[1] Whether acquisition tax under Article 112(3) of the Local Tax Act is subject to heavy taxation in a case where an office for the head office or principal office in the overconcentration control region moves to another place within the same region (negative in principle)

[2] In interpreting Article 112 (3) of the Local Tax Act, which is amended to exclude the scope of real estate subject to heavy taxation from heavy taxation in the case of acquisition by succession, where real estate for business, such as the head office, is newly constructed within the same region after the acquisition of real estate for the head office or main office in the overconcentration control region, the case holding that the transfer of the head office is not subject to heavy taxation unless the relocation of the head office causes population inflow or economic concentration in the overconcentration control region

[1] The purpose of Article 112(3) of the Local Tax Act is to impose acquisition tax on the acquisition of real estate for business purposes of the head office or main office in the overconcentration control region in order to restrain the establishment and extension of the head office or main office that significantly causes population inflow and industry concentration within the Seoul Metropolitan area. Thus, in the event that the head office or main office is already located in the overconcentration control region and the office is transferred to another place within the same region, the size, form, price, etc. of the two offices are compared and all circumstances related to the relocation of the office, including the reasons and circumstances for the relocation of the office, shall not be subject to heavy acquisition tax under Article 112(3) of the Local Tax Act, unless the relocation of the office does not violate

[2] In the interpretation of Article 112 (3) of the Local Tax Act amended to exclude the scope of real estate subject to heavy taxation from heavy taxation in the case of acquisition by succession, the case holding that the acquisition tax shall not be subject to heavy taxation if the relocation of the headquarters does not cause population inflow or economic concentration in the over-concentration control region, unless the relocation of the headquarters does not lead to concentration of population inflow or economic power in the overconcentration control region, in the case of new construction of new real estate for business such as the headquarters or main office in the same region and new construction of new real estate within the same region after the acquisition of new real estate within the same region

[1] Article 112 (3) of the Local Tax Act / [2] Article 112 (3) of the former Local Tax Act (amended by Act No. 5615 of Dec. 31, 1998); Article 112 (3) of the Local Tax Act

[1] Supreme Court Decision 99Du6309 delivered on May 30, 200 (Gong2000Ha, 1564) Supreme Court Decision 2000Du222 delivered on October 23, 2001 (Gong2001Ha, 2589)

Plaintiff (Law Firm Cheongdam, Attorneys Park Jae-in, Counsel for the plaintiff-appellant)

The head of Gangnam-gu Seoul Metropolitan Government (Law Firm Han-ro, Attorneys Hai-ro, Counsel for defendant)

April 3, 2009

1. The Defendant’s imposition of acquisition tax of KRW 52,503,290 and special rural development tax of KRW 5,250,320 against the Plaintiff on August 5, 2008 shall be revoked.

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 July 28, 2008, the Plaintiff newly constructed a 17th ground and 17th ground and above (hereinafter “instant building”) above the 4th ground and completed registration of initial ownership on August 5, 2008 after obtaining approval for use.

B. On August 5, 2008, the Plaintiff reported acquisition tax of KRW 52,503,290 and special rural development tax of KRW 5,250,320 as to the portion for the main business (4%) equivalent to two times the general tax rate (20/100), along with a real estate use plan that uses the 16th floor of the instant building as the head office of the Plaintiff company (hereinafter “instant disposition”).

C. The Plaintiff, who is dissatisfied with the instant disposition, filed an objection with the Defendant on October 1, 2008, but dismissed on October 30, 2008.

[Ground of recognition] Facts without dispute, Gap evidence 1-1, 2, 3-1, 3-2, Gap evidence 7-7, Gap evidence 8-1, 2, 3, Gap evidence 9-1, 2, 3, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

In light of the legislative intent of Article 112 (3) of the Local Tax Act to restrain the entry of population in the overconcentration control region under the Seoul Metropolitan Area Readjustment Planning Act and the establishment and extension of the head office or main office that may cause the concentration of industry, acquisition tax is already paid by newly building or moving the head office in the overconcentration control region and holding it. After selling it, in case of this case where the use area of the head office has decreased as the head office was newly building in the same overconcentration control region, acquisition tax cannot be imposed.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

(1) On June 1, 192, the Plaintiff newly constructed a building of 8th and 2nd underground floors (hereinafter “Yyang-dong house”) above ground in Seocho-gu Seoul Metropolitan Government (number 2 omitted), and transferred its main department on July 1, 1992 by establishing a branch office in the above building. The head of Seocho-gu Seoul Metropolitan Government applied a heavy taxation rate equivalent to five times the general tax rate to the area used by the head office, deeming that the Plaintiff actually transferred its head office into a large city.

(2) On February 3, 2003, the Plaintiff completed the registration of ownership transfer based on sale and purchase as to the building of 1,000.9 square meters and its ground building in Gangnam-gu, Seoul (number 1 omitted), Gangnam-gu, Seoul. After obtaining a construction permit on November 8, 2005, the Plaintiff removed the Gu building on May 8, 2006, and commenced the new construction work of the instant building on June 22, 2006.

