[1] Meaning of “actual acquisition” under Article 105(2) of the former Local Tax Act

[2] In a case where a real estate purchaser purchased real estate through another person and the purchaser’s name was decided to do so under the name of another person, whether such title trust constitutes a contract title trust (affirmative in principle)

[1] According to Article 105 of the former Local Tax Act (amended by Act No. 7678 of Aug. 4, 2005), acquisition tax is imposed on a person who acquires real estate, etc. subject to acquisition tax (Paragraph 1), and is deemed to have been actually acquired even if a person fails to perform registration, etc. under related Acts and subordinate statutes, including the Civil Act (Paragraph 2). Here, “actual acquisition” refers to a case where: (a) a seller does not meet the formal requirements for acquisition of ownership, such as registration, but does not satisfy the substantive requirements for acquisition of ownership, but satisfies the substantive requirements for acquisition of ownership, such as payment of the price. However, where a real estate is transferred from a seller to a title trustee in the future, a title truster is not a party to a sales contract, but a title trust agreement entered into with a title trustee is null and void, and thus, a title truster cannot be deemed to have actually acquired such real estate, so

[2] The distinction between whether a title trust agreement is a registered title trust between a third party or a contract title trust is a matter to determine the contracting parties. If the purchaser intended to purchase real estate under the name of a third party while purchasing it through another party, barring any special circumstance, such as where the title truster, not the title trustee, entered into a contract with the intent to directly bring about the legal effect of the contract to the title truster, the title trust relationship shall be deemed a contract title trust.

[1] Article 105(1) and (2) of the former Local Tax Act (amended by Act No. 7678 of Aug. 4, 2005) (see current Article 7(1) and (2) (see current Article 7(2)); Article 4 of the Act on the Registration of Real Estate under Actual Titleholder’s Name / [2] Article 2 subparag. 1 and Article 4 of the Act on the Registration of Real Estate under Actual Titleholder’s Name

[1] Supreme Court Decision 98Du17067 Decided November 12, 1999 (Gong199Ha, 2538), Supreme Court Decision 2004Du6761 Decided June 30, 2006 (Gong2006Ha, 1439), Supreme Court Decision 2012Du14804 Decided October 25, 2012 / [2] Supreme Court Order 2013Du133 Decided October 7, 2013 (Gong2014Sang, 64)

Dongyang Co., Ltd. (Law Firm Ui-Myeon, Attorneys Yellow-gu et al., Counsel for the defendant-appellant)

Namyang Market (Law Firm LLC, Attorneys Jeong Jong-pop et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2011Nu38133 decided October 26, 2012

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

The grounds of appeal are examined.

1. According to Article 105 of the former Local Tax Act (amended by Act No. 7678 of Aug. 4, 2005), acquisition tax is imposed on a person who acquires real estate, etc. subject to acquisition tax (Paragraph 1), and is deemed to have been actually acquired even if a person fails to perform registration, etc. under related Acts and subordinate statutes, such as the Civil Act (Paragraph 2). Here, “ de facto acquisition” refers to a case where a person generally fails to meet the formal requirements for acquisition of ownership such as registration, but satisfies the substantive requirements for acquisition of ownership such as payment of the price (see, e.g., Supreme Court Decisions 98Du17067, Nov. 12, 199; 2004Du6761, Jun. 30, 2006). However, where a real estate seller’s registration under a title trust was transferred from a title truster, not from a title truster, but from a title trust agreement that was concluded with the title truster, and thus, a title truster or title trustee cannot be held the ownership registration.

Meanwhile, distinguishing whether a title trust agreement is a registered title trust between a third party or a contract title trust is a matter of determining the contracting parties. If the purchaser intended to purchase real estate through another person under the name of the third party, barring any special circumstance, such as having concluded a contract with the intent to directly bring about the legal effect of the contract to the title truster rather than the title trustee, the title trust relationship ought to be deemed a contract title trust (see Supreme Court Order 2013Switzerland13, Oct. 7, 2013).

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

A. The Plaintiff promoted a new construction project of multi-family housing in the Namyang-si, Namyang-si, Chungcheongnam-do, and the instant land included in the project site was mostly farmland and could not be acquired in the name of the Plaintiff as a juristic person.

B. Accordingly, the Plaintiff concluded the instant business agreement with the representative director Nonparty 1, Nonparty 2, and Nonparty 3 (hereinafter “Nonindicted Party”) and decided to raise the initial funds necessary for the purchase of the business site and purchase the real estate owned by the Nonparty after the district unit planning decision was announced.

C. According to the instant business agreement, the Nonparty purchased the instant land in his name and completed the registration of ownership transfer from July 23, 2003 to December 13, 2004. The Plaintiff repaid the loan borrowed in his name from the Nonparty’s name for the purchase of the instant land with the money loaned as security.

D. On March 9, 2007, after the public notice of the determination of the urban management plan concerning the above business, the Plaintiff reported and paid the acquisition tax, etc. after being transferred the registration of the instant land from the Nonparty.

E. However, on May 20, 2009, the Defendant imposed acquisition tax, etc. on the acquisition of land on 60 parcels for which the exclusion period for imposition has not elapsed since the date of acquisition on the ground that the Plaintiff acquired the instant land in fact at the time of acquisition under the name of the Nonparty (hereinafter “instant disposition”).

3. Examining these facts in light of the legal principles as seen earlier, the Nonparty was directly a contracting party under the instant business agreement constituting a title trust agreement and concluded a sales contract for the instant land in its name. Inasmuch as no special circumstance appears, such as: (a) the title truster entered into the said contract with the intent to directly contribute to the legal effect of the contract; and (b) the instant title trust agreement constitutes a contract title trust. Therefore, even if the Plaintiff, a title truster, actually bears the purchase price, it cannot be deemed that the instant land was actually acquired, and thus, no acquisition tax liability is established for the Plaintiff.

Although the lower court erred by misapprehending the premise that the title trust relationship between the Plaintiff and the Nonparty was a registered title trust between the third parties, it is eventually justifiable to have determined that the instant disposition was unlawful on the ground that the Plaintiff did not establish the acquisition tax liability upon de facto acquisition. Therefore, the lower court’s above error did not have affected the conclusion

4. 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 on the bench.

Justices Kim Shin (Presiding Justice)