Whether the interest on borrowings for remodeling shall be added to the value of the building increased by remodeling.

The purport of each provision of Article 111(1) proviso of the Local Tax Act, Article 16 subparag. 11 of the Corporate Tax Act, Article 33(1) and Article 59-2(3) of the Enforcement Decree of the same Act, Article 124-2(2) of the Enforcement Decree of the same Act, and Article 111(5)3 of the Local Tax Act is reasonable to interpret to the effect that the amount of direct and indirect investment made by the acquisitor in order to acquire it shall be the acquisition tax base. As such, interest on other person’s capital required for the reconstruction of a building shall also be indirectly invested in the increased value due to the reconstruction, which shall be added to the tax base for acquisition tax due to the reconstruction.

Articles 11(1), 111(3), 104 subparag. 11, and 105(3) of the Local Tax Act

Manym Co., Ltd

Attorney Park Jae-won, Counsel for the defendant-appellant

Seoul High Court Decision 80Gu613 delivered on April 27, 1982

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

The defendant's attorney's grounds of appeal are examined.

1. According to the reasoning of the judgment of the court below, the plaintiff purchased or acquired the land and buildings of this case on August 16, 1979 with permission for large-scale repair and alteration of the use of the above ground buildings, and completed the renovation and extension for each use as stated in its reasoning, and included interest as stated in its judgment among the total amount on the construction cost account following the extension and reconstruction as stated in its holding, and the defendant determined that this is a construction fund interest and the fact that this is regarded as the tax base is not a dispute, and it is clear that only the value of the building due to the extension or reconstruction is subject to taxation, barring special circumstances, in light of the purport of Article 105(3) and Article 111(3) of the Local Tax Act, the interest on the loan from others (this cannot be deemed as an objective increase in the value of the building) under the premise that it is excluded from the tax base, regardless of whether it was required for the operation fund of the plaintiff company, this should be deducted from the tax base and the tax amount exceeding the tax amount should be deducted.

2. The purpose of Article 111 (1) of the Local Tax Act is to stipulate that the tax base of acquisition tax shall be the value at the time of acquisition, and the acquisition tax shall be imposed only on the increase of the value of the building due to such reconstruction or extension, and the tax base of acquisition tax shall be the increased value due to such reconstruction or extension. Article 104 (11) 1 of the same Act provides that the reconstruction of the building means the reconstruction of the whole type or part of the main structural part of the building and the cost of the reconstruction is recognized as capital expenditure, and it shall be included in the increased value of other capital invested in the reconstruction. It is not clear whether the increased value of the building is included in the increased value of the building, but the tax base of the building shall be an annual installment amount if it is acquired in the annual installments of Article 111 (1) 3 of the Local Tax Act, and the amount of interest paid to the domestic corporation shall be added to the acquisition value of the building in an annual installments amount as stipulated in the proviso of Article 111 (2) of the Corporate Tax Act.

3. Therefore, the court below should have added up the amount of interest paid in this case to the tax base of acquisition tax in cases where it is recognized that KRW 805,685,947, which was paid as the loan, etc. for the rebuilding of the building in this case, was paid as interest on the loan. However, the court below did not reach such a conclusion, which erred in the misapprehension of legal principles as to the tax base of acquisition tax, and there is a ground to charge any error in the misapprehension of legal principles as to the incomplete hearing

Therefore, the judgment of the court below is reversed, and the case is remanded to the Seoul High Court, which is the court below, and it is so decided as per Disposition by the assent of all participating Justices.

Justices Kang Jong-young (Presiding Justice)