Cho-2015-Divisions-4572 (25 April 2016)

Whether the transfer income tax for the conversion into a corporation is satisfied as carried forward;

Since the market value of the building of this case is not the book value but the net asset value of the business assets invested in kind does not exceed the capital of the corporation of this case, it satisfies the carryover taxation requirements.

Carry-over taxation of capital gains tax on the conversion into a corporation under Article 32 of the former Restriction of Special Taxation Act

2016Guhap51823 Revocation of Disposition of Imposing capital gains tax, etc.

400

00. Head of tax office

April 25, 2017

May 30, 2017

1. The Defendant’s imposition of KRW 1,138,308,300 and local income tax of KRW 113,830,830 against the Plaintiff on April 7, 2015 shall be revoked.

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

Cheong-gu Office

The same shall apply to the order.

1. Details of the disposition;

A. The plaintiff is running the steel-processing facility business with the trade name "00000,000 at a place of business located in 00:0,000 00,000 in Gyeongnam-si,000.

In 00, 000 00-0 and 11 lots of land and its ground buildings (hereinafter referred to as the “instant building”), all of the business assets and liabilities of the instant business establishment, including the instant building, were invested in kind (hereinafter referred to as the “instant investment in kind”), thereby establishing DNA Co., Ltd. (hereinafter referred to as the “instant corporation”).

B. The Plaintiff reported the transfer income tax to the Defendant on September 30, 2009 as indicated in the following table, prior to the amendment of the former Restriction of Special Taxation Act (amended by Act No. 9921, Jan. 1, 2010) regarding the investment in kind in this case

Pursuant to Article 32, an application for carried forward taxation of capital gains tax on the conversion into a corporation was filed.

section 1(1) transfer value(1)(2) transfer value((2) transfer gains

Consolidated 7,911,435,506,703,921,104 1,207,514,396407,615,038 Application for Carry-over Taxation

This case

Land 6,372,398,004,239,119,5792,133,278,421

(A)Appraisal (actual acquisition price)

July 28, 2009

This case 1,539,037,502,464,801,525- 925,764,025

Building (Appraisal Price) (original acquisition price)

July 28, 2009

.

C. The director of Busan Regional Tax Office, at the comprehensive audit of the Defendant, shall be deemed to be KRW 2,464,801,525, not the market price of the building of this case by the Pacific Appraisal Corporation (hereinafter “Appraisal Value”) 1,539,037,500 on July 17, 2009, but the acquisition value on the account book (hereinafter “book value”).

In this case, it is pointed out that the net asset value of the place of business of this case exceeds KRW 3,60,000 of the corporation's capital of this case as KRW 4,365,986,00,000, and thus does not fall under the requirements for carryover taxation of capital gains tax under Article 32 of the former Restriction of Special Taxation Act (the net asset value of the place of business converted into the capital of the newly established corporation).

D. On April 7, 2015, the Defendant: (a) KRW 1,138,308,300 and local areas that accrue to the Plaintiff in 2009.

Income tax of 113,830,830 won was imposed (hereinafter referred to as "disposition of this case").

E. The Plaintiff appealed and filed an appeal with the Tax Tribunal on July 2, 2015, but on April 2, 2016.

25. was dismissed.

[Ground of recognition] Unsatisfy, Gap evidence 1 to 6, Eul evidence 1

include number, hereinafter the same shall apply), the purport of the whole pleading

2. Relevant statutes;

According to Article 2(1)6 of the former Restriction of Special Taxation Act, where an individual transfers fixed assets, etc. used for the pertinent business to a corporation by means of investment in kind, etc., capital gains tax shall not be imposed on the individual who transfers the fixed assets, etc. for business, and where the corporation that acquired the fixed assets, etc. transfers the fixed assets, etc. for business instead, the amount equivalent

According to Article 32 of the Restriction of Special Taxation Act and Articles 28(1)2 and 29(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010; hereinafter the same), where a resident converts fixed assets for business into a corporation by investing in kind in kind, he/she may be subject to carryover taxation on such fixed assets for business, but it shall apply only to cases where the net asset value of the place of business converted into the corporation’s capital as a corporation (the total amount of liabilities including allowances is deducted from the total amount of assets appraised as of the date of conversion into the corporation as of the date of conversion into the corporation) is equal to or greater than

3. Issues of the instant case

In order to apply the provisions of carryover taxation of capital gains tax on the conversion into a corporation under Article 32 of the Restriction of Special Taxation Act, the total amount of net asset value of the place of business converted into the capital of the newly incorporated corporation (the total amount of assets appraised as of the date of conversion into a corporation, including allowances

The market price of the building of this case on the date of conversion into a corporation is at issue.

4. Whether the instant disposition is lawful

A. Whether the principle of no taxation without law is violated

1) Article 32 of the former Restriction of Special Taxation Act and Article 29 of the Enforcement Decree of the same Act are converted into a “corporation”

corporation's net asset value (property assessed as the market price as of the date of conversion into a corporation) of the place of business.

as to how to determine the market price, the principle of no taxation without the law is stipulated.

this article argues that violation is against the law.

