Cho Jae-2018-west-563 (2018.04.10)

Expenses incurred in replacing Dom or light, etc. shall not be deemed capital expenditure, and the mistake of capital gains as other income shall not be a legitimate reason for additional tax reduction or exemption.

Expenses incurred in replacing Dom or light, etc. shall not be deemed capital expenditure, and the mistake of capital gains as other income shall not be a legitimate reason for additional tax reduction or exemption.

Article 94 of the Income Tax Act: Scope of Transfer Income

Article 97 (Calculation of Necessary Expenses for Transfer Income)

2018Gudan13936, revocation of imposition, such as capital gains tax

Han ○

○ Head of tax office

November 7, 2018

November 14, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of capital gains tax of KRW 000 against the Plaintiff on May 13, 2017 is revoked (the purport of the claim is as above).

1. Details of the disposition;

A. On December 21, 2012, the Plaintiff, KimA, and KimB (hereinafter collectively referred to as “the Plaintiff and two others”) purchased 1/3 shares in each of the instant real estate in a voluntary auction procedure, and acquired 1/3 shares in the instant real estate driving range (hereinafter referred to as “instant real estate”). On September 6, 2016, the Plaintiff, KimA, and KimB (hereinafter referred to as “the instant real estate driving range”) purchased 1/3 shares in each of the instant real estate in the instant real estate driving range (hereinafter referred to as “the instant real estate driving range”). On December 21, 2016, the Plaintiff and the Non-Party Jeong-CC transferred the instant real estate to the Non-Party 10, the total purchase price of the instant real estate to 8--, ---, ----, and ---, the instant real estate.

B. A sales contract made at the time of the above transfer includes 6,-----, ---, ---, ---, or 1,----, ---, and 376, such as the value of equipment and facilities, and 479,--, ---, and ---wons of the total sales amount, and 376,-6, for the sales amount of the building in the golf range.

C. On November 22, 2016, the Plaintiff calculated the acquisition value of the Defendant as KRW 2,---, ----, ---, transfer value as well as KRW 2, 2, ---, ----, -- (total purchase amount of KRW 8, 8--, -----, ----, the amount equivalent to the Plaintiff’s share of capital gains tax after deducting the appraised amount of facilities, equipment, etc. indicated in the above sales contract from KRW 376, 379, 479, ---, ---, ----, and necessary expenses.) and paid KRW 00 of capital gains tax by calculating necessary expenses as KRW 0.

D. On May 23, 2017, the Defendant: (a) additionally included the part corresponding to the Plaintiff’s co-ownership share in the total amount of 376,----, ---, and 479,--, ---, of the total amount of the sales license of this case, in the transfer value reported above on May 23, 2017; (b) corrected the transfer value as KRW 2,--,---,---,---, from 0 to 2,-----,----,---, and corrected the transfer income tax by calculating the necessary expenses from KRW 0 to 107,---,-----, and added part of the brokerage commission to the necessary expenses on December 28, 2017; and (c) reduced the transfer income tax to KRW 00 (including the portion remaining after adding the brokerage commission to the necessary expenses; and (d) reduced the transfer income tax to 000 won (hereinafter referred to as “the remaining portion of the instant disposition”).

E. On July 13, 2017, the Plaintiff filed an objection against the Defendant. However, on September 28, 2017, the objection was dismissed, and the Plaintiff filed an appeal with the Tax Tribunal on November 17, 2017, but the appeal was dismissed on April 10, 2018.

Facts without any dispute, Gap's 1, 2, Eul's 1 to 5, the purport of the whole pleadings, and the purport of the whole pleadings.

2. Whether the instant disposition is lawful

(a) Related Acts and subordinate statutes;

It is as shown in the attached Table related statutes.

