It does not constitute "income accruing from a disposition under the Declaration of Bankruptcy"

Inasmuch as the Plaintiff and the Nonparty Company have different character as the subject of rights and obligations, it cannot be deemed that the instant land was sold through a voluntary auction procedure due to the Nonparty Company’s debt and disposed of according to a series of bankruptcy procedures against the Plaintiff.

Article 89 of the Income Tax Act

Article 21 of the Framework Act on National Taxes establishing Time of Tax Liability

2017Guhap2556 Revocation of Disposition of Levying Transfer Income Tax

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○ Head of tax office

March 7, 2018

April 11, 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 imposition of capital gains tax of KRW 505,395,922 against the Plaintiff on May 8, 2017 is revoked.

1. Details of the disposition;

A. Status of the parties

1) On January 14, 2014, the Daegu District Court rendered a decision to commence rehabilitation procedures (2013 Gohap00) (201) on October 14, 2014 as a company engaging in petroleum sales business, etc., AAABB gas station (hereinafter “B gas station”).

2) On November 18, 2015, the Plaintiff was declared bankrupt by the Daegu District Court (2015Hadan000) as the representative director of the non-party company.

B. The sales process of the land of this case

1) On October 0, 2004, the Plaintiff acquired at KRW 0,000,000,000,000 of the instant land, which was located on the Dari 000-0 et al. (hereinafter “instant land”).

2) On October 0, 2007, the Plaintiff: (a) determined the debtor company and the maximum debt amount of the instant land as KRW 00 billion as to the instant land; and (b) registered the establishment of a neighboring mortgage in the future of the DNA bank.

3) As the management of the non-party company becomes worse, the pertinent land was sold on October 0, 2015 by the D Bank at the Daegu District Court (Seoul District Court) upon receipt of a voluntary decision to commence the auction to exercise the right to collateral security (2014 Mata00000), and on October 00, 2015, the sale price of the instant land was paid in full.

C. The defendant's disposition of this case

1) On October 00, 2016, the Plaintiff filed a transfer income tax return with the Defendant by determining the transfer value of the instant land as KRW 0,000,000,000, acquisition value as KRW 0,000,000,000, and the transfer income tax amount as KRW 000,000,000, but did not pay it.

2) The Plaintiff alleged that capital gains on the instant land constituted non-taxable income arising from a disposition under a declaration of bankruptcy under Article 89(1)1 of the Income Tax Act, and filed a request for correction with the Defendant on October 0, 2016.

3) On October 0, 2017, the Defendant rejected the Plaintiff’s request for correction on the ground that capital gains on the instant land does not constitute “income arising from a disposition by declaration of bankruptcy”.

4) In addition, the Defendant found that the Plaintiff’s report of capital gains tax on October 0, 2016 on the transfer price of the instant land was erroneous on the basis of the officially announced value, not the actual transaction price.

Accordingly, on October 00, 2017, the Defendant notified the Plaintiff of the pre-announcement of taxation on the under-reported portion, and on October 2017.

0. The Plaintiff corrected and notified the Plaintiff of KRW 000,000,000 (including additional tax) for the transfer income tax reverted to year 2015.

(hereinafter referred to as "disposition of this case")

(d) Procedures of the previous trial; and

On October 00, 2017, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but the appeal was dismissed on October 00, 2017.

Facts that there is no dispute with recognition, Gap Nos. 1 through 6 (including each number; hereinafter the same shall apply), Eul 1

Each entry of evidence 3 to 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant disposition should be revoked on the grounds that it is unlawful for the following reasons.

1) The Plaintiff offered the instant land as collateral in order to secure the obligation to the D bank of the non-party company. The instant land was sold due to voluntary auction for the enforcement of the right to collateral security of the D bank. However, if there was no voluntary auction, it is apparent that the instant land had been disposed of according to the bankruptcy procedure and included in the Plaintiff’s bankruptcy property. In addition, in the event the rehabilitation procedure for the corporation is discontinued, the representative director who provided the security should also go bankrupt. Thus, the entire process of the corporate rehabilitation procedure, the discretionary auction of secured real estate, and the declaration of bankruptcy to

Therefore, capital gains on the land of this case are subject to non-taxation as income generated from a disposition by declaration of bankruptcy under Article 89 (1) 1 of the Income Tax Act.

2) On October 0, 2015, the Defendant participated in the distribution procedure following the voluntary auction of the instant land, and received dividends of KRW 00,000,000 for delinquent national taxes. Thus, if the transfer income tax on the instant land was applied for dividend by early computation, it could be sufficiently recovered through the distribution procedure.

Nevertheless, the defendant neglected to provide the necessary information and benefits to the maximum extent possible so that the plaintiff can fulfill his tax liability in good faith.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Relevant legal principles

Even if the establishment registration of a neighboring mortgage, which was the basis of the real estate, was conducted by the real guarantee of the third party's obligation in the voluntary auction procedure, the transferor of the real estate sold, is the owner of the real estate, and the proceeds from sale is also vested in the transfer income (see, e.g., Supreme Court Decision 2000Du1508, Jul. 6, 2000).

D. Determination

1) Whether the Plaintiff’s capital gains are non-taxable

A) Article 89(1)1 of the Income Tax Act provides that “income arising from a disposition by declaration of bankruptcy” is one of the capital gains on which no capital gains tax is levied. However, the land in this case was sold through a voluntary auction procedure to exercise the right to collateral security by a DNA bank, and is not disposed of by a declaration of bankruptcy against the plaintiff. Therefore, it is clear that the capital gains accruing from the transfer of the land in this case does not constitute “income arising from a disposition by declaration of bankruptcy” under the above provision.

B) As to this, the Plaintiff asserts to the effect that rehabilitation procedures for the non-party company, voluntary auction against the land of this case, and the entire process leading to the declaration of bankruptcy against the Plaintiff constitutes a series of bankruptcy procedures. However, since the Plaintiff and the non-party company have a different character as the subject of rights and obligations, it cannot be deemed that the land of this case was sold through voluntary auction due to the non-party company’s debt, and that it was disposed of according to a series of bankruptcy procedures against the Plaintiff. Accordingly, the Plaintiff

2) Whether the Defendant neglected to participate in the distribution procedure

The plaintiff's assertion is based on the premise that the defendant participated in the distribution procedure following the voluntary auction of the land of this case and could receive a distribution of capital gains tax claim against the plaintiff.

According to Articles 21(1)1 and 22(1) of the Framework Act on National Taxes, and Articles 5(1), 110(1), and 111 of the Income Tax Act, capital gains tax shall be finalized when a taxpayer files a return on the tax base and tax amount of capital gains generated in the pertinent taxable period from May 1 to May 31 of the year following the pertinent taxable period. Therefore, the head of a tax office may participate in dividend procedures through a request for delivery under the National Tax Collection Act only when the taxpayer files a return on capital gains tax to the effect that the claim for

However, on May 31, 2016, the Plaintiff reported the transfer income tax on the instant land to the Defendant, and at that time confirmed the Defendant’s claim for transfer income tax on the Plaintiff. Therefore, there was no room for the Defendant to participate in the distribution procedure following the voluntary auction of the instant land, which was conducted on October 0, 2015, with the transfer income tax claim against the Plaintiff.

Therefore, there is no reason to examine the plaintiff's above assertion on a different premise.

3. Conclusion

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