In cases where acquisition tax is deemed to have been acquired by an oligopolistic stockholder of a corporation who owns non-taxable real estate on condition of donation acceptance to the State, etc., whether deemed acquisition by an oligopolistic stockholder constitutes “cases of acquisition under the conditions of donation acceptance, etc. to the State, etc.” under Article 106(2) of the former Local Tax Act (affirmative)

Articles 105(6) (see current Article 7(5) and 106(2) (see current Article 9(2)) of the former Local Tax Act (Amended by Act No. 7843, Dec. 31, 2005); Article 105(6) (see current Article 7(5)) of the former Local Tax Act (Amended by Act No. 7972, Sep. 1, 2006);

Korea Venture Co., Ltd. (Bae, Kim & Lee LLC, Attorneys Han-soo et al., Counsel for the defendant-appellant)

1. A person who is a party to a contract shall be liable for damages.

Seoul High Court Decision 2009Nu11333 decided October 22, 2009

All appeals are dismissed. The costs of appeal are assessed against the Defendants.

The grounds of appeal are examined.

1. (1) Article 105(6) of the Local Tax Act provides that “When a person becomes an oligopolistic stockholder by acquiring a corporation’s stocks or shares, the oligopolistic stockholder shall be deemed to have acquired the real estate of the corporation, vehicles, mechanical equipment, standing trees, aircraft, ships, mining rights, fishing rights, golf membership rights, riding club membership rights, condominium membership rights, or membership rights to use athletic facilities complex: Provided, That this shall not apply where a person becomes an oligopolistic stockholder by acquiring the stocks or shares issued at the time of incorporation, the so-called deemed acquisition by an oligopolistic stockholder is declared to be subject

However, the proviso of Article 105(6) of the former Local Tax Act (amended by Act No. 7843 of Dec. 31, 2005) does not change to the effect that “If the acquisition tax is exempted or reduced under this Act and other Acts and subordinate statutes as of the date when the liability for payment of acquisition tax is established to the oligopolistic shareholder, it shall not apply to the portion for which acquisition tax is exempted or reduced under this Act and other Acts and subordinate statutes.”

(2) Meanwhile, Article 106(2) of the Local Tax Act provides that "No acquisition tax shall be imposed on real estate acquired on the condition that it reverts or donated to the State, a local government, or a local government association (including the case where it reverts to the method under Article 4 subparagraph 3 of the Act on Public-Private Partnerships in Infrastructure)." Even if it is deemed that a real estate is an oligopolistic stockholder of a corporation that acquired it on the condition that it reverts or donated to the State, a local government, or a local government association (hereinafter "the State, etc.") and it is deemed that such real estate is acquired on the condition that it reverts or donated to the State, etc., the person who becomes an oligopolistic stockholder shall not be denied the validity of such donation, etc., and accordingly, the real estate is still ultimately reverted to the State, etc.; ② where an oligopolistic stockholder actually acquires the real estate from the relevant corporation, he/she may be subject to Article 106(2) of the Local Tax Act by succeeding the previous donation contract or concluding a new donation contract with the State, etc., and thus, if acquisition tax is imposed on the real estate acquired on the same condition that is not satisfied.

2. In the same purport, the lower court recognized the fact that the Korea Combined Logistics Co., Ltd. (hereinafter “Korea Logistics Co., Ltd.”) newly constructed a complex logistics terminal building and structure (hereinafter “each real estate of this case”) in Magpo-si and Yangsan-si, respectively, on condition that they will be donated to the State more than 30 years, and thus did not impose acquisition tax pursuant to Article 106(2) of the Local Tax Act. The Plaintiff owned 8,392,62 shares of Korean Logistics on August 14, 2008 among total issued stocks of this case on August 14, 2008, the Plaintiff became an oligopolistic shareholder of Korean logistics. The lower court determined that the Plaintiff reported and paid acquisition tax on the portion equivalent to the Plaintiff’s share ratio (84.8%) among each real estate of this case to the Defendants on September 16, 2008, and that the acquisition tax or special tax for rural development under Article 106(2) of the Local Tax Act cannot be imposed on the Plaintiff’s acquisition of each real estate of this case.

3. Therefore, all appeals are 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 Lee Hong-hoon (Presiding Justice)