2020Du40914 Revocation of Disposition of Imposing global income tax, etc.

Plaintiff 1 and one other

Law Firm LLC et al., Counsel for defendant-appellant

Cho Young-young et al., Counsel for defendant-appellant

Kimhae Tax Office et al.

Busan High Court Decision 2019Nu23586 decided May 8, 2020

January 14, 2021

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Case summary

A. New construction and sale of a primary complex building by the plaintiffs

(1) The Plaintiffs registered the business of the Housing Construction and Sales Business with the trade name “○○○○○” in 2014, and newly constructed the “△△△△△△△△△△△△”, a primary complex building consisting of 8 households and 4 households on the land, other than the Blue-gu, Busan, upon obtaining a construction permit from the competent authority, and then sold it in 2015. Of them, the sales of 4 households of the officetel, which is a business facility registered, was carried out in the first taxable period of value-added tax in 2015.

(2) On May 26, 2015, Plaintiff 1, along with the Nonparty, registered the housing construction and sales business under the name of the Non-Party on May 26, 2015, with the permission of the competent authority, and newly constructed the “Seaeaeae-gu”, a main complex building consisting of 26 households and 15 households, which is multi-family housing and 26 households, on three parcels outside Busan, Busan, with the permission of the competent authority, and sold it in 2016. Of them, the sales of 15 households of an officetel, which is a business facility in the public record, was completed at the first and second taxable periods of 2016.

(1) The Plaintiffs and Plaintiff 1, respectively, deemed that the supply of 4 households of the officetel of “△△△△△△△△△” and 15 households of “Seoul Metropolitan Government” (hereinafter collectively referred to as “the instant officetel”) is eligible for the exemption of value-added tax under Article 106(1)4 of the Restriction of Special Taxation Act (hereinafter referred to as “instant tax exemption clause”), and filed a return on the said exemption of value-added tax.

(2) The director of the Busan District Tax Office notified the head of the Busan District Tax Office and the director of the Busan District Tax Office of taxation data on the ground that the supply of the instant officetel does not fall under the exemption of value-added tax under the instant tax exemption provision. On May 4, 2018, the director of the Busan District Tax Office issued a revised and notified Plaintiff 1 of the value-added tax of KRW 61,067,280 (including additional tax) for the first year of 2015. On the same day, the director of the Busan District Tax Office issued a revised and notified Plaintiff 1 of the revised and notified Plaintiff 1 of the value-added tax of KRW 252,086,280 for the first year of 2016 and KRW 128,428,760 for the second year of value-added tax (including additional tax) for the second year of 2016.

C. Disposition imposing global income tax of this case

(1) The Plaintiffs calculated the amount of income according to the simple expense rate on the grounds that the amount of income in 2014, which was the immediate preceding taxable period of 2015, accrued from the sales revenue of “△△△△△△△△△”, falls short of KRW 36 million, which is the standard amount prescribed in Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 28637, Feb. 13, 2018; hereinafter the same shall apply) and reported and paid the amount of income for 2015, respectively.

Plaintiff 1 calculated the amount of income according to the estimation method under the simple expense rate on the ground that the amount of income in 2015, which was the immediately preceding taxable period in 2016, falls short of KRW 36 million under the standard amount under Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act and paid the comprehensive income tax for the year 2016.

(2) After conducting an individual consolidated investigation against the plaintiffs, the head of the Busan District Tax Office and the head of the Busan District Tax Office notified the plaintiffs and the head of the Busan District Tax Office of taxation data that the plaintiffs and the plaintiff 1, respectively, shall apply the standard amount of income under Articles 143 (4) 1 and 208 (5) 2 (b) of the former Enforcement Decree of the Income Tax Act to the business operator who newly started a business in 2015 and 2016, "△△△△△△△△△△△△△△△△△, wherein the sales revenue was generated," and the head of the Busan District Tax Office, and that the amount of income during the pertinent taxable period exceeds KRW 150,000,000,000,000,000

On May 4, 2018, the director of the tax office of the defendant Kim Jong-soo corrected and notified the plaintiff 1 of the global income tax of KRW 35,390,550 for the year 2015 and the global income tax of KRW 320,121,270 for the year 2016. On the same day, the director of the tax office of Seosan notified the plaintiff 2 of the correction and notification of KRW 35,878,560 for the global income tax of KRW 35,878,560 for the year 2015 (hereinafter referred to as "total imposition of global income tax

2. Whether the supply of the instant officetel is exempt from value-added tax pursuant to the instant tax exemption provision (Plaintiff 1’s ground of appeal No. 1)

A. According to the instant tax-free clause, the supply of national housing prescribed by Presidential Decree is exempt from value-added tax. Article 106(4)1 of the Enforcement Decree of the Restriction of Special Taxation, upon delegation, sets the “national housing prescribed by Presidential Decree” as “housing below the size prescribed by Article 51-2(3).” Article 51-2(3) of the Enforcement Decree of the same Act sets the said size as “national housing scale under the Housing Act”. Furthermore, Article 2 subparag. 3 of the former Housing Act (wholly amended by Act No. 13805, Jan. 19, 2016; hereinafter the same shall apply) sets the “national housing scale” as “housing area used exclusively for residential purposes (hereinafter referred to as “exclusive residential area”) with the exclusive residential area of 1 or 85 square meters per household (excluding the Seoul Metropolitan area under Article 2 subparag. 1 of the Seoul Metropolitan Area Readjustment Planning Act, and the exclusive residential area of 1 or 10 square meters per household.”

