2013Nu55 Revocation of Disposition of Imposing capital gains tax

A

Attorney Lee Jae-hoon, Counsel for the plaintiff-appellant

Head of North Busan District Tax Office

Litigation Performers C

Busan District Court Decision 2012Guhap3188 Decided December 21, 2012

June 21, 2013

July 26, 2013

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. The imposition of capital gains tax of KRW 77,462,450 (including penalty tax) for the Plaintiff on September 6, 2011 by the Defendant shall be revoked.

1. Details of the disposition;

A. On February 4, 1984, the Plaintiff completed the registration of ownership transfer in its own name with respect to 1,230 square meters in Gangseo-gu, Busan Metropolitan City, and 1,382 square meters in its own name with respect to the same E on December 26, 1984. On April 12, 2010, the Plaintiff completed the registration of ownership transfer on April 2, 2010 for each of the above land (hereinafter “instant land”).

B. On June 21, 2010, the Plaintiff filed a preliminary return on the tax base of capital gains tax following the transfer of the instant land to the Defendant on the ground that the Plaintiff constitutes “self-farmland for not less than eight years” under Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010; hereinafter the same).

C. However, on September 6, 2011, the Defendant issued a correction and notification (hereinafter referred to as the “instant disposition”) of capital gains tax for the sake that the Plaintiff did not directly cultivate 1/2 or more of farming works with his own labor and did not meet the requirements for reduction and exemption of capital gains tax on self-employed farmland, applying Article 69(1) of the former Restriction of Special Taxation Act to the “Rules on Reduction and Exemption of Capital Gains Tax on Land for Public Use, etc. (including reduction and exemption rate of 25%)” (including additional tax of 8,243,926) for the capital gains tax for the year 2010 for the Plaintiff (hereinafter referred to as “instant disposition”).

D. On November 25, 201, the Plaintiff dissatisfied with the instant disposition and filed an objection with the Commissioner of the Busan Regional Tax Office on November 25, 201, but was dismissed on December 20, 201. On March 9, 2012, the Plaintiff filed an inquiry with the Tax Tribunal, but was dismissed on June 7, 2012.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 4, 6, Eul evidence Nos. 1 and 2 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) The assertion that direct cultivation has been conducted for not less than eight years

The Plaintiff, for at least eight years from the time of acquiring the instant land to the time of transferring it, cultivated not less than 1/2 of the farming industry with its own labor while cultivating not less than 1/2 of the farming industry with its own labor. As such, the Defendant’s disposition of this case on a different premise is unlawful.

2) Claim of violation of the principle of retroactive taxation prohibition

Even if the plaintiff's cultivation does not fall under 1/2 or more of the farming work, the meaning of "direct cultivation" under Article 66 (12) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307 of Feb. 4, 2009; hereinafter "former Enforcement Decree of the Restriction of Special Taxation Act"), which is a definition provision for "direct cultivation", includes not only cases where the transferor cultivates a person by hand but also cases where he/she cultivates another person by employing another person under his/her responsibility and account. Thus, the plaintiff already met the self-cultivation requirement for not less than eight years prior to the establishment of the above provision.

Nevertheless, the Defendant’s portion of the instant disposition is unlawful since it violates the principle of prohibition of retroactive taxation, on the ground that Article 66(13) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009; Presidential Decree No. 23590, Feb. 2, 2012; hereinafter “Enforcement Decree of the Restriction of Special Taxation Act”) which is the same provision as the said newly established provision does not constitute “a 1/2 or more farming of farming work.”

3) Violation of the principle of clarification of taxation requirements

Article 59 of the Constitution stipulates that "the items and rates of taxation shall be determined by law," and the principle of no taxation without the law is the content of the principle of no taxation without the law. The concept of "1/2 of the farming work" under Article 66 (13) of the revised Enforcement Decree of the Restriction of Special Taxation Act is unclear, so it is invalid as it violates the principle of no taxation without the law, and accordingly, the disposition of this case is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the assertion that direct cultivation was conducted for at least eight years

A) Article 69(1) of the former Restriction of Special Taxation Act provides that "The tax amount equivalent to 100/100 of the transfer income tax shall be reduced or exempted for the income accruing from the transfer of land prescribed by the Presidential Decree among the land subject to agricultural income tax, which is directly cultivated by a resident who resides in the seat of farmland for not less than eight years." Article 66(13) of the former Enforcement Decree of the Restriction of Special Taxation Act provides that "direct cultivation" means that "a resident is engaged in the cultivation of agricultural products or the growing of perennial plants on his own land or the growing or growing of perennial plants with his own labor" and "a farmer is engaged in the cultivation of agricultural products or the growing or growing of at least half of them with his own labor" under Article 2(5) of the former Restriction of Special Taxation Act.

