Korea Sports Center (Law Firm Gaon, Attorney Lee Tae-tae, Counsel for defendant-appellant)

Head of the Gu of Busan Metropolitan City (Attorney Park Jong-ok, Counsel for the plaintiff-appellant)

January 19, 2017

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s imposition of property tax of KRW 89,30,520 (including local resource tax of KRW 5,677,560, local education tax of KRW 13,125,757,757, and local education tax of KRW 13,542,180) imposed on the Plaintiff on July 27, 2016 exceeds KRW 3,895,516, among the disposition imposing property tax of KRW 43,736,110 (including local education tax). The imposition of acquisition tax of KRW 157,758,190 (including special rural development tax of KRW 13,735,830) shall be revoked.

1. Details of the disposition;

A. On April 19, 2016, the Plaintiff (hereinafter “Korea Construction Co., Ltd.”) purchased and acquired the real estate listed in the attached Table 1 list (hereinafter “instant real estate”) in the auction procedure for real estate rent (i.e., the change of the name from “Korea Construction Co., Ltd. to May 27, 2016).

B. On April 19, 2016, the Plaintiff reported and paid acquisition tax of KRW 66,640,00, registration tax of KRW 3,332,00, and local education tax of KRW 6,64,00, by applying general tax rates to the instant real estate.

C. After conducting a field investigation on the instant real estate on May 23, 2016, on July 8, 2016, the Defendant notified the Plaintiff that the instant real estate, which is a high-class recreation center, shall not be used for any purpose other than a high-class recreation center or shall not commence any construction work to change the purpose of use for that purpose, and thus, notified the Plaintiff of the advance notice of taxation that the heavy acquisition tax rate shall apply.

D. On July 27, 2016, the Defendant imposed and notified the Plaintiff of property tax of KRW 89,30,520 (including local resource tax of KRW 5,677,560, local education tax of KRW 13,542,180) on the part of the instant real estate; property tax of KRW 43,736,110 (including local education tax) on the part of the instant real estate; and acquisition tax of KRW 157,758,190 (including special rural development tax of KRW 13,735,830) on the instant real estate (hereinafter collectively referred to as “each of the instant dispositions”).

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 2 through 5, 7, and 8 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

Among each disposition of this case, the part on which the Defendant deemed the instant real estate as a high-class recreation center and applied the heavy taxation rate is unlawful for the following reasons.

1) After the Plaintiff’s highest bid on the instant real estate, Nonparty 1 drafted the appearance of the instant real estate without any substance as an entertainment tavern in order to publicly announce the status as a lien holder by asserting a lien. The instant real estate does not constitute property tax and entertainment bar as a high-class recreation center subject to heavy taxation of acquisition tax.

2) After acquiring the instant real estate as a sports facility, the Plaintiff entered into a construction contract, reported the change of the purpose of use, etc. for this purpose. Nonparty 1’s right of retention, etc. failed to actually commence the construction work on the instant real estate because it did not receive the instant real estate due to Nonparty 1’s right of retention, etc., but did not confirm the instant real estate or enjoy economic benefits. In light of these circumstances, it is clearly confirmed that the Plaintiff used the instant real estate as a sports facility, which is not

B. Relevant statutes

Attached Table 2 shall be as stated in the relevant statutes.

C. Determination

1) As to the Plaintiff’s first argument

Whether it constitutes an entertainment bar as a high-class recreation center subject to heavy taxation pursuant to Article 13(5)4 of the Local Tax Act and Article 28(5)4(a) of the Enforcement Decree of the same Act or a high-class recreation center subject to heavy taxation of acquisition tax pursuant to Article 13(5)4(d) of the same Act depends on whether it has the substance as an entertainment bar (see Supreme Court Decision 2007Du10303, Feb. 15, 2008).

In light of the aforementioned legal principles, comprehensively taking account of the following facts: (a) the Plaintiff’s acquisition of the instant real estate at the time of Nonparty 1’s acquisition of the instant real estate, Nonparty 1, and the business location of the instant real estate as “○○○○ Club” was in existence as it is; (b) Nonparty 1, who carried on entertainment bar business from March 23, 2015 and carried on entertainment bar business from the instant real estate before April 6, 2015; (c) on October 13, 2015, the seizure of the movable property from the instant real estate on or before 30.6 billion won was executed; (d) on March 25, 2016; and (e) on March 25, 2016, the sales of the instant real estate from the instant real estate owned by the Defendant’s public official to 30.6 billion won, and (e) on March 26, 2016; and (e) on May 23, 2016, 2016.6.6.

According to the above facts, it is recognized that Nonparty 1 operated entertainment bar business on the instant real estate equipped with facilities necessary for entertainment bar business from March 25, 2016 to July 2016, and acquisition tax on the acquisition of real estate is a tax item imposed according to the objective phenomenon of the real estate, and thus, whether to exclude heavy taxation should be determined at the time of acquisition as well. Since property tax on real estate is imposed according to the objective phenomenon of the real estate owned, whether to exclude heavy taxation should be determined at the tax base basis. In addition, in addition to the fact that: (a) whether the Plaintiff failed to acquire real possession after the acquisition of property, or whether there is real profit from the possession of property does not affect the establishment of acquisition tax or property tax liability, the instant real estate constitutes a high-class recreation center subject to heavy taxation, such as acquisition tax and property tax, since it has the substance as an entertainment bar at the time of the Plaintiff’s acquisition and property tax assessment basis. Therefore, the Plaintiff’s assertion in this part

2) As to the second argument of the Plaintiff

Comprehensively taking account of the overall purport of the pleadings in the statement and video of evidence Nos. 3 and 10 through 13, the Plaintiff entered into a construction contract with Nonparty 2 on May 7, 2016 and paid KRW 195,00,000 to Nonparty 2 on May 10, 2016, after obtaining an estimate of construction of facilities for altering the purpose of use of the instant real estate from Nonparty 2 (mutual name: △△ Sports), etc., and filed a report to the Defendant on May 24, 2016, changing the purpose of use of the instant real estate into Class II neighborhood living facilities. The Plaintiff filed an application with Nonparty 1 for an order for delivery of real estate on May 17, 2016 and filed an appeal with Nonparty 2 on May 17, 2016, but did not file an appeal within the period of suspension of execution.

However, the proviso of Article 13(5)3 of the Local Tax Act excludes heavy taxation only where a building for a high-class recreation center is used for a purpose other than that of a high-class recreation center or starts a construction work for the purpose of using it for a purpose other than that of a high-class recreation center, and “the construction work for the purpose of using it for a purpose other than that of a high-class recreation center” refers to the time the construction work can be seen as starting more specifically and less than the mere report on the alteration of use of the building or the application for approval of a project plan is insufficient (see Supreme Court Decision 2004Da58901, Dec. 23, 2005, etc.). It is not permissible to interpret the provisions of the proviso of Article 13(5)3 of the Local Tax Act to prevent taxation requirements, non-taxation requirements, or tax exemption requirements under the principle of no taxation without law, and to interpret them extensively or analogically without reasonable grounds, as alleged by the Plaintiff, and to interpret the proviso of Article 28(1)3) of the Local Tax Act as of the date it acquired.

Therefore, the plaintiff is not subject to heavy taxation under the proviso of Article 13 (5) 3 of the Local Tax Act. Thus, the plaintiff's assertion on this part is without merit on different premise.

3. Conclusion

Therefore, the plaintiff's claim is dismissed in entirety as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Kim Dong-ho (Presiding Judge)