Where a corporation acquires real estate to use it as a factory falling under a simple manufacturing or processing place without business activities, whether it constitutes subject to heavy acquisition tax under Article 13(2)1 of the former Local Tax Act and the former part of Article 27(3) of the former Enforcement Decree of the Local Tax Act (negative), and whether it is excluded from acquisition tax subject to heavy acquisition tax under Article 13(2)2 of the former Local Tax Act where it comprehensively succeeds to and acquires all production facilities of the existing factory (affirmative)

Article 13(2)1, 2, and (8) of the former Local Tax Act (Amended by Act No. 11690, Mar. 23, 2013); Article 27(3) of the former Enforcement Decree of the Local Tax Act (Amended by Presidential Decree No. 24425, Mar. 23, 2013); Article 6 subparag. 1, Article 7(2)2(a) of the former Enforcement Rule of the Local Tax Act (Amended by Ordinance of the Ministry of Security and Public Administration, Mar. 23, 2013); Article 6 subparag. 1, and Article 7(2)2(a) of the former Enforcement Rule of the Local Tax Act

Han Cement Co., Ltd. (Law Firm LLC, Attorneys Kang Han-hun et al., Counsel for the plaintiff-appellant)

The head of Sincheon-si (Law Firm Barun, Attorneys Kang Ji-hun et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Nu43235 decided December 9, 2014

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal Nos. 1 and 2

(1) Article 13(2)1 of the former Local Tax Act (amended by Act No. 11690, Mar. 23, 2013; hereinafter the same) and Article 27(3) of the former Enforcement Decree of the Local Tax Act (amended by Presidential Decree No. 24425, Mar. 23, 2013; hereinafter the same) stipulate that real estate shall be acquired within a large city as a result of the establishment of a juristic person, the establishment of a branch or sub-branch, or the relocation of a head office, main office, branch or sub-branch of a juristic person into a large city (hereinafter “former provision”), and that real estate shall be acquired within a large city within five years after its establishment, establishment, and transfer (hereinafter “former provision”), with the exception of the former provision, Article 13(2)3 of the former Enforcement Decree of the Local Tax Act, only where real estate is acquired for the purpose of directly using its head office, main office, branch or sub-office, and that real estate shall be transferred within three years before its establishment, establishment or transfer.

Meanwhile, Article 13(2)2 of the former Local Tax Act provides that the acquisition of real estate by newly constructing or expanding a factory in a large city separate from subparagraph 1 of the same Article shall be subject to acquisition tax, and Article 7(2)2(a) of the former Enforcement Rule of the Local Tax Act delegated by Article 7(8) of the former Local Tax Act provides that "a person who comprehensively succeeds to and acquires all production facilities, including machinery and equipment and power equipment of an existing factory" shall be excluded from acquisition tax.

In light of the language, structure, legislative purport and amendment history, etc. of these relevant provisions, where a corporation acquires real estate to use it as a factory falling under a simple place of manufacturing and processing without any act of business, it shall not be deemed to have been acquired for the purpose of directly using it for the purpose of its head office, main office, branch office or branch office. Therefore, there is no possibility that it falls under the subject of heavy acquisition tax under the former provisions, and it is only an issue as to whether it falls under the subject of heavy acquisition tax under Article 13(2)2 of the former Local Tax Act. In such a case, when it is acquired by comprehensively succeeding to all production facilities including machinery and equipment and power equipment of the existing factory, it shall be excluded from acquisition tax under Article 13(2)2 of the former Local Tax Act pursuant to Article 7(2)2(a) of the former Local Tax Act.

(2) The reasoning of the lower judgment reveals the following: (a) on October 21, 201, the Plaintiff purchased a total of 33,399 square meters and total floor area of 10,517.08 square meters (hereinafter collectively collectively referred to as “instant real estate”) of land and 19 square meters, which are land and buildings located in a large city, from Sungdong-si Co., Ltd., the Sungdong-si Co., Ltd., and the total of 19 square meters and the total floor area of 10,517.08 square meters (hereinafter referred to as “instant real estate”); (b) on the other hand, the Plaintiff comprehensively acquired not only the instant real estate, which is a manufacturer of ready-mixed and tar, but also factory facilities, such as structures and machinery; and (c) on the other hand, the Plaintiff produced tar in the same manner as the previous real estate and engaged in business activities for selling only a total of 235 square meters (the site area corresponding thereto is 307.73 square meters

In examining these facts in accordance with the legal principles as seen earlier, it cannot be deemed that at least the part of the real estate in this case, excluding the above office space and the pertinent site (hereinafter “factory part”) acquired to use directly for the purpose of the Plaintiff’s branch, and thus, it does not fall under the subject of heavy acquisition tax under the former provisions, and it does not fall under the case of comprehensive succession and acquisition of all production facilities, including the machinery and equipment and power equipment of the existing factory, under Article 7(2)2(a) of the former Enforcement Rule of the Local Tax Act, and thus, it does not fall under the acquisition tax subject to heavy acquisition tax under Article 13(2)2(a)

(3) Although the reasoning of the lower judgment is somewhat inappropriate, the lower court’s conclusion that the instant factory portion is subject to Article 7(2)2(a) of the former Enforcement Rule of the Local Tax Act, which did not constitute an excessive acquisition tax, is justifiable. In so doing, it did not err by misapprehending the legal doctrine on acquisition tax and regulations among large cities under the former Local Tax Act.

2. As to the third ground for appeal

The gist of this part of the grounds of appeal is that the Plaintiff did not comprehensively acquire all production facilities including the machinery and equipment and power equipment of the existing factory, such as the Plaintiff’s transfer of some vehicles during the process of purchasing the real estate of this case. Ultimately, this part of the grounds of appeal is not legitimate grounds of appeal, since it is erroneous for the selection of evidence or the fact-finding, which belongs

3. Conclusion

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.

Justices Lee Sang-hoon (Presiding Justice)