The purpose and meaning of the proviso of Article 110 subparagraph 1 of the former Local Tax Act, and whether a reconstruction association may impose acquisition tax on non-use land for partnership housing acquired by a trust from its members (negative)

Article 110 subparagraph 1 of the former Local Tax Act (amended by Act No. 5406 of Aug. 30, 1997), Article 105 (10) and proviso to Article 110 subparagraph 1 of the former Local Tax Act (amended by Act No. 6916 of May 29, 2003)

Chang Apartment Reconstruction Association (Law Firm, Kim & Lee, Attorneys Lee Han-soo et al., Counsel for the plaintiff-appellant)

The head of Gangnam-gu Seoul Metropolitan Government (Law Firm Han-ro, Attorneys Ha Tae-ju et al., Counsel for the defendant-

Seoul High Court Decision 2006Nu5054 decided September 22, 2006

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

We examine the grounds of appeal.

1. In full view of the evidence in the judgment below, the plaintiff association is a reconstruction association formed for the purpose of rebuilding a sea hold apartment on the ground of 907-2,750m2, Gangnam-gu, Seoul on March 25, 2003 and completed the registration of incorporation on July 29, 2003 after obtaining authorization from the competent authority on March 25, 200. The 50 households of the plaintiff union registered the shares of land to the plaintiff association on July 2003. The plaintiff association newly constructed 66 households on the above land and obtained authorization of completion on April 26, 2005. The plaintiff association completed registration of ownership of the above apartment on June 21, 2005. The plaintiff association reported the ownership of the above land to the defendant on the ground that it reported the ownership transfer of the above apartment house on June 26, 2005 to the members of the association and the general site ownership registration of the plaintiff association on June 26, 2002.

2. The term “acquisition subject to imposition of acquisition tax” means original acquisition, acquisition by succession or without compensation, or creation of land similar thereto through sale and purchase, exchange, inheritance, gift, contribution, investment in kind to a corporation, construction, repair, reclamation of public waters, reclamation of reclaimed land, etc. (Article 104 subparagraph 8 of the Local Tax Act), and acquisition by real estate, etc., if it is practically acquired even though registration, etc. under the provisions of related Acts and subordinate statutes, such as the Civil Act, is not fulfilled (Article 105 (2) of the same Act). Meanwhile, Article 110 of the former Local Tax Act prior to the amendment by Act No. 5406 of Aug. 30, 1997 lists the requirements for non-taxation of acquisition tax under subparagraph 1, Article 110 of the Housing Construction Promotion Act provides for the acquisition of trust property by trust (limited to the acquisition by trust registration under the Trust Act, which is accompanied by a trust registration under Article 104 of the Local Tax Act), and Article 97 (3) of the Local Tax Act (3) newly incorporated by the Housing Construction Promotion Act.

In light of the above provisions and the purport of the amendment of the Local Tax Act (amended in 1997), the proviso of Article 110 subparagraph 1 of the Local Tax Act (amended in 1997) is not newly established to convert the formal transfer of ownership, etc. as to trust property between a housing association that is a trustee and a truster member into taxation subject to acquisition tax. Since the real estate acquired by a housing association pursuant to Article 105 (10) newly established at the time is no longer necessary to be exempted from taxation pursuant to subparagraph 1 of Article 110, the term "acquisition of trust property" in the proviso of Article 110 subparagraph 1 of the Local Tax Act does not mean the transfer of trust property between a housing association and a partner, but it does not mean only the transfer of trust property deemed to have been acquired by a partner pursuant to Article 105 (10) of the Local Tax Act (amended in 1997) and the proviso of Article 110 subparagraph 1 of the Local Tax Act does not apply to a housing association that is not subject to taxation pursuant to Article 1010 (10).

Therefore, where a reconstruction association has completed a registration of trust while acquiring land owned by its members, it is not subject to acquisition tax even if it becomes the land which is the object of the site ownership of an aggregate building after the trust property was acquired. However, the court below determined that the disposition of this case is legitimate by misunderstanding that the trust acquisition of land for general sale by the Plaintiff association is subject to acquisition tax. The judgment of the court below is erroneous in the misapprehension of legal principles as to acquisition and taxation subject to acquisition tax under the Local Tax Act, which affected the conclusion of the judgment, and

3. 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 Lee Hong-hoon (Presiding Justice)