The standards for determining whether the land prescribed by Article 101(1)2 of the former Enforcement Decree of the Local Tax Act among the land annexed to a building for which six months have not passed since it was de facto destroyed as of the tax base date is a non-business land prescribed by Article 104-3(1) of the former Income Tax Act subject to exclusion from the special deduction

Articles 95(2) and 104-3(1)4 of the former Income Tax Act (amended by Act No. 1358, Dec. 15, 2015; hereinafter the same shall apply) and Article 168-6 subparag. 1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same shall apply) provide that where the ownership period of “non-business land” subject to exclusion from special deduction for long-term holding due to transfer is five years or more, the period exceeding two years between the five years immediately before the transfer date, the period exceeding one year between the three years immediately before the transfer date, and the period exceeding 20/100 of the ownership period of the land shall be deemed as the non-business land in principle, and shall be excluded from the application of special deduction for long-term holding, but the period falling under Article 104-3(1)4 of the former Income Tax Act or subparagraph 1 of Article 168(1) of the Local Tax Act shall be excluded from the property tax subject to separate taxation.

Meanwhile, Article 106(1)2 Item (a) of the former Local Tax Act (amended by Act No. 13636, Dec. 29, 2015; hereinafter the same) and Article 101(1)2 and Article 103(1)1 of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 26836, Dec. 31, 2015; hereinafter the same) delegated by Article 106(1)2 of the former Local Tax Act provide for “land within the scope of the area calculated by multiplying the floor area of the building among the land annexed to the building for which six months have not passed since the date of actual loss of the building as of the taxable base date by the applicable double ratio to the floor area of the building” (see Articles 104 subparag. 2 and 6 subparag. 4 of the former Local Tax Act; Article 103(1)2 of the same Act). Here, a building refers to a building with a roof and columns or walls among the land settled.

In full view of the language and structure of the relevant provisions, and the purport that the ownership period of the “land other than farmland, forest land, and stock farm land” which is subject to the separate taxation of property tax in the former Income Tax Act is not deemed the period of use of the land for non-business use, as a whole, as to the calculation of capital gains in the former Income Tax Act, it is reasonable to view that the area of the land stipulated in Article 101(1)2 of the former Enforcement Decree of the Local Tax Act among the land annexed to a building should be determined whether the land is a non-business land under Article 104-3(1) of the former Enforcement Decree of the Income Tax Act, which is subject to the exclusion of special taxation of property tax for six months from the date on which the building is actually destroyed or lost, by excluding the period of the “land other than farmland, forest land

Articles 95(2) and 104-3(1)4(b) of the former Income Tax Act (Amended by Act No. 1358, Dec. 15, 2015); Article 168-6 subparag. 1 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 26067, Feb. 3, 2015); Articles 6 subparag. 4, 104 subparag. 2, and 106(1)2(a) of the former Local Tax Act (Amended by Act No. 13636, Dec. 29, 2015); Article 101(1)2, Article 103(1)4(b) of the former Enforcement Decree of the Local Tax Act (Amended by Presidential Decree No. 26836, Dec. 31, 2015); Article 103(1)1 of the Local Tax Act (Amended by Presidential Decree No. 26836, Feb. 1, 2015)

Plaintiff (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

head of Sung Dong Tax Office

Seoul High Court Decision 2018Nu34659 decided September 7, 2018

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. A. Articles 95(2) and 104-3(1)4 of the former Income Tax Act (amended by Act No. 1358, Dec. 15, 2015; hereinafter the same shall apply) and subparagraph 1 of Article 168-6 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same shall apply) provide that “non-business land” subject to the exclusion from the special deduction for long-term holding due to transfer shall be deemed land subject to the exclusion from the special deduction for long-term holding due to transfer for five years or more, the period exceeding two years immediately before the transfer, the period exceeding one year from the three years immediately before the transfer, and the period exceeding twenty percent of the ownership period of land, which falls under “non-business land other than farmland, forest, and stock farm land” shall, in principle, be deemed land subject to the special deduction for long-term holding, but the period falling under Article 104-3(1)4(1)4) or subparagraph 4(1)1) of the separate.

