[1] In a case where a purchaser who entered into a real estate sales contract has maintained the right and duty relationship under a sales contract or the status of a purchaser while he/she did not liquidate the price and concluded a sales contract for the real estate with a third party and completed the registration of ownership transfer to a third party, whether Article 104 (1) 3 of the former Income Tax Act applies to the heavy tax rate for the unregistered transferred assets

[2] Legislative intent of Article 26-2(1)1 of the former Framework Act on National Taxes and cases where the act of resale of unregistered real estate constitutes “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes

[1] Where a purchaser who entered into a real estate sales contract transfers his/her rights and duties or the purchaser's status to a third party and withdraws from the sales contract, it is merely a transfer of the right to acquire real estate, and the registration of acquisition is not possible in principle unless there are special circumstances, such as special agreements prior to the completion of the registration of ownership transfer even before the balance is paid in full, and even if such transfer is made, the heavy taxation rate on the unregistered transferred assets under Article 104 (1) 3 of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003; hereinafter the same shall apply) cannot be applied. However, even if the purchaser who entered into a real estate sales contract fails to pay the price in full, if the purchaser again enters into a sales contract with a third party while maintaining the status of the purchaser and maintaining the rights and obligations under the sales contract or the purchaser's status, it constitutes a transfer of real estate, and if the purchaser later pays the remainder to the seller, it is possible for the purchaser to complete the registration of ownership transfer without delay.

[2] The legislative intent of Article 26-2(1)1 of the former Framework Act on National Taxes (amended by Act No. 7008, Dec. 30, 2003; hereinafter the same) is to extend the exclusion period for imposition of the pertinent national tax to 10 years since it is extremely difficult for the tax authorities to expect the exercise of the imposition right because it is more difficult to expect the exercise of the imposition right because it is difficult to find that there is a tax evasion return, unlike mere non-report, in a case where there is any unlawful act such as making it difficult to detect the taxation requirement of the national tax or forging false facts, etc. Therefore, the exclusion period for imposition of the pertinent national tax is extended to 10 years. Therefore, the purchaser of real estate takes part in preparing a sales contract as if he/she directly entered into a sales contract between the seller and the final buyer. Furthermore, the transfer registration of ownership is directly going against the final buyer’s name without making a preliminary return or final return of transfer income tax, and it is a fraudulent scheme or other active act that significantly makes it impossible or considerably difficult to impose and collect tax.

[1] Articles 94(1)1, 94(1)2(a) and 104(1)3 (see current Article 104(1)10) and (3) of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003) / [2] Article 26-2(1)1 and 2 of the former Framework Act on National Taxes (amended by Act No. 7008 of Dec. 30, 2003)

[1] Supreme Court Decision 2010Du23408 Decided September 27, 2012

Plaintiff (Law Firm Initial, Attorneys Lee Dong-name et al., Counsel for the plaintiff-appellant)

The Director of the Pacific District Office

Seoul High Court Decision 2012Nu9033 decided May 9, 2013

Of the judgment below, the part against the Defendant regarding the principal income tax shall be reversed, and that part of the case shall be remanded to the Seoul High Court. The Plaintiff’s appeal and the Defendant’s remaining appeal

1. As to the defendant's appeal

A. Principal capital gains tax portion

The grounds of appeal are examined.

(1) Article 94(1) of the former Income Tax Act (amended by Act No. 7006 of Dec. 30, 2003; hereinafter the same) provides that "transfer income shall be the income falling under any of the following subparagraphs generated in the current year," and subparagraph 1 provides that "income accruing from the transfer of land or a building," and subparagraph 2(a) provides that "income accruing from the transfer of the right to acquire real estate," respectively, is subject to taxation. Meanwhile, Article 104(1)3 of the former Income Tax Act, which sets the transfer income tax rate, provides that "The unregistered transferred asset under Article 94(1)3 of the former Income Tax Act shall be applied to the unregistered transferred asset, while the person who acquired the asset under Article 94(1)1 and 2 shall not register the acquisition of the asset."

In principle, barring special circumstances, such as the transfer of ownership by special agreement between the parties to a sale and purchase, where a purchaser who entered into a real estate sales contract transfers the rights and duties or the status of the purchaser to a third party and withdraws from the sales contract relationship with the purchaser without settling the price, it is merely a transfer of the right to acquire real estate, and it is not possible to register the acquisition in principle unless there are special circumstances such as special agreement to transfer the ownership transfer prior to the payment in full. Thus, even if such transfer is made, the heavy taxation rate on unregistered transferred assets under Article 104(1)3 of the former Income Tax Act cannot be applied (see, e.g., Supreme Court Decision 2010Du23408, Sept. 27, 2012). However, even if the purchaser who entered into a real estate sales contract fails to pay the price in full, if the purchaser again enters into a sales contract with a third party while maintaining the status of the purchaser, it constitutes a transfer of real estate under the name of the purchaser. Thus, if the purchaser fails to register the transfer of ownership transfer to a third party.

