Seoul Administrative Court 201Gudan29680 ( October 13, 2012)

Cho High Court Decision 201Do3229 ( November 04, 2011)

The acquisition value of the Gu building shall not be deemed necessary expenses to be deducted from the transfer value of the new building.

Since the acquisition value of the old building is not included in the necessary expenses of the new building, which is a transferred asset, and the construction cost of the new building is the amount of capital expenditure of the old building, and it cannot be included in the necessary expenses to be deducted from the transfer value of the new building, since the new building was built for a considerable period after its acquisition.

2012Nu22043. Revocation of a disposition rejecting a request for rectification of capital gains tax

KimA

Head of Seocho Tax Office

Seoul Administrative Court Decision 2011Gudan29680 decided June 13, 2012

May 14, 2013

June 28, 2013

1.The appeal by the Plaintiff (Appointed Party) shall be dismissed.

2. The costs of appeal shall be borne by the Plaintiff (Appointed Party).

The judgment of the first instance shall be revoked.

"The defendant's rejection of a claim for correction of KRW 000 of the transfer income tax belonging to the year 201 shall be revoked against the plaintiff (Appointed Party) and the AppointedB (attached Form) as stated in the plaintiff (Appointed Party) on August 9, 2011."

1. Application for rectification of transfer income tax;

In full view of the overall purport of the arguments, the following facts are recognized in the entries in Gap, 1, 2, 5, 9, 13, and 15 (including natural disasters):

[1]

On January 31, 1989, the ○ Plaintiffs acquired 1/2 shares of each of the 1/2 shares of the land site 610.14, Seocho-gu Seoul OOdong 000-14 (hereinafter “the instant land”). The Plaintiffs acquired the instant land as a 1/2 share of each of the 1/2 shares of the underground floor-1st floor neighborhood living facilities (hereinafter “former building”) on March 27, 1992, and removed it on August 20, 2004.

On May 8, 2007, the Plaintiffs newly built and acquired a building for neighborhood living facilities of the first- upper- upper- upper- upper- upper- upper-class six stories (hereinafter referred to as “new building”) on the instant land as one-half shares.

On April 20, 2011, the Plaintiffs transferred the instant land and a new building to KRW 000.

[2]

The Plaintiffs reported and paid KRW 000 per each transfer income tax on the transfer of the instant land and new building.

At the time of the above declaration and payment, the Plaintiffs included KRW 000 in the necessary expenses the book value of the old building at the time of the above declaration and payment.

○ After that, on July 14, 201, the Plaintiffs filed an application for rectification regarding the said transfer income tax to the Defendant.

The reason for the claim for correction is that the construction cost of the previous building was 00 won, the construction cost of the urban gas facilities of the previous building was 000 won, and the cumulative depreciation of the previous building was 000 won, and 000 won (=00 won + 000 won -00 won) should be included in the necessary expenses, but the plaintiffs were included in the necessary expenses as above, and the necessary expenses were under 00 won (=00 won - 000 won) and under 00 won, each of the transfer income tax reported and paid as above, should be refunded to the plaintiffs.

○ On August 9, 2011, the Defendant rendered a disposition rejecting the Plaintiffs’ request for correction (hereinafter referred to as “instant disposition”).

2. The plaintiffs' assertion

Since the Plaintiffs removed and owned the old building and then transferred the new building after using it, the amount calculated by subtracting the cumulative depreciation of the old building from the total construction cost of the new building and the construction cost of urban gas facilities (hereinafter referred to as the “construction cost of the old building”) shall be included in the necessary expenses to be deducted from the transfer value of the new building as capital expenses to be deducted from the transfer value of the new building. The National Tax Service’s basic income tax rule Article 33-671 of the Income Tax Act provides that the construction cost of the new building shall be included in the necessary expenses to be deducted from the transfer value of the new building, and it is against the principle of self-regulation or the principle of trust and good faith in administration.

