Whether housing construction and sales business operators are subject to simple expense application

Since the commencement of business by a housing construction business operator is not formally determined on the basis of business registration date, etc., the plaintiff is not a person subject to simple expense rate, and the disposition in this case is legitimate.

Article 143 of the Enforcement Decree of the Income Tax Act

Seoul Administrative Court 2018Guhap7716 global income and revocation of disposition

AA

BB Director of the Tax Office

June 27, 2019

August 29, 2019

1. The part of the claim for revocation of the imposition of global income tax exceeding KRW 122,396,746 (including additional tax) among the instant lawsuit is dismissed.

2. The plaintiff's remaining claims are dismissed.

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

Cheong-gu Office

The Defendant’s disposition of imposition of KRW 00 (including additional tax) of global income tax for the year 2016 against the Plaintiff on January 4, 2018 shall be revoked.

1. Details of the disposition;

A. The Plaintiff, a business operator operating the housing construction and sales business, etc., constructed ten households of multi-household houses with a total floor area of 00 square meters in Ansan-si (hereinafter “instant housing”) with a total floor area of 00 square meters (hereinafter “approval date of use”): January 18, 2016; January 19, 2016); and sold (transfer price: 00 won) around 2016.

B. The Plaintiff reported the transfer income tax by deeming the income from the sale of the instant housing as transfer income, not business income. The current status of the Plaintiff’s business registration before and after the construction and sale of the instant housing, etc. is as follows.

C. From November 28, 2017 to December 17, 2017, the director of the Seoul Regional Tax Office conducted a personal consolidated investigation with the Plaintiff, and notified the Defendant of the taxation data by deeming that the Plaintiff was not subject to the application of the simplified expense rate under Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 28637, Feb. 13, 2018; hereinafter the same) as a business operator who newly commenced a business in each taxable period in 2014 and 2016, and the amount of revenue in the pertinent taxable period is at least KRW 150 million.

D. On January 4, 2018, the Defendant issued a correction and notification of KRW 00 of the global income tax (including additional tax) for the year 2016, including the additional tax without filing a return (hereinafter “the instant first disposition”), and the Plaintiff filed an objection with the director of the Seoul Regional Tax Office on January 16, 2018 against the instant first disposition.

E. On March 15, 2018, the director of the Seoul Regional Tax Office accepted part of the Plaintiff’s objection to the purport that “the amount of tax would be corrected by applying the under-reported additional tax, not the non-returnable additional tax, to the Plaintiff” on global income tax for the year 2016, and the Defendant reduced KRW 00 of the additional tax from the initial disposition of this case on April 11, 2018 (hereinafter “the remainder after the reduction as above in the initial disposition of this case”) by the Plaintiff.

F. On June 7, 2018, the Plaintiff dissatisfied with the instant previous disposition and filed an appeal with the Tax Tribunal on June 7, 2018, but the Tax Tribunal dismissed the Plaintiff’s claim on October 26, 2018.

G. On July 4, 2018, the Defendant again reduced the penalty tax of KRW 00,000,000,000,000,000,000 in the previous dispositions of this case, by its own authority (hereinafter “instant previous dispositions”) (the portion of KRW 122,396,746 (including additional taxes; hereinafter the same shall apply) remaining after the said reduction as above).

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, 3, and 7 (including each number; hereinafter the same shall apply), the purport of the whole pleadings

2. Whether the part concerning the claim for revocation of ex officio cancelled tax amount among the lawsuit in this case is legitimate

A. Since a disposition of reduction or correction causes the effect of partially cancelling the amount of tax when a disposition of reduction or correction, a lawsuit seeking revocation of the amount of tax already cancelled by the decision of reduction or correction is unlawful as it is against an administrative disposition for which no lawsuit exists (see, e.g., Supreme Court Decisions 2012Du7370, Mar. 13, 2014; 201Du18202, Dec. 13, 2012).

