2020du42637 Disposition of revocation of the imposition of value-added tax

Plaintiff:

Attorney Han-chul, Counsel for the plaintiff-appellant

Daejeon Head of the District Tax Office

Daejeon High Court Decision 2019Nu12300 Decided June 12, 2020

January 28, 2021

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. Case summary

The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following facts.

A. On April 27, 2007, the Plaintiff completed the business registration of the Housing Construction and Sales Business with the trade name of “0000,000.” On August 4, 2014, the Plaintiff newly constructed three multi-storys (20) above the ground size of the area of 328.82m square meters on the (location omitted) ground with permission from the competent authority on August 4, 2014, and completed the registration of initial ownership on the instant housing on June 17, 2015 after obtaining approval for use on June 9, 2015. The first floor above the instant housing consists of six units, six units above the ground, three units above the third floor, and seven units, respectively. The floor area of the first floor is 11.94m, the floor area of the second floor is 100m, 1084m, and 3th floor area of the instant housing, not multi-unit houses.

B. The Plaintiff, while holding and leasing the instant housing, sold it to the Nonparty, and completed the registration of ownership transfer for sale on October 26, 2016 on the instant housing on December 7, 2016 (hereinafter “supply of the instant housing”). At the time of the supply of the instant housing, each of the instant housing units was installed with cooking facilities, such as urban gas or artificial lecrails, etc., which was separately established whenever the Plaintiff leases each of the units after the approval for use was granted. On January 24, 2017, the Plaintiff reported the cessation of business on October 31, 2016 with respect to “○○○○○○○○○” to the Defendant, and did not report that the supply of the instant housing was subject to value-added tax exemption pursuant to Article 106(1)4 (hereinafter “value-added tax exemption clause”).

D. However, on December 5, 2017, the Defendant considered that the supply of the instant housing does not fall under value-added tax exemption under the instant tax exemption provision, and imposed value-added tax of KRW 75,389,590 on the Plaintiff on December 5, 2017 (hereinafter “instant disposition”).

2. Whether the Plaintiff constitutes a business entity under the Value-Added Tax Act

For the reasons indicated in its holding, the lower court determined that the Plaintiff constituted a business operator under the Value-Added Tax Act because it is difficult to view that the Plaintiff actually discontinued the housing construction and sales business at the

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on business operators under the Value-Added Tax Act.

3. Whether the supply of the instant house is subject to the exemption of value-added tax under the instant tax exemption provision. According to the instant tax exemption provision, the supply of the “national housing prescribed by the Presidential Decree” is exempt from value-added tax. Article 106(4)1 of the Enforcement Decree of the Restriction of Special Taxation Act provides that the said “national housing prescribed by the Presidential Decree” as “housing below the scale prescribed by Article 51-2(3) of the Enforcement Decree of the Restriction of Special Taxation Act,” and Article 51-2(3) of the Enforcement Decree of the same Act provides that the said size is “national housing scale prescribed by the Housing Act” (hereinafter referred to as “the instant comprehensive provision”), and that “in the case of the multi-family house prescribed by the Ordinance of the Ministry of Strategy and Finance, it refers to the area calculated on the basis of the exclusive use area per household in the case of the multi-family house.” Article 20 of the Enforcement Rule of the Restriction of Special Taxation Act on the said delegation sets the “multi-family house area prescribed by the said Ordinance [Attachment 1] or 2(c. 6)” for residential area.

On the other hand, "multi-household house" is divided into "multi-unit house" and "multi-unit house". "multi-unit house" includes "multi-unit house under subparagraph 1 (b) of attached Table 1 of the Enforcement Decree of the Building Act" and "multi-unit house under subparagraph 1 (c) of attached Table 1 of the Enforcement Decree of the Building Act" (Article 2 subparagraph 1 of the Housing Act and Article 2 subparagraph 2 and subparagraph 3 of the Enforcement Decree of the Housing Act). According to subparagraph 1 (b) of attached Table 1 of the former Enforcement Decree of the Building Act (amended by Presidential Decree No. 27175, May 17, 2016; hereinafter the same shall apply), "multi-household house" means a house with a structure that allows many persons, such as students and workers, to reside for a long time, (referring to multi-unit house which does not install, but excluding multi-unit house facilities) and a house with the total floor area of not more than 30 square meters (excluding multi-unit house).

B. According to the above provisions, since the instant comprehensive housing provision is subject to only a multi-household house among the single houses under the Housing Act, the issue of whether a single house under the Housing Act is below the national housing scale under the Housing Act, which is a requirement for falling under the national housing of the instant tax-free provision, shall be determined on the basis of the "multi-family house" in the case of the "multi-family house" under the instant comprehensive housing provision, and on the basis of the "the whole exclusive residential area of the house" in the case of other detached houses.

However, in light of the fact that the former Enforcement Decree of the Building Act cited by the Housing Act and subordinate statutes clearly classify the requirements of the ‘multi-user house' and ‘multi-household house', especially in the case of ‘multi-user house', it is not possible to install cooking facilities by each room; the ‘multi-user house' and ‘multi-family house' differs in the standards for installation of annexed parking lots in accordance with the Parking Lot Act and subordinate statutes; in the case of ‘multi-family house', it is necessary to install a lot of parking lots compared to the ‘multi-user house' due to the application of the standards for installation corresponding to the apartment house, it is reasonable to view that the ‘multi-family house' in this case constitutes a building registered as the ‘multi-family house on the public register by legitimately satisfying the requirements of ‘multi-family house' in accordance with the relevant Acts and subordinate statutes, barring any special circumstance.

C. Examining the aforementioned facts in light of the aforementioned legal principles, since the instant house is merely to install cooking facilities for each room without permission for construction and approval for use after obtaining permission for use as "multi-user house", and the purpose of the public register is also "multi-user house", it cannot be deemed to fall under "multi-family house" under the overall provision of this case (or "multi-family house" under the overall provision of this case, even though the instant house consists of 20 houses in total, and it does not meet 19 households or less among the requirements for multi-family house under the Building Act, it cannot be deemed as "multi-family house" under the Building Act. Therefore, in relation to the application of the tax-free provision of this case, whether the scale of the instant house is below the national housing scale under the Housing Act shall be determined based on the whole exclusive residential area, not the exclusive residential area per household, and since the entire residential area of this case exceeds the upper limit of the national housing scale under the Housing Act, it is therefore reasonable to view that the instant house does not fall under "non-resident house" under the instant provision of this case.

D. In the same purport, the lower court determined that the instant disposition was lawful on the premise that the instant housing does not constitute “national housing” under the instant tax exemption clause. Such determination by the lower court was based on the legal doctrine as seen earlier, and did not err by misapprehending the legal doctrine on the interpretation of “national housing scale” under the Restriction of Special Taxation Act, contrary to what is alleged in the grounds of appeal. Meanwhile, the Supreme Court precedents cited in the grounds of appeal in the grounds of appeal are different cases,

4. Whether special-purpose provisions apply to the supply of self-produced or acquired goods.

The lower court rejected the Plaintiff’s assertion that no value-added tax is imposed pursuant to the special provisions of Article 10(6) and (1) of the former Value-Added Tax Act (amended by Act No. 16101, Dec. 31, 2018; hereinafter the same) that deeming that the Plaintiff would have supplied self-produced and acquired goods remaining at the time of business closure, on the grounds that the Plaintiff cannot be deemed to have discontinued the housing construction and sales business and supplied the instant housing.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on interpretation of Article 10(6) and (1) of the former Value-Added Tax Act, contrary

5. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jae-hwan

Justices Park Sang-ok

Justices Lee In-bokon

Justices Noh Jeong-hee