Plaintiff 1 and two others (Bae, Kim & Lee LLC, Attorneys Kim Jong-ho et al., Counsel for the plaintiff-appellant)

The Director of the National Tax Service

March 26, 2015

Daejeon District Court Decision 2014Gudan100193 Decided August 22, 2014

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked. The imposition of KRW 5,434,261,70 among the transfer income tax (including the additional tax) accrued in 2009 against Plaintiff 1 on April 2, 2013, the imposition of KRW 484,612,120 among the transfer income tax (including the additional tax) accrued in 2009 against Plaintiff 2, the imposition of KRW 394,193,450 among the transfer income tax (including the additional tax) accrued in 2009 against Plaintiff 3 shall be revoked.

1. Details of the disposition;

A. From the year of 1979, Plaintiff 3 operated a "Tanmbage" in the land unit in the Seo-gu, Seo-gu, Seocheon-gu, Seocheon-si (Seongdong 1 omitted), and Plaintiff 1 and Plaintiff 2, as Plaintiff 3’s children, operated the "Tanbage" in the above land unit since 2002.

B. On March 18, 2003, Plaintiff 2 donated a total of 88,744m2 (hereinafter “instant donated land”) from Plaintiff 3 on the business Dong-dong (number 2 omitted) and (number 3 omitted) grave site, and applied for exemption of gift tax pursuant to Article 15(2) of the Addenda (wholly amended by Act No. 5584, Dec. 28, 1998) of the former Restriction of Special Taxation Act (wholly amended by Act No. 6297, Dec. 29, 200); Article 58 of the former Regulation of Tax Reduction and Exemption Act (wholly amended by Act No. 5584, Dec. 28, 1998; hereinafter “former Reduction and Exemption Act”).

C. On March 10, 2004, the Defendant imposed a gift tax (including additional tax) on the gift land of this case on Plaintiff 2 on the ground that “The gift land of this case constitutes grassland as provided by Article 58(1)1 (b) of the former Early Reduction Act, and Plaintiff 3 constitutes a self-employed farmer as provided by Article 58(1) of the same Act, but Plaintiff 2 does not fall under a farming child as provided by Article 58(1) of the former Restriction of Special Taxation Act (wholly amended by Act No. 5584, Dec. 28, 1998) on January 1, 1999, when the enforcement date of the former Restriction of Special Taxation Act (wholly amended by Act No. 55884, Dec. 28, 1998).” However, the Defendant corrected KRW 45,353,830,00 for reduction of KRW 45,353,830 (hereinafter “Disposition imposing the gift tax of this case”).

D. On March 16, 2005, Plaintiff 2 filed a lawsuit against the Defendant seeking revocation of the disposition imposing the gift tax of this case against the Daejeon District Court 2004Guhap3269, and on March 16, 2005, Plaintiff 2 was sentenced to a favorable judgment revoking the disposition imposing the gift tax of this case (hereinafter “the judgment in favor of the Defendant”) on the ground that “The Plaintiff 3 satisfied the requirements of a self-employed farmer and the land on which the gift of this case is grassland of not more than 148,500 square meters under the Grassland Act. Plaintiff 2 constitutes a farming child as of January 1, 1999.” Although the Defendant filed an appeal and appeal against the previous judgment in favor of the Defendant, the previous judgment in favor became final and conclusive as is.

E. On November 19, 2009, Plaintiff 2 invested a total of 112,739 square meters (including the gift land in this case) and 12 lots (including the gift land in this case) in Seo-gu, Seo-gu, Seodong, Seodong, Seo-gu, Seo-gu, Seoul on November 19, 2009; Plaintiff 1 made an investment in kind with the total of 22,826 square meters and 1280 square meters of land outside 13 lots on the same day on the same day; Plaintiff 3 made an investment in kind to the Forest Co., Ltd., Ltd. (hereinafter collectively referred to as the “instant invested land”).