2) According to the general rules of the former Restriction of Special Taxation (hereinafter referred to as the "basic rules") 32-29 and 2 (the "market price" in the calculation of the net asset value of the real estate under Articles 28(1) and 29(4) of the former Enforcement Decree of the Restriction of Special Taxation Act means the value that is generally recognized when transactions are freely conducted between many and unspecified persons, and includes the value that is recognized as the market price under Article 49 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, such as the expropriation, public sale price, appraisal price, etc. Therefore, the "market price as of the date of conversion into a corporation" under Article 32 of the former Restriction of Special Taxation Act and Article 29 of the Enforcement Decree of the same Act can be determined in accordance with the above basic rules, and it is difficult to view that there is no predictability or legal stability aiming at the principle of no taxation without the law from the taxpayer's standpoint. Therefore, the plaintiff'

B. Method of determining the market price of the instant building

1) As to the market price of the instant building, the Plaintiff shall be deemed as KRW 1,539,037,500, the assessed value of the instant building.

Meanwhile, the defendant asserts that the book value should be deemed as KRW 2,464,801,525.

(c)

2) In full view of the following circumstances acknowledged by comprehensively taking account of the following circumstances, the market price of the building of this case is KRW 1,539,037,50, and as alleged by the Defendant, KRW 2,464,801,525, book value of the building of this case cannot be deemed as the market price of the building of this case, as alleged by the Defendant. Accordingly, the Plaintiff’s above cannot be deemed as the market price of the building of this case.

The argument is with merit.

① As the Plaintiff acquired the instant building on July 14, 2009, the Defendant asserted to the effect that the Plaintiff’s acquisition cost of the instant building constitutes “the price generally traded among third parties.” However, the acquisition price of the instant building in the account book is merely the cost required for the completion of the building, and the said cost includes Turing roer’s cost and civil petition agreement amount, which are machinery and equipment not directly related to the value of the building, and thus fall under “the price generally traded between third parties” or it is difficult to view that the said book value is reflected in the market price of the instant building at the time of the investment in kind (the investment in kind, machinery and equipment at the time of the investment in kind, is evaluated as net asset value separate from the instant building).

② Carry-over taxation applies only to cases where an enterprise, which is managed by an individual as the subject of rights and obligations, is the subject of rights and obligations, and the same business owner changes its corporate form so that it can be managed by an independent corporation as the subject of rights and obligations. The purpose of the law requiring the same business owner to be above net asset value is that the net asset value subject to investment in kind should be succeeded as it is to the newly established corporation in order to evaluate that the same business owner changes its business type only. Therefore, in cases where a corporation is established by investing assets and liabilities in kind in kind, the net asset value subject to investment in kind and the net asset value prescribed by the Enforcement Decree of the Restriction of Special Taxation Act should be the same amount in terms of concept as the value of the existing

③ At the time of investment in kind, the Plaintiff was authorized to conduct an audit report on property confirmation by the court. The value of the building of this case is assessed as KRW 1,539,037,500 according to the appraisal by the 00 appraisal corporation (hereinafter “instant appraisal”) on July 17, 2009.

④ The Defendant asserts that the appraisal value assessed by one appraisal institution cannot be recognized as the market price of the instant building. According to the health class, General Rule 32-29, and 2 [net asset value requirements for conversion into a corporation] and Article 49 of the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 22042, Feb. 18, 2010), where there exist appraisal values assessed by two or more appraisal institutions during the period of six months before or after the date of conversion into a corporation, the average value of such appraisal values is stipulated to be the market price. However, the Plaintiff, within six months before or after the date of conversion into a corporation, shall be deemed to have been the market price.

Besides, the appraisal value of 1,492,447,50 won (the evidence No. 28, the base date of August 11, 2009) was appraised by 0000 on August 12, 2009; the appraisal value of 00 certified public appraisal corporations, Co., Ltd., Ltd., Ltd., on July 17, 2012, also reflects the market price of 1,421,965,50 won (the evidence No. 21, the base date of July 12, 2012), in light of the fact that the appraisal value of 00 certified public appraisal corporations, Co.,, Ltd., Ltd., on December 8, 2014, falls under 1,539,000 won (the base date of evidence No. 173,037,500 of building A, the base date of January 1, 2009), it is reasonable to deem that the market price of this case was appropriately reflected.

⑤ Even if the Plaintiff calculated the acquisition value of the instant building as the book value at the time of filing a return on capital gains tax to the Defendant, and reported less tax base for capital gains tax, it is difficult to view that the book value is the market value of the instant building as at the time of conversion into the legal entity solely on the basis of

(c) Whether taxation carried forward for the conversion into a corporation is applied;

Ultimately, at the time of the Plaintiff’s contribution in kind, the corporation’s capital is KRW 3,600,000,000, and since the net asset value of the business property invested in kind, including the value of the building of this case, is KRW 3,440,222,50,05, it is reasonable to deem that the Plaintiff satisfies the carry-over taxation requirement under Article 32 of the former Restriction of Special Taxation Act. Accordingly, the Defendant’s disposition of this case premised

5. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is so decided as per Disposition.

(c)