Cho-2018-west-2119 (2018.04)

The business commencement of the Plaintiff’s housing construction and sales business shall be deemed to be the starting point of the sale of housing and the disposition denying the application of simple expenses and the special tax reduction and exemption.

In the case of housing construction and sales business run by the Plaintiff, it is reasonable to regard the date of commencement of housing sale, which is objective and practical time to supply housing, rather than the date of business registration applied mutatis mutandis by the Corporate Tax Act, as the date of commencement of business, and it is insufficient to recognize that the Plaintiff actually constructed the housing

Article 48 of the Enforcement Decree of the Income Tax Act, Article 143 of the Enforcement Decree of the same Act, and Article 6 of the Enforcement Decree of the same Act.

Global Income Detailed and Revocation of Disposition

Park 00

00. Head of tax office

on October 23, 2019

on October 27, 2019

1. The plaintiff's claim is dismissed.

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

The defendant on August 4, 2017:x,x,xx (additional tax) of the global income tax for the year 2015 that belongs to the plaintiff on August 4, 2015.

X,xx,xx andxx source) shall be revoked.

1. Details of the disposition;

A. The Plaintiff, a business operator running the Housing Construction and Sales Business, constructed 8 households of multi-family housing located in XX 276-5 (hereinafter “instant housing”) (the starting date: the starting date; x., x., 201x.x., and x., 201x.), and sold (sale price: x, x, x, xx, and xx) around 2015.

B. On July 23, 2014, the Plaintiff completed business registration related to the instant house on December 9, 2014, supplied scrap metal equivalent to the xx and xx won on a credit cooperative property, and subsequently closed the business registration under Article 7(1) of the former Restriction of Special Taxation Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same shall apply), the Plaintiff reported and paid the global income tax on July 18, 2015 by applying the aforementioned provision, if the amount of income falls short of the amount prescribed in 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).

C. As a result of the investigation of personal integration with the Plaintiff from the x.x. to the x.x. from the x. 201x.x. x. 201x, the director of the regional tax office confirmed the amount of income in the taxable period immediately preceding the year in which the amount of income from sale of the instant house was generated as the processed income, and notified the Defendant to correct the amount of income by deeming that the Plaintiff is not a person subject to the application of simple expense expense expense, by calculating the amount of income by means of estimation based on the standard expense rate, and by excluding the special tax reduction or exemption for small and medium enterprises. On the x. x. 2017, the Defendant corrected and notified the Plaintiff of the correction and notification of the amount of income from global income taxx, xx, xxxx (including additional taxx, xx, xx

D. The Plaintiff, who was dissatisfied with the instant disposition, filed a request for a trial with the Tax Tribunal on x. x. x. However, the Tax Tribunal dismissed the said request on x. x. 201x.

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1, 2, and 7, the purport of the whole pleadings

2. Summary of the plaintiff's assertion

The plaintiff asserts that the disposition of this case is unlawful and should be revoked for the following reasons.

1) The Plaintiff, while running the Housing Construction and Sales Business, reported xx and xx source as revenue in 201x in the taxable period of 201x, constitutes a business entity whose aggregate amount of revenue in the immediately preceding taxable period under Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act falls short of 36 million won and thus constitutes a business entity subject to the application of the simplified expense rate at the time of filing global income tax return in 2015. Nevertheless, without any special ground, the Defendant issued the instant disposition by applying the standard expense rate when estimatinging the Plaintiff’s global income tax in 201x without any special ground. This

2) Since the fact that the Plaintiff actually constructed the instant building is evident, the Defendant’s disposition that determined that the Plaintiff was not engaged in construction business under Article 7(1)1 of the former Restriction of Special Taxation Act solely on the ground that the Plaintiff leased another person’s construction business license is unlawful.

3. Relevant statutes;

It is as shown in the attached Form.

4. Determination

1) Whether simple expense rate is applied

A) According to the former Income Tax Act (amended by Act No. 15225, Dec. 19, 2017; hereinafter the same shall apply), the proviso of Article 80(3) of the former Income Tax Act, and Article 143(3) of the former Enforcement Decree of the Income Tax Act, when the amount of income is estimated, 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 amount of income by the 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 amount of income by the simple expense rate. The term "person subject to simple expense rate" means a new entrepreneur who has commenced a business in the relevant taxable period, and the constructor (including a residential development and supply business; hereinafter the same shall apply) whose amount of income in the relevant taxable period falls short of 150,000,000 won, or the provisions of Article 143(1)2(b) of the former Value-Added Tax Act are not applicable mutatis mutandis.

Meanwhile, under the principle of no taxation without representation, tax laws shall be interpreted as the text of the law, and shall not be extensively interpreted or analogically interpreted without reasonable grounds, barring any special circumstances. However, even according to the language and text of the tax laws itself, if their meaning is unclear or if it appears that there is a conflict between the laws and regulations, the court must naturally indicate the true meaning of the language and text at issue through harmonious interpretation between the laws and regulations. In such cases, a judge can make a combined interpretation of the laws and regulations that consider legislative intent and purpose to the extent that it does not undermine legal stability and predictability pursued the principle of no taxation without representation (see, e.g., Supreme Court en banc Decision 2011Du551, Apr. 16, 2015).