F. Article 68(2) of the former Restriction of Special Taxation Act (amended by Act No. 921, Jan. 1, 2010; hereinafter “former Act”) (Article 68(2) of the Enforcement Decree of the Restriction of Special Taxation Act (Article 68(2) of the Enforcement Decree of the Restriction of Special Taxation Act), along with a preliminary return on capital gains tax due to the investment in kind in the instant invested land, the Plaintiffs filed an application for exemption from capital gains tax on the basis of the following (Article 68(2) of the former Restriction of Special Taxation Act).

G. On November 15, 2012, the Daejeon Regional Tax Office notified Plaintiff 2 of each taxation notice of KRW 27,401,770,620, and KRW 389,910,060 to Plaintiff 3, and KRW 5,375,21,850 to Plaintiff 1, and notified Plaintiff 2 of each taxation notice of KRW 770,283,310,310 for the reason that “The instant invested land was not subject to permission for the development of grassland under the Grassland Act.”

H. Plaintiff 2 filed a request for pre-assessment review on capital gains tax (including additional tax) and gift tax (including additional tax), Plaintiff 1 filed a request for pre-assessment review on capital gains tax (including additional tax), and the Commissioner of the National Tax Service rendered, on March 22, 2013, to Plaintiff 2, a decision on partial adoption of the instant donated land and gift tax (including additional tax) among the capital gains tax (including additional tax), and a decision on non-adopted by Plaintiff 1. The reasons for partial adoption made to Plaintiff 2 are as follows.

In light of the decision on adjudication and the prior decision on winning the judgment regarding the imposition of the gift tax of this case as to the portion of the gift tax of this case (including additional tax), which is included in the main text, the Defendant expressed the public opinion that the land of this case constitutes grassland on the ground that there is no dispute with Plaintiff 2. On the public opinion list, the trust of Plaintiff 2 falls under the value of protection because there is no cause attributable thereto. Based on such trust on the value of protection, Plaintiff 2 made an investment in kind to an agricultural company without following separate procedures for permission for the development of grassland with the knowledge that the land of this case is subject to exemption of capital gains tax under Article 68 (2) of the former Special Provision of the Grassland Act at the time of the investment in kind of Plaintiff 2, the trust that the land of this case is subject to exemption of capital gains tax under Article 68 (2) of the former Special Provision of the Income Tax Act, and thus, the said disposition violates the principle of trust protection. ② Since the previous favorable judgment on the gift tax of this case constitutes grassland on the land of this case, the aggregate taxation of this case is unlawful.

I. The Defendant accepted the decision of partial adoption by the Commissioner of the National Tax Service, and notified Plaintiff 3 of the increased deduction of KRW 394,193,450 on April 2, 2013 on the ground of investment in kind in the land remaining other than the gift land of this case (hereinafter “instant land”) among the investment land of this case (hereinafter “the instant disposition”). On April 2, 2013, the Defendant issued to Plaintiff 1 a notice of the increased deduction of KRW 5,434,261,70 on the transfer income tax (including additional tax) for the year 209, the notice of the increased deduction of KRW 484,612,120 on the transfer income tax (including additional tax) for the year 209, and notified Plaintiff 3 of the increased deduction of KRW 394,193,450 on the capital gains tax (including additional tax) for the year 209 (including additional tax) for the Plaintiff’s taxation on the Plaintiffs.

(j) The key land of this case is the feed crop cultivation area and incidental facilities related thereto, and falls under “land used for cultivating perennial trees, feed crop cultivation area, access roads, livestock pens, and incidental facilities prescribed by Ordinance of the Ministry for Food, Agriculture, Forestry and Fisheries” under Article 2 subparag. 1 of the former Grassland Act (amended by Act No. 10243, Apr. 12, 2010; hereinafter “former Grassland Act”). However, there was no permission to create grassland under Article 5 of the same Act for the key land of this case.

[Ground of Recognition] Facts without dispute, Gap evidence 1 through 8, Gap evidence 9-2, 3, Gap evidence 16, 17, Gap evidence 18-1 through 4, Eul evidence 1-1 through 3, Eul evidence 3 and 6, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiffs' assertion

For the following reasons, the instant disposition should be revoked because it is unconstitutional and unlawful.

