Whether the non-taxation provisions on one house for one household apply

In case of transferring a house after becoming a non-resident due to immigration, the transfer income tax shall be exempted in case where one house is held in Korea as of the date of transfer of the relevant house and meets the non-taxation requirements, such as holding it in the position of resident

Article 89 of the Income Tax Act

1. Revocation of a judgment of the first instance;

2. The defendant's disposition rejecting capital gains tax correction against the plaintiff on November 8, 2005 shall be revoked.

3. The total costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On November 11, 1993, the Plaintiff acquired and resided in ○○○○○ apartment ○○○○○○ apartment ○○○, ○○○ apartment ○○, dong (hereinafter “instant apartment”) and all households depart from New Zealand on June 14, 1996 due to emigration under the Emigration Act.

B. On August 9, 1998, the Plaintiff obtained ○○ Industrial Cooperative’s ○○○○○ Industrial Cooperative on April 14, 200, 200 ○○○○-dong ○○○○○○○○○○○, and the Plaintiff retired from the said Cooperative to New Zealand on June 14, 2002, and became a non-resident.

C. On September 7, 2004, the Plaintiff transferred each apartment of this case on September 13, 2006, and reported and paid KRW 44,965,250 to the Defendant.

D. However, on October 26, 2004, the Plaintiff filed a request for correction of transfer income tax claiming the refund of transfer income tax paid as above on the ground that the transfer of the apartment of this case to the Defendant should be exempted pursuant to the special provisions on one house for one household. However, on November 8, 2005, the Defendant rendered the instant disposition rejecting the said request for correction on the ground that the transfer of the apartment of this case to the Plaintiff constitutes the transfer of two houses by a nonresident and the non-taxation provisions on one house for one household are not applicable.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The standard time for determining one house for one household subject to non-taxation is the time of transfer. The plaintiff possessed the apartment house of this case in the position of the resident at the time of transfer for not less than three years, and resided for not less than two years during the retention period, satisfying the requirements for non-taxation of capital gains tax, and if all members of the household depart from the country as of the transfer date, if they own only one house in Korea as of the transfer date, even if they transfer the house under the status of non-resident, the transfer income tax should be exempted even if they transfer the house under the status of non-resident.

B. Relevant statutes

Article 89 (Non-Taxable Transfer Income Tax Act)

(1) No capital gains tax (hereinafter referred to as "capital gains tax") shall be levied on the following incomes:

3. Income accruing from transfer of such one house for one household as prescribed by the Presidential Decree (excluding expensive houses whose prices exceed the standard prescribed by the Presidential Decree) and the appurtenant land within the area calculated by multiplying the area of the land on which the building is built by the ratio as determined by region under the Presidential Decree (hereafter in this Article, referred to as the “land annexed to the house”);

Article 94 (Scope of Transfer Income Tax)

(1) Transfer income shall be the following incomes generated during the relevant year:

1. Income accruing from transfer of land (referring to a lot of land subject to registration of land category in the cadastral record under the Cadastral Act) or buildings (including the facilities and structures annexed to such buildings);

Article 119 of the Income Tax Act (Domestic Source Income of Nonresident)

Domestic source income of a nonresident shall be classified as follows:

9. Transfer incomes as prescribed in Article 94 (excluding the incomes under paragraph (1) 3 of the same Article), which are prescribed by the Presidential Decree: Provided, That it shall be limited to the case where the assets earning such incomes are located in Korea;

○ Article 121 of the Income Tax Act (Method of Taxation on Nonresident)

(2) With respect to nonresidents holding the domestic business place as prescribed in Article 120 and those having incomes as prescribed in subparagraph 3 of Article 119, the income tax shall be assessed by adding up the incomes (excluding the incomes withheld at source under Article 156 (1)) as prescribed in subparagraphs 1 through 7 and 11 through 13 of Article 119, and with respect to those having the incomes as prescribed in subparagraphs 8 through 10 of Article 119, by the same method as residents, respectively.

Article 154 (Scope of One House for One Household) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19327 of Feb. 9, 2006)

(1) The term “one house for one household prescribed by the Presidential Decree” in Article 89 (1) 3 of the Act means the case where a household comprised by a resident and his spouse together with the family members living together with him at the same address or same place of residence (hereinafter referred to as “one household”) in Korea as of the date of transfer, and where the relevant house is held for not less than three years (in the case of a house located in a separate urban area designated and publicly notified as a planned area for housing site development under Article 3 of the Seoul Special Metropolitan City, Metropolitan City, Si and Do, and Si/Gun/Gu, the relevant house shall be held for not less than three years and the period of residence during the retention is not less than two years): Provided, That where one household has one house in Korea as of the date of transfer and falls under any of the following subparagraphs, its retention period and period of residence shall not be restricted:

