Seocho 2018west 4859 ( October 21, 2019)

Business of the Housing Construction and Sales Business is not at the time of by-products sales but at the time of sales;

Since it is reasonable to view that the commencement of business of the Housing Construction and Sales Business is not the time of sale by-products but the time of sale by-products, it is reasonable to estimate the amount of the plaintiffs' income as standard expense because the income of housing business commenced is at least 150 million won

The estimated determination and correction of Article 143 (3) of the Enforcement Decree of the Income Tax Act

2019Guhap61953 global income and revocation of disposition

○ ○

○ Head of tax office

July 11, 2019

September 26, 2019

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 imposing global income tax of KRW 000 (including additional tax of KRW 000) on the Plaintiff on March 00, 2018 shall be revoked.

1. Details of the disposition;

A. The Plaintiff, a business operator who operates a housing construction and sales business jointly with AA (0/0 of each share), was registered as follows, and newly built a collective housing (00m2, hereinafter referred to as “instant housing”) on the ground of 00,00,000, Seoul Special Metropolitan City, Gwanak-gu, Seoul (00m2, hereinafter referred to as “instant housing”) (the approval date of use, February 0, 2014), and sold all of them in lots in 2014.

B. The Plaintiff filed a comprehensive income tax return for KRW 000 on the sales price for scrap metal generated in the course of removing the existing buildings on the above 00 ○○-ro (○○-dong) ground.

C. Since then, the Plaintiff calculated the income amount of KRW 000 by applying the simple expense rate under the above provision on the ground that the total amount of income for 2013 years, which was the taxable period immediately preceding 2014, was less than KRW 36 million, which is the standard amount under Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same shall apply), and accordingly, reported and paid the comprehensive income tax for 2014.

D. The Defendant, on March 00, 2018, notified the Plaintiff of the global income tax of KRW 000 (including additional tax of KRW 000) for the global income tax of KRW 2014 (hereinafter “instant disposition”) by deeming that the standard expense rate, which is not the simple expense rate, should be applied to the Plaintiff according to the result of the personal integration survey with respect to the Plaintiff, ought to be estimated for the amount of income attributed to 2014.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal on October 0, 2018 with the Tax Tribunal on June 00, 2018. However, the Tax Tribunal dismissed the appeal on February 00, 2019.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

According to Articles 5 (Taxable Period), 27 (Calculation of Necessary Expenses of Business Income), and 39 (Reversion of Gross Amount of gross income and necessary expenses) of the Income Tax Act, the starting date of business under the Income Tax Act shall be deemed the date on which revenue and expenses have been finally incurred during the taxable period regardless of whether goods or services are supplied under the Value-Added Tax Act, i.e., the date on which the first income accrue, regardless of whether the goods or services are supplied under the Value-Added Tax Act.

Therefore, on September 0, 2013, the date of business registration, the Plaintiff commenced a business related to the instant house on or around September 0, 2013, when the first income accrued from the sale of scrap metal, and the total amount of income for 2013 years, which was the taxable period immediately preceding the 2014 taxable year in which the sales revenue of the instant house was generated, falls short of 36 million won, the Plaintiff ought to estimate the income amount attributed to 2014 by applying the simple expense rate, which is not the standard expense rate, pursuant to Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act. Ultimately, the instant disposition imposing the comprehensive income tax for 2014 by applying the standard expense rate to the Plaintiff on a different premise ought to be revoked unlawfully.

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, where an estimated determination or correction of income amount is made, 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 income amount 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 income amount by simple expense rate. Here, the term “person subject to simple expense expense” includes a new entrepreneur who has commenced a business in the pertinent taxable period, and a constructor [the above construction business] whose income amount in the pertinent taxable period is less than 150 million won (including the development and supply business of residential buildings; Article 143(4)1 and Article 208(5)2(b) of the former Enforcement Decree of the Income Tax Act and Article 148(1) of the former Enforcement Decree of the Income Tax Act does not apply mutatis mutandis to the business.

On the other hand, under the principle of no taxation without law, the tax laws shall be interpreted as the text of the law, barring any special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. However, even in cases where the language and text of the tax laws itself, if the meaning is unclear or if it appears that there is a conflict between the laws and regulations, the court should naturally state the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations.

In this case, a judge can make a joint interpretation of the law that takes into account the legislative intent, purpose, etc. within the scope that does not undermine the legal stability and predictability oriented by the principle of no taxation without law (see, e.g., Supreme Court Decision 2007Du4438, Feb. 15, 2008).

2) In full view of the following circumstances revealed by the language and text, structure, legislative purport, and evidence as seen earlier, in the case of the Housing Construction and Sales Business run by the Plaintiff, the starting date of the business should be deemed as the time when the Plaintiff accrued income from the Plaintiff’s business registration or the sale of by-products, such as scrap metal (2013) and objective and practical supply of the instant housing, i.e., the starting date of sale of the instant housing (2014).

① 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(2)2 of the same Enforcement Decree provides that a business operator who newly starts a business in the pertinent taxable period shall be excluded from a person subject to double-entry bookkeeping; Article 12(4)1 of the Addenda (amended by Presidential Decree No. 22580, Feb. 2, 2012; Presidential Decree No. 22580, Dec. 31, 2010; Presidential Decree No. 22581, Dec. 30, 2010; Presidential Decree No. 25165, Feb. 16, 2012; Presidential Decree No. 22517, Jan. 1, 2010>

In light of the amendment history of Article 143(4) of the Enforcement Decree of the Income Tax Act, the purpose of the simple expense rate system is to minimize the tax payment costs of small-scale small-scale business operators who lack capacity to keep records with respect to the evidence of disbursement of major expenses, and legislators have gradually reduced the scope of persons subject to simple expense rate. Furthermore, according to the text of the supplementary provision, legislators seem to understand "the commencement of construction, construction business, and commencement of real estate development and supply business" as separate concepts.

Therefore, in light of such legislative intent, in the case of housing construction and sales business that requires a long-term business exceeding a certain size due to its characteristics, the starting date of the business is not the business registration date or the starting date, etc. which can determine the time according to its intention, but the time when the supply of housing subject to sale is objective and practical, i.e. the starting

② The commencement date of a business of the Housing Construction and Sales Business shall not be formally determined on the basis of the date of business registration, etc., but be actually 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 is able to perform (see, e.g., Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial housing construction and sales business is included in real estate sales business under its nature (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose of the business is to sell housing. Thus, it is difficult to deem that the business operator commenced the sales business solely on the ground that the business operator registered his/her business or

③ Whether business income falls under business income under the Income Tax Act ought to 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, and mode of business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, solely on the ground that the Plaintiff registered his/her business or sold by-products, such as scrap iron from the process of removing an existing building, etc., it is difficult to deem that the Plaintiff was an objective entity of the Housing Construction and Sales Business as the housing construction and sales business entity by continuously and repeatedly engaging in commercial activities for profit-making purposes, and there is no other evidence to prove that the Plaintiff’s intent to operate the Housing Construction and Sales Business for the purpose of

3) As seen earlier, the Plaintiff’s return on the amount of income in 2014 due to the sale of the instant housing was 000,000, and it is apparent that the Plaintiff’s income in the pertinent taxable period does not fall short of KRW 150 million, which is the standard amount under Article 143(4)1 of the former Enforcement Decree of the Income Tax Act, as a business operator who newly commenced a business in 2014, the time when the sale of the instant housing was commenced. Accordingly, the Plaintiff’s above assertion is not acceptable.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.