B. The assertion and determination that the replacement construction cost such as painting and painting should be included in the necessary expenses

1) The plaintiff's assertion

The Defendant is not included in the necessary expenses of the construction cost of the instant building, 376,----, ---, - Of the construction cost incurred by the Plaintiff and two other persons in connection with the instant building (referring to the amount in which the value of the equipment, etc. is stated in the instant sales contract), 36, ---, ---, 18, ----, and ----, the cost of replacing the equipment, etc. such as painting construction cost and the cost of replacing the operating light (hereinafter referred to as “the construction cost of the instant case”) are not included in the necessary expenses, but the cost of the instant real estate is substantially damaged and disbursed for its restoration due to the typhoon’s impact on August 2012 (hereinafter referred to as “the cost of the instant construction”) and thus falls under the portion equivalent to the Plaintiff’s share under Article 97(5) of the former Income Tax Act (amended by Presidential Decree No. 14389, Feb. 20, 2016; hereinafter the same).

2) Determination

A) According to Article 97(1)2 of the former Income Tax Act, Articles 163(3)1 and 67(2) of the former Enforcement Decree of the Income Tax Act, among necessary expenses that can be deducted from the transfer value when calculating transfer margin, capital expenditure refers to "repair expenses paid to extend the lifespan of depreciable assets owned by a business entity or to increase the real value of the relevant assets," or "expenses paid for the alteration, improvement, or convenience of the use of transferred assets," among these expenses, for the alteration of the former repair cost to change the original use, installation of elevators or cooling equipment, installation of escape facilities, such as buildings, etc., and other similar improvement, expansion, etc. of those that have no usefulness for the original use of the relevant assets due to the destruction or damage of the buildings, machinery, equipment, etc., and other similar improvement, expansion, enlargement, etc." (see, e.g., Supreme Court Decision 2008Nu41979, Apr. 19, 2008; Supreme Court Decision 2005Nu19497, Apr. 19, 197, 2019).

B) In light of the following circumstances, the instant construction cost cannot be deemed as capital expenditure that can be included in the necessary expenses. Therefore, this part of the Plaintiff’s assertion is without merit.

(1) Even if the Plaintiff’s assertion on the instant construction cost payment is acknowledged as it is, in light of the fact that, even after August 2012, the Plaintiff and two other parties continued to operate a golf practice range on the instant real estate from the instant real estate to the time of the purchase of the instant real estate in the voluntary auction procedure (Evidence 5), it is difficult to view the instant construction cost as repair cost as “the cost of restoring buildings, machinery, equipment, etc. that have been destroyed or damaged by a disaster that has no usefulness for its original purpose.”

(2) In light of the content of the instant construction claimed by the Plaintiff, the instant construction costs are merely deemed to correspond to the “capital expenditures disbursed to increase the objective value of the instant real estate,” rather than the “capital expenditures disbursed to conduct the instant real estate business.” With respect to corporate tax laws that classify capital expenditures and beneficial expenditures similar to income tax laws and regulations, Article 17 of the Enforcement Rule of the Corporate Tax Act, which does not constitute capital expenditures, is deemed to correspond to the “beneficial expenditures” and Article 17 of the Enforcement Rule of the Corporate Tax Act, which does not correspond to the “beneficial expenditures,” the substitution of the damaged glass or machinery (subparagraph 1) with the damaged glass or machinery (subparagraph 2), the replacement of the damaged accessories or bell (subparagraph 3), the replacement of the automobile language (subparagraph 4), the restoration of the exterior of the assets damaged by the disaster, the insertion of glass (subparagraph 5) and the maintenance of other operational conditions (title 6), and the costs and expenses prescribed in subparagraphs 1 through 6, respectively, are similar.

(3) The Plaintiff asserts that, even though there is no substantial difference between the construction cost of the instant case and the remainder of the construction cost incurred by the Plaintiff and two others in relation to the instant building, it is unreasonable that the Defendant did not include only the instant construction cost as necessary expenses. The remainder of the construction cost claimed by the Plaintiff includes human turd, golf net construction cost, etc. As such, this part also appears to be likely to constitute a beneficial expenditure for the instant business, but if the instant construction cost also falls under a beneficial expenditure, such as human turd and golf net construction cost, it may be problematic that the Defendant included this part of the expenses as necessary expenses, and it cannot be deemed that measures not included in the construction cost as necessary expenses, which correspond to beneficial expenditure, are unlawful.

