The standard for determining whether a detached house under the Housing Act constitutes “national housing smaller than the scale of national housing under the Housing Act,” which is an element for the exemption from value-added tax, under Article 106(1)4 of the Restriction of Special Taxation Act / Whether a multi-user house constitutes “multi-family house” under Article 106(4)1 and Article 51-2(3) of the Enforcement Decree of the Restriction of Special Taxation Act in cases where a multi-family house is arbitrarily converted into a “multi-family house” after obtaining permission for construction and approval for use, and whether it falls under “multi-family house” under Article 106(4)1 and Article 51-2(3)4 of the Enforcement Decree of the Restriction of Special Taxation Act (negative), and in such cases, whether it is below the national

Article 106(1)4 of the Restriction of Special Taxation Act; Articles 51-2(3) and 106(4)1 of the Enforcement Decree of the Restriction of Special Taxation Act; Article 20 of the Enforcement Rule of the Restriction of Special Taxation Act; Article 20 of the Housing Act; Article 2 subparag. 6 of the Housing Act; Article 3-5 [Attachment Table 1] subparag. 1(b) and (c) of the former Enforcement Decree of the Building Act (Amended by Presidential Decree No. 27175, May 17, 2016)

Plaintiff (Attorney Han Han-chul, Counsel for the plaintiff-appellant)

Daejeon Head of the District Tax Office

Daejeon High Court Decision 2019Nu12300 decided June 12, 2020

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Case summary

The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following facts.

A. On April 27, 2007, the Plaintiff completed the business registration of the Housing Construction and Sales Business with the trade name “(trade name omitted)”. On August 4, 2014, the Plaintiff newly constructed three-story houses (20) above the total floor area of 328.82 square meters on the land in Seo-gu, Daejeon ( Address omitted) with permission from the competent authority, and completed the registration of initial ownership on the instant housing on July 9, 2015 after obtaining approval for use on June 17, 2015. The first floor above the instant housing consists of six units, six units, two units above the ground, and three floors, each of which consists of seven units, and the floor area of the first floor is 11.94 square meters, and the floor area of the second floor is 10.4 square meters, each of which is 108.4 square meters, and it is not a multi-unit house, but a multi-unit house installed on the basis of the instant housing.

B. The Plaintiff, while holding and leasing the instant housing, sold it to the Nonparty, and completed the registration of ownership transfer on October 26, 2016 with respect to the instant housing on December 7, 2016 (hereinafter “supply of the instant housing”). At the time of the supply of the instant housing, each of the instant housing units was installed with cooking facilities, such as urban gas and artificial park recognition, etc., but this was installed separately when the Plaintiff leases each of the instant housing units after the approval for use.

C. On January 24, 2017, the Plaintiff reported the closure of business with respect to “(trade name omitted)” to the Defendant on October 31, 2016, and deemed that the supply of the instant housing is eligible for value-added tax exemption under Article 106(1)4 of the Restriction of Special Taxation Act (hereinafter “instant tax exemption clause”), and did not file a value-added tax thereon.

D. However, on December 5, 2017, the Defendant deemed that the supply of the instant housing does not fall under value-added tax exemption under the instant tax exemption provision, and imposed value-added tax of KRW 75,389,590 on the Plaintiff on December 5, 2017 (hereinafter “instant disposition”).

2. Whether the Plaintiff constitutes a business entity under the Value-Added Tax Act

For the reasons indicated in its holding, the lower court determined that the Plaintiff constituted a business operator under the Value-Added Tax Act because it is difficult to view that the Plaintiff actually discontinued the housing construction and sales business

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on business operators under the Value-Added Tax Act.

3. Whether the supply of the instant housing is exempt from value-added tax pursuant to the instant tax exemption provision

A. According to the instant tax-free provision, the supply of national housing prescribed by Ordinance of the Ministry of Strategy and Finance is exempt from value-added tax. Article 106(4)1 of the Enforcement Decree of the Restriction of Special Taxation provides that “national housing prescribed by Presidential Decree” under the said delegation shall be “Housing below the size prescribed by Article 51-2(3).” Article 51-2(3) of the Enforcement Decree of the same Act provides that “The above size shall be determined as “national housing scale under the Housing Act” and Article 51-2(3) provides that “in the case of multi-family houses prescribed by Ordinance of the Ministry of Strategy and Finance, it shall refer to the area calculated on the basis of the exclusive area per household area in the case of multi-family houses.” Article 20 of the Enforcement Rule of the Restriction of Special Taxation provides that “multi-family houses prescribed by Ordinance of the Ministry of Strategy and Finance” under the said Ordinance falls under subparagraph 1(c) of the Enforcement Decree of the Building Act [Attachment 1] and Article 2 subparag. 6 of the Housing Act provides that “national housing area” shall not be 1 or 10 square meters per household.

