The meaning of “direct use of real estate for personal business” and whether an agricultural cooperative shall individually determine whether it satisfies the requirements for exemption from acquisition tax under Article 14(3) of the former Restriction of Special Local Taxation Act or whether there is a reason for additional collection under Article 94 of the same Act (affirmative in principle)

Articles 14(3) and 94 of the former Restriction of Special Local Taxation Act (Amended by Act No. 11138, Dec. 31, 2011; see current Article 178)

Seoul High Court Decision 200Na1448 delivered on August 1, 200

Ethical Market

Seoul High Court Decision 2014Nu53904 decided October 1, 2014

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

The grounds of appeal are examined.

1. Articles 14(3) and 94 of the former Restriction of Special Local Taxation Act (amended by Act No. 11138, Dec. 31, 201; hereinafter “Special Local Taxation Act”) provide that acquisition tax on real estate (excluding rental real estate) acquired by a cooperative, etc. established under the Agricultural Cooperatives Act (including a cooperative joint business corporation) to use directly for its unique duties shall be exempted, and where such real estate is not used directly for the relevant purpose within one year from the date of acquisition without justifiable grounds, or where such real estate is sold, donated, or used for other purposes without using directly for the relevant purpose for at least two years from the date of its use, acquisition tax on the relevant portion shall be collected (hereinafter “instant additional collection provision”).

2. citing the reasoning of the judgment of the court of first instance, the court below acknowledged the following facts: (a) the Plaintiff, a local agricultural cooperative, newly constructed each of the instant buildings to use the rice processing complex for the purpose of using it, obtained approval for use on January 24, 201, and was exempted from acquisition tax, etc. accordingly, invested in kind on December 31, 201, within two years from the time when it was exempted from acquisition tax, etc.; and (b) the Defendant: (c) rendered the instant disposition to additionally collect acquisition tax, etc. exempted by deeming that “the Plaintiff sold each of the instant buildings for the purpose of using it for not less than two years from the date of use of each of the instant buildings for the purpose of using it; and (d) the Defendant:

Then, the lower court determined that the instant disposition was unlawful on the following grounds: (a) considering the legislative purport of the instant exemption provision and the additional collection provision; (b) the purpose and scope of business of partnership joint business corporations; (c) the status of the Agricultural Cooperatives Act, such as the requirements for establishment; and (d) the status of the Plaintiff and two local agricultural cooperatives jointly promoted for the purpose of integrating and succeeding grain economic projects, including the operation of rice processing complexes; (b) each of the instant buildings is being used as a rice processing complex for local agricultural cooperatives, including the Plaintiff, etc., who are its members, even after the investment in the instant corporation was made, and (c) the acquisition tax is exempted on the acquisition of each of the instant buildings as well as the instant exemption provision, insofar as the Plaintiff continues to use each of the instant buildings invested in kind in the instant corporation for its original purpose for performing its unique duties, so long as the instant building continues to be used for the original purpose, it cannot be deemed that it constitutes “cases sold without being used directly for the relevant purpose for more than two

3. However, we cannot agree with the judgment of the court below for the following reasons.

A. In full view of the language and legislative purport of the instant exemption provision and additional collection provision, the instant exemption provision and additional collection provision provide that acquisition tax shall be exempted for specific corporations performing public duties, such as agricultural cooperatives, and they shall be excluded from acquisition tax on real estate acquired to use directly for their unique duties, but they also restrict the method of use by excluding those subject to exemption from real estate for rent, and also stipulate that cases where ownership is transferred with or without compensation, such as sale and donation, are one of the grounds for additional collection in cases where ownership is transferred with or without compensation, it is reasonable to deem that agricultural cooperatives are actually using certain real estate for their own duties as an owner of the real estate or in fact as an acquirer of the real estate. Moreover, whether the requirements for exemption from acquisition tax under the instant exemption provision and the existence of grounds for additional collection under the instant additional collection provision should be individually determined by each person liable to pay acquisition tax, unless there

B. Examining the facts acknowledged by the court below in light of the above legal principles, since each of the buildings of this case cannot be deemed as being directly used for the Plaintiff’s unique duties after the Plaintiff lost its status as the owner by investing in kind each of the buildings of this case in the corporation of this case, so long as the Plaintiff invested in kind each of the buildings of this case within 2 years from the date of its use, it is reasonable to deem that the ground for additional collection under the additional collection provision of this case has occurred. It is difficult to view that the corporation of this case constitutes a corporation subject to acquisition tax exemption under the exemption provision of this case,

C. Nevertheless, the lower court determined that the instant disposition was unlawful on the ground that the grounds for additional collection as prescribed in the instant additional collection provision did not arise with respect to each of the instant buildings. In so doing, the lower court erred by misapprehending the legal doctrine on the interpretation and application of the instant additional collection provision, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal

4. 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 Kwon Soon-il (Presiding Justice)