B. On April 11, 2018, the Defendant, upon ex officio, reduced the penalty tax of 00 won from the first disposition in the instant case in accordance with the determination of the acceptance of the part of the objection by the director of the Seoul Regional Tax Office on April 11, 2018. On July 4, 2018, the penalty tax of 00 won, which is calculated by mistake, has been reduced ex officio, and only KRW 00,000,

Therefore, the claim for revocation on the part exceeding the above 00 won among the lawsuit of this case is subject to an administrative disposition which is not nonexistent after being revoked, and thus, is unlawful as there is no benefit of lawsuit.

3. Whether the instant disposition is lawful (determination on the claim for money)

A. The plaintiff's assertion

The issue of whether a new business operator or a continuing business operator is a business operator who is not a business unit, but a business place of a housing construction and sales business operator under the Value-Added Tax Act can be considered as a general business place. In addition, the "business operator who newly started a business in the relevant taxable period" under Article 143 (4) 1 of the former Enforcement Decree of the Income Tax Act shall be deemed a small

Therefore, even if the Plaintiff repeats the registration and closure of a new business on the housing construction and sales business, it shall be deemed as a continuous business operator under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act, and otherwise, deeming the Plaintiff to be a new business operator at each time of registration of a new business place violates the legislative intent of the above Enforcement Decree and the principle

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) According to the proviso of Article 80(3) of the former Income Tax Act (amended by Act No. 15225, Dec. 19, 2017; hereinafter the same) and Article 143(3) of the former Enforcement Decree of the Income Tax Act, when the amount of income is estimated, the amount of income shall be determined or corrected by deducting the amount calculated by multiplying the purchase cost, rent, labor cost, and income amount from the amount of income by standard expense rate. However, for a person subject to simple expense rate, the amount of income shall be determined or corrected by deducting the amount of income from the amount of income by simple expense rate. "person subject to simple expense rate" of the above provision means a new business operator who has commenced a business in the pertinent taxable period, and the constructor (including a residential development and supply business; hereinafter the same shall apply) whose amount of income in the pertinent taxable period falls short of 150,000,000 won, or a new business operator who has applied for the change of business registration under Article 143(5)2)2(b) of the former Value-Added Tax Act.

Meanwhile, under the principle of no taxation without representation, tax laws shall be interpreted as the text of the law, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, barring any special circumstances. However, even according to the language and text of the tax laws itself, if their meaning is unclear or if it appears that there is a conflict between the laws and regulations, the court must naturally indicate the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations. In such cases, a judge can make a combined interpretation of the laws and regulations that consider legislative intent and purpose to the extent that it does not undermine legal stability and predictability pursued the principle of no taxation without representation (see, e.g., Supreme Court en banc Decision 2011Du551, Apr. 16, 2015).

2) According to the following circumstances revealed by comprehensively taking account of the contents of the relevant statutes and the evidence and the purport of the entire pleadings, it is reasonable to deem that the commencement date of the housing construction and sales business run by the Plaintiff is not the Plaintiff’s existing business registration date, but the objective and practical timing of the supply of the instant housing, i.e., the starting date of the sale of the instant housing

(1) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) and Article 143(4)2 of the same Act stipulate that a business operator who newly starts a business in the relevant taxable period shall apply simple expense rates to all the business operators, other than those who start a business anew in the relevant taxable period. Article 2 of the former Enforcement Decree of the Income Tax Act provides that a business operator whose total amount of revenue during the immediately preceding taxable period (including the revenue increased by determination or revision) falls short of the standard amount. Article 143(4)1 of the former Enforcement Decree of the Income Tax Act amended by Presidential Decree No. 22580, Dec. 30, 2010; Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 201>

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income for the taxable period that begins after February 13, 2018, is amended by Presidential Decree No. 28637, which applies to the portion of income for the taxable period that begins after January 1, 2019, provides that the standard amount of expense shall be applied by excluding the amount of income from the application of simple expense expense expense when the amount of income for the taxable period concerned falls short of the standard amount of income for the immediately preceding taxable period, even if the total amount of income for the taxable period falls short of the standard amount.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators with insufficient capacity to keep records of the disbursement evidence required by the standard expense rate system, and it is determined that legislators have gradually reduced the scope of business operators subject to the simple expense rate. Furthermore, according to the text of the supplementary provision, legislators seem to understand "construction commencement", "construction business, construction business, and commencement of real estate development and supply business" as separate concepts.

