Seocho 2018west 512 ( October 16, 2018)

The method of calculating ‘the period exceeding the period equivalent to 40/100 of the ownership period of the land' when determining whether the land for non-business use is land

The standards for the period of land for non-business use shall be calculated based on the whole period of possession of land for non-business use from the date of acquisition to the date of transfer even in cases of land acquired before the Enforcement Decree of the Income Tax Act is newly established on December 31

Standard for period of non-business land under Article 168-6 of the Enforcement Decree of the Income Tax Act

2018Gudan6387 Disposition rejecting capital gains tax rectification

○ Kim

○ Head of tax office

on 21, 2018

October 30, 2018

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The defendant's rejection disposition of correction of KRW 246,497,280 for the transfer income tax belonging to the year 2015 against the plaintiff on June 30, 2017 shall be revoked.

1. Details of the disposition;

A. On April 6, 1986, the Plaintiff acquired each of the instant land in total in KRW 3,188,535,000 on two occasions on June 2, 2015 and August 12, 2015, by inheritance, the same 00-1 forest land, 2,403 square meters in 00-1 forest land, 122 square meters in 00-2 road, 1,587 square meters in 00-2 forest land, and 00-2 forest land in this case (hereinafter “each of the instant land”).

B. As to the transfer of each of the instant lands, the Plaintiff reported and paid KRW 869,324,080 to the Defendant in 2015. At the time, the Plaintiff: (a) deemed that all of the parts, other than the appurtenant land of 000-1 forest and field 2,403 square meters in 00,000,000 and 1,587 square meters in 00,000 and 817 square meters in 00,000,000,0000,0000,0000,0000,0000

C. Since May 1, 2017, the Plaintiff newly established the provisions of Article 104-3 of the Income Tax Act on land for non-business on December 31, 2005 to the Defendant, the Plaintiff shall be deemed to own the pertinent land as a general land from April 6, 1986 that the Plaintiff acquired the pertinent land until December 31, 2005, which was before the said provision was enforced. In this case, the Plaintiff’s claim for correction against the purport that the period falling under Article 104-3(1)2 of the Income Tax Act does not exceed 40/10 of the total period during which the Plaintiff owned the pertinent land does not exceed 40/10, the issue is that the land is subject to the special deduction for long-term possession as it does not fall under the land for non-business and thus is subject to the special deduction for long-term possession. However, the Defendant issued a claim for correction on June 30, 2017 (hereinafter “instant disposition”).

D. On December 17, 2017, the Plaintiff dissatisfied with the instant disposition, filed an appeal with the Tax Tribunal on December 17, 2017, but the Tax Tribunal dismissed the Plaintiff’s appeal on March 16, 2018.

[Ground of recognition] Facts without dispute, Gap evidence 1 to 3, Gap evidence 2, Eul evidence 1 to 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Article 18(2) of the Framework Act on National Taxes provides that "any act for which the obligation to pay national taxes is established shall not be retroactively imposed under the new tax laws after its establishment." According to Article 21(1)1 of the same Act and Article 5(1) of the Income Tax Act, the obligation to pay income tax is established when the taxable period (one year from January 1 to December 31) expires. The provisions of Article 104-3 of the Income Tax Act on non-business land were newly established on December 31, 2005, and Article 104(3) of the Income Tax Act was newly established on April 6, 1986 until December 31, 2005, when the above provision was enforced. Thus, Article 104-3 of the Income Tax Act on non-business land owned by the Plaintiff as a general land is not applicable retroactively to the period before December 31, 2005, and it constitutes a violation of Article 108(1)1 of the Income Tax Act.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Determination

1) Article 95(1) and (2) of the former Income Tax Act (amended by Act No. 13558, Dec. 15, 2015; hereinafter the same) provides that "transfer income shall be calculated by deducting "long-term possession special deductible amount from "transfer marginal profits", and "non-business land" under Article 104-3 of the same Act is excluded from "special long-term possession special deductible amount". In addition, "non-business land" under Article 104-3(1) of the former Income Tax Act means land falling under any of the following subparagraphs for the period prescribed by Presidential Decree during which the pertinent land is owned." Article 104-3(2) provides that "forest" means "specific land" under subparagraph 2, and exceptionally, "forest protection forest, seed-collection forest, test forest, other public interest" (a) is necessary for the period exceeding 10 years, "transfer period exceeding 20 years prior to the ownership of the forest and forest land" under Article 104-3(1)6(6) of the former Enforcement Decree.

