In a case where a corporation’s real estate becomes an oligopolistic stockholder of the corporation after the ownership of the real estate has been transferred to a trustee under a trust under the Trust Act, or where the corporation’s stocks or shares increase, whether deemed acquisition tax can be imposed under Article 105(6) of the former Local Tax Act by deeming that the real estate held by the corporation is real estate owned by the corporation

The reason is that acquisition tax is imposed on an oligopolistic stockholder who is deemed to have acquired the property of a juristic person, and the oligopolistic stockholder is in a position to dispose of or manage and operate the property of the juristic person in fact if he/she is an oligopolistic stockholder, and is in a position to directly own the property. However, since the trust under the Trust Act requires the truster to manage and dispose of the property for the purpose of the trust by transferring or disposing of a specific property right to the trustee, the trust under the Trust Act is to have the trustee manage and dispose of the property right for the purpose of the trust. Thus, if the registration of ownership transfer is completed in the future of the trustee in real estate trust, the ownership is entirely transferred to the trustee, and the ownership is not reserved to the truster in the internal and external relationship with the truster. As such, the trustee has the right to manage the property domestically and externally. Accordingly, even if the trustee bears or is subject to certain duties or restrictions on the trustee’s exercise of the right to real estate in relation to the trust in relation to the truster under the Trust Act or the Trust Act, it is difficult

In light of the purport of the deemed acquisition tax system and the legal relation of the trust, etc., where a corporation’s real estate becomes an oligopolistic stockholder after the transfer of ownership to a trustee under the Trust Act, or becomes an oligopolistic stockholder of the corporation’s stocks or shares increase, it is reasonable to deem that the corporation’s real estate held by the trust is not subject to the deemed acquisition tax as prescribed by Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010), barring any special circumstance.

Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010) (see current Article 7(5)); Article 78(2) of the former Enforcement Decree of the Local Tax Act (wholly amended by Presidential Decree No. 22395, Sep. 20, 2010) (see current Article 11(2))

Supreme Court Decision 92Nu1138 Decided May 24, 1994 (Gong1994Ha, 1858) Supreme Court Decision 2010Da84246 Decided February 10, 2011

Plaintiff (Law Firm Masung, Attorney Cha Jae-il, Counsel for the plaintiff-appellant)

The head of Gangseo-gu Seoul Metropolitan Government

Seoul High Court Decision 2013Nu46558 decided April 3, 2014

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

Article 105(6) of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010; hereinafter “former Local Tax Act”) provides that “If a shareholder who has become an oligopolistic shareholder becomes an oligopolistic shareholder by acquiring a corporation’s stocks or equity shares, he/she shall be deemed to have acquired the corporation’s real estate, etc.,” and the main sentence of Article 78(2) of the former Enforcement Decree of the Local Tax Act (wholly amended by Presidential Decree No. 22395, Jan. 1, 2011; hereinafter “former Local Tax Act”) provides that “where a shareholder or partner with limited liability who has become an oligopolistic shareholder increases the ratio of stocks or equity shares owned by an oligopolistic shareholder to the total stocks or equity shares of the relevant corporation by acquiring the corporation’s stocks or equity shares, such increased ratio shall be deemed to have been acquired, and thus acquisition tax shall be imposed pursuant to Article 105(6) of the Act.”

As such, deeming that acquisition tax is imposed on an oligopolistic stockholder of a corporation as acquiring the corporation’s property is deemed to have a tax-bearing force in that the oligopolistic stockholder is in a position to dispose of, or manage and operate the corporation’s property in fact, if he/she becomes an oligopolistic stockholder, and thus, he/she does not actually own the corporation’s property directly (see Supreme Court Decision 92Nu1138, May 24, 1994). However, since the trust under the Trust Act requires the trustee to manage and dispose of the property right for the purpose of the trust by transferring or disposing of a specific property right to the trustee, the trust under the Trust Act requires the trustee to manage and dispose of the property right for the purpose of the trust. Therefore, if the registration of ownership transfer is completed in the future, the ownership is entirely transferred to the trustee and the truster’s ownership is not reserved in the internal and external relationship with the truster. As such, the trustee, as a result of transfer of the trust property’s ownership to the trustee, cannot be deemed to have a right to manage the trust property within or outside the trust.

In light of the purport of the deemed acquisition tax system and the legal relation related to the trust, where a corporation’s real estate becomes an oligopolistic stockholder of the corporation after transferring its ownership to a trustee under the Trust Act, or its stocks or shares increase, barring any special circumstance, it is reasonable to deem that the real estate owned by the corporation is deemed a real estate owned by the corporation and thus, it cannot be imposed on the oligopolistic stockholder of the corporation, barring any special circumstance.

Nevertheless, the lower court, solely on the grounds indicated in its reasoning, presumed that real estate, the ownership transfer registration of which has been completed in the future as a trust under the Trust Act, is deemed a real estate owned by the truster corporation and thus, can be imposed on the oligopolistic shareholder. The lower court held that the instant disposition that imposed deemed acquisition tax, etc. on the Plaintiff was lawful by deeming that the Plaintiff had acquired the portion corresponding to the increase in the Plaintiff’s shareholding ratio among the instant real estate, which had already been registered as an oligopolistic shareholder under the Trust Act, for the reason that the Plaintiff had increased by 10%. In so doing, the lower court erred by misapprehending the legal doctrine on whether the oligopolistic shareholder’s liability for deemed acquisition tax on real estate held as an oligopolistic shareholder for a trust of

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)