(1) grassland specified in section 68(2) of the former Act

In light of the language and text of Article 68(2) of the former Act, legislative purpose and purport, balance with the farmland under Article 68(2) of the former Act, the fishery land under Article 67(4) of the former Act, the contents of the Grassland Act enacted and amended, the principle of strict interpretation pursuant to the no taxation without law, the possibility of causing social confusion, etc., the term " grassland under the Grassland Act" under Articles 66(4) and 68(2) of the former Act is sufficient if the definition of grassland under subparagraph 1 of Article 2 of the former Grassland Act is defined under subparagraph 1 of Article 2 of the former Grassland Act, and the permission for the creation of grassland is not necessary. Accordingly, the issue of the instant grassland is a grassland under the Grassland Act and falls under the grassland under Article 68(2) of the former Act, and thus, the transfer income tax on any transfer income accruing from investment in kind in an agricultural company is illegal.

(2) Violation of tax equality principle

Article 68 (2) of the former Act on Special Measures for the Development of Grassland is a provision to strengthen the competitiveness of domestic livestock raisers, and Article 5 of the former Grassland Act is a provision to prevent reckless development due to the development of grassland. In light of this purpose, there is no reasonable ground to discriminate against the investment in kind of grassland permitted for the exemption of capital gains tax and the investment in kind of grassland without the permission for the development of grassland.

If a person who invests in kind farmland actually uses farmland for agriculture regardless of whether he/she has obtained certification of qualification for acquisition of farmland under the Farmland Act, it is against the owner of the farmland and the owner of the grassland on the sole ground that he/she did not obtain permission under the Grassland Act at the stage of creation even if the farmland is actually used in the livestock industry.

A person who owns a fishing land under the former Special Provision of the Fisheries Act shall give preference to tax reduction and exemption if it is actually used for the fishery, and a person who owns a grassland shall discriminate against a person who owns a fishing land without reasonable grounds and a person who owns a grassland not permitted for the development of grassland, even if it is actually used in the livestock industry.

(3) Violation of the principle of substantial taxation

If the grassland was actually created and used as grassland regardless of whether the permission for the creation of grassland was obtained pursuant to the principle of substantial taxation, the transfer income tax is deemed to be a grassland under the Grassland Act. The key land of this case is substantially being developed and used as grassland, and thus the transfer income tax should be exempted, but the disposition of this case imposing the transfer income tax is unlawful.

(4) Violation of the principle of trust protection.

In a lawsuit seeking the revocation of the gift tax disposition of this case, the tax authorities expressed the public opinion that the gift land of this case constitutes grassland under the Grassland. In light of the fact that the gift land of this case and the land at this case are used as all sites for stock farms, there is no boundary classification by boundary marks, etc., and that the land cannot be identified as the land, there is a public opinion indication that the land at this case constitutes grassland. In addition, the National Tax Service has expressed the public opinion by repeatedly interpreting that the " grassland under the Grassland Act" means the land stipulated in subparagraph 1 of Article 2 of the Grassland Act through an inquiry for a long time through an inquiry. Such public opinion statement has no reason to believe that there is no trust in such public opinion statement, and on the basis of such trust, the Plaintiffs made an investment in kind to an agricultural company without going through a separate permission procedure for grassland with the knowledge that the land at this case falls under grassland under the Grassland under the Grassland Act. The imposition of capital gains tax on the land at this case is unlawful against the principle of trust protection.

(5) The farmland under section 68(2) of the former Act is applicable

Since the key land of this case is farmland under the Farmland Act and falls under farmland under Article 68 (2) of the former Act on Special Cases of the Farmland, the disposition of this case imposing capital gains tax is unlawful even though capital gains tax should be exempted.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(1) Whether the pertinent land constitutes grassland under Article 68(2) of the former Special Assistance Act

(A) In light of the principle of no taxation without law, or the requirements for tax exemption or exemption, the interpretation of tax laws shall be interpreted as the text of the law, barring any special circumstances, and it shall not be extensively interpreted or analogically interpreted without reasonable grounds (see Supreme Court Decision 97Nu4173 delivered on October 24, 1997). In particular, it conforms to the principle of fair taxation to strictly interpret that the provisions that can clearly be viewed as a clearly preferential provision among the requirements for reduction or exemption are in accord with the principle of fair taxation (see Supreme Court Decision 97Nu2090 delivered on March 27, 198).

