Seoul Administrative Court-2015-Gu Partnership-6255 ( November 25, 2016)

Income from the transfer of timber above land may not be deemed to have been subject to a separate transaction by the land and the timber;

In order to become capital gains from the transfer of timber above land, it is recognized that the land and timber were subject to separate transaction, but if not, the income is forest income.

Article 23 of the Income Tax Act

2016Nu81606 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

Seoul Administrative Court Decision 2015Guhap6255 decided November 25, 2016

July 11, 2017

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. The defendant's disposition of imposition of capital gains tax of KRW 4,162,127,802 (including additional tax of KRW 1,6127,409,153) for the plaintiff on February 5, 2014 shall be revoked.

1. Quotation of judgment of the first instance;

The court's explanation on this case is identical to the reasoning of the judgment of the court of first instance except for dismissal or addition as follows. Thus, it shall refer to the reasoning of the judgment of the court of first instance pursuant to Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

2. Parts to be removed or added;

○ In Part 8, paragraph 13, the following shall be added to the decision of the first instance court:

(5) The plaintiff asserts that Article 23 (1) of the former Income Tax Act only provides that "income generated from cutting or transferring forest trees in a forest land, the period of which is not less than five years" is stipulated as "income generated from cutting or transferring the forest trees," and that it is in violation of the principle of no taxation without law to add the requirement of "the possibility of separate transaction". Since the classification of income is determined only based on the circumstances on the part of the person to whom the income is attributed, it does not affect the classification of income. In case where the forest trees are transferred along with the forest land, if the forest income is recognized due to the transfer of the forest land, if the acquisition or transfer value of the forest trees and land cannot be separated, the provisions of Article 43 (2) of the former Enforcement Decree of Income Tax Act, which provides for the method of calculating the acquisition value or transfer value of the forest trees and land,

The former Income Tax Act classified income into global income (interest income, dividend income, real estate rental income, earned income, temporary property income, pension income, other income), retirement income, transfer income, and forest income based on its source, etc. (Article 4(1) of the Income Tax Act). In order to alleviate the effect of afforestation by taking into account that the afforestation period is a prolonged period, the former Income Tax Act and Articles 143 and 145 of the former Enforcement Decree of the Income Tax Act recognized the deduction of necessary expenses from other income (Article 23 of the former Income Tax Act and Articles 143 and 145 of the former Enforcement Decree of the Income Tax Act). Considering these legislative intent, if there are trees for more than five years on the land subject to afforestation period, it is not possible to interpret that the income should be recognized as non-conditioned income from transfer regardless of the intention of the parties concerned (it can be presented to the extent that the value or afforestation cost can be disregarded by extremely low, etc.). Moreover, the requirements for recognition of forest income from such case may be established through a reasonable interpretation.

Also, even if forest income is generated from the cutting or transfer of trees, if the forest trees having objective value on the ground of the land subject to transfer are planted, if the parties to the transaction do not consider the value of the forest trees separately in the transfer of such land and the forest trees together, there is no "income accruing from the transfer of the forest trees, other than the income from the transfer of the land". Thus, in determining the occurrence of forest income, it is not always necessary to consider the unilateral situation of the party to the transaction, but to consider all the circumstances of the transaction in question, including both parties to the transaction, comprehensively.

On the other hand, as the case where the forest land and the forest trees are transferred in a lump sum and the forest trees are determined as a whole by reflecting the value of the forest trees in the transfer proceeds, it may be presented that the case where the forest trees are separately traded but do not agree upon by distinguishing the forest trees from the forest land. Thus, if the forest trees are transferred along with the forest land, it is not readily concluded that Article 43(2) of the former Enforcement Decree of the Income Tax Act requires a separate trade eligibility as a requirement for forest income approval for the forest trees. The Plaintiff’s above assertion is without merit.

○ In Part 12 of the first instance judgment, the following shall be added to:

① The Plaintiff and CCC stated in the first contract that the purchase price of the instant land and the neighboring four parcels was KRW 58.5 billion, without considering the forest trees price at all, and that DDR transferred approximately KRW 2,000 to the Plaintiff (No. 5-1). DD stated that “The purchase price of the instant second contract was determined at KRW 44.5 billion in the course of investigation and public trial in the relevant criminal case, because it was because it was reduced to 12 billion won for reasons of exclusion from the price to be received by it.” The Plaintiff stated that it was a tax issue that the Plaintiff agreed to separately enter the sale price of the instant land as above (No. 8-2, No. 9-4), and that the second sale price of the instant building was changed to the sale price of the instant building site at KRW 2,000,000,000,000,000,0000,000 won, which was 12 billion,000,000 won.

○ On the 12th decision of the first instance court, the following shall be added to the fifth decision:

② The instant land was located as a land transaction permission zone and a speculative zone (No. 8-3), and thus, the transfer value cannot be calculated as the standard market price, and should be calculated as the actual transaction price pursuant to Article 96(2)7 of the former Income Tax Act. Furthermore, the Plaintiff reported the tax base of forest income for the year 2006 due to the transfer of forest trees on the instant land by May 31, 2007. On the other hand, the instant land transfer income tax was reported after cancellation of land transaction permission zone in accordance with the tax accountant’s advice, and was actually reported after cancellation of land transaction permission zone, but the instant land was reported in 2011 after the cancellation of land transaction permission zone. As such, it was difficult to calculate the transfer value of the instant land as the actual transaction price. Moreover, even if it was difficult to expect the transfer transfer of ownership of the instant land within a short period, it is difficult to recognize that the instant land was a large amount of cost under the agreement, without specifying the amount and scope of the transferred trees at all.

○ Imprisonment of the first instance court's first instance court's first instance court's first instance court's first instance court's first instance court's second instance court's second instance court's

○ The following shall be added to the 13th judgment of the first instance court:

In other words, as CCC did not have much room for using forest trees on the instant land as landscape trees, etc. However, in order to construct a new apartment, it seems that there is no reason to purchase them even when paying a considerable amount of forest trees because the expenses for extracting them have been inevitably required for the construction of the apartment.

○ The following shall be added to the 15th judgment of the first instance court. 10th "no grounds"

(A) The Plaintiff asserts that the tax authorities should respect the non-taxation practice by deducting the taxes of other tax items from the tax amount already paid. However, it cannot be readily concluded that such non-taxation practice has been established on the grounds that the tax authorities’ beneficial measures such as the tax authorities had been taken several times. Therefore, the above argument is without merit)

3. Conclusion

Therefore, the judgment of the first instance court is justifiable, and the plaintiff's appeal is dismissed as it is without merit.