 2014, to the friendly sphereB.

As the Plaintiff directly cultivated the instant land for about 11 years from September 29, 2009, prior to the lease of the instant land from October 9, 1998 to the rightB, which acquired the instant land, the Plaintiff met the requirements for reduction of capital gains tax on self-arable farmland for at least eight years.

2) The Plaintiff leased the instant land to the competentB for the period corresponding to 19.96% of the ownership period of the instant land as indicated below. Therefore, the instant land does not constitute “land not directly cultivated for a period equivalent to 20% of the ownership period of the instant land, which is the requirement for non-business land.” Therefore, the requirements for special long-term holding deduction are satisfied.

The ratio of the classification period days;

Total ownership period from March 1992 to August 13, 2004, 183100%

(including the period of possession of the decedent)

From March 1992 to September 29, 2009, 55080.04%

(Business Land) March 21, 2014 to August 13, 2014

Rental Period from September 30, 2009 to March 20, 2014, 63319.96%

(Non-business Land)

B. Determination as to whether the requirements for self-sufficiency in 8 years are met

Article 69(1) of the former Restriction of Special Taxation Act provides that capital gains tax shall be exempted on any income accruing from the transfer of land directly cultivated for not less than eight years by a person who resides in a location of such land. However, the proviso provides that where the relevant land is incorporated into a residential area, commercial area, and industrial area (hereinafter referred to as "residential area, etc.") under the National Land Planning and Utilization Act or a land, other than farmland, is designated as a reserved land prior to the disposition of replotting pursuant to the Urban Development Act or other Acts, only the income prescribed by Presidential Decree, generated by the date of incorporation into a residential area, etc. or of obtaining the designation of a reserved land for replotting, shall be exempted from only the income prescribed by Presidential Decree. In addition, Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 26070, Feb. 3, 2015; hereinafter the same shall apply) of the income accrued to a residential area, etc. by the date of incorporation into a residential area, etc.

In light of the purport of the statement and the purport of the evidence No. 5, the instant land is recognized as being incorporated into Class 1 general residential area among urban areas on January 14, 2004, and thus, the reduced or exempted tax amount for the instant land should be recognized only for the income accrued until January 14, 2004, incorporated into a residential area. However, on November 201, 2016, the Defendant corrected the Plaintiff’s reduction of KRW 182,971 in accordance with the formula under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act by reducing the transfer income tax on the instant land by 182,971 in accordance with the formula under Article 66(7) of the former Enforcement Decree of the Restriction of Special Taxation Act. Therefore, the instant disposition is lawful, barr

C. Determination as to whether the requirements for special long-term holding deduction are met

According to Article 95 of the former Income Tax Act, capital gains shall be calculated by deducting necessary expenses and special long-term holding deduction from the transfer value (paragraph (1)), and in the case of non-business land under Article 104-3, paragraph (2) shall not be deducted from the special long-term holding deduction amount (Article 104-3 (1) 1 of the former Income Tax Act and Article 168-6 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same shall apply). In the case of farmland, if the ownership period is five years or more, the period exceeding two years from the five years immediately preceding the date of transfer, the period exceeding one year from the three years immediately preceding the date of transfer, and the period exceeding 20/100 of the ownership period of the land.

The Plaintiff is a person who leased the instant land to the competentB from September 30, 2009 to March 20, 2014. Thus, there is no doubt that the Plaintiff did not cultivate the instant land for the period exceeding two years in the five years immediately preceding the date of transfer, and for the period exceeding one year in the three years immediately preceding the date of transfer. Therefore, in full view of the following circumstances recognized by the purport of the whole evidence and arguments as seen earlier, it is reasonable to deem that the Plaintiff did not cultivate the instant land for the period equivalent to 28.2% of the ownership period of the instant land. Accordingly, the instant land constitutes a non-business land for which special deduction for long-term possession is excluded, and the Plaintiff’s assertion is not reasonable.

1) The Plaintiff asserts that the land for non-business should be determined by adding up the ownership period of the network AA to the Plaintiff’s possession period of the instant land. However, according to Article 95(4) of the former Income Tax Act, in applying special long-term holding deduction, the holding period is stipulated as the date of acquisition of the relevant real estate, and according to Article 162(1)5 of the former Enforcement Decree of the Income Tax Act, the date on which inheritance commences or the date on which donation is received for assets acquired through inheritance or donation shall be the time of acquisition. Therefore, the date on which inheritance commences for the instant land shall be deemed the time of acquisition of the Plaintiff, and as alleged by the Plaintiff, the holding period of the network A cannot be added up

Meanwhile, according to Article 104-3 (2) of the former Income Tax Act and Article 168-14 (3) 1-2 of the Enforcement Decree of the same Act, the term "land inherited or donated by the relevant lineal ascendant for at least eight years as farmland cultivated by the lineal ascendant does not constitute land for non-business purposes. However, the term "the land inherited or donated by the relevant lineal ascendant" does not fall under the above provision, since the network sphereA did not own the instant land for at least eight years. Therefore, the period during which the Plaintiff owned the instant land falls under 8,183 days from October 9, 1998 to August 13, 2014.

2) As seen earlier, the Plaintiff is a person who leased the instant land to the competentB from September 30, 2009 to March 20, 2014. As such, at least 1,633 days during the above period constitutes the period during which the Plaintiff did not cultivate the instant land.

3) Ultimately, the period during which the Plaintiff did not cultivate the instant land as indicated below constitutes 28.2% compared to the period of possession.

The ratio of the classification period days;

Total ownership period from October 9, 1998 to August 13, 2014, 183100%

(including the period of possession of the decedent)

From October 9, 1998 to September 29, 2009, 1571.8%

(Business Land) March 21, 2014 to August 13, 2014

Rental Period from September 30, 2009 to March 20, 2014, 63328.2%

(Non-business Land)

4. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.