(B) Article 66(4) of the former Act on Special Measures for the Grassland provides that "the grassland under the Grassland (hereinafter referred to as "the grassland") is "the grassland under the Grassland Act" and Article 68(2) of the former Act also refers to "the grassland under the Grassland Act". In full view of the following circumstances, "the grassland under the Grassland Act" refers to "the grassland created with the permission under Article 5 of the former Grassland Act".

① Since Article 68(2) of the former Act on Special Measures for Grassland only provides that grassland is “a grassland under the Grassland” and does not stipulate “a grassland as defined in Article 2 subparag. 1 of the Grassland Act” or “a grassland created with permission under Article 5 of the Grassland Act”, the meaning of “a grassland under the Grassland Act” should be specified by examining the overall regulatory subject and details of the Grassland Act.

However, while the former Grassland Act regulates matters concerning the creation, management, use, and conservation of grassland, the provisions on the creation of grassland (section 2) stipulate under the premise of permission for the creation of grassland under Article 5, and the provisions on the follow-up management of grassland (section 4) stipulate under the premise of the above permission, and the provisions on the universal rules (Chapter 5) and the penal provisions (Chapter 6) stipulate matters on the premise of the above permission or related matters, and only regulates the " grassland created with the permission under Article 5" as a whole, and do not regulate the " Grassland without the permission under Article 5". Thus, it is interpreted that the " grassland under the Grassland Act" means " grassland created with the permission under Article 5 of the former Grassland Act" subject to the regulation of the Grassland Act.

(2) The definition of grassland under subparagraph 1 of Article 2 of the former Grassland Act is defined as grassland according to the purpose of use and status of use of the land, and it is not natural that does not result in human use. If a person intends to use the land as grassland under the above provision, he/she shall obtain permission for the development of grassland under Article 5 of the former Grassland Act. Even if the land conforms to the definition of grassland under subparagraph 1 of Article 2 of the former Grassland Act is a land that meets the definition of grassland under subparagraph 1 of Article 2 of the former Grassland Act, the land that is not subject to permission for the development of grassland under Article 5 of the former Grassland Act

③ The farmland under Article 68(2) of the former Act is subject to various regulations for the conservation of farmland, such as restrictions on the diversion of farmland for the purpose of the Farmland Act. However, the grassland created without the permission for the development of grassland under Article 5 of the former Grassland Act is excluded from the subject of restrictions, such as restrictions on the diversion of farmland for the purpose of the former Grassland Act and restrictions on activities, and it is appropriate to regard the grassland under the Grassland as the grassland created with the permission for the development of grassland under Article 5 of the former Grassland Act as the grassland under Article 68(2) of the former Act.

④ The legislative intent of Article 68(2) of the former Act is to promote an agricultural company as a means of tax reduction or exemption in order to manage the agriculture or distribute, process, or sell agricultural products, or to act for farmers’ farming activities (Article 19 of the Act on Fostering and Supporting Agricultural and Fisheries Enterprises). The grassland created without permission to create grassland under Article 5 of the former Grassland Act is excluded from the payment of costs incurred in creating grassland for exclusive use (Article 23), restrictions on activities (Article 21-2), and criminal punishment (Article 30 and Article 31) due to violation of administrative regulations, such as restrictions on exclusive use and conversion under the former Grassland Act, and restrictions on activities (Article 21-2). Thus, if it is interpreted that permission to create grassland is not required in grassland under Article 68(2) of the former Act, it would be possible to temporarily use the land without permission to obtain capital gains tax for the purpose of being exempted and use it for other purposes without permission for investment in kind to an agricultural company, and thus it would be possible to use it for other purposes.

(C) According to the above recognition, the pertinent land is not a grassland created with the permission to create grassland under Article 5 of the former Grassland Act, and it does not constitute grassland under Article 68 (2) of the former Act.

