The commencement of business of the Housing Construction and Sales Business shall be at the time of commencement of sale of housing

The commencement of the business of the Housing Construction and Sales Business is the time of commencing the sale of housing, and the sales revenue is not the time of the occurrence of by-products, and it is difficult to regard it as falling under the construction business subject to the special reduction or exemption of small

Article 143 of the Enforcement Decree of the Income Tax Act

2018Guhap1643 Other Global Income and Revocation of Disposition

KimA

BB Director of the Tax Office

2019.06.04

2019.23

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The disposition of imposition of global income tax of KRW 42,080,590, which the Defendant rendered to the Plaintiff on August 10, 2017, shall be revoked.

1. Details of the disposition;

A. On December 13, 2012, the opening date of the business with KimB, the Plaintiff registered its business with the name of "CC", and completed the business of constructing and selling multi-family housing 16 households (hereinafter "the instant housing") on the land outside 1225-1, ○○○-dong 1225-1, and ○○○-gu ○○○○-dong 1225-1 (hereinafter "the instant business").

나. 원고는 2014. 5. 30. 2013년 귀속 종합소득세에 대하여, 이 사건 주택에 대한 분양수입금액이 발생한 직전연도인 2012년에 신축공사 중 취득한 고철 등 부산물 2,000,000원 상당을 판매하여 구 소득세법 시행령(2016. 2. 17. 대통령령 제26982호로개정되기 전의 것, 이하 같다) 제143조 제4항 제2호 (나)목에서 규정한 금액에 미달되는 수입이 발생하였다는 이유로, 위 규정에 따른 '단순경비율'을 적용하여 소득금액을 산정하고, 구 조세특례제한법(2014. 1. 1. 법률 제12173호로 개정되기 전의 것, 이하 같다) 제7조의 중소기업에 대한 특별세액감면규정을 적용하여 원고의 손익분배비율 30%에 해당하는 종합소득세 7,920,967원을 신고・납부하였다.

C. As a result of the personal integration investigation conducted against the Plaintiff, the Commissioner of the Korea National Tax Service: (a) deemed that the Plaintiff commenced a business in 2013, which was not 2012 years from the time of sale by-products; (b) excluded simple expense rate; (c) calculated income based on standard expense rate; and (d) notified the Defendant to rectify the tax amount by excluding special tax reduction and exemption for small and medium enterprises.

D. Accordingly, on August 10, 2017, the Defendant issued a correction and notification of the global income tax of KRW 42,080,590 (including additional tax) for the year 2013 to the Plaintiff (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence 1 to 5, Eul evidence 1 to 5 (including paper numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's assertion

1) The Plaintiff’s sales of scrap metal and other by-products during the process of the removal of the existing building, thereby starting its business in 2012 and starting its business below 36,00,000 won, and thus, the Plaintiff’s global income tax for 2013 ought to be subject to the simplified expense rate pursuant to Article 143(4)2(b) of the former Enforcement Decree of the Income Tax Act. Nevertheless, the instant disposition that applied the standard expense rate on the premise that the commencement date of the Plaintiff’s business was the starting date of the sale of the instant

2) Since the Plaintiff directly constructed the instant housing, the instant disposition that excluded the application of the special tax reduction and exemption provision for small and medium enterprises under Article 7 of the former Restriction of Special Taxation Act is unlawful.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the assertion on the application of simple expense rate

A) Under the principle of no taxation without law, the interpretation of a tax law shall be interpreted in accordance with the text of the law unless there are special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. However, in cases where it is necessary to clarify the meaning through the interpretation between the laws and regulations, the interpretation shall be made within the scope that does not undermine the legal stability and predictability pursued by the principle of no taxation without law (see, e.g., Supreme Court Decision 2007Du4438, Feb. 15, 2008).

Article 1-2 (1) 5 of the former Income Tax Act (amended by Act No. 12169, Jan. 1, 2014; hereinafter the same) provides for the definition of "business operator"; Article 19 (1) provides for the business operator as to whether income from any type of business constitutes business income; Article 8 of the Value-Added Tax Act on the method of filing a new application for business registration and applying for change of business registration shall apply mutatis mutandis to a business operator who registers his/her business under the former Income Tax Act; Article 168 (3) of the former Income Tax Act provides that Article 8 of the Value-Added Tax Act on the method of filing a new application for business registration and filing an application for change of business registration; and Article 6 of the Enforcement Decree of the Value-Added Tax Act does not explicitly determine the commencement date of business as in Article 6 of the Value-Added Tax Act or apply mutatis mutandis to the date of commencement of business. Thus, this study examines the period of commencement of

