Cho Jae-2017-west-1471 (Law No. 28, 2017)

The status of members of the non-corporate association shall not be inherited unless otherwise provided by the articles of incorporation, etc.

As the instant association constitutes a non-corporate association and constitutes a non-corporate association’s articles of association to recognize the inheritance of membership, the Plaintiff’s lease income accrued after the death of the deceased does not belong to the Plaintiff as the inheritor.

Article 13 of the former Income Tax Act (Organization Considered as a Corporation)

2017Guhap79486 global income and revocation of disposition

O KimO

○ Head of tax office

June 22, 2018

July 13, 2018

1. The Defendant’s imposition of KRW 0,00,00 (including additional taxes), global income tax for the year 2009, global income tax for the year 2010 (including additional taxes), global income tax for the year 2010, global income tax for the year 2010, global income tax for KRW 0,000,000 (including additional taxes), global income tax for the year 2012, global income tax for the year 2012 (including additional taxes), and KRW 0,000,000 (including additional taxes), global income tax for the year 2013, global income tax for the year 2013.

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;

가. 서울 ㄱㄱ구 ㄴㄴ동 000-0(이하 '이 사건 토지'라 한다)의 소유자들이었던 aaa, 망 bbb(이하 '망인'이라 한다) 등 00명(이후 00명으로 감소하였다, 이하 '조합원들'이라 한다)은 이 사건 토지 위에 상가를 신축하여 분양 또는 임대하는 사업을 영위할 목적으로 1996. 9. 20. AA개발조합(이하 '이 사건 조합'이라 한다)을 설립하였다.

B. On December 30, 200, the instant association newly constructed BB building composed of 0,000 stores on the instant land (hereinafter referred to as “instant commercial building”) and on January 11, 2001, after completing the registration of ownership preservation of the title of the instant association, sold more than 0,000 stores to the general public, and entered into an additional contract for land use with the buyer in return for granting the buyer the right to use the land, which is the object of the right to the site of the store sold in lots between the buyer and the buyer, in advance of KRW 00,000,000 from the buyer, and received advance payment from the buyer.

C. The instant association reported and paid value-added tax from 2001 to 2008, which is the value of supply calculated by disposing of the said land user fee as the rental fee for players (hereinafter “the rental fee for players of this case”) and the amount calculated by dividing the respective sale area as the supply price. As to the revenues of the instant rental fee for players of this case, the association prepared a statement of distribution by joint business place according to the shares of association members registered with the National Tax Service and reported it to the part to which it reverts

D. On August 16, 2016, the Defendant deemed that the deceased’s heir is liable to pay for rental income equivalent to 0.00% of the deceased’s share prior to the deceased’s death among the rent for the fore portion of 2009 to 2013-2013, on the ground that the Defendant: (a) the amount equivalent to the Plaintiff’s share of inheritance (0,000,000 won (the Defendant’s income from the fore portion of the taxable period after the deceased’s death is the amount equivalent to the Plaintiff’s share of inheritance out of the amount of the fore portion of the total amount of KRW 00,000,000 from 2010 to 2013, including the Plaintiff’s global income tax for 0,000,000, global income tax for 2010, global income tax for 200,000, global income tax for 200,000 won (the amount reverted to the Plaintiff’s total income tax for 10,20000.

E. The Plaintiff dissatisfied with the instant disposition and filed an appeal with the Tax Tribunal on July 4, 2016, and the Tax Tribunal dismissed the decision on October 4, 2016.

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant association constitutes a non-corporate association and its members, including the deceased, were distributed the leased income of the association as members of the non-corporate association. However, the deceased died on May 19, 2009, and the articles of association of the instant association recognize the inheritance of membership. As such, the leased income of the instant association generated after the deceased’s death does not belong to the deceased, as well as the inheritor, who was the inheritor. However, there is only a problem between the deceased’s heir and the instant association due to the death of the deceased and the settlement of the dividend distributed to the deceased. Accordingly, the instant disposition based on the premise that the leased income was generated by the Plaintiff is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) A taxpayer on the income of the instant association

A) Article 13(1) of the former Framework Act on National Taxes (amended by Act No. 10405, Dec. 27, 2010; hereinafter “Framework Act on National Taxes”) provides, “Unregistered associations, foundations, or other organizations which are incorporated with permission or authorization from the competent authorities, or registered with the competent authorities pursuant to the Acts and subordinate statutes, or unregistered associations, foundations, or other organizations with basic property contributed for the purpose of public interest, and which do not distribute profits to its members, shall not be deemed corporations and shall be governed by this Act and other tax-related Acts.” Article 13(2) of the former Framework Act on National Taxes provides, “This Act and other tax-related Acts shall apply to an unincorporated association, foundation, or other organizations without legal personality, which are deemed corporations pursuant to Article 13(1) of the former Framework Act on National Taxes (amended by Act No. 10405, Dec. 27, 2010; it does not own and manage profits and property independently in their name and distribute profits to its members.”

