Cho Jae-2016-Seoul Government-3130 ( November 10, 2016)

The meaning of "Commencement of construction" under the former Enforcement Decree of the Income Tax Act which is not considered as non-business land;

In order to recognize that "the commencement of a new construction work in a specific land" has been "the commencement of a new construction work" in social norms, it is insufficient to conclude a new construction contract, to remove existing buildings, or to submit a report on the commencement of construction works, and it can be seen that "the commencement of a new construction work" has been "the commencement of a new construction work or

Article 104-3 of the Income Tax Act (Scope of Non-business Land)

2016Guhap85323 Revocation of Disposition of Imposing capital gains tax

AA

BB Director of the Tax Office

June 21, 2017

July 21, 2017

1. The plaintiff's claim is dismissed.

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

Cheong-gu Office

The Defendant revoked the disposition of imposition of capital gains tax of KRW 1,268,885,050 against the Plaintiff on June 8, 2016.

(c)

1. Details of the disposition;

A. At the time of November 26, 1997, the Plaintiff acquired the land of 00:00 00 - 000 - 6,448.3 m2, which is a general medical facility site (hereinafter “instant land”) fromCC, and transferred it to D on April 14, 2015, and completed the registration of ownership transfer on the same day.

B. Since then, the Plaintiff: (a) applied the special long-term holding deduction under the Income Tax Act to the transfer margin of KRW 9,292,120,550 (i.e., the transfer value of KRW 14,50,000,000 - acquisition value of KRW 5,207,879,450); and (b) reported and paid estimated transfer income tax of KRW 2,564,606,620; (c) on June 8, 2016, the Defendant excluded the application of the special long-term holding deduction on the ground that the instant land constitutes non-business land; and (d) issued a disposition to increase the transfer income tax of KRW 1,268,85,050 for the Plaintiff in 2015 (hereinafter referred to as the “disposition”).

[Reasons for Recognition] Uncontentious Facts, Entry B in Evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Article 83-5 (1) 5 of the Enforcement Rule of the Income Tax Act (hereinafter referred to as the "Rules of this case") provides that the land on which a building has not been settled on the ground and the construction has started to be used for business shall not be regarded as the land for non-business use.

After acquiring the instant land in the state of B/L on November 26, 1997, the Plaintiff commenced construction to build a hospital building upon obtaining a construction permit from the mayor on January 14, 1998. However, while having experienced difficulties in the progress of construction due to the financial crisis of the IMF, the Plaintiff was subject to a disposition of revocation of construction permit from May 40, 2010, and disposed of the instant land to D/L on April 14, 2015.

As such, the Plaintiff owned a total of 6,348 days (from November 26, 1997 to April 14, 2015) of the instant land. Among them, it shall be deemed that the instant land was not a non-business land for the total period of 4,542 days (excluding 681 days overlapping with the two-year period from the date of acquisition) including 3,812 days from January 14, 1998 (excluding 730 days) and from January 14, 1998 from the date of the said acquisition to May 4, 2010, from the date of discontinuance of construction.

Ultimately, the instant land did not constitute land for non-business use during the period of approximately 71% (4,542/6,348) during which the Plaintiff owned. Therefore, the instant land should be deemed as falling under the land for business use under Article 104-3 of the Income Tax Act.

Nevertheless, the Defendant deemed that the instant land fell under the non-business land during the period of 4,542 days, and thus, the instant disposition should be revoked as unlawful.

B. Relevant statutes

The entries in the attached Table-related statutes shall be as follows.

C. Determination

1) Article 95 of the former Income Tax Act (amended by Act No. 13558, Dec. 15, 2015; hereinafter the same shall apply) provides that capital gains shall be calculated by deducting necessary expenses and the amount of special long-term holding deduction from the transfer value (Paragraph 1). In the case of non-business land under Article 104-3(1)4(a), (b), and (2) of the former Income Tax Act, subparagraph 1(a), (b), (c), and (c) of Article 168-6 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26982, Feb. 17, 2016; hereinafter the same shall apply) provides that capital gains shall be calculated by deducting necessary expenses and the amount of special long-term holding deduction from the transfer value (Paragraph 2), and that the land shall not be subject to special long-term holding deduction from the special long-term holding deduction amount for more than 2 years immediately before the transfer date, or land equivalent to 100 years or 3 years of land.

According to such delegation, Article 168-14 (1) 4 of the former Enforcement Decree of the Income Tax Act provides that land falling under inevitable causes prescribed by Ordinance of the Ministry of Strategy and Finance shall be deemed land not for non-business use during the period prescribed by Ordinance of the Ministry of Strategy and Finance, in consideration of statutory restrictions due to public interest, corporate restructuring or inevitable reasons, the current status of land acquired, or the current status of the use of the land, etc.

2) In order to recognize that a construction work for the construction of a new building in a specific land under generally accepted social norms has "the commencement of construction work", the construction work can be deemed "the commencement of construction work" only when preparing for the construction work for the construction of a building, namely, surveying the land, ground investigation, concluding a new building contract, and submitting a report on the removal or the commencement of the existing building. It is reasonable to interpret the construction work as "the commencement of construction work" as "the construction work including the excavation work, etc., in the relevant land, which is an act that can be deemed to have been actually implemented after completing a series of administrative procedures in the process of construction, and is an act that can be deemed to have been performed to the minimum extent that the construction work for the construction of a new building can be maintained (see, e.g., Supreme Court Decisions 2013Du2723, May 23, 2013; 96Nu1558, Sept. 9, 197).

3) There is no evidence to acknowledge that the Plaintiff started construction of the instant land due to the ground-breaking construction, etc. on the instant land. Rather, comprehensively taking account of the overall purport of the arguments in the evidence Nos. 3-1, 2, 4, 6, and 7, the Plaintiff was subject to a disposition revoking construction permission for the instant land after obtaining construction permission from the market on January 14, 1998.

4) Therefore, the Plaintiff cannot be deemed to have commenced construction on the instant land, and the Plaintiff’s assertion on a different premise is without merit.

3. Conclusion

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