2. The case falling under any of the following items. In such cases, the remaining house and its appurtenant land which are transferred within two years from the relevant transfer date or expropriation date shall be deemed to be included in the cases of item (a):

(c) Emigration or other cases prescribed by the Ordinance of the Ministry of Finance and Economy;

Article 71 (Scope of One House for One Household) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 503 of April 10, 2006)

(2) The term “overseas emigration and other cases prescribed by the Ordinance of the Ministry of Finance and Economy” in Article 154 (1) 2 (c) of the Decree means the case where the relevant house falls short of the retention period and residence period on the grounds falling under any of the following subparagraphs:

1. Where all members of a household depart the country for emigration under the Emigration Act;

2. Where all members of a household depart from Korea due to such conditions as study or work needing continuous overseas residence for not less than one year; and

○ General Rule 89-12 of the Income Tax Act (in the case of non-taxation for not less than three years due to immigration, whether it is non-taxation)

(1) Where a resident who has owned only one house in the Republic of Korea transfers one house in the Republic of Korea in the status of becoming a nonresident as he/she leaves the Republic of Korea due to foreign immigration, etc., he/she shall be exempted from taxation for one house for one household without any limit

C. Determination

(1) The key issue of the instant case is whether a provision on non-taxation of capital gains tax for one household is applied to the initial house transferred later after first disposing of the house additionally acquired by a nonresident who owned two houses in Korea and moved abroad as a resident.

(2) Chapter 3 of the former Income Tax Act provides that one house for one household as prescribed by the Presidential Decree under Article 89 subparagraph 3 of the same Article and the income accruing from the transfer of land within a certain area attached thereto shall not be subject to the transfer income tax. Article 154 (1) of the former Enforcement Decree of the Income Tax Act provides that "one house for one household" shall mean that where the resident and his spouse together with the family members living together with the same address or same place of residence (hereinafter referred to as "one household") have one house in the Republic of Korea as of the transfer date, one house for three years or more (in case of a house located in Seoul Special Metropolitan City, etc., the retention period of the relevant house shall be three years or more, and the residing period shall be 2 or more years during the retention period).

However, as above, Article 89 subparagraph 3 of the Income Tax Act provides for the head of tax liability for the transfer income of a resident, and comprehensively delegates the definition and scope of one house for one household, which is the object of non-taxation of the transfer income tax, to the Presidential Decree, and Article 154 (1) of the Enforcement Decree provides that the scope of one household shall be "resident" as to the scope of one household, and the issue of taxation of the transfer income tax on the transfer income of one house for one household of "non-resident" is merely a tax policy issue, and thus, as long as there is no special provision, the owner at the time of transfer of the house shall be a resident.

However, Article 154 (1) (proviso) 2 (c) of the former Enforcement Decree of the Income Tax Act provides that "if one household possessing one house in Korea as of the date of transfer fails to be subject to restrictions on the retention period and residence period of one house which is the requirement of non-taxation, one of them refers to the case prescribed by the Ordinance of the Ministry of Finance and Economy." Article 71 (2) 1 of the former Enforcement Rule of the Income Tax Act provides that "if all members of one household depart from Korea due to emigration under the Emigration,

Therefore, in light of the fact that the main sentence of Article 154(1) of the Enforcement Decree provides for the scope of one household as a "resident" but the proviso provides for the "overseas relocation", it shall be deemed that the owner of a house at the time of the transfer of the house expands the application requirements of non-taxation provisions for capital gains tax until he/she is under the status of a non-resident as the owner of the house at the time of the transfer of the house. In other words, pursuant to the above provisions of the Enforcement Decree, in cases where a resident acquired and owned a house in Korea and became a non-resident and then transferred a house in Korea after becoming a non-resident, the transfer income tax shall be interpreted as non-taxation in cases where he/she has a house in

As seen earlier, the Plaintiff, as a resident, owned each apartment of this case from November 11, 1993 to June 14, 1996, and from August 9, 1998 to June 14, 2002, which is the date of departure from Korea, as well as from June 14, 2002, as the period of possession is at least three years, and the period of residence was at least two years after residing in the apartment of this case from November 11, 1993 to June 14, 1996. The transfer of the apartment of this case was owned only as of September 13, 2004, which is the transfer date, and thus, the Plaintiff’s transfer of the apartment of this case constitutes one house subject to non-taxation of capital gains tax under the relevant Acts and subordinate statutes. Accordingly, the Defendant’s disposition of this case is unlawful on a different premise.

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and the judgment of the court of first instance is unfair with different conclusions, so it is decided as per Disposition by accepting the plaintiff's appeal and cancelling the disposition of this case.