Meanwhile, Article 106(1)2 Item (a) of the former Local Tax Act (amended by Act No. 13636, Dec. 29, 2015; hereinafter the same) and Article 101(1)2 and Article 103(1)1 of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 26836, Dec. 31, 2015; hereinafter the same) delegated by Article 106(1)2 of the former Local Tax Act provide for “land within the scope of the area calculated by multiplying the floor area of the building among the land annexed to the building for which six months have not passed since the date of actual loss of the building as of the taxable base date by the applicable double ratio to the floor area of the building” (see Articles 104 subparag. 2 and 6 subparag. 4 of the former Local Tax Act; Article 103(1)2 of the same Act). Here, a building refers to a building with a roof and columns or walls among the land fixed on the land.

B. In full view of the language and structure of the relevant provisions, and the purport that the ownership period of “land other than farmland, forest land, and stock farm land” which is subject to the separate taxation of property tax in the former Income Tax Act is not deemed the period of use as non-business land, it is reasonable to view that the land of the land attached to a building under Article 101(1)2 of the former Enforcement Decree of the Local Tax Act, among the land annexed to the building, is “land other than farmland, forest land, and stock farm land” which is subject to separate taxation of property tax for 6 months from the date of de facto destruction of the building, and whether the period satisfies all the requirements under each subparagraph of Article 168-6 of the former Enforcement Decree of the Income Tax Act, and determine whether the land is a non-business land under Article 104-3(1) of the former Enforcement Decree

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. On October 21, 2005, the Plaintiff, along with Nonparty 1, acquired 1/2 shares of the Gangnam-gu Seoul Metropolitan Government ( Address 1 omitted) and 396.5 square meters ( Address 2 omitted) and 210.5 square meters (hereinafter “instant land”) and the 1/2 shares of the 3rd floor neighborhood living facilities (hereinafter “previous building”) on the ground, and thereafter, operated a leasing business for the previous building from around that time.

B. On March 10, 2010, the Plaintiff and Nonparty 1 removed the previous building, and on November 18, 201, up to two years thereafter, the model house that obtained permission from the competent authority on the ground of the instant land (hereinafter “instant building”) was demolished on November 17, 2012.

C. On December 4, 2014, the Plaintiff and Nonparty 1 transferred the instant land to Nonparty 2. On February 28, 2015, the Plaintiff reported and paid the transfer income tax without deducting the special long-term holding deduction amount from the transfer margin of the instant land on the premise that the instant land is land for non-business use, upon filing a preliminary return on the tax base of transfer income following the transfer of the instant land.

D. On June 1, 2016, the Plaintiff asserted that the amount of special deduction for long-term possession should be deducted from the transfer margin of the instant land on the ground that “the instant land is subject to special aggregate taxation for property tax (hereinafter “instant period”) from November 17, 2012 to May 16, 2013, which was the date before the elapse of six months from November 17, 2012 when the instant building was removed, is excluded from the period of deeming land for non-business use during the instant period, and ultimately, it does not constitute land for non-business use under Article 104-3(1) of the former Income Tax Act, which is subject to the exclusion from special deduction for long-term possession because it fails to meet the requirements for the period of land for non-business use

E. On December 15, 2016, the Defendant rejected the Plaintiff’s claim for correction on the ground that the instant land cannot be deemed excluded from the period of deeming land for non-business use during the instant period, and eventually constitutes land for non-business use (hereinafter “instant disposition”).

3. Examining these facts in light of the legal principles as seen earlier, the land of this case, which is the land annexed to the building of this case and is stipulated under Article 101(1)2 of the former Enforcement Decree of the Local Tax Act, shall be determined whether the land is a non-business land under Article 104-3(1) of the former Enforcement Decree of the Income Tax Act, subject to the exclusion of special long-term holding deduction, depending on whether the pertinent period is regarded as land for non-business use, and is excluded from the period of this case, which is the “land, forest, and stock farm,” which is subject to separate taxation of property tax for the period from the date of this case until the date six months elapse from the date of removal of the building of this case.

Nevertheless, solely on the grounds stated in its reasoning, the lower court determined that the instant disposition was lawful without examining whether the land of the instant building, among the instant land, meets all the requirements of the period under each item of subparagraph 1 of Article 168-6 of the former Enforcement Decree of the Income Tax Act, on the erroneous premise that the instant period cannot be excluded from the period of deeming land for non-business use solely based on its stated reasoning. In so doing, the lower court erred by misapprehending the legal doctrine on the interpretation of “land subject to separate assessment of property tax” under Article 104-3(1)4(b) of the former Income Tax Act and failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal assigning this error is with merit.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Seon-soo (Presiding Justice)