As above, Article 69(1) of the former Restriction of Special Taxation Act declares land directly cultivated for not less than eight years as the object of exemption from capital gains tax, and delegates the specific scope to the Presidential Decree. Article 66(13) of the Enforcement Decree of the Restriction of Special Taxation Act of which delegation is made sets forth the meaning of "direct farming" with the same content as the self-regulation provision under Article 2(5) of the same Act.

Therefore, the meaning of "direct farming" as a requirement for reduction or exemption of capital gains tax shall be determined by interpreting Article 66 (13) of the Enforcement Decree of the Act on Special Cases Concerning Taxation as the language and text, and whether or not "not less than 1/2 of the work of farming" has been cultivated directly with his own labor (see Supreme Court Decision 2010Du8423, Sept. 30, 2010). The burden of proof for such direct farming is against a taxpayer who claims reduction or exemption of capital gains tax (see Supreme Court Decision 90Nu639, May 22, 1990).

B) In light of the following facts or circumstances, as to whether the Plaintiff returned to the instant case and whether the Plaintiff cultivated directly for more than eight years, the evidence mentioned in paragraph (1) above, and the overall purport of the pleadings in the statements or videos stated in Nos. 5, 13, 14, and Nos. 3 through 5, and the following facts or circumstances revealed by the Plaintiff, it is insufficient to recognize that the Plaintiff cultivated 1/2 or more of the farming work on the instant land with its own labor merely based on the statements stated in Nos. 6, 7, 9, 12, 15, and 18, and the testimony of the witness red spathy and the witness stand in the first instance trial and the witness stand in the second instance trial, and there is no other evidence to acknowledge otherwise.

(1) From May 7, 1979 to July 1, 2001, the Plaintiff served as a court official and worked at the office of Busan District Court in Seo-gu, Busan for most of the periods. From July 23, 2001, after retirement of the court official, the period of closure ( August 27, 2002 - September 22, 2005) was excluded, and up to September 22, 2005, the Plaintiff operated the office of certified judicial scrivener from Seo-dong 1, Busan Metropolitan City to the end, operated the office of certified judicial scrivener, and worked for approximately KRW 200 million each year (from April 2004 to December 205, 2005, the Plaintiff obtained approximately KRW 514 million from around 200,500,000,000 from around 204 to around 205).

(2) The straight line between the Plaintiff’s respective workplace and the Plaintiff’s residence is about 10-15 km in Busan Northern-gu, Jung-gu, Seo-gu, Gangseo-gu, etc., and the area of the instant land is about 2,612 meters in total (i.e., 790 square meters). In addition to the instant land, the Plaintiff owned not only 2,319 meters in square meters in the city of Gangseo-gu, Gangseo-gu, Busan-gu, Busan-do, and the land area of this case, but also owned about 3,600 meters in Yancheon-gun, Seocheon-gu, Busan-do, Busan-do, and the land area is about 2,612 meters in square meters in square meters in square meters. The Plaintiff is a court official or a certified judicial scrivener office.

(3) On May 31, 201, the Plaintiff leased to the tax official belonging to the Northern District Tax Office about KRW 100,000,000 for rent of the farm machinery, such as dry field, from the land owner, during the process of door-to-door cultivation with the land owner, the Plaintiff paid approximately KRW 3-40,000 per day to the land owner, who was introduced by the land owner, for approximately KRW 15,00 per day to the land owner. The Plaintiff paid approximately KRW 3-40,00 per day to the land owner, as well as approximately KRW 3-40,00 per day to the land owner. ④ The harvest was sold as the pre-sale.

C) Therefore, the Plaintiff’s assertion that the instant land was directly cultivated for not less than eight years is without merit.

2) Determination on the assertion of violation of the principle of retroactive taxation prohibition

A) The principle of retroactive taxation prohibition, one of the basic principles of tax-related Acts, refers to the principle that no tax shall be levied retroactively on income, profit, property, act or transaction, for which a tax obligation is established (Article 18(2) of the Framework Act on National Taxes). In a case where a tax obligation is established after the enactment or amendment of the tax-related Act (see Supreme Court Decision 88Nu11957, Sept. 29, 198).

