Seoul Administrative Court 2007Guhap23736 ( October 06, 2008)

Whether unsold real estate unsold in lots for five years or more after completion inspection falls under non-business real estate

A commercial building owned by a corporation that mainly engages in real estate sales business for at least five years after completion inspection or leased to a third party shall fall under real estate not used directly for the business of the corporation.

The contents of the decision shall be the same as attached.

Article 27 (Non-Inclusion of Expenses not Related to Corporate Tax Act)

1. The appeal of this case is dismissed

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

The judgment of the first instance shall be revoked. The defendant revoked each disposition of imposition of KRW 1,331,34,451 against the plaintiff on August 3, 2005, KRW 59,00 among the disposition of imposition of KRW 1,331,34,451 for the year 202, ② KRW 100,48,942 from among the disposition of imposition of corporate tax for the year 2003, ③ KRW 98,438,093 from among the disposition of imposition of corporate tax for the year 204.

The court's explanation on the instant case is identical to the statement on the grounds of the judgment of the court of first instance, and thus, citing it in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

Therefore, the judgment of the court of first instance is legitimate, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

[Seoul Administrative Court 2007Guhap23736, 2008.06]

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

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

The Defendant’s imposition of KRW 59,051,90 against the Plaintiff on August 3, 2005, ① the imposition of KRW 1,331,34,451, ② the imposition of KRW 59,051,90, ② the imposition of corporate tax for the year 2003, ③ the imposition of KRW 98,438,093 among the imposition of corporate tax for the year 2004, ③ the imposition of KRW 98,438,093, respectively.

1. Details of the imposition;

A. The Plaintiff newly built and sold a commercial building as a welfare facility within an apartment complex throughout the country, such as Cheongju, Cheongcho, Cheongcheon, Gyeongan, and Seosan, which is a corporation for the purpose of leasing, selling, arranging, etc. of housing, commercial building, and real estate.

B. The defendant, among the 47 commercial complexes that the plaintiff completed between August 30, 1984 and December 27, 1999, the commercial buildings which have not been sold for not less than five years from the date of completion inspection (hereinafter referred to as "each commercial buildings of this case") shall be excluded from deductible expenses for the reason that they constitute non-business real estate under Article 27 subparagraph 1 of the Corporate Tax Act, Article 49 (1) 1 (a) of the Enforcement Decree of the Corporate Tax Act, Article 26 (1) 2 of the Enforcement Rule of the Corporate Tax Act, and Article 26 (1) 2 of the Enforcement Rule of the Corporate Tax Act, and the relevant interest and maintenance expenses shall be excluded from deductible expenses for the plaintiff on August 3, 2005.

C. On October 27, 2005, the Plaintiff filed an appeal with the National Tax Tribunal on the instant disposition under the National Tax Tribunal No. 2005Du4284, but the National Tax Tribunal dismissed the appeal on April 6, 2007.

[Ground of Recognition] Unstrifed Facts, Gap 1, 2-1 and 2

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) Each of the instant shopping districts is a welfare incidental facilities built by the Plaintiff under Article 3(2) of the former Housing Construction Promotion Act (amended by the Housing Act No. 6916 of May 29, 2003) and Article 50(1) of the Regulations on Standards, etc. for Housing Construction. The Plaintiff is obligated to secure incidental and welfare facilities for the occupants while constructing a rental apartment complex, etc. However, each of the instant shopping districts merely remains in public room or rents because it is difficult to sell it due to its unexpected economic crisis, etc., despite its efforts such as sales advertising and price reduction.

(2) Even if each of the instant commercial buildings constitutes non-business real estate, the Plaintiff has been holding each of the above commercial buildings due to the aforementioned circumstances, and the Plaintiff has made efforts to dispose of each of the above commercial buildings to the maximum extent possible, but is not disposed of. Thus, there is a justifiable reason under Article 26(5)29 of the Enforcement Rule of the Corporate Tax Act as to the Plaintiff’s failure to dispose of each of the above commercial buildings within the grace period under the Act.

