Plaintiff 1 and one other (Law Firm Sejong, Attorney Kim Ba-young, Counsel for the plaintiff-appellant)

Head of Seogsan Tax Office

Busan District Court Decision 2009Guhap4655 Decided March 18, 2010

June 30, 2010

1. The plaintiffs' appeal is dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked. Each disposition of KRW 72,063,470 against each of the plaintiffs as of October 10, 2008 by the defendant shall be revoked.

1. Details of the disposition;

A. On December 6, 2005, the Plaintiffs purchased 1/2 co-ownership shares of 2,471 square meters in Gangseo-gu, Busan Metropolitan City (number omitted), and completed a share transfer registration. The Plaintiffs used the instant land as farmland. On December 27, 2007, the Plaintiffs sold the instant land to the Gro Energy Co., Ltd. with the purchase price of KRW 900,000,000, and completed the entire co-owners’ share transfer registration.

B. On February 13, 2008, the Plaintiffs declared 71,219,250 won as the payable tax amount, based on the premise that the instant land is a business land, respectively, and paid it around that time.

C. On October 10, 2008, the Defendant: (a) applied the tax rate of 9% to the instant land, 2,429 square meters, and calculated capital gains tax again by applying the heavy tax rate of 60% to the land for non-business use; (b) on October 10, 2008, the Defendant notified the Plaintiffs of the correction of KRW 72,063,470, which was calculated by adding the additional payment from the final tax amount to the final tax amount and deducting the amount paid; and (c) as the capital gains tax reverted to the year 2007 (hereinafter “instant disposition”).

D. The Plaintiffs, who were dissatisfied with the instant disposition, filed an objection with the Commissioner of the Busan Regional Tax Office on December 19, 2008, but received a decision to dismiss the application on January 20, 2009, and filed a request for a tax trial with the Tax Tribunal on April 10, 2009, but was dismissed on July 8, 2009.

[Grounds for Recognition: Evidence Nos. 1, 2, and 1, 2-1, 2-2, 4, 5-1, 2-1, 2-1, 5-2 of each of the evidence No. 1, 2-

2. Whether the disposition is lawful;

A. The plaintiffs' assertion

The plaintiffs asserted that the land of this case does not constitute non-business land for the following reasons.

1) At the time of the acquisition by the Plaintiffs of the instant land, the instant land was a green area in the urban area, and thus does not constitute non-business land.

2) Since the instant land was transferred at the time when two years have not elapsed since it was incorporated into farmland in the urban area, it cannot be viewed as the land for non-business use.

3) Since the Plaintiffs acquired the instant land and subsequently changed from a green area to a residential area, it constitutes land for non-business use due to unavoidable reasons.

4) The provisions of the Income Tax Act that apply the heavy taxation rate to the gains from the transfer of land for non-business purposes are newly established on December 31, 2005 and Article 1 and Article 3 of the Addenda to the transfer from January 1, 2007, the date of enforcement after the grace period of one year pursuant to the provisions of Articles 1 and 3 of the Addenda to the Income Tax Act. This goes against the principle of trust protection by falling under a kind of retroactive law as well as a reliance on the belief that the general tax rate is applied at the

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

1) From December 29, 1971, the instant land was designated as a development-restricted area under Article 728 of the Construction Division’s Notification, and on January 1, 1989, the instant land was incorporated into Gangseo-gu Busan Metropolitan City along with Kimhae-gun, Kimhae-gun, Kim Dong-dong, Dong-dong, Dong-dong, Dong-dong, and Dong-dong, and became a green belt area in the urban area.

2) In addition, on November 15, 2006, the specific use area of the instant land was changed from the green area to the Class 1 general residential area in accordance with the modification decision of the urban management plan (Public Notice No. 2006-397 of Busan Metropolitan City, Busan Metropolitan City) by the Busan Metropolitan City Mayor.

3) On April 4, 2007, the Mayor of Busan Metropolitan City decided an urban management plan (district-unit planning No. 2007-128 of the Busan Metropolitan City Notice), and accordingly, 42 square meters of the instant land was planned as a road planning facility.

【Reasons for Recognition: Statement No. 3-1, 2, and 3 of the evidence No. 3-2, inquiry results on the Mayor of the Busan Metropolitan City of the court of first instance, the purport of the entire pleadings】

D. Determination

1) Whether it constitutes non-business land

A) According to Article 104-3(1) and the main sentence of subparagraph 1(b) of the Income Tax Act, the term “period prescribed by the Presidential Decree” means the period exceeding the period calculated by subtracting two years from the period of land ownership, ② the period exceeding the period exceeding the period equivalent to 20/100 of the period of land ownership, and ② the period exceeding the period equivalent to 20/100 of the period of land ownership.

