In Article 186 subparag. 1 of the former Local Tax Act and Article 41(2) of the former Restriction of Special Local Taxation Act, the meaning of a school directly uses real estate for business purposes, and whether the school itself uses it for educational business purposes / Whether a school under the Higher Education Act is directly used for educational business purposes (negative in principle)

Article 186 Subparag. 1 of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010) and Article 41(2) of the former Restriction of Special Local Taxation Act (wholly amended by Act No. 11618, Jan. 1, 2013) mean that a school directly uses real estate for its educational business purposes means that the relevant real estate is actually used for its educational business purposes, and whether it is used for the educational business of the school must be objectively determined based on the actual usage relationship, taking into account the relevant school’s business purposes and the purpose of acquiring real estate.

In accordance with relevant Acts and subordinate statutes, such as the Higher Education Act, a school is subject to strict regulations by the competent authority concerning the selection of students, enrollment for a certain period, acquisition of degrees, and teaching procedures, and where such schools directly use real estate for educational business, property tax shall not be imposed as above. Therefore, in cases where a school under the Higher Education Act is operating a business incubator and provides real estate owned by a person who is not its members, including students, as a business incubator, to the facilities and places for business starters in order to raise the possibility of success in business start-up and technology, barring special circumstances,

Articles 186 subparag. 1 (current Deletion), 280(4) (current deletion), and 79(1)2 (see current Article 22 subparag. 2), and 136(2) (current Deletion), Articles 41(2), and 60(3)1 of the former Local Tax Act (wholly amended by Act No. 1021, Mar. 31, 2010); Article 31(2) and Article 60(3)1 of the former Restriction of Special Local Taxation Act (wholly amended by Act No. 11618, Mar. 31, 2010); Article 79(1)2 (see current Article 22 subparag. 2); Article 136(2) of the former Enforcement Decree of the Local Tax Act (wholly amended by Presidential Decree No. 22395, Sep. 20, 2010)

[Plaintiff-Appellant] Plaintiff 200Du3238 delivered on April 26, 2002 (Gong2002Sang, 1278)

School Foundation Industry Technical Colleges of Korea (Law Firm Jinjin, Attorneys Song Jae-sik et al., Counsel for the defendant-appellant)

Si interest market (Law Firm KEL, Attorneys Choi Won-won et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Nu52560 decided October 24, 2014

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

The grounds of appeal are examined.

1. Article 186 of the former Local Tax Act (wholly amended by Act No. 10221, Mar. 31, 2010 and enforced from January 1, 2011; hereinafter the same) provides for the grounds for non-taxation based on the usage classification as one of the grounds for non-taxation, and subparagraph 1 provides for “real estate directly used by a non-profit entrepreneur prescribed by Presidential Decree for his/her business purposes, such as religious, religious, charity, academic, art and art,” and accordingly, by delegation, Article 136(2) and Article 79(1)2 of the former Enforcement Decree of the Local Tax Act (wholly amended by Presidential Decree No. 22395, Sep. 20, 2011; hereinafter the same shall apply) as one of the non-profit entrepreneurs. Meanwhile, the main sentence of Article 280(4) of the former Local Tax Act provides for a “school under the Higher Education Act” to be directly used by a proprietor of a business incubator for small and medium enterprises establishment.

In addition, Article 41(2) of the Restriction of Special Local Taxation Act enacted by Act No. 1020 on March 31, 2010 (amended by Act No. 11618, Jan. 1, 2013; hereinafter the same) provides that a school shall exempt property tax on real estate used directly by the relevant business until December 31, 2012. Article 60(3)1 provides that property tax shall be reduced by 50/10 until December 31, 2012 on real estate acquired by a person designated as a business incubator to use directly by the business incubator for the business incubator. Article 3 of the Addenda provides that "the previous provisions shall apply to local taxes which have been reduced, exempted, or exempted pursuant to the previous provisions of the Local Tax Act before this Act enters into force."

2. The lower court determined that the Defendant’s disposition should be revoked on the ground that each of the instant real estate used as a business incubator is directly used for the Plaintiff’s educational business and it cannot be deemed as a profit-making business, on the ground that: (a) the Plaintiff’s establishment of a business incubator and the assignment of guidance professors to occupants, and the provision of mentoring and education for business management and technology conforms to the Plaintiff’s articles of incorporation, as part of the business to train professional and skilled technicians through the establishment of the industry-academia-research system and industry-academic cooperation; (b) the business incubator is a school foundation’s property, which provides various support to occupants in the process of business start-up; and (c) it is difficult to recognize that the Plaintiff received actual expenses from occupants; and (d) it is difficult to deem that the business incubator was operated for profit-making purposes; and (e) the instant real estate used as a business incubator is directly used for the Plaintiff’s educational business; and (e) the Defendant’s establishment of each of the instant real estate should be deemed as property tax subject to reduction by 50%.

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

Article 186 Subparag. 1 of the former Local Tax Act and Article 41(2) of the former Restriction of Special Local Taxation Act that a school uses real estate directly for its business mean that the relevant real estate is actually used for the educational business of the school, and whether it is used for the educational business of the school must be objectively determined based on the actual usage relationship in consideration of the purpose of the school’s business and the purpose of acquiring real estate (see Supreme Court Decision 2000Du3238, Apr. 26, 2002, etc.).

In accordance with relevant Acts and subordinate statutes, such as the Higher Education Act, a school is subject to strict regulations by the competent authority concerning the selection of students, enrollment for a certain period, acquisition of degrees, and teaching procedures, and where such a school uses real estate directly for educational business, property tax shall not be imposed as above. Thus, it cannot be deemed that a school under the Higher Education Act is directly used for educational business unless there are special circumstances where it provides real estate owned by a person, other than its members, as a business incubator, while providing support for business management and technical fields so that it can enhance the possibility of success in a business start-up

Nevertheless, on different premises, the lower court determined that each of the instant real estate used for a business incubator was directly used for the Plaintiff’s educational business itself, and thus constitutes a non-taxation subject to property tax, etc. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of non-taxation on school-use real estate under Article 186 subparag. 1 of the former Local Tax Act and Article 41(2) of the former Restriction of Special Local Taxation Act, thereby adversely affecting the conclusion of the judgment. The allegation in

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 Ko Young-han (Presiding Justice)