Dong-gun Co., Ltd. (Law Firm KEL, Attorneys Kim Yong-hoon et al., Counsel for the defendant-appellant)

Head of Seo-gu Incheon Metropolitan City (Law Firm Rosp, Attorneys Seo Sung-ap et al., Counsel for the plaintiff-appellant)

May 10, 2013

1. The Defendant’s imposition of acquisition tax of KRW 7,428,875,340 against the Plaintiff on November 1, 2012 and the local education tax of KRW 1,374,280,610 shall be revoked in entirety.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On June 27, 2007, the Plaintiff is a juristic person that has its head office in the Female-gun ( Address 1 omitted) and has been established with the business of sports facility business (golf course and golf practice range) and real estate leasing business as its purpose.

B. On August 11, 2011, the Plaintiff entered into an asset sales contract for purchasing at KRW 141,054,086,630 (hereinafter “the instant sales contract”) with a golf course site and a building located in the Seo-gu, Incheon Special Metropolitan City ( Address 2 omitted) located in the overconcentration control region under Article 6 of the Seoul Metropolitan Area Readjustment Planning Act, including golf course sites and buildings, and for purchasing at KRW 141,054,086,630 (hereinafter “this case’s sales contract”). On August 17, 2011, the Plaintiff paid the balance of the purchase price to the YY and completed the registration of ownership transfer for the said golf course (hereinafter “instant golf course”).

C. On August 11, 201, the Plaintiff: (a) concluded a lease agreement on the lease of the instant golf course, which is the object of the instant sales contract, for a fixed period of five years from the date of the Plaintiff’s acquisition; and (b) concluded on August 26, 201, the agreement on the entrustment of the operation and management of the instant golf course, etc. to the management of the instant golf course, etc. upon the conclusion of the said lease agreement at the time of the conclusion of the said lease agreement (hereinafter “the instant operation and management consignment agreement”); and (c) concluded the instant operation and management consignment agreement with the Forestry Development Co., Ltd. (hereinafter “the instant operation and management consignment agreement”). The main contents of the instant operation and management consignment agreement are as set forth in the attached Table.

D. Meanwhile, the Defendant determined that the Plaintiff acquired the instant golf course, a real estate, following the establishment of a branch in Incheon, a large city. On November 1, 2012, the Defendant respectively imposed acquisition tax of KRW 7,428,875,340 and local education tax of KRW 1,374,280 and KRW 1,374,610 on the Plaintiff by applying the base rate for heavy taxation under Article 13(2)1 of the Local Tax Act (hereinafter “each of the instant dispositions”).

[Ground of recognition] Facts without dispute, Gap evidence 1 through 4, 7, and 8 (including branch numbers if there are branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether each disposition of this case is lawful

A. The plaintiff's assertion

Each disposition of this case is unlawful on the following grounds.

1) It is true that the Plaintiff registered the instant golf course as a subordinate place of business in its form. However, the Plaintiff did not have human and physical facilities to conduct business activities and external transaction affairs in the instant golf course, and furthermore, did not exercise the right to direct and supervise the persons residing in the instant golf course. The Plaintiff, in fact, entered into a contract to entrust the management and operation of the instant golf course to the financial institution’s demand and to implement the obligations under the National Land Planning and Utilization Act while leasing the instant golf course. The Plaintiff was erroneous for misapprehending the fact that the Plaintiff established a branch in the instant golf course, and thus, each of the instant dispositions was erroneous by mistake of facts.

2) The purport of imposing acquisition tax on the acquisition of real estate by a juristic person, etc. established in a large city is to restrain the establishment and extension of its head office, etc. which significantly causes population inflow and industry concentration within such area. However, even if the Plaintiff acquired the instant golf course and operated it as a branch, this is merely nothing more than the succession to the instant golf course, which was operated by the YY, and thus does not significantly create population inflow and industry concentration in the large city. Therefore, the imposition of acquisition tax and local education tax on the instant golf course goes against the legislative purpose of imposing heavy taxation, etc. on acquisition tax, etc.

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

First, it is examined whether the golf course in this case can be evaluated as a point where the plaintiff performs his duties.

1) In full view of the relevant laws and regulations, the term “branch or branch office” in the real estate registration following the establishment of a branch or branch office in a large city which is subject to heavy registration tax means a business place registered under the provisions of the Corporate Tax Act, the Value-Added Tax Act, or the Income Tax Act, where the business or business of the pertinent juristic person is conducted continuously with human and material facilities regardless of its name. The term “personal facilities” refers to a place where a person is stationed under the direction and supervision of the pertinent juristic person, and the form of employment does not necessarily require the pertinent juristic person to take the form of direct and direct employment (see Supreme Court Decision 2005Du13469, Aug. 24, 2007). In light of such legal principles, in particular, whether the Plaintiff continues to conduct the Plaintiff’s business with human and material facilities in the instant golf course, and in light of whether the forest development is in charge of operating and managing the instant golf course pursuant to the instant operation and management consignment agreement, the Plaintiff’s instant golf course can be evaluated as the Plaintiff’s branch.

2) According to Gap evidence Nos. 8, Eul evidence Nos. 1, 2, 4, and 5 and the contents of the operation and management entrustment agreement of this case prior to the testimony of non-party 8 of the witness, it is recognized that ① after the plaintiff purchased the golf course of this case, the plaintiff registered it as a subordinate place of business of the plaintiff, ② sales revenue arising from the operation of the golf course of this case accrue in the name of the plaintiff, ② all of the sales revenue is deposited into the Gyeongnam bank account in the name of the plaintiff, ③ the plaintiff has the authority to access some of the items out of the whole number program provided by the plaintiff with daily sales day or used for the operation and management of the golf course of this case, ④ the operation and management entrustment agreement of this case had the plaintiff process various reports and authorizations as prescribed by Acts and subordinate statutes to bear and operate taxes imposed on the object of operation and management of the golf course of this case under the plaintiff's name. ⑤ The contents of the above contract provide for the plaintiff's prior written consent in order to transfer, sublease, or commission

However, considering the following facts: (a) the Plaintiff’s operation and management of the instant golf course was merely an operation and management of the instant golf course under the name of the Plaintiff’s 5, 9 through 23 and Nonparty 8’s testimony; (b) the instant golf course operation and management agreement provides that the Plaintiff is entirely responsible for the development of the instant golf course by entrustment; and (c) the Plaintiff’s management and operation of the instant golf course may not be involved in the instant agreement unless it was grossly negligent in operating and managing the instant golf course; (d) the Plaintiff’s use of the instant golf course under the name of the Plaintiff’s management and management agreement or the instant golf course’s use of the instant golf course for the purpose of calculating the sales revenue of the instant golf course; and (e) the Plaintiff’s use of the instant golf course under the instant agreement could not be determined based on the mere fact that the instant golf course was not subject to the Plaintiff’s management and management agreement or the instant charges for compelling the Plaintiff’s use of the instant golf course under its own name; and (e) the Plaintiff’s use and management of the instant agreement.

3) Thus, each of the dispositions of this case issued by the defendant on the premise that the plaintiff acquired the golf course of this case and used it as a place where his duties are performed is erroneous. Therefore, it is reasonable to revoke each of the dispositions of this case without further examining the remaining arguments in accordance with the plaintiff's legislative intent of the Local Tax Act.

3. Conclusion

If so, each claim of the plaintiff shall be accepted for the reason of different reasons, and it is so decided as per Disposition.

[Attachment]

Judges Han-chul (Presiding Judge) (Presiding Judge) Kim Sung-type Kim Sus