An art retailer who sold the signature "Pumpkin" by world-renowned Japanese artist Kusama Yayoi four years after buying it and made a profit of 4.5 billion won filed a lawsuit saying the person would not pay income tax, but lost.
The Seoul Administrative Court's 4th Division (Presiding Judge Kim Young-min) said on the 20th that it dismissed the plaintiff's claim in a lawsuit filed by A against the head of the Jongno Tax Office to cancel the refusal of correction on Feb. 13.
A bought the "Pumpkin" by artist Kusama Yayoi in Jan. 2018 and consigned it for sale through an auction company in 2022. The capital gain A earned from this single transaction was 4,521,000,000 won.
In June 2023, when filing the 2022 comprehensive income tax return, A initially reported the 4,521,000,000 won capital gain as business income. But in Aug. of the same year, A asked the Jongno Tax Office to refund 1,536,600,000 won in comprehensive income tax, saying it was "not business income." The tax office rejected the correction claim, and A filed an administrative suit.
In submitting the correction claim, A cited Article 21(2) of the Income Tax Act, which says, "Income arising from the transfer of paintings and calligraphy and antiques as prescribed by Presidential Decree shall be classified as other income." A argued that income tax should not be imposed on income arising from the transfer of a sculpture, which is not paintings and calligraphy or antiques, by a private collector who is not a business operator.
A also argued that even if the income from selling the "Pumpkin" is taxable, it is other income because A only consigned the artwork for sale and did not sell it directly, not business income. If it is business income, the top marginal rate for comprehensive income tax (49.5%, including local government tax) applies, but if it is other income, only 22% is paid on the amount after deducting necessary expenses.
The issue was whether A should be seen as a private collector of artworks or as a retailer. A repeatedly opened and closed sole proprietorships and corporations engaged in the retail sale of artworks and art in Jongno District, Seoul.
From Sept. 2009 to Dec. 2015, from Jan. 2017 to July 2018, and from Jan. 2021 to the present, A was registered as a sole proprietor, and from July 2019 to Apr. 2022, A established a corporation and then closed it. In Aug. 2023, A changed the business category to "personal services/painters and related artists." When A bought the "Pumpkin," the art retail business had been closed, and when it was sold, both the sole proprietorship and the corporation were open.
From 2013 to 2022, over nine years, A sold 16 works by other artists and earned 8.4 billion won, 14 of which were works by Kusama Yayoi. Most of the works were sold within three months to two years of acquisition.
Citing these points, the Seoul Administrative Court found that the capital gain from the transfer of "Pumpkin" "constitutes business income obtained through activities that A conducts continuously and repeatedly at A's own calculation and responsibility for the purpose of profit."
As for the claim that the profit is subject to income tax because A transferred "Pumpkin" in the capacity of a private collector, the court said, "We cannot accept the premise (that A is a private collector)."