Therefore, considering these legislative intent, in the case of housing construction and sales business that operates a business for a long period exceeding a certain size due to its characteristics, it is necessary to grasp the commencement date of the business as objective and practical time.

② The commencement date of a housing construction and sales business should not be formally determined on the basis of the date of business registration, etc., but be substantially determined on the basis of the time when the preparation for the business was completed and the preparation for the original business was performed or possible (see, e.g., Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial housing construction and sales business is included in real estate sales business (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose of the business is to sell housing ultimately.

Therefore, if a business operator discontinues his/her business after completing the sale of a constructed house, it shall be deemed that the business is terminated by the failure to establish the contents of the business that will continue to exist as the business objective has already been achieved, and unless there are special circumstances such as continuing to build a large number of houses from the beginning, it shall not be deemed that the previous business that had already been terminated is reinstated or that it continues to continue to continue to exist after the commencement of the same business.

However, no evidence exists to acknowledge that the Plaintiff continued business activities of the Housing Construction and Sales Business Act for a long period of at least two years after closing the existing business registration on August 7, 2014, and no evidence exists to deem that the Plaintiff had the purpose of building and selling the instant housing before closing the existing business registration (only the Plaintiff is the person who previously constructed the previous house and closes the existing business registration). Ultimately, it cannot be deemed that there was the amount of income in the immediately preceding taxable period of the instant disposition on the ground of the Plaintiff’s existing business registration.

③ Whether a business income under the Income Tax Act falls under business income shall be determined according to social norms, taking into account whether business activities are continuously and repeatedly conducted in light of the business profit purpose, the scale, frequency, mode, etc. of the business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, there is no evidence suggesting that the Plaintiff had objectively expressed his intent to engage in the housing construction and sales business related to the instant housing for the purpose of profit prior to commencing the sale of the instant housing. The fact that the Plaintiff had completed business registration under the housing construction and sales business even before the commencement of the sale of the instant housing does not necessarily mean that the Plaintiff continuously and repeatedly conducted activities for profit-making purposes, and that such activities constitute an objective entity as a newly constructed housing seller

3) According to the purport of the Plaintiff’s evidence No. 2 and the entire pleadings, the Plaintiff’s total revenue amount of 2016 constituted 1,753,00,000. The Plaintiff’s business operator who newly started a construction business in 2016, and it is apparent that the amount of revenue in the pertinent taxable period does not fall short of 150,000,000 won under Article 143(4)1 of the former Enforcement Decree of the Income Tax Act, and thus, the Plaintiff cannot be deemed as a new business operator in 2016, who is subject to simple expense.

4) Ultimately, the instant disposition that calculated the Plaintiff’s income amount by deeming that the Plaintiff is not a person subject to simple expense rate is lawful, and the Plaintiff’s assertion is without merit

4. Conclusion

Therefore, the part of the claim for revocation of the disposition imposing global income tax exceeding KRW 122,396,746 of the lawsuit in this case is unlawful. Thus, the plaintiff's remaining claims seeking revocation of the disposition in this case are dismissed as it is without merit. It is so decided as per Disposition.

1) Although the Plaintiff did not clearly state the purport of “(including additional tax)” in the purport of the claim, according to the Plaintiff’s evidence No. 2-1, KRW 137,067,753 is clear that the amount including additional tax is included. Thus, it is so decided.