(3) On August 16, 2006, the Plaintiff registered the modification of the content that the head office is transferred to the Gangnam-gu Seoul Metropolitan Government Seo-dong (number 1 omitted).

(4) On March 6, 2007, the Plaintiff sold the Yang Jae-dong house. Around that time, the Plaintiff leased five floors on the ground of the Seocho-gu Seoul Seocho-gu Seoul Metropolitan Government (Land Number 3 omitted) and used it as its head office until the building of this case was newly constructed.

(5) After acquiring the instant building on July 28, 2008, the Plaintiff moved its head office to the instant real estate and uses the 16th 588.7 square meters on the instant real estate.

[Reasons for Recognition] Facts without dispute, each evidence set forth above, evidence set forth above, evidence set forth in Gap 5-1, 2, and evidence set forth in Gap 6-1, 2, 3, and evidence set forth in Gap 10-1, 2, 3, and the purport of the whole pleadings

(d) Markets:

(1) Article 112(3) of the Local Tax Act provides that acquisition tax shall be imposed on three times as general acquisition tax in cases where real estate for business purposes of the head office or main office (limited to new construction or extension of a building for the head office or main office and land annexed thereto) prescribed by the Presidential Decree is acquired in an over-concentration control region under Article 6 of the Seoul Metropolitan Area Readjustment Planning Act. The purport of the above provision is to restrict the entry of population and industry concentration in the Seoul Metropolitan area from acquisition tax on real estate for business purposes of the head office or main office in the overconcentration control region in order to restrict the establishment and extension of the head office or main office which significantly causes population inflow and industry concentration. Thus, if an office has already been located in the overconcentration control region and the office is transferred to another place within the same region, the size, form, and price of the two offices shall be compared, and if the relocation of the office does not violate the above legislative intent, it shall not fall under the acquisition tax and the object of this Article (see Supreme Court Decision 9Du112(3)969, May 29, 2009, 20009).

In this legal doctrine, the Plaintiff paid heavy-taxable acquisition tax after constructing a new building, which is real estate for the use of the main office in the overconcentration control region, and after selling the above double-dong building, the Plaintiff temporarily leased another building during the construction period of the building to use it as its main office, and then relocated the main office within the same overconcentration control region. The size of the main office was also 82m2 on August 10, 1994 at the time of the instant disposition on August 5, 2008, the acquisition tax was reduced from 839.82m2m2 at the time of heavy taxation, which was subject to heavy taxation, to 58.7mm2 at the time of the instant disposition. In full view of all the circumstances revealed in the argument in the instant case, such as the series of developments leading to the relocation of the main office and the size and form of the head office in the overconcentration control region, it cannot be deemed as contrary to the legislative intent of Article 112 (3) of the Local Tax Act, and thus, it does not constitute acquisition tax and the above provision within the office for acquisition.

(2) Article 112(3) of the former Local Tax Act (amended by Act No. 5615, Dec. 31, 1998; hereinafter the former Local Tax Act) provides that acquisition tax shall be imposed heavy when real estate for business, such as the head office, is acquired in the overconcentration control region regardless of original acquisition or acquisition by succession. However, Article 112(3) of the amended Local Tax Act provides that acquisition tax shall be excluded only when the scope of the real estate subject to heavy taxation is newly constructed and expanded. However, in the interpretation of the above amended provisions, if the previous precedents concerning the preceding provisions are applied to the acquisition by succession to and use of real estate for business, such as the head office, in the overconcentration control region, where a corporation relocates its head office after the acquisition by succession to and use of real estate for business, such as the head office, within the same region, it cannot be subject to heavy taxation even at the first time of acquisition by succession, and thus, it can be easily exempted from heavy taxation when the head office is newly constructed and transferred within the overconcentration control region.

However, the subject of regulation of the above acquisition tax is not the acquisition by newly constructing real estate in the overconcentration control region, but the purpose of regulation is to create population inflow and industry concentration when the newly constructed real estate is used for the purpose of its head office or main office, and thus, it is intended to regulate such cases. If a corporation newly constructs real estate for business such as the head office in the overconcentration control region and then relocates the head office within the same region after the new construction of real estate for business such as the head office in the overconcentration control region, it is not related to population inflow and industry concentration, which is the legislative intent of the above provision. In addition, in light of the newly constructed new real estate and newly built new real estate for business in the overconcentration control region, it is unlikely to evade the above provision even if it is not excessive when the new real estate is transferred again due to the transfer of the head office, it is reasonable to view that it does not constitute an overconcentration control region unless the relocation of the head office causes population inflow or economic concentration in the overconcentration control region

(3) Therefore, the instant disposition, which imposed acquisition tax on the Plaintiff on the ground that the Plaintiff acquired real estate for the head office in the overconcentration control region simply, was unlawful.

3. Conclusion

Thus, the plaintiff's claim of this case seeking the cancellation of the disposition of this case is justified, and this is accepted.

[Attachment] Relevant Acts and subordinate statutes: (Omission)

Judges Kim Jong-soo (Presiding Judge)