(2) Whether the principle of tax equality is violated

(A) The principle of tax equality is a principle that the imposition and collection of taxes must be conducted fairly and equally in conformity with the taxpayer’s ability to pay taxes, and that discrimination or preferential treatment against a specific taxpayer is not allowed without reasonable grounds. Moreover, even in the case of preferential treatment of tax reduction and exemption, if it is deemed that taking measures only for a specific taxpayer is remarkably unreasonable and unfair measures, it shall be unconstitutional against the principle of tax equality. However, in the legislative purpose of granting benefits of tax reduction and exemption, determination of the scope in light of the legislative purpose, fairness of taxation, etc. is within the broad discretion of the legislators, and it cannot be readily concluded that such determination is unconstitutional unless it is deemed that the legislative purpose of granting benefits of tax reduction and exemption belongs to the broad discretion of the legislators and clearly deviates from the discretionary scope. Meanwhile, remaining tax preferential measures would result in the tax burden of a specific taxpayer subject to tax reduction and exemption to other taxpayers, and thus, it would be contrary to the ideology of tax equality, and thus, it would be unconstitutional if the legislators considers that the scope of tax exemption is within 20 10 percent (see 20).

(B) Pursuant to the aforementioned interpretation, the investment in kind of fishing land under Article 67(4) of the former Special Helping Act provides that the investment in kind of grassland and the investment in kind of farmland under Article 68(2) of the former Special Helping Act shall be exempted from capital gains tax pursuant to the aforementioned interpretation. The investment in kind of grassland created without permission for the development of grassland is not subject to exemption from capital gains tax. However, unlike the grassland in the case of farmland and fishing land, there is no procedure for permission for the development of grassland, and the legislators cannot be deemed to have a duty to regulate the development of grassland illegally created as identical to the farmland, fishing land, and grassland created lawfully. Rather, considering the national economic situation, it can be deemed as a problem of legislative policy that should be decided jointly, taking into consideration, the investment in kind of grassland created without the permission for the development of grassland under Article 68(2) of the former Special Helping Act is not subject to exemption from capital gains tax, and thus, it cannot be deemed significantly unreasonable and unreasonable measures. Therefore, insofar as the Plaintiffs cannot be subject to tax reduction or exemption from taxation without legal requirements.

(3) Whether the substance over form principle is violated

As seen earlier, the permission to create grassland under Article 5 of the former Grassland Act is required to grant permission for the development of grassland under Article 68(2) of the former Act. Since the instant land does not fall under the grassland under Article 68(2) of the former Act, and thus, the instant land is subject to capital gains tax, and thus its transfer income is subject to capital gains tax, and is actually being used as grassland. Thus, the instant disposition cannot be said to violate the principle of substantial taxation solely on the basis that the instant land is actually created and used as grassland.

(4) Whether the principle of trust protection is violated

The preceding favorable judgment is related to the imposition of gift tax of this case on the ground of the gift of this case on the ground of the gift of this case, and the preceding favorable judgment is recognized as a fact that the land of this case constitutes grassland under Article 58(1)1 (b) of the former Act, and it is not related to whether the land of this case constitutes grassland under Article 68(2) of the former Act. Thus, it is difficult to deem that the Defendant’s public opinion that the land of this case constitutes grassland under Article 68(2) of the former Act on Special Assistance.

In addition, according to the evidence No. 23-1 through No. 7 of this case, it is recognized that the National Tax Service made a reply to the effect that the " grassland pursuant to the Grassland" through several inquiries from other civil petitioners prior to the date of investment in kind in the land of this case ( November 19, 2009) refers to the land stipulated in Article 2-1 of the Grassland Act. However, the above inquiry reply is not just a reply to the plaintiffs' inquiries, but it is merely a mere content of consultation, and it is difficult to view it as an official statement by the tax authority against the plaintiffs. Even if the above inquiry reply was publicly announced externally, it is merely an expression of opinion as to the interpretation of the tax law that is generally published against the unspecified taxpayer, and it is difficult to view it as a public statement by the tax authority required for the application of the principle of trust protection.

Therefore, as long as the existence of a public opinion statement that the land at issue in this case constitutes grassland under Article 68 (2) of the former Act, the disposition in this case cannot be deemed to violate the principle of protection of trust.