C. Illegal assertion and determination of general underreporting penalty tax

1) The plaintiff's assertion

The Plaintiff mispercing that the income from the transfer of the instant goodwill constituted not "transfer income, but "other income," and did not report it as transfer income, and it should be deemed that there was a justifiable reason that did not have any choice to neglect the obligation to report to the Plaintiff. As such, the portion of "additional Tax for Indecent Return" in the disposition of additional tax in this case is unlawful.

2) Determination

A) In order to facilitate the exercise of taxation rights and the realization of tax claims, additional tax under the tax law is an administrative sanction imposed as prescribed by the Act in cases where a taxpayer violates various obligations, such as a tax return and tax payment, without justifiable grounds, and thus, it cannot be subject to such a sanction in cases where there are justifiable grounds for not being able to cause the taxpayer’s negligence in performing his/her duties, such as where it is difficult for him/her to be aware of his/her duties due to the conflict of opinion due to the significance of the interpretation of the tax law beyond the simple scope of land or misunderstanding under the tax law, or where it is unreasonable for him/her to expect the performance of his/her duties, etc. (see, e.g., Supreme Court Decision 201Du7177, Jun. 27, 2013). However, the determination that a taxpayer is exempted from the duty of tax payment, etc. by interpretation of his/her own name does not constitute a justifiable ground for failing to constitute a violation of the duty (see, e.g., Supreme Court Decision 2017Du7176).

B) With respect to this case, Article 21 (1) of the former Income Tax Act provides that "other income shall be income other than interest income, dividend income, business income, earned income, annuity income, retirement income, and capital gains as follows." Article 21 (3) of the former Income Tax Act provides that "the specific scope and calculation method of other income and other necessary matters shall be prescribed by Presidential Decree." Article 41 (3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016) provides that "other income shall include the economic benefits that are obtained by obtaining the authorization, permission, license, etc. from an administrative agency, and the right to receive the income in return for transfer of fixed assets for business (referring to fixed assets under Article 94 (1) 1 and 2 of the Income Tax Act) shall not be included in the transfer of fixed assets for business and fixed assets under Article 41 (1) 4 (a) of the former Enforcement Decree of the Income Tax Act.

C) In light of the above provisions of the Act and subordinate statutes, the fact that the income from the transfer of business rights, which was transferred along with the fixed assets at the time of the reporting period of the transfer income tax pursuant to the transfer of this case, constitutes not other income but transfer income, does not seem to have been in conflict of opinion due to doubt in the interpretation of the provisions of the Act and subordinate statutes. Therefore, the determination that the Plaintiff, along with the instant real estate, transferred the instant real estate as fixed assets for business, exempted the Plaintiff from the obligation to report the transfer income tax because it constitutes other income is merely a misunderstanding of the Acts and subordinate statutes, and thus, cannot be deemed that there was a justifiable reason that the Plaintiff did not cause any violation of the obligation to report

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Relevant statutes

(1) The former Income Tax Act (Amended by Act No. 14389, Dec. 20, 2016)

Article 21 Other Incomes

(1) Other income shall be any of the following incomes, other than interest income, dividend income, business income, labor income, annuity income, retirement income, and capital gains:

7. Money and other valuables received in consideration of the transfer or lease of mining rights, fishing rights, industrial property rights, industrial information, industrial secrets, trademark rights, business rights (including rights to lease a store prescribed by Presidential Decree), rights incidental to permission to collect earth, sand, and rocks, rights to develop and use underground water, and other assets or rights similar thereto;

(3) The detailed scope and calculation method of other income and other necessary matters shall be prescribed by Presidential Decree.

