National Tax Service Review and Transfer 2012-0078 (Law No. 12, 2012)

Income from the exchange transaction of apartment shall not be deemed business income from business activities, and shall be subject to capital gains.

In light of the fact that business registration is made in the housing rental business and several apartments are acquired for the purpose of leasing, that it is difficult to see that the other party to the apartment exchange transaction has been for profit from the sales business with his father, and that the exchange transaction appears to be for avoiding heavy taxation, etc., it shall not be deemed business activities, and it shall be deemed as capital

2012Gudan5728 Revocation of Disposition of Imposing capital gains tax

LAA

head of Dongjak-gu Tax Office

December 5, 2012

January 16, 2013

1. The plaintiff's claim is dismissed.

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

The Defendant’s imposition of capital gains tax of KRW 000 against the Plaintiff on September 5, 201 shall be revoked.

1. Details of disposition;

A. On December 1, 2006, the Plaintiff entered into a contract for exchanging OOO apartment 00 000 dong 000 (hereinafter “instant apartment”) with the Plaintiff’s father’s detached housing located in Yeongdeungpo-gu Seoul Metropolitan Government 000 (OOdong 000), and transferred the registration of ownership transfer to MaD on December 28, 2006.

B. The Plaintiff considered the income from the sale of the apartment of this case as the business income, and made a final tax return on global income tax around May 2007 with the amount of KRW 000,000, which applied the simple expense rate, as necessary expenses.

C. As a result of the on-site investigation of capital gains tax, the Defendant: (a) determined that the Plaintiff’s transfer of the instant apartment is not a business income of real estate sales business; and (b) determined that it is subject to the avoidance of wrongful calculation due to a low-price transfer as a transaction among related parties; and (c) determined that the transfer value is KRW 000 based on the market price calculated by transaction example and the conversion value is KRW 000 based on the conversion value; and (d) rendered the instant disposition imposing capital gains tax of KRW 00 on September 5, 201 (including additional

D. On October 5, 2012, the Plaintiff filed an appeal with the Tax Tribunal, and the Tax Tribunal corrected the tax amount that the Plaintiff did not impose additional tax on the under-reported portion due to the error in the income classification and dismissed the remainder of the appeal. Accordingly, the Defendant issued a decision to correct the transfer income tax as KRW 000 upon the reduction of KRW 00 won for additional tax returns on November 15, 2012 (hereinafter “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 5, 10, Eul evidence Nos. 1, 2 and 10, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. Summary of the plaintiff's assertion

“(1) (1) The Plaintiff, since its business registration was made for the purpose of leasing real estate on November 1, 199, maintained five business registrations from August 201 to maintaining its status as a real estate sale or a rental business operator, and continued and repeatedly engaged in real estate sale business on seven occasions, including the acquisition of real estate on nine occasions, but the Defendant is illegal to impose capital gains tax on the transfer of apartment of this case.

(2) Even if the income from the transfer of the instant apartment is considered as capital gains, the transaction price of the instant apartment was either KRW 000 or KRW 000 at the same level at the time when the Plaintiff entered into an exchange contract with the Plaintiff, and even if it was based on the fact that the instant apartment was transferred to KRW 000 after 6 months from the largest DD, the transfer price of the instant apartment was reasonable value reported by the Plaintiff. Nevertheless, it is unreasonable for the Defendant to impose tax on KRW 00 on the Plaintiff by deeming the transaction price of neighboring apartment to be the market price of the instant apartment by applying the unfair act and calculation denial provision to be the acquisition price.

B. Judgment on the Plaintiff’s assertion

(1) recognised facts

(A) The Plaintiff’s history of business registration is as listed below. Although the Plaintiff had already registered its business for the purpose of leasing apartments and other buildings, the Plaintiff had the opening date of business on December 1, 2006 and closed its business on the same date on December 5, 2006. The Plaintiff again filed an application for business registration on March 1, 2008 with the opening date on March 18, 2008 and closed its business on July 1, 2009.

(Exemption of Details of closure)

(B) On December 1, 2006, the Plaintiff owned three apartment buildings, such as OOO apartment 00 00 - 000 - with the instant apartment, other than the apartment, which had been residing in the place of business as of December 1, 2006, and owned the building and land located in OOdong and other buildings and land located in OOdong in Hanam-si except for the housing.

(C) On December 26, 2006, the time when the Plaintiff entered into an exchange contract with his father ChoiD on the apartment of this case, the Plaintiff donated apartment units to Kim Y, a child.

(D) The Plaintiff acquired the instant apartment on June 28, 1994, and owned it until December 28, 2006. The Plaintiff resided in the instant apartment for five years during the retention period.

[Ground of recognition] Facts without dispute, Gap 2, 3 evidence, Eul 3 through 6, the purport of the whole pleadings

(2) Determination

Whether the income from the transfer of real estate is business income or transfer income under the Income Tax Act shall be determined according to ordinary social norms, considering the transferor’s acquisition and holding status of real estate, creation, size and frequency of transfer, mode, other party, etc. The determination must take into account not only the transfer of real estate but also the overall real estate owned by the transferor at the time before and after the transfer took place (see, e.g., Supreme Court Decisions 83Nu66, Sept. 11, 1984; 9Du5412, Apr. 24, 2001). In light of such legal principles, it is reasonable to view that the Plaintiff’s acquisition of apartment houses including apartment houses for 3 years including the instant apartment as business operator around Nov. 1, 199 for the purpose of exchange, but also the Plaintiff’s acquisition of apartment houses for the purpose of exchange, such as the sale of apartment houses for the purpose of the Plaintiff’s acquisition of profit from the sale of apartment houses for the purpose of the Plaintiff’s acquisition of profit from the sale of apartment houses for the Plaintiff’s business.

C. Judgment on the Plaintiff’s assertion

(1) The Plaintiff did not separately appraise the subject matter at the time of concluding the exchange contract with his father, and the Defendant determined that the Plaintiff’s tax burden on income was unfairly reduced due to the exchange transaction of the apartment in this case with his father with his related father and thus constitutes the subject of the application of the wrongful act and calculation denial. The Defendant rendered the disposition of this case by deeming 000 won, which was the transaction transaction example of 510 dong 510, which was traded within three months before and after the transfer date among the apartment in the same apartment in the same way as the apartment in this case, as the market price at the time of the transfer of the apartment in this case.

(2) The actual transfer value of the relevant apartment as the basis for calculating the transfer income tax refers to the value that the transferor transfers the asset at the time of the transaction and received as the price for the transfer and is objectively recognizable by the sale contract or other documentary evidence. Thus, in case of the exchange of the object, it is a value exchange based on the market value of the object, which is particularly a standard for the value of the object and entails the settlement procedure on the difference in the appraisal value. However, in case of a simple exchange, the actual transfer value cannot be confirmed (see, e.g., Supreme Court Decisions 94Nu6840, Dec. 9, 1994; 98Du19841, Nov. 26, 1999). In this case, the actual transfer value of the apartment at the time of the exchange of the apartment at issue constitutes a case where the actual transfer value of the apartment at the time of the sale of the apartment at the time of the Plaintiff’s report is lower than the market value at the time of the sale of the apartment at issue. Therefore, the Defendant’s allegation that the above part of the transfer price at that.

3. Conclusion

The plaintiff's claim is dismissed for lack of reason.