Busan High Court 2008Nu4756 (209.05)

Land transfer is the business income of real estate sale and the calculation of standard income is lawful.

Since the transfer of land can be deemed to be conducted with continuity and repetition to the extent that it can be seen as business activities for profit-making purposes, the income thereby constitutes the business income of real estate sales business under the Income Tax Act, and the calculation of the standard income amount following the transfer of land by the rate determined by the Commissioner of the National Tax Service is legitimate

Article 143 of the Enforcement Decree of Income Tax Act

Article 145 of the Enforcement Decree of Income Tax Act

209Du11966 and revocation of disposition of global income;

Kim AA et al.

Head of Suwon Tax Office

Busan High Court Decision 2008Nu4756 Decided June 5, 2009

November 24, 2011

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1, 2, and 3

Whether the income from the transfer of real estate is business income or capital gains under the Income Tax Act shall be determined according to the ordinary social norms, considering the transferor’s acquisition and holding of real estate, whether the transfer is made, whether the transfer aims at profit, the scale and frequency of the transfer, the mode, and the continuity and repetition of business activities to the extent that it can be seen as business activities. In making such determination, not only the transfer of real estate concerned but also the transfer of real estate owned by the transferor, shall take into account all the circumstances before and after the time when the transfer took place (see, e.g., Supreme Court Decisions 83Nu66, Sept. 11, 1984; 9Du5412, Apr. 24, 2001).

The lower court acknowledged the facts as indicated in its reasoning based on the employment evidence, and determined that: (a) Plaintiff KimA arranged 28 lots of land in this case used as a site for livestock farms to facilitate disposal of 89,787m2; (b) assigned the sales office and real estate broker to 20 persons from 202 to 205; (c) had access roads and sewage pipe established at the time of such transfer; (d) the total sum of the transfer value was about KRW 4.5 billion; and (b) Plaintiff KimA transferred the instant high-ri land to 30,347m2 on November 203, 208 only divided it into the land and the administrative district of the Jeju-ri farm; and (c) the transfer method and the transfer period were similar to that of the instant land in this case; and (c) Plaintiff 1,46m2 and the transfer period of the instant land were similar to that of the instant land in this case, which were owned by the Plaintiff 300,000 square meters of the instant land and the transfer price of the instant real estate.

In light of the relevant provisions and the above legal principles and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the classification of income under the Income Tax Act.

2. Regarding ground of appeal No. 4

Article 143 (3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890, Feb. 28, 2007; hereinafter referred to as the "Enforcement Decree") provides that "in case where the income amount is estimated or revised, the following methods shall apply." Article 143 (3) of the Enforcement Decree of the Income Tax Act provides that "The amount calculated by multiplying the income amount by the income amount under subparagraph 1 less the amount paid or payable by the documentary evidence as purchase cost and rent for fixed assets, which is paid or payable by the documentary evidence, as wages, wages and retirement benefits of employees, and the amount calculated by multiplying the income amount by the standard expense rate (hereinafter referred to as the "standard income amount"): Provided, That where the standard income amount is above the amount calculated by multiplying the income amount under subparagraph 1-2 by the rate determined by the Commissioner of the National Tax Service, the amount calculated by multiplying by the rate may be the income amount by the simple expense rate," and Article 141 (3) of the Enforcement Decree provides that "the average expense rate and expense rate shall be determined by the average expense rate under Article 15 (13) of the Enforcement Decree."

The court below acknowledged the facts as stated in its reasoning based on employment evidence. In calculating the limit of standard income by multiplying the income amount subject to the simplified expense rate pursuant to the proviso of Article 143(3)1 of the Enforcement Decree by the income amount determined by the Commissioner of the National Tax Service, the court below determined that the Defendant’s calculation of the limit of standard income by considering the factors of land price increase by 70% which is low simple expense rate for the land whose holding period is not less than 5 years, and 80.9% which is high simple expense rate for the land less than 5 years, should be applied to the land whose holding period is less than 5 years, and that it is reasonable to add the period from the time of transfer of the land in question to the time of acquisition from the time of transfer of the land in question, and that the Defendant’s calculation of the limit of the standard income amount due to the transfer of the land in this case’s land in question by 70% or more of the total expense rate by considering the holding period as less than 5 years and the remaining 80% of the land in each case.

In light of the above provisions and relevant legal principles and records, such judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the estimation of income amount as otherwise alleged in the ground

3. Regarding ground of appeal No. 5

Article 19 (1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006) provides that "business income shall be the income falling under any of the following subparagraphs generated in the year concerned", and subparagraph 12 (hereinafter referred to as "the legal provision of this case") provides that "income accruing from real estate sales business as determined by the Presidential Decree".

The term “real estate sales business” under the legal provision of this case refers to the continuous and repeated acquisition and sale of real estate, such as land and buildings, for profit due to its language and nature, and thus, it can be predicted from the provision itself that the Presidential Decree provides for its scope. Since the specific scope may be flexible according to changes in economic conditions or tax policies, it is impossible or inappropriate to directly regulate the law enacted by the National Assembly. Considering that it is not possible or inappropriate to directly regulate the law established by the National Assembly, delegation of the legal provision of this case to the Presidential Decree concerning the specific scope of real estate sales cannot be deemed to contravene the principle of no taxation without law or prohibition of comprehensive delegation. The argument in the grounds of appeal

4. Conclusion

Therefore, all appeals are 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.