Cho High Court Decision 2009J326 ( December 02, 2009)

Where transfer margin of actual transaction verified by a tax authority exceeds transfer margin of the standard market price.

Even though transfer margin confirmed by the tax authority as actual transaction value exceeds transfer margin of the standard market price, it is not limited to transfer margin under the standard market price.

1. The plaintiff's claim is dismissed.

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

The Defendant’s disposition of imposition of capital gains tax of KRW 10,474,480 for the Plaintiff on August 20, 2009 shall be revoked.

1. Details of the disposition;

A. On March 21, 200, the Plaintiff acquired and owned BBA apartment No. 111, 1504, Dong 1504, Seo-gu, Incheon, Seo-gu (hereinafter “BA apartment”), and transferred it on October 15, 2002.

B. On October 15, 2002, the Plaintiff reported and paid capital gains tax of KRW 235,230,000 with the actual transaction price of KRW 180,000,000, acquisition price of KRW 165,337,00 as the amount transferred, while filing a preliminary return of capital gains tax on the said transfer on October 15, 202.

C. On January 14, 2004, the Defendant confirmed that the actual transfer value of the instant real estate was KRW 210,000,000 in the Plaintiff’s report of transfer income tax with the acquisition value of KRW 210,000 when the Plaintiff acquired the instant real estate from the Plaintiff on January 14, 200, and calculated gains on transfer based on the actual transaction value, and notified the Plaintiff of KRW 10,474,480 in the transfer income tax for the year 2002, on August 20, 2009.

[Ground for Recognition] Unsatisfy, each entry in Eul evidence 1 to 8

2. The plaintiff's assertion

Article 96 (1) 6 of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002) provides that the calculation of gains from transfer shall be based on the actual transaction price based on the standard market price principle, in cases where the transferor reports the actual transaction price at the time of transfer and at the time of acquisition to the head of the district tax office having jurisdiction over the place of tax payment, along with evidential documents, within the period of final return, along with the evidential documents, to the head of the district tax office having jurisdiction over the place of tax payment, not later than the period of final return (see Supreme Court Decision 9Du727, Apr. 11, 200). This provision is effective until the time when the calculation of gains from transfer based on the standard market price is made so as not to suffer any disadvantage than the actual transaction price (see Supreme Court Decision 99Du7227, Dec.

In the proviso of Article 114 (4) of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), where a resident files a preliminary or final return on the tax base of transfer income pursuant to Article 96 (1) 6 of the same Act, and where the head of the district tax office having jurisdiction over the place of tax payment or the head of the district tax office having jurisdiction over the place of tax payment or the head of the district tax office confirms the actual transaction price different from the fact, the verified value shall be the transfer value or acquisition value, and the tax base and tax amount shall be corrected"

3. Determination

In principle, even though Article 96 (1) 6 of the former Income Tax Act is based on the standard market price, it is reasonable to consider the calculation of transfer margin as a provision for correction and supplementation in cases where the calculation of transfer margin based on the standard market price is more unfavorable than that based on the actual transaction price. Therefore, prior to the second proviso of Article 114 (4) of the former Income Tax Act, in cases where a resident files a return and pays based on the actual transaction price as above and thereafter a disposition of imposition by investigation and confirmation of facts different from the actual transaction price reported by the disposition agency, the scope may be interpreted as not exceeding the transfer margin based on the standard market

However, the proviso of Article 114 (4) of the former Income Tax Act (amended by Act No. 6557, Dec. 31, 2001) should be deemed to have explicitly declared that the scope of a disposition to impose a correction should not be limited to gains from transfer based on the standard market price, but rather be subject to the application of gains from transfer based on the actual transaction price confirmed, in case where the gains from transfer based on the actual transaction price is less than the standard market price based on the standard market price, exceptionally under the system that makes it a principle of calculating gains from transfer based on the standard market price, if the gains from transfer based on the actual transaction price are less than the standard market price due to abuse of the provisions of Article 96 (1) 6 of the former Income Tax Act to correct disadvantages arising from taxation based on the standard market price, thereby reporting gains from transfer based on the standard market price due to the actual transaction price increase below the standard market price based on the standard market price, and to pay taxes on the actual transaction price by a taxpayer by providing false data, along with evidence about the actual transaction.

In this case, the Plaintiff reported the transfer margin based on the actual transaction value higher than the transfer margin based on the standard market price at the time of the initial preliminary return of transfer income tax, but as long as the requirements for taxation are clearly set out in the law, its application cannot be different depending on whether it conforms with the legislative intent. Thus, there is no error of law interpretation or application in the disposition of this case.

If so, the plaintiff's claim shall be dismissed without reason, and it shall be judged the same as the order.