Seoul High Court 2012Nu28560 (Seoul High Court 2013.03.14)

Tax Tribunal 201J 2102 ( October 25, 2011)

Income accrued by transferring forest trees not recognized for business feasibility as a whole with forest land shall be subject to capital gains tax.

Where the forest trees are transferred along with the forest land, if feasibility is not recognized even if the forest trees were transferred, the whole income accruing from the transfer shall be subject to the transfer income tax, except in extenuating circumstances to deem that the forest trees were traded separately from the forest land.

Article 94 of the Income Tax Act: Scope of Capital Gains

2013du6909 Disposition of revocation of imposition of transfer income tax

OO

the director of the tax office of Western

Seoul High Court Decision 2012Nu28560 Decided March 14, 2013

October 24, 2013

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. Article 19(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter “Income Tax Act”) provides that “income generated from the forestry” as prescribed in subparagraph 1 by listing the income subject to business income. Meanwhile, the main sentence of Article 29 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter “Enforcement Decree of the Income Tax Act”) delegated by Article 19(3) provides that “The scope of businesses under the provisions of each subparagraph of Article 19 of the Act shall be based on the Korean Standard Industrial Classification except as otherwise provided in this Decree with respect to the scope of businesses under the provisions of each subparagraph of Article 19 of the Act.” The Korean Standard Industrial Classification provides that “the tree growing business (020) that belongs to the forestry (020) is planted in order to produce the forest, the forest is defined as the “income from the forest to be protected, the industrial activities” and the transfer of forest land.

In light of the language, purport, structure, etc. of the provisions of this Act, where a forest is transferred along with a forest land, it is reasonable to view that, in principle, income generated from the transfer of the forest is subject to the taxation of capital gains tax following the transfer of the forest land if only the income generated from the transfer of the forest falls under the business income. Furthermore, even if the forest was transferred along with the forest land, if there was no growing activity for the production of the forest or there was no other special circumstance to deem that the forest was subject to business feasibility, the entire income generated from the transfer of the forest would be subject to the taxation of capital gains tax, unless there are special circumstances to deem that the forest was subject to transactions separate from the forest land, barring special circumstances (see, e.g., Supreme Court Decision 2011Du6493, Sept. 13, 2013).

2. Examining the records in light of the above legal principles, the court below held that the transfer value of the forest in this case was subject to the transfer income tax on the ground that it is reasonable to view that the Plaintiff, separately from the forest in this case, transferred the forest in this case with the transfer value of the forest in this case, without distinguishing the transfer value of the forest in this case from the transfer value of the forest in this case. The sale contract of the forest in this case, including the sale value of the forest in this case, was not entirely indicated on the matters concerning the forest in this case (number, relation of rights, etc.) except for the contents that "the sale value of the forest in this case includes the sale value of the forest in this case." Furthermore, the sale contract of the forest in this case includes only the forest in this case as the subject matter of the sale contract in this case, and the purchase of the forest in this part of the forest in this case for the purpose of constructing the factory in this case, the O-O-O-O forest in this case, which purchased O-O forest in this case, was not a transfer as a whole.

3. Therefore, the appeal is dismissed, 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 on the bench.