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 (Law Firm Il, Attorneys Kim Byung-jin et al., Counsel for the plaintiff-appellant)

Gangwon-gu Director of the District Office

Seoul High Court Decision 2013Nu48448 decided March 19, 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 amount of tax equivalent to 100/100 of the transfer income tax shall be reduced or exempted (hereinafter “ leaflet”) on the income accruing from the acquisition by a resident of a newly-built house falling under any of the following subparagraphs within five years from the acquisition date, and the transfer income accruing for five years from the acquisition date of the newly-built house shall be subtracted from the income amount subject to the transfer income tax (hereinafter “after-term period”). Article 9-3(1) of the former Restriction of Special Taxation Act (including any house acquired by a housing association under the Housing Construction Promotion Act or an redevelopment association under the Urban Redevelopment Act; hereinafter the same shall apply), and Article 99-3(2) of the Enforcement Decree of the same Act provides that “The standard market price of the newly-built house (including any house acquired by a member through the Housing Association under the Housing Construction Promotion Act or the Urban Redevelopment Association under the Urban Redevelopment Act)” 20.

2. The lower court acknowledged that: (a) the Plaintiff acquired the newly-built house of this case on October 6, 2004 as a member of the housing association in order to implement the reconstruction after acquiring the old house of this case on January 30, 2001; (b) the Plaintiff transferred the newly-built house of this case on August 19, 2008, and reported capital gains amount of KRW 125,265,207, and capital gains tax as KRW 0 on the grounds that the entire amount of capital gains tax was reduced or exempted under the former part of the Special Provision; and (c) the Defendant did not reduce capital gains tax on capital gains 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, but did not reduce capital gains tax on capital gains from the date of acquisition of the newly-built house of this case to the date of transfer; (d) the following formula modified the instant formula x i.e., “total capital gains tax amount 】 (standard market price at the time of transfer - standard market price at the time of the transfer) - the acquisition”).

Then, the lower court determined that, in the case of reconstruction, the transfer income tax on the “transfer income from the date of acquisition of a newly-built house” under the former part of the Special Provision is limited to the “transfer income from the date of acquisition of a newly-built house to the date of acquisition of a newly-built house” and the “transfer income from the date of acquisition of a newly-built house” is not subject to reduction or exemption. However, the instant formula aims at calculating the “transfer income accrued for five years from the date of acquisition of a newly-built house” which is reduced or exempted under the latter part of the Special Provision, and there is no legal basis to apply the “transfer income tax” to calculating the “transfer income tax” which is reduced or exempted under the former part of the Special Provision. Moreover, the instant formula is premised on the premise that the transfer income from the date of acquisition of a newly-built house is not at issue before the date of acquisition of the newly-built house, and thus, it should not apply mutatis mutandis to reconstruction where the transfer income tax is at issue before the date of

3. A. 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 date of acquisition, and 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 stipulates that capital gains before the date of acquisition of a newly-built house is subject to reduction or exemption, such as transfer of a newly-built house acquired through reconstruction and redevelopment, but the former and the former are merely entitled to full reduction or exemption of capital gains tax without separately preparing a formula of dividing the amount of tax to be reduced or exempted differently from the latter. In light of the language and structure of the Special Provision, the legislative intent of promoting the construction competition and real estate market by encouraging the new construction and sale of a newly-built house and transactions thereof, the Special Provision is understood as the entire amount of capital gains tax if a newly-built house is transferred within five years from the date of acquisition, but only the “transfer income accrued for five years from the date of acquisition of a newly-built house” requires a limited special taxation on the transfer date from the acquisition date of a newly-built house.

B. Examining the facts acknowledged by the court below in light of the aforementioned legal principles, since the transfer of newly-built house of this case constitutes reduction or exemption under the former part of the Special Provision, the disposition of this case imposing capital gains tax on the Plaintiff is unlawful. In so determining, the court below erred by misapprehending the legal principles on the scope and effect of special taxation prescribed in the former part of the Special Provision, but the conclusion that the instant disposition is unlawful is justifiable, and thus, the court below’s error does not affect the conclusion of the judgment. As long as the disposition of this case should be revoked in its entirety, the court below’s failure to revoke only the portion of the amount of tax reported by the Plaintiff was unlawful. The ground of appeal that the Plaintiff’s exemption from the amount of tax reported by the Plaintiff is unlawful is without merit.

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 Shin Young-chul (Presiding Justice)