Therefore, the disposition of this case rejecting the plaintiffs' claim for rectification that the amount calculated by subtracting the cumulative depreciation of the old building from the construction cost of the new building should be the capital expenditure of the new building and should be included in the necessary expenses to be deducted from the transfer value of the new building is unlawful.

3. Determination

(a) Necessary expenses;

(1) On April 20, 201, the Plaintiffs transferred the instant land and a new building, and Article 97(1) of the Income Tax Act (amended by Act No. 101, Aug. 3, 2011; hereinafter the same) which was in force at the time provides that necessary expenses to be deducted from the transfer value shall be as follows, and that "acquisition value" in subparagraph 1 and subparagraph 2 shall be defined as "capital expenditure, etc. prescribed by Presidential Decree."

Article 163(3) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 2011, Jun. 3, 2011; hereinafter the same shall apply) provides that "capital expenditure, etc. prescribed by Presidential Decree" means any of the following items, and subparagraph 1 of Article 67(2) of the Enforcement Decree of the Income Tax Act provides that "the capital expenditure calculated by applying mutatis mutandis the provisions of Article 67(2) of the Enforcement Decree of the Income Tax Act, and "the cost directly required to secure ownership, and the cost for reconciliation, etc." in subparagraph 3 of Article 163(3) of the Enforcement Decree of the Income Tax Act provides that "the cost spent for the alteration

(2) Article 163(3)1 of the Enforcement Decree of the Income Tax Act is calculated by applying mutatis mutandis Article 67(2) of the Enforcement Decree of the Income Tax Act as one of the necessary expenses to be deducted from the transfer value as seen above.

One capital expenditure was defined.

Article 67 (2) of the Enforcement Decree of the Income Tax Act, and "capital expenditure" mean repair cost disbursed to extend the service life of depreciable assets owned by a business owner or to increase the real value of the relevant assets, and include expenditures for the following items. Article 67 (2) of the Enforcement Decree of the Income Tax Act provides that "a remodeling to change the use of the main one," and "the installation of elevators or cooling equipment" in subparagraph 2, subparagraph 3, and "the installation of escape equipment, etc. in buildings" in subparagraph 3, subparagraph 4, and "the restoration of those in which buildings, machinery, equipment, etc. have no usefulness for the original use of the relevant assets due to disasters," and "the restoration of those in which buildings, equipment, etc. have been destroyed or damaged" in subparagraph 5, and "other improvement, expansion, expansion, etc., of subparagraphs 1 through 4, and others similar to each subparagraph."

(b) New construction and removal of old buildings;

(1) According to Article 67(2) of the Enforcement Decree of the Income Tax Act, capital expenditures, one of the necessary expenses to be deducted from the transfer value, mean repair costs spent to extend the service life of the depreciable assets owned by the businessman or to increase the real value of the assets in question.

On the other hand, if the existing building is purchased and the new building is transferred within the short time after the purchase of the existing building, the acquisition value and the removal cost of the removed existing building may be included in the necessary expenses of the transferred building in case of a light that it is obvious that it was intended to only use the land by removing the building from the beginning to the beginning. However, the acquisition value of the existing building may not be included in the cost of the original building until the new building is removed and transferred after the construction of the new building while living in 10 years or more after the acquisition of the existing building. (Supreme Court Decision 92Nu8781 delivered on October 27, 1992)

(2) The Plaintiffs acquired the instant land on January 31, 1989 and newly built a building on the instant land on March 27, 1992, and removed the building on August 20, 2004, and newly built a new building on the instant land on May 8, 2007, and transferred the instant land and new building on April 20, 201.

If so, the plaintiffs were to remove the existing building in the land of this case, and to use only the land of this case for the purpose of using it, and to construct and use the new building on the land of this case for more than 12 years according to their will, and to newly construct and transfer the new building on the land of this case.

