In a case where a real estate sales contract is lawfully rescinded and a seller takes the method of registration of transfer of ownership through restitution, whether it constitutes acquisition of real estate subject to acquisition tax (negative in principle)

Article 6 subparagraph 1 of the former Local Tax Act (amended by Act No. 12153, Jan. 1, 2014) provides that acquisition subject to taxation of acquisition tax refers to acquisition resulting from sale, exchange, inheritance, donation, contribution, investment in kind to a corporation, construction, repair, reclamation of public waters, creation of land through reclamation, and any other similar acquisition, such as original acquisition, acquisition by succession, or all other acquisitions with or without compensation.

However, since the real estate sales contract which has been changed due to the execution of the contract is naturally returned to the state where the contract was lawfully rescinded following the exercise of the right of rescission, even if the seller takes the method of registration of transfer of ownership by restitution, it cannot be viewed as a new acquisition similar to the sale and purchase, and it does not constitute acquisition of real estate subject to acquisition tax

Article 6 subparagraph 1 of the former Local Tax Act (Amended by Act No. 12153, Jan. 1, 2014); Article 548 of the Civil Act

Korea Railroad Corporation (Law Firm LLC et al., Counsel for the defendant-appellant)

The head of Yongsan-gu Seoul Metropolitan Government (Law Firm Losch Rexroth, Attorney Han-hwan, Counsel for defendant-appellant)

Seoul High Court Decision 2017Nu71385 decided December 7, 2017

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Article 6 Subparag. 1 of the former Local Tax Act (amended by Act No. 12153, Jan. 1, 2014; hereinafter the same) provides that acquisition subject to acquisition tax refers to acquisition resulting from sale, exchange, inheritance, donation, contribution, investment in kind to a corporation, construction, repair, reclamation of public waters, creation of land through reclamation, and any other similar acquisition, such as original acquisition, acquisition by succession, or all other acquisitions with or without compensation.

However, since a real estate sales contract which has been changed due to the execution of the contract is naturally returned to the state where the contract was lawfully rescinded following the exercise of the right of rescission, even if the seller takes the method of registration of transfer of ownership as the method of restitution, it cannot be viewed as a new acquisition similar to the sale and purchase, and it does not constitute an acquisition of real estate subject to acquisition tax.

2. On the grounds indicated in its reasoning, the lower court: (a) premised on the legal doctrine that it cannot be deemed as subject to acquisition tax in all cases where real estate, which is a trust property, is formally transferred from a trustee to a beneficiary; and (b) it cannot be deemed as subject to acquisition tax if it was conducted by the method of restitution due to cancellation in light of the substance prior to ownership; and (c) determined that the Plaintiff’s transfer of ownership of the instant land does not constitute acquisition of real estate subject to acquisition tax

In light of the aforementioned legal principles and records, the lower court did not err by misapprehending the legal doctrine on the concept of acquisition under the former Local Tax Act, contrary to what is alleged in the grounds of appeal.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Jae-chul (Presiding Justice)