National Tax Service Review and Transfer 2010-0347 ( October 28, 2011)

If the right to receive compensation for expropriation has been transferred, the right to acquire real estate can not be transferred.

It is difficult to regard the transfer of the right to acquire real estate, because the acquisition of real estate is directly subject to the right or at least the main purpose of the real estate acquisition is to acquire the right, since it is difficult to regard that the main purpose of the real estate itself is to acquire the right.

2011-gu 1175 Revocation of Disposition of Imposing Capital Gains Tax

XX

Head of the High Tax Office

August 29, 2011

October 17, 2011

1. The Defendant’s imposition of capital gains tax of KRW 159,427,180 against the Plaintiff on August 10, 2010 shall be revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On September 24, 2004, the Plaintiff agreed from thisA to acquire the right to receive the expropriation compensation amounting to KRW 550,000,000,00 for the instant land in order to guarantee the right to receive the expropriation compensation amounting to KRW 550,000,00,000, for the purpose of securing the right to receive the expropriation compensation amount, the Plaintiff set up a collateral security right of KRW 780,00,000 on the instant land.

B. On January 6, 2010, the Defendant notified the Plaintiff of the imposition of global income tax of KRW 121,282,444 on the basis of the intention that the Plaintiff received KRW 780,00,000,00 among the compensation for expropriation, as non-business proceeds, for KRW 230,000,00,000.

C. On February 2, 2010, the Plaintiff filed a request for pre-assessment review with the Defendant by asserting that income subject to taxation should be deemed as temporary property income, not a non-business profit, inasmuch as the Plaintiff acquired the right to receive compensation for expropriation from thisA. On March 9, 2010, the Defendant rendered a decision of re-assessment on the ground that income subject to taxation of this case falls under short-term resale gains from non-sale, and thus, transfer income tax should

D. Accordingly, around June 9, 2010, the Defendant notified the Plaintiff of the pre-announcement of taxation of capital gains tax of KRW 217,013,520 and imposed capital gains tax of KRW 217,017,013,520 on August 10, 2010.

E. The Plaintiff appealed and filed a request for examination with the Commissioner of the National Tax Service. The Commissioner of the National Tax Service on January 28, 2011

The transfer value of the above imposition of capital gains tax was KRW 740,000,000 and the tax base and tax amount were corrected.

F. Accordingly, on February 14, 2011, the Defendant rendered a decision to reduce capital gains tax from KRW 217,013,520 to KRW 57,586,340 to KRW 159,427,180 to the Plaintiff (hereinafter “instant disposition”). From among the dispositions taken on August 10, 2010, the Defendant issued a decision to impose capital gains tax for the year 2004, which was the remainder of KRW 159,427,180, which was not reduced by the above decision of correction (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence 2, Gap evidence 4 to 10, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The Plaintiff asserts to the effect that since the Plaintiff did not purchase the instant land from thisA as unregistered pre-sales, but received the right to receive compensation for expropriation or granted funds to thisA as collateral for the right to receive compensation for expropriation, it is reasonable to levy comprehensive income tax on the instant land as temporary property income or interest income, the Defendant’s imposition of transfer income tax is unlawful, and that global income tax may not be imposed since the lapse of five years from the exclusion period of global income tax.

(b) Related statutes;

It is as shown in the attached Form.

(c) Fact of recognition;

(1) On September 20, 2004, the Plaintiff was provided with information that the land of a person who is pressured by KimCC as an individual debt will be expropriated in the railroad site square, and that the right to compensation would be at a higher level than the real estate market price. The Plaintiff agreed to pay 30% of the gains from the honorarium if the gains from arranging the instant land transaction by the KimCC and the landowner are more than KRW 100 million in return for mediating the transaction of the instant land at a higher price than the market price.

(2) On September 24, 2004, the Plaintiff, as a broker of the KimCC, agreed to acquire the right to receive compensation for the expropriation of the instant land from thisA, and drafted a memorandum of agreement as follows.

