The meaning of the main sentence of Article 99-3(1) of the Restriction of Special Taxation Act / In the case of “transfer within five years from the date of acquisition of Newly-built houses”, the scope of the amount of tax reduced or exempted.

Article 99-3(1)1, 2, and (4) of the former Restriction of Special Taxation Act (Amended by Act No. 6762, Dec. 11, 2002); Articles 40(1) and 99-3(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (Amended by Presidential Decree No. 22037, Feb. 18, 2010);

Plaintiff

Head of Mapo Tax Office

Seoul High Court Decision 2013Nu45999 decided January 8, 2014

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

The grounds of appeal are examined.

1. The main text of Article 99-3(1) of the former Restriction of Special Taxation Act (amended by Act No. 6762, Dec. 11, 2002; hereinafter the same) (hereinafter “Special Provision”) provides that “The income accruing from a resident’s acquisition of a newly-built house falling under any of the following subparagraphs and transfer thereof within five years from the acquisition date shall be reduced by 100/100 of capital gains tax (hereinafter “former”), and “where the relevant newly-built house is transferred after five years have elapsed from the acquisition date, capital gains accrued for five years from the acquisition date of the relevant newly-built house shall be subtracted from the income amount subject to capital gains tax (hereinafter “after the latter”)” in subparagraph 1 provides that “the newly-built house (including the house acquired by the housing association under the Housing Construction Promotion Act or the redevelopment association under the Urban Redevelopment Act) acquired from the housing construction business operator x the standard market price of the newly-built house at the time of acquisition under Article 20-31 of the former Enforcement Decree (amended by Presidential Decree of the Restriction of Special Taxation Act).

2. Upon citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following formula: (a) the Plaintiff acquired the newly-built house of this case on November 6, 1997 after acquiring the old house of this case; (b) the Plaintiff transferred the newly-built house of this case on May 31, 2007 and reported to the Defendant that the transfer income tax on the newly-built house of this case constitutes the whole amount subject to reduction and exemption pursuant to the former part of the Special Provision; (c) the Defendant did not reduce and exempt the transfer income tax on the transfer income from the date of acquisition of the old house of this case until the date of acquisition of the newly-built house of this case until the date of acquisition of the newly-built house of this case; and (d) on the ground that the transfer income tax on the transfer income from the date of acquisition of the newly-built house of this case is reduced and exempted only for the transfer income tax on the transfer income from the date of acquisition of the newly-built house of this case, namely, the total transfer income amount 】 (Standard market price at the transfer income tax amount at the time of this case.

Then, the lower court determined that the instant disposition that calculated capital gains tax by applying the instant formula mutatis mutandis to the said method should be entirely revoked on the ground that the instant formula is unlawful, on the following grounds: (a) under the premise that the initial date of the occurrence of capital gains subject to reduction or exemption under the former part of the Special Provision is “the date of acquisition of a newly-built house” and the date of acquisition of a newly-built house is “transfer income before the date of acquisition of a newly-built house” and that the capital gains tax on “transfer income before the date of acquisition of a newly-built house” subject to reduction or exemption under the former part of the Special Provision is not subject to reduction or exemption; and (b) the instant formula is premised on the premise that the transfer income subject to reduction or exemption under the former part of the Special Provision is not at issue until the date of acquisition of a newly-built house; and (c) the instant formula is not applicable mutatis mutandis to reconstruction or redevelopment where the transfer income subject to reduction or exemption prior to the date of acquisition

3. The Special Provision stipulates differently from the former and latter parts on the basis of whether a newly-built house was transferred within five years from the acquisition date, the former and latter parts of the Special Provision do not expressly stipulate the starting date of capital gains subject to reduction or exemption. In addition, the Special Provision merely stipulates that capital gains prior to the acquisition date of a newly-built house shall be fully reduced or exempted without separately preparing the formula of distributing the amount of tax reduction or exemption different from the former and latter parts of the Special Provision. In light of the language and structure of the Special Provision, the legislative intent of promoting construction, sale and transaction of a newly-built house and real estate market by encouraging the new construction and transaction of a newly-built house within five years from the acquisition date, the transfer income tax shall be fully reduced if the newly-built house is transferred, but only the “transfer income accrued for five years from the acquisition date of a newly-built house” shall be subject to the special provision, such as transfer of a newly-built house acquired through reconstruction and redevelopment. Therefore, in cases of a newly-built house subject to reduction or exemption within five years from the acquisition date of a newly-built house without the transfer date.

Examining the facts acknowledged by the lower court in light of such legal doctrine, since the transfer of a newly-built house of this case constitutes reduction or exemption under the former part of the Special Provision and the relevant transfer income tax should be fully reduced or exempted, the instant disposition imposing transfer income tax is unlawful. In so determining, the lower court erred by misapprehending the legal doctrine on the scope and effect of the special taxation prescribed in the former part of the Special Provision, while determining that reduction or exemption under the former part of the Special Provision is limited to the transfer income tax on the “transfer income from the date of acquisition of a newly-built house to the date of transfer”, the conclusion that the instant disposition

4. 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 Lee Sang-hoon (Presiding Justice)