B) Article 66(12) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 66(13) of the same Enforcement Decree of the Restriction of Special Taxation Act), which is the same provision as this case’s return to the instant case, stipulates the concept of “direct cultivation” as “the residents are engaged in the cultivation of crops or the growing of perennial plants on their own land at all times, or cultivating or cultivating 1/2 or more of them with their own labor,” and the former Enforcement Decree of the Restriction of Special Taxation Act prior to the enactment of the said provision, did not separately stipulate the concept of “direct cultivation” which is one of the requirements for reduction or exemption of capital gains.

Accordingly, the Supreme Court has interpreted that the meaning of "direct cultivation" includes not only cases in which a transferor cultivates hand-owned trees but also cases in which another person is employed and cultivated under his responsibility and account (see Supreme Court Decision 94Nu996 delivered on October 21, 1994).

However, the Plaintiff’s liability to pay capital gains tax on the transfer of the instant land does not have already been established before the said provision was newly established, but it was established only after the Plaintiff transferred the instant land on April 12, 2010 after the said provision was newly established. Thus, even if the Defendant rendered the instant disposition imposing capital gains tax without recognizing the Plaintiff’s direct cultivation by applying Article 66(13) of the Enforcement Decree of the Restriction of Special Taxation Act to the fact that the Plaintiff could have been granted direct cultivation and thus, it does not violate the principle of prohibition of retroactive taxation (see, e.g., Supreme Court Decisions 89Nu1858, Sept. 12, 1989; 88Nu1957, Sept. 29, 198).

C) Therefore, the Plaintiff’s assertion on this part is without merit.

3) Determination on the assertion of violation of the principle of clarification of taxation requirements

A) Whether it is contrary to the principle of clarity of taxation requirements or not requires a comprehensive judgment in accordance with the criteria, such as granting taxpayers the possibility of arbitrary and discriminatory application of the law from the viewpoint of an administrative agency, whether it is possible to expect choice of more conclusive words in the legislative technology (see Supreme Court Decision 2002Du1588 delivered on September 23, 2004, Supreme Court Decision 2002Du1588 delivered on September 23, 2004).

B) The term "one half of the work of farming" as stipulated in Article 66 (13) of the Enforcement Decree of the Restriction of Special Taxation Act, which is referred to in the case of this case, means one half of the work amount in the case of cultivating crops or perennial plants in the farmland in question, and its meaning can also be predicted from a single half of the work amount, and otherwise, it can be interpreted as one half of the time or expense required for the work, work area, or one half of the work area (if the total work amount is converted to a time based on the average worker's daily work amount, it may be interpreted as one half of the work hours) or one half of the work area (if the total work amount is converted to a time based on the average farmer's daily work amount, it may be interpreted as one half of the work hours). Thus, the above provision does not violate the principle of the clear statement of taxation requirements.

C) Therefore, the Plaintiff’s assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the judgment of the court of first instance is just in conclusion, and the plaintiff's appeal is dismissed and it is so decided as per Disposition.

Maximum seal (Presiding Judge)

Oral Dus

Kimok-Dhan

Relevant statutes

/ former Restriction of Special Taxation Act (amended by Act No. 10406, Dec. 27, 2010)

Article 69 (Abatement or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(1) With respect to income accrued from the transfer of land prescribed by Presidential Decree among land subject to agricultural income tax (including those exempt from taxation, reduction and exemption, and small collection) that is included in a residential area, commercial area, and industrial area (hereafter referred to as "residential area, etc." in this Article) under the National Land Planning and Utilization Act or directly cultivated by a resident prescribed by Presidential Decree, for at least eight years (where such land is included in a residential area, etc. or a corporation prescribed by Presidential Decree which mainly engages in agriculture (hereafter referred to as "agricultural corporation" in this Article), not later than December 31, 2010, which is prescribed by Presidential Decree), the amount of tax equivalent to 100/100 of the capital gains tax on income accrued from the transfer of such land shall be reduced or exempted: Provided, That where the relevant land is included in a residential area, etc. or has been designated as a land reserved for replotting other than farmland prior to a disposition of replotting under the Do Development Act or other Acts, the amount of tax equivalent to 10/100 of the capital gains tax on income prescribed by the Presidential Decree shall be reduced or exempted.

(3) Any person who intends to have paragraph (1) applied shall file an application for reduction, as prescribed by Presidential Decree.