B) According to the following circumstances revealed by comprehensively taking account of the contents of the relevant statutes and the evidence and the purport of the entire pleadings, it is reasonable to deem that, in the case of housing construction and sales business run by the Plaintiff, the starting date of the business is not the business registration date applied by analogy of the Corporate Tax Act, but the time when the instant housing supply is objective and practical, i.e., the starting date

① Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) and Article 143(4)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) stipulate that: (a) Subparag. 2 apply simple expenses to a new entrepreneur who starts a business during the pertinent taxable period, other than a new entrepreneur who starts a business in the pertinent taxable period, for whom the total amount of revenues during the immediately preceding taxable period (including revenues increased by determination or revision) falls short of the standard amount; and (b) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act amended by Presidential Decree No. 22580, Dec. 30, 2010; and (c) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22130, Dec. 1, 2012>

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income for the taxable period that begins after February 13, 2018, is amended by Presidential Decree No. 28637, which applies to the portion of income for the taxable period that begins after January 1, 2019, provides that the standard amount of expense shall be applied by excluding the amount of income from the application of simple expense expense expense when the amount of income for the taxable period concerned falls short of the standard amount of income for the immediately preceding taxable period, even if the total amount of income for the taxable period falls short of the standard amount.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators with insufficient capacity to keep records of the disbursement evidence required by the standard expense rate system, and it is determined that legislators have gradually reduced the scope of business operators subject to the simple expense rate. Furthermore, according to the text of the supplementary provision, legislators seem to understand "construction commencement", "construction business, construction business, and commencement of real estate development and supply business" as separate concepts.

Therefore, considering these legislative intent, in the case of housing construction and sales business that operates a business for a long period exceeding a certain scale due to its characteristics, it is necessary to grasp the commencement date of the business as objective and practical time for the supply of housing subject to sale rather than the commencement date that can be determined according to the intention of the

② The commencement date of a 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 in its nature (see, e.g., Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose of the business is to sell housing, and it is difficult to deem that the commencement of

③ Whether a business income under the Income Tax Act falls under business income shall 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, there is no evidence suggesting that the Plaintiff had objectively expressed his intent to engage in the housing construction and sales business for profit prior to commencing the sale of the instant housing. The fact that the Plaintiff commenced or completed the instant housing for profit-making purposes alone is not enough to deem that the Plaintiff continuously and repeatedly conducted the instant housing for profit-making purposes to have satisfied the objective substance of the housing construction and sales business.

C) Furthermore, according to the purport of the evidence No. 6-2 and the entire pleadings, it is acknowledged that the Plaintiff’s income return amount in 2015 related to the instant housing was 3,534,500,000, and the Plaintiff’s income return amount in the pertinent taxable period is not applicable to a business operator who newly starts a business and whose income amount in the pertinent taxable period falls short of the standard amount (150,000 won) or whose total amount of income in the immediately preceding taxable period falls short of the standard amount (36,000 won). Accordingly, the Plaintiff’s assertion on the application of simple expense application cannot be justified.

2) Whether the provision on special tax reduction or exemption applies to small and medium enterprises

A) Article 7(1) of the former Restriction of Special Taxation Act provides that a small or medium enterprise prescribed by Presidential Decree shall list "construction business" as a type of business eligible for special tax reduction or exemption on income tax, etc. and classify the specific type of business into the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 17 of the Statistics Act. The Korean Standard Industrial Classification defines "construction business (411)" as "construction business (41) of a building that belongs to the small classification item of the construction business as "industrial activities newly constructed, expanded, reconstructed, or reconstructed by a contractor or a comprehensive constructor" and excludes "construction business" as a type of "real estate development and supply business (6812)", which is a separate sub-classified item of "real estate business".

In addition, the special tax reduction system for small and medium enterprises under Article 7 (1) of the former Restriction of Special Taxation Act is to support small and medium enterprises so that their financial restructuring and facility investment can be achieved smoothly by granting a temporary reduction of income tax and corporate tax in order to protect and foster domestic small and medium enterprises with weak competitiveness. In light of the fact that the special tax exemption system is based on the premise that the amount of the tax reduced or exempted should be used for the prescribed purpose of the same Act, a national operating a small and medium enterprise is required to operate the relevant business at least at the end of the taxable period subject to the reduction or exemption (see Supreme Court Decision 2005Du685, Jan. 13, 2006).

B) According to each tax invoice submitted by the Plaintiff, withholding status report, payment record of daily wages, and employment insurance work content confirmation report, it is acknowledged that the Plaintiff paid some of the expenses due to material expenses such as ready-mixed, etc., daily wages, and labor expenses for daily workers. However, each of the above evidence alone is insufficient to recognize that the Plaintiff had actually constructed the instant housing with human, physical or capacity that the Plaintiff could execute the instant housing construction under the overall responsibility, and there is no other evidence to acknowledge otherwise. Rather, according to the purport of the statement and argument in subparagraph 13, it is difficult to view that the name and total amount of daily wages confirmed through the above daily wages payment statement, employment insurance content confirmation report, and the total amount of wages of daily workers confirmed through the employment insurance content confirmation report correspond to the amount and amount of wages of daily wages collected from the Ministry of Employment and Labor, which are the construction contractor A, a withholding agent of the instant housing construction business under the Korea Standard Industrial Classification. Therefore, it is difficult to deem that the Plaintiff engaged in the construction business under the Korea Standard Industrial Classification.

C) Even if it is recognized that the Plaintiff engaged in the construction business that becomes the business subject to Article 7 subparag. 1 of the former Restriction of Special Taxation Act, the Plaintiff’s business related to the instant housing was closed on July 18, 2015, and thus, the Plaintiff cannot be deemed to have engaged in the business at the time after it was closed on or before December 31, 2015, which is the end of the taxable period of global income tax for the year 2015. Therefore, in light of the aforementioned legal principles, the Plaintiff cannot be deemed to fall under the special tax reduction or exemption under the said provision in this respect. The Plaintiff’s assertion on the application of the provision on special tax reduction or exemption is without merit

5. Conclusion

The claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.