The Supreme Court has ruled that Seoul's Gangnam District must refund acquisition tax that was overcollected from the reconstruction association of the Gaepo Jugong Complex 3.
The Supreme Court's First Division (presiding Justice Shin Sook-hee) said on the 29th that on the 12th it finalized the lower court ruling ordering the cancellation of 15.52 million won in acquisition tax in a lawsuit filed by the Gaepo Jugong Complex 3 Housing Reconstruction and Maintenance Project Association (the "association") against Gangnam District seeking to overturn a disposition denying correction of acquisition tax, among others.
Gaepo Jugong Complex 3 began relocating existing residents in the second half of 2015 and was completed in Aug. 2019. After reconstruction, the apartment complex was named "THE H Honor Hills." It consists of 23 buildings with three basement levels to 33 above-ground floors, totaling 1,320 households.
For real estate allocated to general sales, not to association members, the reconstruction association becomes the initial owner when the building is completed and must pay acquisition tax. The acquisition tax is calculated based on the construction cost incurred to build the structure as the tax base, not on the sales price.
In Oct. 2019, the association paid to Gangnam District 1.35576 billion won in acquisition tax, 77.47 million won in local education tax, and 71.17 million won in The Special Tax for Rural Development in connection with buildings for general sales at THE H Honor Hills.
In Nov. 2020, it requested a refund from Gangnam District of the overcollected acquisition tax by excluding from the tax base: ▲ costs related to school new construction and reconstruction ▲ asset appraisal fees ▲ association operating expenses ▲ audio and kitchen furniture costs for community facilities ▲ selling expenses. The amounts totaled 73.87 million won, including 66.62 million won in acquisition tax, 3.8 million won in local education tax, and 3.45 million won in The Special Tax for Rural Development. Excluding expenses that are not construction costs lowers the tax base and reduces the acquisition tax.
When Gangnam District accepted only part of the correction claim, the reconstruction association filed a tax appeal. The Tax Tribunal ordered that park landscaping, electrical and water supply facility construction costs, and community facility installation expenses be excluded from the acquisition tax base. The reconstruction association then filed an administrative suit, arguing that the remaining items should also be excluded from the tax base.
The Seoul Administrative Court ruled that Gangnam District must return 18.97 million won to the reconstruction association, including 17.12 million won in acquisition tax, 970,000 won in local education tax, and 880,000 won in The Special Tax for Rural Development. The first trial court found that association operating expenses, audio and kitchen furniture installation costs for community facilities, and selling expenses cannot be included in the acquisition price of the building and therefore should not be subject to acquisition tax.
In the second trial, the court ruled that Gangnam District must return 17.2 million won to the reconstruction association, including 15.52 million won in acquisition tax, 880,000 won in local education tax, and 800,000 won in The Special Tax for Rural Development. The appellate court held that, excluding costs for holding general meetings and delegates' meetings from association operating expenses, apartment sales advertising expenses and audio and kitchen furniture for community facilities should not be subject to acquisition tax. In contrast, fees for property title transfer registration and legal services are essential expenses for acquiring the building and therefore should not be excluded from the tax base.
The Supreme Court accepted the lower court's judgment and dismissed the appeals of both the reconstruction association and Gangnam District.