Article 77 (Abatement or Exemption of Transfer Income Tax on Land, etc. for Public Works Projects)

(1) An amount of tax equivalent to 20/100 (25/100 for the portion of the transfer price of land, etc. paid in bonds prescribed by Presidential Decree, and 40/100 (50/100 for the land, etc. paid in bonds prescribed by Presidential Decree shall be 25/100) of capital gains tax on the income accrued from the transfer of land, etc. acquired on or before December 31, 2012 retroactively from the date of project recognition and public notice of a project for a project area to which the relevant land, etc. belongs, which falls under any of the following subparagraphs and a special agreement is concluded to keep the relevant bonds until the maturity of at least three years in a manner prescribed by Presidential Decree, such as the Act on the Construction of Bogeumjari Housing, etc. and 40/100 (50/100 for the light at least five years):

1. Necessary for the public works governed by the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects;

Income accruing from the transfer of land, etc. to the executor of the public works.

(5) Where the implementer of the relevant public works or maintenance and improvement project intends to be eligible for the reduction or exemption of tax under paragraph (1) 1 or 2, he/she shall apply for such reduction or exemption,

Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 21307, Feb. 4, 2009; Presidential Decree No. 23590, Feb. 2, 2012)

Article 66 (Abatement or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(1) "Resident prescribed by Presidential Decree residing in the seat of any farmland" in the main sentence of Article 69 (1) of the Act means a person who cultivates farmland while living in an area (including the area corresponding to the relevant area at the time of cultivation, but does not correspond thereto due to a reorganization of administrative district, etc.) falling under any of the following subparagraphs for at least eight years [in cases where farmland eligible for the payment of management transfer subsidies under paragraph (3) is transferred to the Korea Rural Community Corporation under the Korea Rural Community Corporation and Farmland Management Machinery Corporation Act (hereafter referred to as the "Korea Rural Community Corporation" in this Article) or to a corporation under paragraph (2]

1. An area in a Si/Gun/Gu (referring to an autonomous Gu; hereafter the same shall apply in this paragraph) where farmland is located;

2. An area within a Si/Gun/Gu adjacent to an area referred to in subparagraph 1.

3. An area within 20 kilometers in a straight line from the farmland concerned.

(3) For the purpose of Article 69 (1) of the Act, the term “direct cultivation” means that a resident is engaged in cultivating the crops or growing perennial plants on his own farmland at all times, or cultivating or cultivating 1/2 or more of the farming work with his own labor.

The Addenda No. 21307, Feb. 4, 2009

Article 1 (Enforcement Date) This Decree shall enter into force on the date of its promulgation.

Article 2 (General Application Examples)

(3) The amended provisions concerning capital gains tax in this Decree shall apply to the first transfer after this Decree enters into force. This provision shall apply to the transfer income tax from this Decree.

Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 19329 of Feb. 9, 2006 and amended by Presidential Decree No. 21307 of Feb. 4, 2009)

Article 66 (Abatement or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

(2) The term "direct cultivation" in Article 69 (1) of the Act means that a resident is engaged in cultivating crops or growing perennial plants on his/her own farmland at all times, or cultivating or cultivating not less than half of the farming work with his/her own labor.

The Addenda No. 19329, Feb. 9, 2006>

Article 1 (Enforcement Date) This Decree shall enter into force on the date of its promulgation.

Article 10 (Application Cases of Reduction or Exemption of Transfer Income Tax for Self-Cultivating Farmland)

The amended provisions of Article 66 (11) and (12) shall apply to the transferred provisions after this Decree enters into force.

Farmland Act

Article 2 (Definitions)

The definitions of terms used in this Act shall be as follows:

1. The term "farmland" means the land falling under any of the following items:

(a) The actual site of land regardless of the legal category of the paddy field, paddy field, orchard, orchard, or any other category of land;

Land to be used for a small or multi-sea cultivation: Provided, That a lot of grassland, etc. created under the Grassland Act shall be substituted;

Land as prescribed by the Ordinance shall be excluded.

(b) Agricultural and livestock products production facilities installed in the land under item (a) and (a), as prescribed by Presidential Decree;

the facility site

5. The term “self-arable” means the farmland which a farmer has cultivated in his own farmland or perennial plants; and

C. Cultivating or cultivating not less than 1/2 of farming works with their own labor;

The Corporation or an agricultural corporation refers to the cultivation of crops or the cultivation of perennial plants on its own farmland.

6. The term “entrusted management” means the agriculture for which the owner of farmland agrees to pay remuneration to others.

The term "agricultural management" means agricultural management conducted by fully or partially entrusting work.

Basic Act

Article 21 (Establishment Date of Liability for Tax Payment)

(1) A liability to pay national taxes shall accrue at the following time:

1. Income tax and corporate tax: when the taxable period expires;