Where a knowledge industry center was newly built but it was sold or leased to a person who does not directly use it for business facilities within five years from the date of acquisition, whether the reduced acquisition tax on the relevant portion may be collected additionally pursuant to the proviso to Article 58-2 (1) 1 (b) of the former Restriction of Special Local Taxation Act (affirmative in principle)

Article 58-2(1)1 of the former Restriction of Special Local Taxation Act (amended by Act No. 1477, Dec. 27, 2016; hereinafter the same) provides that “A person who has obtained approval to establish a knowledge industry center pursuant to the main sentence of Article 28-2 of the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”) shall be entitled to 50/100 (75/100 of acquisition tax on a newly constructed, sold, rented, or rented out, real estate or newly constructed, or extended knowledge industry center, acquired to use directly for facilities under Article 28-5(1)1 and 2 of the Industrial Cluster Act (hereinafter “business facilities”) or to sell, sell, or rent such real estate or newly constructed, acquired to sell, or rent such real estate or newly constructed or expanded knowledge industry center for purposes other than for the purposes of the construction, donation, or lease such knowledge industry center within five years from the date of acquisition, which shall not be subject to the reduction or exemption of acquisition tax on the relevant portion of the knowledge industry center.”

Meanwhile, Article 28-4(1) of the Industrial Cluster Act provides that, in cases where a person who has established a knowledge industry center intends to sell or lease such knowledge industry center, he/she shall prepare a public notice plan for recruitment as prescribed by Ordinance of the Ministry of Trade, Industry and Energy after commencement of the construction, and shall invite occupants, i.e., those who sell or lease the knowledge industry center to the public after obtaining approval from the Mayor, etc.

In full view of the structure, contents, legislative purport, etc. of the relevant provisions, where a knowledge industry center was newly built, but it was sold or leased to a person who is not directly used for business facilities within five years from the date of acquisition, barring special circumstances, such as the sale or lease of it to a person who is directly used for business facilities, acquisition tax reduced in relation to the relevant portion may be collected additionally pursuant to the proviso to Article 58-2 (1) 1 (b) of the former Restriction of Special Local Taxation Act.

Article 58-2 (1) 1 of the former Restriction of Special Local Taxation Act (Amended by Act No. 14477, Dec. 27, 2016); Articles 28-2 and 28-4 (1) of the Industrial Cluster Development and Factory Establishment Act

[Defendant-Appellant] M&D Co., Ltd. (Attorney Hwang Sang-tae, Counsel for defendant-appellant-appellant)

The head of Seongdong-gu Seoul Metropolitan Government (Law Firm Daeho, Attorney Kim Jong-tae, Counsel for defendant-appellant)

Seoul High Court Decision 2017Nu60866 decided November 29, 2017

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

The grounds of appeal are examined.

1. Article 58-2(1)1 of the former Restriction of Special Local Taxation Act (amended by Act No. 14477, Dec. 27, 2016; hereinafter the same shall apply) provides that acquisition tax shall be reduced by the main sentence of Article 58-2(1)1 to a person who has obtained approval for establishment of a knowledge industry center pursuant to Article 28-2 of the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”) and the proviso to Article 28-2 of the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”) shall not be imposed on a newly constructed, sold or extended knowledge industry center for use as facilities under Article 28-5(1)1 and 2 of the Industrial Cluster Act (hereinafter “business facilities”), and the proviso to Article 28-5(1)1 of the Industrial Cluster Development and Factory Establishment Act shall not be imposed on a newly constructed, sold or extended knowledge industry center for use as facilities (hereinafter “the aforementioned proviso to the Special Local Taxation Act”) or the corresponding provision shall not be imposed on a person for sale or lease purposes as a knowledge industry center.

Meanwhile, Article 28-4(1) of the Industrial Cluster Act provides that, in cases where a person who has established a knowledge industry center intends to sell or lease such knowledge industry center, he/she shall prepare a public notice plan for recruitment as prescribed by Ordinance of the Ministry of Trade, Industry and Energy after commencement of the construction, and shall invite occupants, i.e., those who sell or lease the knowledge industry center to the public after obtaining approval from the Mayor, etc.

In full view of the structure, contents, legislative purport, etc. of the relevant provisions, where a knowledge industry center was newly built, but it was sold or leased to a person who is not directly used for business facilities within five years from the date of acquisition, barring special circumstances such as the sale or lease of it to a person who is directly used for business facilities, acquisition tax reduced in relation to the relevant portion can be collected as a penalty in accordance with the corresponding provision.

2. According to the reasoning of the first instance judgment cited by the lower court, the following facts are revealed.

A. After obtaining approval for the establishment of a knowledge industry center under the Industrial Cluster Act, the Plaintiff acquired the instant land on March 21, 2012 to newly construct a knowledge industry center, and on July 18, 2014, newly built the instant knowledge industry center on the ground.

B. The Defendant applied the mitigation provision of the instant case to the Plaintiff, 75/100 of the acquisition tax on the instant land, and 50/100 of the acquisition tax on the portion of the instant knowledge industry center, other than support facilities, was reduced.

C. However, the Plaintiff sold 30 units, including 401 units of the knowledge industry center of this case, to the real estate rental business operator, etc. within five years from the date of acquisition (the 23 units disputing the Plaintiff were sold to all real estate rental business operators).

D. On February 4, 2016, the Defendant: (a) applied the instant additional collection provision to the Plaintiff on the ground that “the Plaintiff sold the said 30 heading rooms to other uses than business facilities of the knowledge industry center within five years from the date of acquisition; (b) increased the aggregate of KRW 358,319,730 (including additional tax), including acquisition tax reduced with respect to the said 30 heading rooms; (c) the said 23 heading rooms are referred to as “each of the instant units”; and (d) the total of KRW 283,798,680, including acquisition tax, etc. with respect to each of the units of this case among the above dispositions, shall be referred to as “the instant disposition”).

3. Examining these facts in light of the aforementioned provisions and legal principles, each of the instant units cannot be deemed as identical to the sale or lease by the newly constructed Plaintiff to a person who directly uses the units for business facilities, solely on the ground that the units were sold within five years from the date of acquisition to a real estate rental business entity and that the rental business entity bears contractual obligations that the units of this case should not be used directly for business facilities within five years from the date of acquisition, and that the lease business entity bears the contractual obligations that the units of this case should be leased to the Plaintiff. Therefore, reduced acquisition tax on

4. Nevertheless, the lower court determined that the instant disposition was unlawful, which collected the reduced acquisition tax on each of the subparagraphs of this case. In so determining, the lower court erred by misapprehending the legal doctrine on the interpretation of the mitigation provision and the additional collection provision, thereby adversely affecting the conclusion of the judgment. The allegation contained in

5. The defendant's appeal is with merit, and the judgment below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench

Justices Kim Chang-suk (Presiding Justice)