(5) Whether the pertinent land falls under farmland under Article 68(2) of the former Act on Special Assistance in the Law

(A) Article 68(2) of the former Special Act on the Protection of Agricultural and Fishing Villages only provides that "farmland" is "farmland (limited to farmland) and does not provide that "Article 2(2) of the former Special Act is "the same as the term used in any Act provided for in Article 3(1)1 through 19, except as otherwise expressly provided for in this Act," and Article 3(1)1 through 19 of the former Special Act is listed in Article 3(1)1 through 19 of the former Special Act and does not include farmland. Therefore, the farmland provided for in Article 68(2) of the former Special Act is not the Farmland Act, but the same as the term used in any Act listed in Article 3(1)1 through 19 of the former Special Act on the Protection of Agricultural and Fishing Villages.

(B) Article 104-3(1)1 and (3) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009; hereinafter the same shall apply) listed in Article 3(1)1 of the former Act and Article 168-8(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21934 of Dec. 31, 2009; hereinafter the same shall apply) provide that “farmland” means the land actually used for farming regardless of its land category on the original land register as “those land, such as farming shed, compost, pumping station, pumping station, branch office, waterway, etc.” In this case, Article 104-3(1)3 and (3) of the former Income Tax Act and Article 168-10(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21934 of Dec. 31, 2009; hereinafter the same shall apply).).

In addition, Article 67 of the Act on Land Survey, Waterway Survey and Cadastral Records and Article 58 of the Enforcement Decree of the same Act shall also apply to the standards for the classification of land for rice paddy, field, orchard, and stock farm. Article 58 subparag. 1 through 3 of the Enforcement Decree of the same Act provides for "electric field, field, and orchard" and Article 58 subparag. 4 of the same Decree provides for "land for stock farm" and "land for stock farm" shall be classified into "land: Provided, That land for residential buildings shall be classified into land for stock farm: (a) Land for stock farm to create grassland for livestock farming and dairy farming; (b) Land for livestock shed, etc. to raise livestock under subparagraph 1 of Article 2 of the Livestock Industry Act; (c) Land for the attached facilities connected to land

Therefore, Article 68 (2) of the former Enforcement Decree of the Income Tax Act provides that farmland in the above Article 104-3 (1) 1 and (3) of the former Income Tax Act and Article 168-8 (1) of the former Enforcement Decree of the Income Tax Act refers to the land actually used for farming regardless of its land category on the public land register, and the part of land directly necessary for its management, such as farming shed, compost, pumping station, branch office, concentration, waterway, etc. It refers to the land whose actual use status is the dry field, orchard, orchard, and related facility site regardless of its land category on the public land register, and the land whose actual use status is a stock farm site is not included in the above farmland [Article 3 (1) 12 of the former Act and Article 202 of the former Enforcement Decree of the Income Tax Act (amended by Act No. 9924 of Jan. 1, 2010) provides that "the above provisions concerning farmland shall not be included in the above farmland," while Article 202 of the former Enforcement Decree of the Income Tax Act provides that "the above farmland shall be included in the above farmland."

(C) As recognized earlier, the key land of this case falls under the category of grassland stipulated in Article 2 subparagraph 1 of the former Grassland Act as the place of feed crops growing and its incidental facilities. This falls under the category of grassland stipulated in Article 2 subparagraph 1 of the former Grassland Act. Since the land at issue of this case does not fall under the category of “ full-time, paddy field and orchard” which is farmland under the former Income Tax Act, it does not fall under the category of “ full-time, paddy field and orchard. Thus, the key land at this case does not fall under farmland under Article 68 (2)

(6) Sub-committee

Therefore, all of the plaintiffs' arguments are without merit, and the disposition of this case is legitimate.

3. Conclusion

Therefore, the plaintiffs' claims of this case are all dismissed due to the lack of reasons, and the judgment of the court of first instance is just, and the plaintiffs' appeal is dismissed in its entirety due to the lack of reasons. It is so decided as per Disposition.

[Attachment Form 5]

Judges Lee Jin-hun (Presiding Judge)