Article 2 of the former Housing Act defines the scope of "house" under subparagraph 1 as "all or part of a building with a structure that makes it possible for members of a household to live independently for a long time," and separately defines "quasi-housing" under subparagraph 1-2 as "a building other than a house and its appurtenant facilities, etc." and delegates its scope and type to the Presidential Decree. Article 2-2 subparagraph 4 of the former Enforcement Decree of the Housing Act (wholly amended by Presidential Decree No. 2744 of Aug. 11, 2016; hereinafter the same) provides that the scope of "office" under subparagraph 14 (b) of the Enforcement Decree of the Housing Act shall be included as one of the "quasi-unit housing" under Article 9 of the Enforcement Decree of the Housing Act, and Article 9 of the former Enforcement Decree of the Housing Act (amended by Presidential Decree No. 2744 of the Housing Act; hereinafter the same shall apply) shall be excluded from the "multi-unit housing" under subparagraph 14 (b) of the Enforcement Decree of the Housing Act.

B. In full view of the language and text and structure of the above statutes, the purport of the exemption of value-added tax on the supply of housing below national housing scale, the difference in various legal regulations on housing and officetels, and in particular, the balance with the fact that an officetel or an officetel used for housing, unlike the tax exemption provisions of this case, is included in “house” as well as the fact that the use in the public register at the time of supply does not constitute “national housing” under the instant tax exemption provision, barring special circumstances.

If a building supplied satisfies the requirements of officetels under relevant Acts and subordinate statutes and was registered as a business facility on the public register, even if it satisfies the structure and function that can be actually used for residence at the time of supply, it can be used as a business facility which is the purpose of officetels under the Building Act. In such a case, whether it constitutes an officetel not subject to the instant tax exemption provision ought to be determined on the basis of the public record at the time of supply as a matter of principle. Furthermore, as long as the use on the public record at the time of supply falls under an officetel which is a business facility and is excluded from value-added tax exemption under the instant tax exemption provision, it may not be viewed differently even if it is actually used for residential purpose. Examining these facts in light of these legal principles, the instant officetel satisfies the requirements of officetels under relevant Acts and subordinate statutes at the time of supply and its public record is also a business facility, and thus, it does not constitute a “national housing” as referred to in the instant tax exemption provision regardless of whether it is a national housing under the Housing Act or actually used for residential purpose.

D. In the same purport, the lower court determined that the instant officetel, which was permitted to construct and approved to use as “business facilities, does not constitute “national housing” as referred to in the instant tax exemption clause, and thus, it is justifiable to have determined that the instant disposition of value-added tax was lawful. In so doing, the lower court did not err by misapprehending the legal doctrine on “national housing” under the instant tax exemption clause, 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.

3. Whether there exists a justifiable reason to exempt the additional value-added tax (Plaintiff 1’s ground of appeal No. 2), the lower court determined that Plaintiff 1 could not be deemed to have a justifiable reason to exempt the additional value-added tax on the ground that it is difficult to view that there was a variety of opinions in tax interpretation as to whether the supply of residential officetels constitutes the subject of exemption from the value-added tax under the instant tax exemption provision.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower judgment did not err by misapprehending the legal doctrine on justifiable grounds for exempting penalty tax and by failing to exhaust all necessary deliberations, as alleged in the grounds of appeal.

4. Whether simple expense rate applies (the plaintiff's ground of appeal No. 3) (the plaintiff's ground of appeal No. 3), the court below rejected the plaintiffs' assertion that the imposition disposition of global income tax in this case, which calculated the amount of income on housing sales revenue by estimation method based on standard expense rate, should be lawful, on the premise that the commencement date of housing construction and sales business should be considered as "the starting date of housing sales business" in relation to the application of simple expense rate under Article 143 (4)

Examining the reasoning of the lower judgment in light of the relevant provisions and records, the lower judgment did not err by misapprehending the legal doctrine on the commencement date of business under the Income Tax Act.

5. Conclusion

The plaintiffs' appeals are dismissed in entirety as it is without merit, 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.

The presiding Justice shall mobilization by the presiding Justice

Justices Kim Jae-sik in charge

Justices Min Min-young

Justices Noh Tae-ok