B. Relevant provisions

○ Article 27 (Non-Inclusion of Expenses not Related to Corporate Tax Act)

The following amounts of expenses paid by a domestic corporation for each business year shall not be included in the calculation of losses in the calculation of the income amount for the relevant business year:

1. The amount prescribed by Presidential Decree, such as expenses, etc. incurred from the acquisition and management of assets prescribed by Presidential Decree that are deemed not directly related to the business of the corporation

○ Article 28 (Non-Inclusion of Paid Interest in Loss)

(1) The interest on any of the following borrowings shall not be included in deductible expenses in calculating the income amount of a domestic corporation for each business year:

4. The amount calculated under the conditions as prescribed by the Presidential Decree from among interest on loans paid during each business year by a domestic corporation which acquires or holds assets falling under any of the following items:

(a) Assets falling under subparagraph 1 of Article 27:

○ The scope of assets not related to the business of Article 49 of the Enforcement Decree of the Corporate Tax Act

(1) "Assets prescribed by Presidential Decree" in subparagraph 1 of Article 27 of the Act means the following assets:

1. Any of the following real estate:

(a) Real estate not used directly for the business of a juristic person: Provided, That this shall not include the real estate in the period before the period as determined by the Ordinance of the Ministry of Finance and Economy (hereafter in this Article, referred to as

○ Scope of real estate not related to Article 26 of the Enforcement Rule of the Corporate Tax Act

(1) "Period prescribed by Ordinance of the Ministry of Finance and Economy" in Article 49 (1) 1 (a) of the Decree means any of the following periods (hereafter referred to as "suspension period" in this Article):

2. Sales-use real estate acquired by a corporation whose main business is real estate sales: Five years; and

(5) The term "real estate having an inevitable reason prescribed by Ordinance of the Ministry of Finance and Economy" in the proviso to Article 49 (1) 1 of the Decree means real estate falling under any of the following subparagraphs:

29. The real estate that is not used for business due to the justifiable reasons, such as changes in urban planning, except for the reasons under subparagraphs 2 through 28 after its acquisition.

C. Determination

(1) Article 27(1) of the Corporate Tax Act delegates the scope of certain assets deemed not directly related to the business of the pertinent corporation to the Enforcement Decree, and Article 49(1)1(a) of the Enforcement Decree of the said Act provides that one of the assets deemed not directly related to the business of the pertinent corporation shall not be directly used for the business of the corporation: Provided, That the real estate during the period before the expiration of the grace period shall be excluded, and the grace period shall be delegated by the Ordinance of the Ministry of Finance and Economy, and Article 26(1)2 of the Enforcement Rule provides that the grace period shall be five years from the date of acquisition for real estate

As seen in the above facts, there is no dispute between the parties that the Plaintiff, which is a corporation that mainly engaged in the real estate sales business, owns each of the instant commercial buildings for which five years have passed since the completion inspection as seen in the above facts. Thus, each of the instant commercial buildings constitutes real estate for sale under Article 26(1)2 of the Enforcement Rule of the Corporate Tax Act, which is not directly used for a corporation’s business under Article 49(1)1(a) of the Enforcement Decree of the Corporate Tax Act, and thus, the Plaintiff’s assertion on a different premise is rejected.

(2) Article 33(2) of the former Housing Construction Promotion Act provides that a plan for the establishment of a unit and a welfare facility shall be included in a business plan to build housing exceeding a certain size. Article 50(1) of the Regulations on Standards, etc. for Housing Construction stipulates that the total area of the neighborhood and retail markets and stores established in a housing complex shall not exceed the area calculated by the ratio of 6m2 square meters per household.

On the other hand, there is no dispute between the parties regarding the fact that each of the instant commercial buildings is an ancillary facility established pursuant to each of the above provisions, but even according to each of the above provisions, only the upper limit is stipulated for the commercial buildings, etc. installed in a housing complex. Therefore, the plaintiff is determined to have not been sold by predicting the future demand, etc. at the time of the project plan and constructing and selling a commercial building of an appropriate size within the upper limit.

In addition, as seen earlier, each of the instant commercial buildings was newly constructed from 1984 to 1999, and there is no direct relation to the IMF economic crisis that occurred in around 1997, and there is insufficient evidence to acknowledge that the Plaintiff is holding each of the above commercial buildings because the Plaintiff made best efforts to build and sell each of the above commercial buildings in line with the size of the apartment complex in consideration of the market feasibility, etc., but the testimony by the witness ○○○ was not sufficient to recognize that the Plaintiff was holding each of the above commercial buildings because it did not sell them in lots, and there is no other evidence to acknowledge otherwise. Thus, the Plaintiff’s assertion that there is a justifiable reason for holding each of the above commercial buildings, which are non-business real estate, is without merit.

(3) Therefore, each of the instant commercial buildings constitutes real estate for non-business use under Article 27 subparagraph 1 of the Corporate Tax Act, and thus, the instant disposition based on such premise is lawful.

3. Conclusion

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