Therefore, the acquisition value of the old building cannot be included in the necessary expenses of the new building that is the transferred property, and the construction cost of the old building (new construction cost and the cost of urban gas facilities) is capital expenditure for the acquisition value of the old building or its capital expenditure, and barring special circumstances, the construction cost of the new building cannot be included in the necessary expenses to be deducted from the transfer value of the new building, unless there are special circumstances.

(c) Legal fiction of immediate depreciation;

(1) Article 163(3)1 of the Enforcement Decree of the Income Tax Act provides that "capital expenditure calculated by applying mutatis mutandis the provisions of Article 67(2) of the Enforcement Decree of the Income Tax Act, as seen above, shall be one of the necessary expenses to be deducted from the transfer value."

As above, Article 67 (2) of the Enforcement Decree of the Income Tax Act, which provides that "Article 163 (3) 1 of the Enforcement Decree of the Income Tax Act shall apply mutatis mutandis," does not stipulate the necessary expenses to be deducted from the transfer value itself, but stipulates the agenda for immediate depreciation.

In other words, Article 67 of the Enforcement Decree of the Income Tax Act provides that "the amount paid by the business operator to acquire depreciable assets in paragraph 1, and the amount corresponding to capital expenditures for the depreciable assets is appropriated as necessary expenses, it shall be considered as depreciation, and the amount of each of the above limits shall be calculated," and the "capital expenditures in paragraph 2, and paragraph 1" means repair costs spent to extend the service life of the depreciable assets owned by the business operator or to increase the real value of the assets in question.

The National Tax Service's General Rules of Income Tax (amended on July 30, 2008, the same shall apply hereinafter) 33-671, and the "capital expenditure" under Article 67 (2) of the Enforcement Decree of the Income Tax Act include treating according to the following examples, and the book value and removal cost of the existing building shall be capital expenditure for the new building if the existing building is removed to construct a new building on its own land.

Therefore, ‘The basic rules of the Income Tax Act, ‘3-671', and ‘the legal fiction of timely depreciation' are not defined as the necessary expenses to be deducted from the transfer value itself, and ‘the necessary expenses to be deducted'.

(2) According to the Income Tax Act, the business income is taxed as global income by summing up the interest income, and the amount of income related to the business, which has accrued or will accrue to the business concerned, shall be the total amount of income, calculated by deducting necessary expenses from this amount, and depreciation costs shall be one of such necessary expenses.

Depreciation is a process of distributing the balance remaining after subtracting the residual value from the cost for acquisition of fixed assets during the useful life during which the economic benefits of the assets are generated, and the entrepreneur, when acquiring the assets subject to depreciation, shall calculate the sum of the amount withdrawn from the company to acquire the assets as the acquisition value of the assets, and then recognize the capital expenditure as necessary expenses through the depreciation process, and if the entrepreneur appropriates the capital expenditure to be appropriated as the acquisition value of the assets at the reasonable cost, it is considered to include it in the acquisition value of the assets and simultaneously in the depreciation of the assets.

(3) Meanwhile, according to the Income Tax Act, and capital gains are imposed separately from global income, and their total income amount are calculated by deducting necessary expenses from this amount, and the acquisition value and capital expenses are these necessary expenses.

Therefore, if a business operator transfers depreciable assets and results in income, it constitutes capital gains, not business income.

Article 97 (3) of the Income Tax Act provides that when calculating the necessary expenses to be deducted from the transfer value, the depreciation costs for the assets concerned during the holding period of the transferred asset shall be the amount deducted when the necessary expenses are included or to be included in the necessary expenses in calculating the business income in each taxable period.