Article 2 (3) of the former Income Tax Act (amended by Act No. 10408, Dec. 27, 2010; hereinafter referred to as the "Income Tax Act") provides that "any association, foundation or other organization, other than an organization deemed a corporation under Article 13 (4) of the Framework Act on National Taxes (referring to an unincorporated organization deemed a corporation under Article 13 (1) and (2) of the Framework Act on National Taxes) shall be deemed a resident or non-resident and this Act shall apply." Article 2 (1) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance, No. 323, Feb. 23, 2013) provides that "any association, foundation or other organization shall be deemed a resident or non-resident, but the method of distributing profits or the ratio of distributing profits shall be deemed a resident or non-resident, and Article 2 (2) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance, No. 2323000, etc.

In addition, Articles 87 (1) and 43 (2) of the Income Tax Act provide that income amount shall be calculated by the joint business place in which the income is generated, and the income amount shall be distributed by the joint business place according to the share of each joint business place or the ratio of profit-and-loss distribution or to be distributed.

In full view of the contents and legislative intent of the above provisions, in cases where an unincorporated association, foundation, or other organization in Korea is not an organization deemed a juristic person under Article 13(4) of the Framework Act on National Taxes, income tax shall be imposed pursuant to the Income Tax Act; however, in cases where an organization is a non-profit organization that does not distribute profits to its members, income tax shall be imposed by deeming it as one resident who is the taxpayer; and in cases of a profit-making organization that distributes profits to its members, such organization shall not be deemed as one resident who is the taxpayer, and as prescribed in Articles 87(1) and 43(2) of the Income Tax Act, income tax shall be imposed on the income distributed to each of its members as a taxpayer (see, e.g., Supreme Court Decision 2010Du19393,

B) The instant association is an unincorporated association with the articles of association and organization for the purpose of conducting the joint development and sale and lease of commercial buildings, and the management and operation of commercial buildings with independent entities from its members. At the time of establishment, the association did not obtain authorization and permission from the competent authority or obtain registration from the competent authority, or obtain approval from the head of the competent tax office. The association members have a share that constitutes the basis for distributing profits accrued from the business of the instant association. The association of this case can recognize the fact that the pertinent association distributed profits accrued from the business, such as the receipt of the rental fees of the players of this case, according to its members’ share of the association members. There is no dispute between the parties or the whole purport

Therefore, since the association of this case constitutes an organization other than the organization deemed a corporation under Article 13(4) of the Framework Act on National Taxes and the method of distributing profits or the ratio of distributing profits has been determined, members of the association of this case shall be liable to pay income tax on the amount distributed among income accrued from the business of the association of this case as joint business operators pursuant to Articles 2(3), 87(1) and 43(2) of the Income Tax Act and Article 2(1) and (2) of the Enforcement Rule

2) Whether the Plaintiff is liable to pay income tax on the rental fee for the player of this case

A) ① Around November 1998, partners of the instant association determined the shares of the association members as the basis for the allocation of earnings. According to this, the deceased is 0.00%, the plaintiff is 0.00%, cc, d, e, e, and f (hereinafter referred to as "c, etc.") which are other children of the deceased hold shares of 0.00% (the above 0.00%) each, respectively. ② The instant association reported 00 members, including the deceased, the plaintiff, and ccc, to joint business operators, and reported the value-added tax, etc. to the tax authorities and paid the total amount of value-added tax, and around July 1, 2008, 200, 300 members, including the plaintiff and cc, etc., were changed to 00% of the shares of the deceased and reported the change to 00% of the shares of the deceased to 200% of the total amount of income tax (the changed amount of income tax was 2000% of the deceased's).

B) According to the above facts, it is reasonable to view that from 00 members of the instant association, 00 persons, including the Plaintiff, transferred the deceased’s share with the approval of the association pursuant to Article 25(1) of the association’s articles of association, and the deceased’s share, which became 00 persons since October 20, 2006, was changed to 0.00% including the shares held before the Plaintiff and ccc et et al, and it cannot be deemed that the Plaintiff and cc et al, etc. were absent from joint business places without withdrawal from the association of this case.

C) Meanwhile, Article 24(1) of the Income Tax Act provides that "the total amount of income of a resident shall be the sum of the amounts received or to be received during the pertinent taxable period." Article 51(3)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 23588, Feb. 2, 2012) provides that "the total amount of income of a tenant for a rent received by leasing real estate in relation to the calculation of the total amount of income of business income shall be the sum of the amount calculated by dividing the amount of the rent by the number of months during the contract period." Thus, the player rent of this case shall be divided into the amount of income of the pertinent taxable period during the period of the lease of the land to the buyer, and accordingly, the member of the association of this case shall be liable to pay the amount of income tax for the pertinent taxable period.

D) On May 19, 2009, the deceased lost the status of a member of the instant association at the same time as the death of May 19, 2009. Meanwhile, the status of an employee of the non-corporate association is not inherited unless otherwise stipulated by the articles of association, etc., and the articles of association of the instant association do not provide for the provisions on the inheritance of the status of an employee. Accordingly, the income of the rental fee for players generated by distribution in the taxable period after the death of the deceased cannot be deemed to belong to the deceased or the Plaintiff,

3. Conclusion

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