Meanwhile, the provision that excludes non-business land from the application of special deduction for long-term possession was first newly established on December 31, 2005 as Article 95(2), Article 104(1)2-7, Article 104-3, and Article 168-6 of the Enforcement Decree of the Income Tax Act (hereinafter collectively referred to as the "each of the above provisions") amended by Presidential Decree No. 19254 on December 31, 2005, and Article 1 (Enforcement Date) of the Addenda of the Act No. 7837 (Enforcement Date) enters into force on January 1, 2006.

However, the amended provisions of Article 95(2) (limited to the part concerning Article 104(1)2-5 through 2-8 in the main sentence other than each subparagraph) and Article 104(1) (excluding subparagraph 2-4) of the former Enforcement Decree of the Income Tax Act shall enter into force on January 1, 2007, and Article 3 (General Application of Transfer Income Tax Act) provides that "the amended provisions concerning the transfer income tax under this Act shall apply from the portion of transfer after this Act enters into force." On the land acquired before the enforcement of the provisions of this case, there is no separate provision that the period from the date of acquisition until the enforcement date of the provisions of this case shall not be regarded as the non-business land (Provided, That the provisions of Article 104-3(2) of the former Income Tax Act and Article 168-14(3) of the former Enforcement Decree of the Income Tax Act provide that the land inherited before December 31, 2006 shall not be regarded as the land for non-business use until December 130, 130 and 20.

In this case, there is no dispute between the parties that the Plaintiff did not satisfy the exception requirements under the proviso of Article 104-3 (1) 2 of the former Income Tax Act for the entire period during which the Plaintiff owned forest-based land. The issue is that the land constitutes a non-business land excluded from the special deduction for long-term holding at the time of transfer.

2) The principle of retroactive taxation prohibition, one of the basic principles of tax-related Acts, refers to the principle that no tax shall be levied retroactively by a new tax law after its establishment with respect to income, profit, property, act or transaction for which a tax obligation is established (Article 18(2) of the Framework Act on National Taxes). In addition, in a case where a tax obligation is established after the enactment or amendment of the tax-related Act, there is no room to apply this principle (see Supreme Court Decision 88Nu1957, Sept. 29, 1989). Since transfer income tax is a requirement for taxation and is subject to transfer gains, it shall be determined on the basis of the time of transfer. Thus, unless there is a clear provision that the previous provision shall apply retroactively to the previous provision under the amended Act, its scope shall not be extended without permission (see Supreme Court Decision 2007Du15124, Jun. 12, 2008).

However, the Plaintiff’s duty to pay capital gains tax due to the transfer of the key land is not already established before the establishment of the instant provision, but rather established after the Plaintiff’s transfer of the key land on June 2, 2015 and August 12, 2015, which was newly established under Articles 95(2) and 104-3(1) of the former Income Tax Act. Thus, even if the Defendant rendered the instant disposition imposing capital gains tax by applying each of the above provisions, it cannot be deemed a violation of the principle of prohibition of retroactive taxation. Rather, the Plaintiff’s assertion that “where it is deemed not applicable to the holding period prior to the enforcement of the instant provision,” the period of ownership of the pertinent land should be determined on the basis of the language of Article 104-3(1) of the former Income Tax Act, Article 168-6 of the former Enforcement Decree of the Income Tax Act, and Article 168-13(1) of the former Enforcement Decree of the Income Tax Act, which provides for the application of the amended provision from June 20 to 1, 201, and its transfer.

3. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.