Therefore, Article 67(2) of the Enforcement Decree of the Income Tax Act and Article 3-671(4) of the General Rules of the Income Tax Act as mentioned above: (a) the book value and removal cost of the existing building are capital expenses for a new building; and (b) the acquisition value of a new building is deemed to have been included in the acquisition value of a new building; and (c) the transfer of a new building is to deduct the depreciation amount as mentioned above from the acquisition value of a new building in accordance with Article 97(3) of the Income Tax Act, and ultimately, the book value and removal cost of the existing building are not to be included in the acquisition value

This is because the depreciation costs of new buildings were already included in the necessary expenses in the calculation process of business income, and the depreciation amount in order to prevent double appropriation, and in the calculation process of capital gains, is not included in the acquisition value.

Therefore, even in the case of the basic rules of the Income Tax Act 3-67 and 1-4, the book value and removal expenses of the existing building, and the transfer income from the transfer of the new building can not be included in the acquisition value to be deducted from the transfer value.

(4) According to the Income Tax Act, and capital gains are those arising from the transfer of certain assets, and are calculated for each transferred asset.

On the other hand, business income is income generated from a certain business, and this business is continuously and repeatedly conducted under its own calculation and responsibility for profit-making purposes, and it is related to the business which is based on the basic nature of continuous and repeated nature, and it is calculated with the amount of business income which has already accrued or will be attributed to the relevant business as the total amount of income.

According to the General Rules of the Income Tax Act, 33-67 and 14, the book value of the existing building and the removal cost of the existing building as capital expenses for the above business income are included in the acquisition value of the new building, and at the same time, the depreciation of the new building is considered as the depreciation of the new building, and the cost of depreciation is deducted from the total income amount. In light of the continuity and repetition of the business, it is considered that both the existing building and the new building are fixed assets provided for the business income and taxation is made on such business income.

However, if the entrepreneur transfers the above fixed assets, the fixed assets are no longer provided for operating income, and the transfer income tax is imposed at the transfer stage.

If so, under subparagraph 4 of Article 33-671 of the General Rules of the Income Tax Act, the book value and removal cost of the existing building shall be included in the capital expenditure of the new building, and at the same time the depreciation of the new building shall be considered as the depreciation of the new building, and it shall not be applied mutatis mutandis to the total income amount, and the depreciation cost shall not be deducted from the total income amount. Accordingly, in conclusion, the book value and removal cost of the existing building shall not be included in the necessary expenses to be paid for bego from the transfer value on the basis of subparagraph 33-67, 14 of the General Rules of the Income Tax.

(5) The Plaintiffs acquired the instant land on January 31, 1989, and acquired a new building on the instant land on March 27, 1992, and removed the previous building on August 20, 2004, and thereafter acquired a new building on May 8, 2007, and transferred the instant land and new building on April 20, 201.

On the other hand, according to the plaintiffs' assertion, the plaintiffs reported global income tax return on the rental income of the Gu building before 1998 as estimated method, but the comprehensive income tax was reported by the method of entering the entry in books since 1999, and the acquisition value of the Gu building at the time of the commencement of entry was calculated as the standard market price at the time of acquisition (the first instance court's preparatory brief on March 28, 2012).

Therefore, the plaintiffs' construction cost of the old building (new construction work cost and urban gas facility construction cost) as capital expense of the new building is deducted from the total amount of income, separate from the deduction of depreciation cost from the total amount of income, and the construction cost of the new building as capital expense of the new building can not be deducted from the transfer value of the new building.

D. Disposition of this case

Therefore, the plaintiffs' assertion that the amount obtained by subtracting the cumulative depreciation of the old building from the construction cost of the old building (new construction cost and the construction cost of urban gas facilities) shall be the capital expenditure of the new building, and it shall be included in the necessary expenses to be deducted from the transfer value of the new building is without merit

Therefore, the instant disposition rejecting the Plaintiffs’ claim for rectification that part of the capital gains tax on a new building should be refunded based on the aforementioned assertion is lawful.

4. Conclusion

Therefore, the plaintiffs' claims seeking the cancellation of the disposition of this case are dismissed in entirety due to the lack of reason, and the judgment of the court of first instance is justified, and the plaintiffs' appeal is dismissed, and it is so decided as per Disposition.