B) In light of the following circumstances, comprehensively considering the language, structure, and purport of relevant statutes, such as the former Income Tax Act and the former Value-Added Tax Act (amended by Act No. 16101, Dec. 31, 2018; hereinafter the same), it is reasonable to view the starting date of business on business income under the former Income Tax Act as the starting date of business under Article 5(2) of the former Value-Added Tax Act as the starting date stipulated in each subparagraph of Article 6 of the Enforcement Decree of the Value-Adde

(1) In light of the fact that Article 19(1) of the former Income Tax Act defines "income generated from various types of business, such as agriculture, forestry, fishery, mining, manufacturing, construction, etc." as business income, and Article 1-2(1)5 of the same Act defines "resident with such business income" as business income, business activities under the former Income Tax Act are premised on the actual occurrence of income. Therefore, the commencement date of business cannot be advanced until the preparation of business, which is the transfer date of the supply of goods or services directly causing income, begins.

(2) Not only is it unreasonable to objectively specify the starting point of the preparation activity in terms of the aspects that the scope is set by the enterpriser’s subjective intent or necessity, but also is also difficult to objectively specify the starting point of the preparation activity. If the starting point of the preparation is earlier than the starting point of the land acquisition or the starting point of the building at the time of the commencement of the preparation activity, the revenue amount in the immediately preceding taxable period, which is the premise for the application of the simple expense rate under Article 143(4)2 of the former Enforcement Decree of the Income Tax Act, depending on the time of the preparation activity, may vary depending on the time of the preparation activity, and thus, the business operator may cause interference with the national legitimate exercise of the right to tax collection or cause inequality among the taxpayers by avoiding the

(3) According to Articles 1-2 (1) 5 and 19 of the former Income Tax Act, a resident who has income generated from continuous and repeated activities under his/her own account and responsibility for profit-making purposes becomes an entrepreneur who independently supplies goods or services and is liable to pay value-added taxes, regardless of whether it is for profit-making purposes, according to Article 2 (3) of the former Value-Added Tax Act, the "person who independently supplies goods or services for business purposes" refers to a person who supplies goods or services with a continuous and repeated intent after meeting the business form to create added value (see Supreme Court Decision 98Du16705 delivered on September 17, 199). Thus, insofar as the meaning of a business operator under the former Income Tax Act is not significantly different, it is necessary to interpret the starting date of business related to business income under the former Income Tax Act uniformly from the starting date of business under the former Value-Added Tax Act. This should be granted in relation to one business at the same time, legal stability as to a taxpayer and an entrepreneur liable to pay value-added tax.

(4) From such perspective, Article 168(1) of the former Income Tax Act imposes an obligation to make a business registration on the head of the competent tax office, and Article 168(2) of the same Act provides that a business operator who has made a business registration under the Value-Added Tax Act shall be deemed to have made a business registration under the former Income Tax Act. If a business operator supplies goods or services, it may be deemed that Article 163(1) of the former Income Tax Act provides that the business operator is liable to issue a tax invoice to the person who has received the goods or services, as prescribed by Presidential Decree, imposes an obligation to prepare an invoice or receipt and issue the goods or services to the person who has received the goods or services.

(5) Article 8 (1) of the former Value-Added Tax Act, which provides that Article 168 (3) of the former Income Tax Act shall apply mutatis mutandis to business registration, uses the term "the starting date of business" in relation to business registration, and Article 5 (2) of the former Value-Added Tax Act provides for "the starting date of business" in the first taxable period for a new business operator, and Article 6 of the Enforcement Decree of the Value-Added Tax Act provides that "the starting date of business pursuant to Article 5 (2) of the former Value-Added Tax Act shall be "the starting date of business"

C) According to the following circumstances, the Plaintiff’s business commencement of a housing construction and sales business operated by the Plaintiff based on the health stand, the contents of the relevant statutes, the evidence and the purport of the entire pleadings, and the following circumstances, it is difficult to view that the revenue from the sale of the instant house, which started the supply of goods under Article 6 subparag. 3 of the Enforcement Decree of the Value-Added Tax Act, falls under the income accrued from the instant business. Thus, the Plaintiff’s assertion on this part is rejected.

