Cho-2016-Divisions-661 (Law No. 16, 296)

Interest on loans shall not be deducted as necessary expenses in calculating capital gains tax.

If a resident has received a loan to acquire fixed assets for business, it is reasonable to view that the interest on the loan accrued until the time of acquisition of assets does not constitute necessary expenses to be deducted in calculating the transfer income tax.

Article 97 of the Income Tax Act, Necessary expenses for transfer assets under Article 163 of the Enforcement Decree of the Income Tax Act.

2016Guhap1008 Revocation of Disposition rejecting capital gains tax rectification

Kim 00

00. Head of tax office

April 27, 2017

June 8, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant’s rejection of correction of KRW 00,000,000 for the transfer income tax of 2015 reverted to the Plaintiff on October 00, 2016 shall be revoked.

1. Details of the disposition;

A. On October 00, 201, the Plaintiff purchased a parcel of land from ○○ Metropolitan City 000-0,000 square meters (hereinafter “instant land”) from △△-dong, △△-dong and completed the registration of ownership in the name of the Plaintiff on October 0, 2014.

B. Thereafter, the Plaintiff agreed to withdraw the instant land in kind to △△△△△△△△ on October 0, 2015, and completed the registration of ownership transfer in the name of △△△△△△△ on October 0, 2015.

C. On October 00, 2015, the Plaintiff: (a) filed a preliminary return with the Defendant on the transfer value of the instant land at KRW 0,000,000,000; (b) the acquisition value at KRW 00,000,000; and (c) other necessary expenses at KRW 00,000,000.

D. On October 00, 2015, the Plaintiff filed a claim for correction by asserting that “interest on the amount borrowed by the Plaintiff to pay the purchase price of the instant land in order to the Defendant as above (hereinafter “interest of this case”) is necessary expenses, and thus, the amount reported should be deducted at the time of calculating transfer margin,” and that the return of the reported portion in excess of the reasonable tax amount was requested. However, the Defendant dismissed the Plaintiff’s claim for correction on October 0, 2016 (hereinafter “instant disposition”).

E. On October 0, 2016, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but was dismissed on October 0, 2016.

[Ground of recognition] Unsatisfy, entry of Gap evidence 1 to 5, purport of whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The key issue in the instant case is whether the interest on loans used to pay the sale price of the instant land, which is fixed assets for business, can be deducted from the necessary expenses in calculating the transfer income tax.

2) Article 97(1)1 (a) of the Income Tax Act provides that the acquisition value (i.e., the actual transaction value incurred from the acquisition of assets) shall be deducted from the transfer value when calculating gains on transfer, and Article 163 of the Enforcement Decree of the Income Tax Act provides that the acquisition value (i.e., the actual transaction value incurred from the acquisition of assets) shall be included in the actual transaction value stipulated in Article 97(1)1 (a) of the Income Tax Act, and Article 89(1) of the Enforcement Decree of the Income Tax Act provides that the value corresponding to the cost for acquisition calculated by applying mutatis mutandis Article 89(1). Meanwhile, Article 89(1)1 of the Enforcement Decree of the Income Tax Act provides that “the assets purchased from another person shall be the acquisition value calculated by adding acquisition tax, registration license tax

3) Article 118 of the Income Tax Act provides that Article 33 (1) 10 of the Income Tax Act shall apply mutatis mutandis to capital gains tax. According to Article 33 (1) 10 of the Income Tax Act, interest on a loan appropriated for construction funds prescribed by Presidential Decree among loans shall not be included in necessary expenses when calculating business income. Article 75 (1) of the Enforcement Decree of the Income Tax Act provides that "interest on a loan appropriated for construction funds prescribed by Presidential Decree" in Article 33 (1) 10 of the Act refers to interest on the loan used for the purchase, production, and construction of fixed assets for the relevant business regardless of the title, or other similar expenses." Article 118 (2) of the Income Tax Act provides that "interest paid or expenses paid under paragraph (1) of the same Article shall be added to capital expenses until the date the construction prescribed by Ordinance of the Ministry of Strategy and Finance is completed (where the land is purchased, until the date the price is fully paid, if the relevant land has been provided for business prior to the date of payment." Therefore, in comprehensive interpretation of capital gains tax shall be added to the principal.

4) Therefore, even though it is reasonable to deduct the instant interest from the necessary expense in calculating the Plaintiff’s capital gains tax in accordance with the interpretation of relevant statutes, the instant disposition taken on a different premise is unlawful.

B. Relevant statutes

Attached Form 3 is as shown in the "relevant Acts and subordinate statutes".

C. Determination

(6) If a resident receives a loan to acquire fixed assets for business purposes, the interest on the loan accrued until the time of the acquisition of the assets can be deducted as necessary expenses in calculating the transfer income tax. Then, the interpretation of Acts and subordinate statutes on taxation requirements, non-taxation requirements or requirements for reduction or exemption under the principle of no taxation without law should be interpreted as prescribed by the law, unless there are special circumstances. However, Article 97 of the Income Tax Act and Article 163 of the Enforcement Decree of the Income Tax Act concerning necessary expenses are not listed as necessary expenses, and Article 97 (1) 1 (a) of the Income Tax Act provides that "actual transaction value" under Article 88 subparagraph 5 of the Income Tax Act provides that the transfer income tax shall be deducted from the actual transaction value of the assets by the transferor and the transferee of the assets, but it is reasonable to view that the transfer of the assets to be deducted from the necessary expenses is not in violation of Article 88 (1) 1 of the Enforcement Decree of the Income Tax Act concerning the acquisition of the fixed assets for business purposes.

3. Conclusion

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