Meanwhile, according to Articles 104-3 (1) and 104-3 (1) 1 (b) of the Income Tax Act, and Article 168-8 (4) of the Enforcement Decree of the Income Tax Act, even where farmland is incorporated into an urban area, if the farmland is designated as a green area or a development restriction zone, it shall not be deemed farmland in an urban area, and it shall be excluded from the object of determination of non-business land premised on the fact that it falls under farmland in an urban area. According to such statutes, if it is designated as a green area as farmland in an urban area or a commercial area, it shall be deemed that it falls under farmland in an urban area under the main sentence of Article 104-3 (1)

B) As to whether the instant land falls under farmland in an urban area as stipulated in the main sentence of Article 104-3(1)1(b) of the Income Tax Act, the instant land was incorporated into an urban area on January 1, 1989, but was designated as a green area. On November 15, 2006, the instant land was designated as a Class 1 general residential area on November 15, 2006. The fact that the instant land was farmland at the time when the Plaintiffs acquired the instant land, which was farmland, was farmland, was farmland at the time of transferring the said land. Thus, the instant land constitutes farmland in an urban

According to Article 104-3 (1) of the Income Tax Act and Article 168-6 (3) of the Enforcement Decree of the Income Tax Act, the period in which the land in this case was farmland in an urban area shall be the period exceeding the period calculated by subtracting two years from the period in which the land was owned, and the period exceeding the period equivalent to 20/100 of the period in which the land was owned. Thus, the period corresponding to the farmland in the urban area is 407 days from November 15, 2006 to December 26, 2007, since the period in which the plaintiffs owned the land in this case falls under the period exceeding 21 days, which is 20 days after subtracting two years from December 6, 2005 to December 26, 2007, it constitutes the period in this case's period in excess of 20/100 of the plaintiffs' period in possession, and it constitutes the period in excess of 20/100 of the plaintiffs' period in this case.

(ii) 2 years old-do after incorporation into farmland in an urban area;

According to the proviso of Article 104-3 (1) 1 (b) of the Income Tax Act, Article 168-8 (6) of the Enforcement Decree of the Income Tax Act, in the case of farmland, the two-year period of which has not elapsed from the date of its incorporation into farmland in the urban area, it shall be excluded from the land for non-business use. However, according to the proviso of Article 104-3 (1) 1 (b) of the Income Tax Act, and Article 168-8 (6) of the Enforcement Decree of the Income Tax Act, the above provision is premised on the premise that the owner of the farmland in question, in the case of farmland in question, re-enters the land in question for not less than one year retroactively from the date of incorporation into the urban area, and the plaintiffs owned the land in this case on December 6, 2005, and was incorporated into the urban area on November 15, 2006. Therefore, the plaintiffs

3) Whether it constitutes a case where land for non-business use due to inevitable reasons is not considered land

A) Article 104-3(2) of the Income Tax Act, Article 168-14(1)1 and 4 of the Enforcement Decree of the Income Tax Act, Article 83-5(1)12 of the Enforcement Rule of the Income Tax Act provides that, after acquiring the land, if the land is not used for business due to justifiable grounds, such as the alteration of urban planning, etc. due to the prohibition or restriction of the use of the land pursuant to the statutes, the period during which the land is not used for business, shall not be regarded as the non-business land. This means that, in the event that the owner is unable to use the land for business due to reasons not attributable to

B) In the case of the instant land, it was incorporated into an urban area on November 15, 2006 and the Plaintiffs thereafter use the instant land as farmland, as seen earlier. According to Article 104-3(1) and the main sentence of Article 104-3(1)1(b) of the Income Tax Act, where farmland is incorporated into an urban area, regardless of whether it is re-established or self-arable, it shall be viewed as non-owned land. The owner may have the land go beyond the “farmland in the urban area” by means of constructing a building instead of continuously using it as farmland, and there is no evidence to support the fact that the land could not be used for a project due to justifiable reasons, such as statutory restrictions or alteration of urban planning. Accordingly, the Plaintiffs’ assertion on this part is without merit.

4) Whether the prohibition of retroactive legislation violates the prohibition of retroactive legislation or the protection of trust

A) Article 13 of the Constitution of the Republic of Korea only means that the pertinent tax law cannot be applied to the completed facts prior to the entry into force of the relevant tax law. Since the continued facts or the application of new laws and regulations on the taxation requirements that occurred thereafter are not limited, in this case, the amended laws and regulations in the direction of strengthening the taxation requirements at the time of the completion of the taxation requirements are applied even if the continued fact is recognized as the ownership of the instant land, so long as the taxation requirements of the instant land are not yet completed, it cannot be deemed as going against the principle of non-payment of tax laws and regulations. The Plaintiffs’ aforementioned assertion is without merit.

B) As long as the provisions on taxation requirements and the exceptional provisions on non-taxation or tax exemption requirements are not considerably unreasonable, the legislators’ legislative discretion is also subject to non-taxation of capital gains tax as a matter of principle. Barring special circumstances, barring any special circumstance, even if a taxpayer trusted non-taxation, etc. under the previous provisions, it is merely merely merely a simple expectation, and it cannot be deemed as a substitute for the right of acquisition, and it cannot be deemed to be an extent that it should be protected. Articles 1 and 3 of the Addenda of the Income Tax Act (amended by Act No. 7873 of March 3, 2006) which first introduced the heavy taxation provision on the transfer of non-business land with a grace period of one year and applied the heavy taxation provision on the non-business land after its enforcement, and the above provision does not violate the principle of protection of trust contrary to the public trust, which has acquired real estate before its enforcement. The Plaintiffs’ aforementioned assertion is without merit.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in its entirety due to the lack of grounds, and the judgment of the court of first instance is just in its conclusion, and it is so decided as per Disposition by the assent of all participating Justices.

[Attachment]

Judges Lee Jong-Un (Presiding Judge)