(2) According to the reasoning of the judgment below, the plaintiff entered into a sales contract with the non-party 1 to purchase the land of this case at KRW 1.366 million (hereinafter "the first sales contract") around May 2002. ② The plaintiff entered into a real estate sales contract with the non-party 1 to sell the land of this case at KRW 2.4 billion after paying the down payment to the non-party 2 on June 8, 2002. The plaintiff received KRW 300 million from the non-party 2 on the same day. ③ The non-party 2 sold the right to purchase the land of this case at KRW 30 million again on July 15, 2002 to the non-party 30 million. The plaintiff gave up all rights under the sales contract concluded with the plaintiff at the same time with the non-party 1 to register the transfer of the land of this case and paid the remainder to the non-party 1 to the non-party 300 million.

(3) Examining these facts in light of the legal principles as seen earlier, insofar as the Plaintiff entered into a sales contract on the instant land with Nonparty 2 without settling the price to Nonparty 1, but the Plaintiff continued to maintain the rights and obligations or the status of purchaser under the first sales contract, this constitutes the transfer of real estate, not the transfer of the right to acquire real estate. Although the Plaintiff received the remainder from Nonparty 3 who succeeded to the status of Nonparty 2 and was able to register the acquisition in full, it was immediately completed the registration of transfer of ownership to Nonparty 3 without completing the registration of transfer of ownership under the Plaintiff’s name, and thus, the heavy taxation rate on the unregistered transferred assets under Article 104(1)3 of the former Income Tax Act shall be applied.

(4) Nevertheless, the court below held that the portion exceeding the tax amount calculated by applying 36% of the capital gains tax rate for assets, the holding period of which is less than one year under Article 104 (1) 2 of the former Income Tax Act, on the ground that the Plaintiff’s resale of the instant land without settling the price under the sales contract is merely a transfer of the right to acquire real estate, and thus, it cannot be applied to the unregistered transferred assets under Article 104 (1) 3 of the former Income Tax Act. Such judgment below erred in the misapprehension of legal principles as to the unregistered transferred assets under Article 104 (1) 3 of the former Income Tax Act. The ground of appeal assigning this error is with merit.

B. Additional tax portion

The court of final appeal may investigate and determine only to the extent of filing an appeal based on the grounds of final appeal. As such, the grounds of final appeal should specify the grounds of final appeal and explain specific and explicit reasons as to which part of the judgment below violated the statutes (see Supreme Court Decision 2011Du26015, Feb. 23, 2012, etc.).

However, the petition of appeal in this case does not state the grounds of appeal as to the additional tax portion, and the appellate brief does not state specific and explicit grounds as to what portion of the judgment below which accepted the plaintiff's claim as to the additional tax portion is in violation of the law, so it cannot be deemed that there is legitimate grounds of appeal. There is no other reason of illegality subject to ex officio examination in this part of the judgment below

2. As to the Plaintiff’s appeal

The grounds of appeal are examined.

A. Article 26-2(1) of the former Framework Act on National Taxes (amended by Act No. 7008, Dec. 30, 2003; hereinafter the same) provides that when a taxpayer fails to file a tax base return within the statutory due date of return, the exclusion period of imposition of national taxes shall be seven years (No. 2); however, the exclusion period of imposition shall be extended by 10 years from the date on which the relevant national tax may be imposed (No. 1).

The legislative purport of Article 26-2(1)1 of the former Framework Act on National Taxes is to extend the exclusion period for imposition of national taxes to 10 years since it is extremely difficult for the tax authorities to expect the exercise of the right to impose taxes, in cases where there is any unlawful act, such as making it difficult to detect the taxation requirement of national taxes or forging false facts, unlike simple non-declaration of return, because it is difficult for them to find that there is any omission report. Therefore, as such, the exclusion period for imposition of national taxes is extended to 10 years. Therefore, as if a purchaser of real estate has concluded a direct sales contract between a seller and a final buyer, he/she takes part in preparing a sales contract as if he/she had a direct sales contract between the seller and the final buyer, and furthermore, the transfer registration of ownership is made to be completed directly from the final buyer in the future without filing a preliminary or final return on transfer income tax, and it constitutes fraudulent or other active act that makes it difficult or considerably difficult to impose and collect taxes.

B. Examining the records in light of the aforementioned provisions and legal principles, although the court below judged on the premise that the Plaintiff transferred the right to acquire the instant land, it is justifiable in its conclusion to reject the Plaintiff’s assertion on the ground that the Plaintiff’s act constitutes “Fraud or other unlawful act” and thus ought to be deemed ten years of exclusion period of transfer income tax. In so doing, contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles on “Fraud or other unlawful act” under Article 26-2(1)1 of the former Framework Act on National Taxes, or by violating

3. Conclusion

Therefore, the part of the judgment of the court below against the defendant as to the principal income tax is reversed, and that part of the case is remanded to the court below for a new trial and determination. The plaintiff's appeal and the defendant's remaining appeal are dismissed. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Poe-dae (Presiding Justice)