National Tax Service-2017-088 (2017.09.12)

In cases of supplying housing with a building permit for business facilities, whether it falls under the object of exemption from value-added tax under Article 106 (1) 4 of the Restriction of Special Taxation Act

The term "house" in the Restriction of Special Taxation Act means only a building constructed for the purpose of housing by obtaining a building permit lawfully as of the time of supply, and it cannot be deemed that it includes a building constructed for the purpose of business facilities (offices).

Exemption, etc. of value-added tax under Article 106 (1) 4 of the Restriction of Special Taxation Act

Incheon District Court-2018-Gu 51397 ( November 29, 2018)

TO and two others

O Head of tax office

2018.20

November 29, 2018

1. The plaintiffs' claims are dismissed.

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

1. Details of the disposition;

A. On July 3, 2014, the Plaintiffs newly built and sold an aggregate building of 15 stories above ground (multi-family housing 20 households, officetels 50 units) under the name of "OOOOOOOOO" on the land of △△-1 large 280.9 square meters in Nam-dong, Nam-gu, Incheon, Nam-gu, Seoul, and the name of "△△△△-1 large 270.8 square meters on the land of 279.8 square meters in Nam-gu, Nam-gu, Incheon, and sold the said officetel in the second taxable period of value-added tax in 2015 (hereinafter referred to as "the instant officetel").

B. Plaintiffs’ failure to report value added tax and Defendant’s imposition of value added tax

1) The Plaintiffs did not file a return on value-added tax for the supply of the instant officetel in 2015 on the ground that the instant officetel constitutes a house with an exclusive residing area of 85 square meters or less per household, and thus, the instant officetel is exempt from value-added tax pursuant to Article 106(1)4 of the Restriction of Special Taxation Act (hereinafter “instant exemption provisions”).

2) As a result of the tax investigation conducted with respect to the Plaintiffs from April 20, 2017 to May 19, 2017, △△△ notified the Defendant that the instant officetel supply does not constitute national housing under the instant exemption provision, on the ground that the instant officetel supply is not subject to value-added tax exemption.

3) On October 1, 2017, the Defendant issued a correction and notification of KRW 000,000,000 (including additional tax) for the second half of value-added tax in 2015 to the Plaintiffs on the ground that the instant officetel supply does not fall under the object of value-added tax exemption (hereinafter “instant disposition”).

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

In order to meet the requirements for the building permit under the Building Act, the instant officetel is merely a building permit for business facilities (offices). From the beginning, it is designed and constructed for a residential purpose with a room, main room, living room, bathing room, floor heating system, etc., and falls under substantial housing such as a residential unit, which is sold for residential purpose and used for residential purpose by occupants. As such, the instant officetel constitutes a national housing prescribed by Presidential Decree, which is not more than 85m2 of the exclusive residential area per household, and the instant officetel’s supply constitutes a tax exemption, and thus, the instant disposition, which is deemed unlawful.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

The instant exemption provisions and Articles 106(4)1 and 51-2(3) of the Enforcement Decree of the Restriction of Special Taxation Act stipulate "supply of housing below the scale of national housing under the Housing Act" as one of the objects of value-added tax exemption. The first sentence of Article 2 subparag. 3 of the former Housing Act (wholly amended by Act No. 13805, Jan. 19, 2016; hereinafter the same shall apply) refers to housing whose area used only for the purpose of residence in the scale of national housing is not more than 85 square meters per house or household (excluding Seoul Metropolitan area under Article 2 subparag. 1 of the Seoul Metropolitan Area Readjustment Planning Act).

Article 2 of the former Housing Act defines the term “house” as a whole or in part of a building with a structure that makes it possible for members of a household to live an independent residential life for a long time and its appurtenant land in an Eup or Myeon area which is not an urban area. Article 2 of the former Housing Act separates a house and a quasi-housing by defining the term “quasi-housing” in subparagraph 1-2 as a building other than a house and its appurtenant land as a residential facility and a facility available as a residential facility. Article 2-2 subparagraph 4 of the former Enforcement Decree of the Housing Act (wholly amended by Presidential Decree No. 27444, Aug. 11, 2016) sets forth an officetel under subparagraph 14 (b) of the Enforcement Decree of the Building Act as one of quasi-housing. Article 2(2) of the Building Act, Article 3-5 [Attachment 1] of the Enforcement Decree of the Building Act, and Article 3-5 [Attachment 1] of the Enforcement Decree of the Building Act as one of the general business facilities.

(4) The scope of "house" under the provisions of the Housing Act should be interpreted in accordance with the purport and purpose of the provisions, and the interpretation of tax laws and regulations shall not be permitted in accordance with the law, unless there are special circumstances. In particular, it conforms with the principle of fair taxation to the effect that it can be objectively interpreted that it is difficult for the taxpayer to use the housing for the purpose of the construction of this case because the provisions of the Housing Act provides for the housing of 8 square meters or less as one of the items to be exempted from value-added tax (see, e.g., Supreme Court Decision 2007Du21242, Feb. 14, 2008) as one of the items to be exempted from value-added tax, and that it is difficult to view the housing of this case as one of the items to be exempted from value-added tax for the purpose of the construction of this case.

Therefore, the supply of the instant officetels does not correspond to the supply of housing below national housing size under the Housing Act, which is subject to the exemption of value-added tax as stipulated in the instant exemption provision, and thus, the disposition of this case by deeming that the instant officetel supply is not subject to value-added tax exemption is legitimate.

3. Conclusion

The plaintiffs' claims are dismissed as it is without merit. It is so decided as per Disposition.