Seoul High Court-2014-Nu-2357

In the new construction and sale of apartment houses, where apartment buildings are constructed by means of a package contract to the contractor, the amount of income shall be appropriated in accordance with the rate of work progress of the contractor.

In the new construction and sale of apartments, etc., where the construction contract period is at least one year, and where an apartment is constructed by giving a package contract to the contractor for the construction, the initial disposition in which the amount of income is calculated according to the progress rate of the construction project is legitimate.

Article 40 of the Corporate Tax Act

Supreme Court Decision 2015Du1694 Decided revocation of Disposition of Corporate Tax Imposition

Co.*

Head of Central Tax Office

Seoul High Court Decision 2014Nu2357 Decided February 10, 2015

November 26, 2015

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. The main sentence of Article 69(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20720, Feb. 29, 2008; hereinafter referred to as the "Enforcement Decree") provides that where the contract period of construction, manufacturing, and other services (including contracting and reservation sales; hereinafter referred to as "construction") is not less than one year, earnings and losses for each business year from the business year which includes the date of commencement of construction of the object to the business year which includes the date of its delivery shall be included in the calculation of earnings and losses for the relevant business year based on the construction completion rate (hereinafter referred to as "rate of work progress") as prescribed by the Ordinance of the Ministry of Finance and Economy, and Article 34 (1) of the former Enforcement Rule of the Corporate Tax Act (amended by Presidential Decree No. 20720, Mar. 30, 2007; hereinafter referred to as the "Enforcement Rule") shall be calculated by deducting the total construction progress amount from the total construction progress amount generated by the end of the relevant business year ±, and shall be calculated by applying mutatis mutandis.

In full view of the legislative intent of preventing the distortion of profits and losses by allocating profits and losses in line with the language and text of these regulations, “the total construction cost total construction cost incurred by the end of the pertinent business year”, which is the molecular of the instant formula, refers to the cumulative total construction cost actually incurred for the construction of the object by the end of the pertinent business year, and it does not mean any different cases where the construction of an object is completed by contracting all or part of the construction work to a third party. Therefore, where a corporation operating an apartment sales business, which is the molecular of the instant formula, constructs an apartment by contract for all or part of the construction work, the construction cost to be included in the cumulative total construction cost incurred by the end of the pertinent business year, which is the molecular total construction cost in relation to the contract, is not the construction cost for which the obligation to pay has been determined according to the contract, but rather the construction cost actually incurred by the corporation according to the actual progress of construction work (see Supreme Court Decision 2011Du13842, Feb. 27, 2014).

B. According to the reasoning of the judgment below, based on the adopted evidence, the court below acknowledged the fact that the plaintiff corporation ** (hereinafter referred to as the "Plaintiff corporation") engaged in the business of constructing and selling the apartment of this case with a scale of 1,35 households on the ground of the 1,35 households above the original half-dong of the original city as the contractor corporation after obtaining business approval on December 7, 2005 ******* corporation (hereinafter referred to as " current****)'s completion of the apartment of this case on March 27, 2008, based on the construction price requested such as the tax invoice received from the original ***** in relation to the construction and sale of the apartment of this case * in each business year * the construction price paid to the plaintiff * in accordance with the work progress calculated by including the "in the aggregate total construction cost total construction cost amount occurred by the end of the business year in the corresponding formula 2006 and the corporate tax amount was reported and paid for each business year.

Then, the lower court determined that the Defendant’s correction of corporate tax for each business year of 2006, 2007 was lawful on the basis of the “construction cost calculated according to the progress rate of work for the instant apartment construction work*** the construction cost calculated according to the progress rate of work for the instant apartment construction work.”

In light of the above legal principles and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles regarding the period of attribution of profit or loss under the Corporate Tax Act

2. Regarding ground of appeal No. 2

Examining the reasoning of the judgment below in light of the relevant legal principles and records, the court below is just in holding that the court below did not err in the misapprehension of the legal principle as to the legitimate ground for exempting the penalty tax, as otherwise alleged in the ground of appeal.

3. As to the third ground for appeal

A. After finding the facts as stated in its adopted evidence, the court below rejected the plaintiffs' assertion that the amount of interest income for the year 2004 through 2007, which the defendant received from the plaintiff company was lawful, on the grounds that the amount of each issue that the seller, such as Kim*, etc. received from the plaintiff company constitutes other income, such as penalty, compensation, or withdrawal of lawsuit due to the non-performance of payment obligation under the previous sales contract, and the other income tax disposition for the year 2005 through 2007, which the defendant made against the plaintiff company was made lawful. ② He*, Kim*,*, because the amount of money received from the plaintiff company as investment dividends from the plaintiff company was based on the period of use of the investment funds paid by the plaintiff company, and there was no agreement as to losses that may be suffered as an investor in the event of the failure of the business, and thus, the money received last from the plaintiff company or the commercial building of this case constitutes interest income.

B. In light of the relevant legal principles and records, such determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors of misapprehending the legal principles on income classification or market price calculation.

4. As to the fourth ground for appeal

The Plaintiff*’s allegation in this part of the grounds of appeal is unlawful in the judgment of the court below, even though it was obtained by stealing the Plaintiff Company’s shareholder name by means of Plaintiff Jung*, or merely constitutes a secondary taxpayer under the Framework Act on National Taxes.

In conclusion, this is merely the purport of disputing the selection of evidence or fact-finding, which belongs to the lower court’s full power as a fact-finding court, and thus cannot be a legitimate ground for appeal. Furthermore, even if examining this part of the judgment by the lower court in light of the record, there is no violation of

5. Conclusion

All appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.