Article 94 Scope of Transfer Income

(1) Capital gains shall be the following incomes, generated in the relevant taxable period:

1. Income generated from transfer of land (referring to any land category subject to registration in the cadastral register under the Act on the Establishment, Management, etc. of Spatial Data) or a building (including any facilities and structures attached to a building);

4. Income generated from transfer of any of the following assets (hereafter referred to as "other assets" in this Chapter):

(a) Business rights (including business rights deemed to have been transferred along with assets under social norms although they have not been separately assessed and economic benefits derived from obtaining authorization, permission, license, etc. from an administrative agency) transferred along with fixed assets for business (referring to assets under subparagraphs 1 and 2);

Article 97 (Calculation of Necessary Expenses of Transfer Income)

(1) Necessary expenses to be deducted from the transfer value when calculating gains on transfer of a resident shall be as follows:

1. Acquisition value:

(a) Actual transaction price for the acquisition of assets under subparagraphs of Article 94 (1): Provided, That in cases falling under the part other than subparagraphs of Article 96 (2), the standard market price at the time of the acquisition of such assets;

(b) In cases falling under the main sentence of item (a), where it is impossible to confirm the actual transaction value at the time of acquisition, the transaction example value, appraisal value

2. Capital expenses, etc. prescribed by Presidential Decree;

3. Transfer expenses, etc. prescribed by Presidential Decree.

(5) Matters necessary for the calculation of actual transaction price and other necessary expenses shall be prescribed by Presidential Decree.

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016)

Article 41 (Scope, etc. of Other Incomes)

(3) The goodwill under Article 21 (1) 7 of the Act shall include the economic benefits derived from obtaining the authorization, permission, license, etc. from the administrative agencies, but the goodwill transferred along with the fixed property for business (referring to the property under Article 94 (1) 1 and 2 of the Act) shall not be included.

§ 67. Legal fiction of prompt depreciation

(2) The term "capital expenditure" in paragraph (1) means the repair cost disbursed to extend the lifespan of the depreciable assets owned by a businessman or to increase the real value of the relevant assets, and it shall be deemed that any disbursement for one of the following subparagraphs is also included:

1. Remodeling to change the original use thereof;

2. Installment of elevators or apparatuses for heating and cooling;

3. Installation of refuge or shelter rooms in buildings;

4. Restoration of buildings, machinery, equipment, etc. which have no usefulness to use for their original purposes due to the destruction or damage thereof by a disaster, etc.

5. Others similar to subparagraphs 1 through 4, such as improvement, expansion, enlargement, etc.

§ 163. Necessary expenses of transferred assets

(3) "Capital expenditure prescribed by Presidential Decree" in Article 97 (1) 2 of the Act means any of the following:

1. Capital expenses computed by applying mutatis mutandisArticle 67 (2);

3. Expenses paid for the alteration, improvement or convenience of the use of transferred assets;

The Addenda Article 26982, 26982, and 202

Article 11 (Application Cases concerning Necessary Expenses of Transferred Assets)

The amended provisions of Article 163(3) shall apply to the portion disbursed after this Decree enters into force.

Article 24 (Transitional Measures concerning Necessary Expenses for Transferred Assets)

Notwithstanding the amended provisions of Article 163 (3), the previous provisions shall apply to capital expenditure, etc. before this Decree enters into force.

(1) The former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015)

67 (Legal Fiction of Immediate Depreciation)

(1) Where the amount disbursed by a businessman to acquire depreciable assets and the amount corresponding to capital expenditures for the depreciable assets is appropriated as necessary expenses, the scope of depreciation shall be calculated by deeming depreciation.

(2) The term "capital expenditure" in paragraph (1) means the repair cost disbursed to extend the durable years of the depreciable assets owned by a businessman or to increase the real value of the relevant assets, and it shall be deemed that any disbursement for one of the following subparagraphs is also included:

1. Remodeling to change the original use thereof;

2. Installment of elevators or apparatuses for heating and cooling;

3. Installation of refuge or shelter rooms in buildings;

4. Restoration of buildings, machinery, equipment, etc. which have no usefulness to use for their original purposes due to the destruction or damage thereof by a disaster, etc.