(1) Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) stipulates that Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 30, 2010) stipulates that Article 143(2) of the former Enforcement Decree of the Income Tax Act applies simple expenses to a business operator who newly starts a business in the pertinent taxable period, other than a business start a new business in the pertinent taxable period, for whom the total amount of revenue (including a revenue increased by determination or revision) during the immediately preceding taxable period is below the standard amount. After that, Article 143(4)1 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22580, Dec. 21, 2010; Presidential Decree No. 23518, Feb. 13, 2012>

In addition, Article 143 (4) of the Enforcement Decree of the Income Tax Act, which applies to the portion of income in the taxable period that begins after February 13, 2018, is amended by Presidential Decree No. 28637, which applies to the portion of income in the taxable period that begins after January 1, 2019, provides that if the total amount of income in the immediately preceding taxable period falls short of the standard amount, if the income in the taxable period concerned falls short of the standard amount of double-entry bookkeeping, the standard expense rate shall be excluded from the application of simple expense expense ratio.

In light of the amendment history of Article 143 (4) of the Enforcement Decree of the Income Tax Act, the simple expense rate system is a system that intends to minimize the tax payment costs of small small-scale business operators who lack the capacity to keep records of the principal expenses required by the standard expense rate system, and the legislators seem to have gradually reduced the scope of business operators subject to the simple expense rate application. Furthermore, according to the text of the supplementary provision, the legislators seem to understand the "construction commencement", "construction business, construction business, and commencement of real estate development and supply business" as separate concepts.

Therefore, considering these legislative intent, in the case of housing construction and sales business that operates a business for a long period exceeding a certain scale due to its characteristics, it is necessary to grasp the commencement date of the business based on objective and practical timing when the supply of housing subject to sale can be determined and determined by the business operator's will.

(2) The commencement of a business of the Housing Construction and Sales Business shall be substantially determined based on the time when the preparation for a business is completed and the preparation for the original business is performed or is capable of performing the original business (see Supreme Court Decision 94Nu15905, Dec. 8, 1995). The initial housing construction and sales business is included in real estate sales business under its nature (see Supreme Court Decision 2008Du21768, Jul. 22, 2010). The purpose of the business is to sell a house, and it is difficult to deem that the construction and sales business commenced sales activities solely on the fact that the housing was completed.

(3) Whether it constitutes business income under the Income Tax Act ought to be determined according to social norms, taking into account the existence of business profit-making purposes, the scale, frequency, and mode of business (see, e.g., Supreme Court Decision 91Nu6559, Nov. 26, 1991). However, there is no evidence suggesting that the Plaintiff had objectively expressed his intent to operate a housing construction and sales business for profit prior to commencing the sale of the instant housing. The fact that the Plaintiff sold by-products generated from the removal of the existing building or that the Plaintiff commenced or completed the instant housing, solely on the sole basis that the Plaintiff continuously and repeatedly conducted activities for profit-making purposes, it is difficult to deem that the Plaintiff had an objective substance as a housing construction and sales business entity.

2) Determination on the assertion on the application of the special tax reduction and exemption provision

A) Articles 2(3), 7(1)1(g), and 7(2)2 of the former Restriction of Special Taxation Act provide that an amount equivalent to 20/100 of the income tax on income accrued from a business establishment among small and medium enterprises shall be reduced or exempted until the taxable year ending on or before December 31, 2014, which ends by multiplying the income tax by 20/10, but the classification of the types of business used in this Act shall be based on the Korean Standard Industrial Classification publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22

However, according to the former Korean Standard Industrial Classification (amended by the Statistics Korea Notice No. 2015-311, Sept. 24, 2015), which applies in the global income tax taxable period subject to the instant disposition, the term “residential building construction business (Classification Code 4111)” refers to the industrial activities of constructing residential buildings, such as single and multi-households, apartment houses, etc., solely or multi-households. On the other hand, the industrial activities of constructing residential buildings and selling and selling them after entering into a contract with the entire construction without performing their direct construction activities are classified as “residential building development and supply business (Classification Code 68121).”

B) In light of the following circumstances, it is difficult to view that the Plaintiff’s business constitutes a “residential building development and supply business” under the Korean Standard Industrial Classification, and “construction business subject to the special reduction or exemption of tax amount under the former Restriction of Special Taxation Act” in light of the following circumstances: (a) the contractor entered the building ledger in the building ledger of this case as EE; (b) the Plaintiff did not possess a construction business license; and (c) the Plaintiff did not submit materials to deem that the Plaintiff had human resources, physical facilities, or capabilities to carry out the instant housing construction project under the overall responsibility; and (c) the expenses recognized by the Plaintiff’s labor cost and material cost disbursement data were not significantly less than the sales revenue amount of the instant housing.

3. Conclusion

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