(3) On September 24, 2004, the Plaintiff paid EA KRW 350,000,000 to EA, and the remaining KRW 200,000 to succeed to the loan of a new bank established on the instant land. On September 30, 2004, the Plaintiff completed the registration of creation of a collateral security interest for the instant land, the maximum debt amount of KRW 780,000,000,000, and the Plaintiff’s registration of creation of a collateral security interest for the instant land.

(4) Around November 2004, the Korea Rail Network Authority and the Korea Rail Network Authority concluded a sales contract with KRW 895,246,210 with respect to the instant land and its ground houses, and delegated the Plaintiff with the right to receive compensation for KRW 540,00,000 among the compensation for the instant land. On December 10, 2004, the Korea Rail Network Authority paid KRW 540,000 to the Plaintiff.

(5) On December 13, 2004, the Plaintiff paid KRW 55,000,000 to KimCC as the case cost for good offices, and paid KRW 3,000,000 to the registration cost.

(6) On March 11, 2008, the head of the tax office of the Namyang District notified thisA of KRW 27,492,250 of the transfer income tax for the transfer of the instant land to the Plaintiff, a mortgagee, who had attempted to transfer the pertinent land to the Plaintiff, but failed to obtain a land transaction permit, and made and made a written agreement so that the Plaintiff can exercise his/her rights if the instant land is expropriated. Therefore, the imposition of the transfer income tax on April 29, 2008 filed an appeal with the Tax Tribunal on April 29, 2008, but the Tax Tribunal dismissed the appeal on October 31, 2008 on the ground that the sale and purchase contract for the land located within the land transaction permission zone was null and void if the land transaction permission was not granted.

[Reasons for Recognition] Each of the above evidence, Gap evidence Nos. 3, Gap evidence Nos. 11 through 26, and the purport of the whole pleadings

D. Determination

(1) The following circumstances acknowledged by the above facts are: (a) thisA had consulted with the Korea Rail Network Authority prior to September 24, 2004 about the issue of compensation for losses with respect to the land of this case; (b) thisA appears to have been intended to dispose of the land of this case or borrow money using the land of this case before receiving compensation for losses in order to settle personal debts; (c) the land of this case was difficult to be disposed of in accordance with the restrictions on the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor because it was planned to be expropriated before the Korea Rail Network Authority; (iv) the Plaintiff traded with thisA with the introduction of the KimCC that the right to compensation for the land of this case can be stored more than the market price; (v) the Plaintiff had the right to receive compensation within the limit of KRW 780,00,000 as of September 24, 200; and (v) the amount in excess was still reverted to the Plaintiff to the extent of the right to receive compensation of this case; and (v) the Plaintiff’s right to receive compensation of this case 40000.

(2) Therefore, we examine whether the Plaintiff’s transfer of the right to receive the above compensation and the receipt of part of the compensation after the transfer constitutes “right to acquire real estate” under Article 94(1)2(a) of the former Income Tax Act (amended by Act No. 7319 of Dec. 31, 2004) which is subject to capital gains tax.

The term "right to acquire real estate", which is subject to the transfer income tax, means the right to acquire real estate, which is the right to acquire real estate itself, and which directly covers the acquisition of real estate or, even if not, means the right to acquire real estate if the actual purpose of acquiring such right meets additional requirements or goes through certain procedures in the acquisition of real estate itself.

However, it is difficult to view that the actual purpose of the Plaintiff’s acquisition of real estate is the acquisition of real estate itself. Therefore, the instant disposition that the Defendant imposed and notified transfer income tax on the Plaintiff is unlawful on the ground that the Plaintiff’s above income constitutes the income derived from the transfer of the right to acquire real estate as provided by Article 94(1)2(a) of the former Income Tax Act.

3. Conclusion

Thus, the plaintiff's claim of this case seeking revocation on the premise that the disposition of this case is unlawful is justified and it is so decided as per Disposition with the assent of all participating Justices.