5. Others similar to subparagraphs 1 through 4, such as improvement, expansion, enlargement, etc.

§ 163. Necessary expenses of transferred assets

(3) "Capital expenditure, etc. prescribed by Presidential Decree" in Article 97 (1) 2 of the Act means any of the following subparagraphs:

1. Capital expenses computed by applying mutatis mutandisArticle 67 (2);

2. Where litigation is instituted after the transfer is acquired, the amount of the litigation expenses, the expenses of reconciliation, etc. directly required to secure the ownership, excluding the amount included in necessary expenses in calculating each income amount of the year such was paid.

3. Expenses paid for the alteration, improvement or convenience of the use of transferred assets;

3-2. Development charges (where the person obligated to pay the development charges and the transferor are different, referring to the amount equivalent to the development charges to be actually distributed to the transferor) under the Restitution of Development Gains Act;

3-3. Rebuilding charges (where the person obligated to pay the rebuilding charges and the transferor are different, referring to the amount equivalent to the rebuilding charges to be actually distributed to the transferor) pursuant to the Restitution of Excess Rebuilding Gains Act;

4. Other expenses determined by Ordinance of the Ministry of Strategy and Finance, which are equivalent to subparagraphs 1 through 3, 3-2 and 3-3.

(1) The former Framework Act on National Taxes (amended by Act No. 14382, Dec. 20, 2016)

Article 47-3 Additional Tax on Underreporting and Excess Refund Return

(1) Where a taxpayer has filed a return on tax base of national tax (including a preliminary return and interim return, but excluding a return under the Education Tax Act and the Act on Special Rural Development Tax) under tax-related Acts by the statutory deadline for filing a return, and the amount of tax to be paid is less than the amount to be returned (hereafter in this Article, referred to as an "reported return") or more than the amount to be refunded is reported (hereafter in this Article, referred to as an "excess return"), the amount equivalent to 10/100 of the aggregate of the underreported tax payable and the overreported tax amount to be refunded and the overreported tax amount to be refunded (where penalty tax under this Act and other tax-related Acts and the interest equivalent to the interest to be paid in addition under the tax-related Acts exists,

(7) Matters necessary for calculating under-reported tax payable, etc. due to an unlawful act and imposing penalty tax shall be prescribed by Presidential Decree.

Article 48 Reduction and Exemption of Additional Tax

(1) Where penalty tax is to be imposed under this Act or any other tax-related Act, if the ground for such imposition corresponds to that for extending the due date under Article 6 (1) or the taxpayer has any justifiable ground for non-performance of the obligation concerned, the Government shall not impose penalty tax.

(3) Any person who intends to have penalty tax reduced or exempted under paragraph (1) or (2) may file an application therefor, as prescribed by Presidential Decree.

【Enforcement Decree of the Corporate Tax Act

Article 31. Legal Fiction of Immediate Depreciation

(1) Where a corporation appropriates the amount paid to acquire depreciable assets and the amount corresponding to capital expenditures for the depreciable assets as losses, it shall be deemed depreciation and the scope of depreciation shall be calculated.

(2) Capital expenditures in paragraph (1) shall mean repair costs disbursed in order to extend the lifespan of the depreciable assets of a corporation or to raise the real value of the relevant assets, and shall include those falling under any one of the following subparagraphs:

1. Remodeling to change the original use thereof;

2. Installment of elevators or apparatuses for heating and cooling;

3. Installation of refuge or shelter rooms in building;

4. Restoration of buildings, machinery, equipment, etc. which are destroyed or damaged and are not worth using for its original purpose.

【Enforcement Rule of Corporate Tax Act

Article 17 Scope of Beneficial Expenditure

The following expenditures shall not be deemed capital expenditures under Article 31 (2) of the Decree:

1. The painting of buildings or walls;

2. Replacement of damaged glass or weather;

3. Replacement of accessories or labels that have been consumed by machines;

4. Replacement of motor vehicle fishing;

5. Restoration of the exterior of the assets damaged by a disaster, and the inserting of the surface of the outside and the inserting of the glass.

6. Other things similar to subparagraphs 1 through 5 such as maintenance of operational conditions.