Meanwhile, under the Housing Act, the term “multi-household house” is divided into “multi-unit house” and “multi-unit house”. The term “multi-unit house” includes “multi-unit house under subparagraph 1(b) of attached Table 1 of the Enforcement Decree of the Building Act” and “multi-family house under subparagraph 1(c) of attached Table 1 [Attachment Table 1] of the Enforcement Decree of the Building Act (Article 2 subparag. 1 of the Housing Act, Article 2 subparag. 2 and 3 of the Enforcement Decree of the Housing Act). According to subparagraph 1(b) of the former Enforcement Decree of the Building Act (amended by Presidential Decree No. 27175, May 17, 2016; hereinafter the same shall apply), “multi-household house” means a house with a structure that allows many persons, such as students and employees, to reside for a long time, and “multi-household house” means a house with a total floor area of not more than 30 square meters and not more than 6 stories (excluding multi-unit house).

B. According to each of the above provisions, since the provision of this case’s comprehensive housing is subject to only “multi-family house” among the detached houses under the Housing Act, the issue of whether a detached house under the Housing Act constitutes “national housing” under the instant tax-free provision shall be determined on the basis of “multi-family house exclusive use area per household” in the case of “multi-family house” under the instant comprehensive housing provision, and in the case of other detached houses, it shall be determined on the basis of “total exclusive use area of a house”.

However, in full view of the fact that the former Enforcement Decree of the Building Act cited by the Housing Act and subordinate statutes clearly divides the requirements of the “multi-user house” and “multi-family house” among detached houses, especially in the case of “multi-user house”, it is not possible to install cooking facilities by each room, and that the “multi-family house” and “multi-family house” are different in the standards for installation of annexed parking lots under the Parking Lot Act and subordinate statutes, and in the case of “multi-family house”, it is subject to the installation standards corresponding to the “multi-user house,” and thus, it is reasonable to view that the “multi-family house” under the overall provision of this case constitutes only a building registered as the “multi-family house” in the public register by legitimately satisfying the requirements of “multi-family house” under the relevant Act and subordinate statutes, barring any special circumstance. On the contrary, it cannot be deemed that the “multi-family house” cannot be deemed as a “multi-user house” under the overall provision of this case, and thus, it should be determined based on whether the residential area of the house is not the exclusive area.

C. Examining the aforementioned facts in light of the aforementioned legal principles, the instant house is merely a multi-user house with a building permit and approval for use as “multi-user house,” and the purpose of the public register is also “multi-user house,” and it cannot be deemed a “multi-family house” under the instant comprehensive provision (or “multi-family house” under the instant comprehensive provision, inasmuch as the instant house consists of 20 units, and the instant house consists of 19 units or less, among the requirements for multi-family houses under the Building Act, does not meet the “multi-family house”. Therefore, in relation to the application of the instant tax-free provision, whether the scale of the instant house is below the national housing scale under the Housing Act shall be determined based on the total exclusive residential area, not the exclusive residential area per household, but the entire exclusive residential area of the instant house is obviously larger than the upper limit of the national housing scale under the Housing Act. Accordingly, it is reasonable to deem that the instant house does not constitute the “national housing” under the instant comprehensive provision.

D. In the same purport, the lower court determined that the instant disposition was lawful on the premise that the instant housing does not constitute “national housing” under the instant tax exemption clause. Such determination by the lower court was based on the legal doctrine as seen earlier, and did not err by misapprehending the legal doctrine on the interpretation of “national housing scale” under the Restriction of Special Taxation Act, contrary to what is alleged in the grounds of appeal. Meanwhile, the Supreme Court precedents cited in the grounds of appeal by

4. Whether the special-purpose provisions apply to the supply of self-produced or acquired goods.

The lower court rejected the Plaintiff’s assertion that no value-added tax is imposed pursuant to the special provisions of Article 10(6) and (1) of the former Value-Added Tax Act (amended by Act No. 16101, Dec. 31, 2018; hereinafter the same) on the ground that the Plaintiff cannot be deemed to have discontinued the housing construction and sales business and supplied the instant housing, on the grounds that unless the input tax amount for the instant housing is not deducted, the remaining self-produced and acquired goods at the time of the business closure.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the interpretation of Article 10(6) and (1) of the former Value-Added Tax Act, contrary to what is alleged in

5. Conclusion

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.

Justices Kim Jong-hee (Presiding Justice)