Court rejects tax policy on real estate

The Supreme Court has overturned a lower court’s ruling that the government’s comprehensive real estate taxation system is being run correctly, saying real estate owners have been double-taxed on some of their holdings.

In a lawsuit filed by 25 Korean companies, including KT and the Korea Electric Power Corporation, against the National Tax Service (NTS), the plaintiffs said the government should return about 20 billion won ($18 million) in total to them, as they were illegal double taxes.

Beginning in 2005, the government imposed a “comprehensive real estate tax” on people or companies that own residential buildings worth more than 600 million won, total land worth more than 500 million won or other buildings worth more than 8 billion won.

In levying the comprehensive real estate tax, the government exempted those holdings from property taxes.

But in 2009, the tax agency revised the system and began requiring property taxes to be paid on 20 percent of the value of an individual or company’s holdings of real estate. The other 80 percent of such holdings remained exempt from property taxes.

The changed rule prompted the 25 companies to file suit, saying that the double taxation was unfair and illegal.

The companies won the first round. In 2011, the Seoul Administrative Court ruled in their favor, but the administration appealed and the Seoul High Court reversed the judgement, saying the taxes were not excessive. After hearing the businesses’ appeal, the Supreme Court on Monday sided with the taxpayers.

“The basic principle of the current law [the comprehensive real estate tax law] is to exempt property taxes when levying real estate taxes,” the court said on Monday. “The lower court [the appellate court] misunderstood this principle.” The court ordered the lower courts to reconsider the merits of the suit.

With the decision of the Supreme Court in hand, a string of other companies and individuals may be preparing to file their own protests. The NTS collected 6.7 trillion won in comprehensive real estate taxes between 2009 and 2014, with about 200,000 taxpayers annually subject to the levy.

About 50 similar lawsuits are pending in other lower courts, so the total tax payments to be reimbursed by the NTS could reach 90 billion won, government officials said.

Indeed, the Supreme Court on Monday also reversed a ruling by a different appeals court that supported the NTS position. That suit involved nine other companies and 6 billion won in payments.

Individuals and companies can file suit against the government within three years of reporting and paying tax assessments that they calculate themselves. If they simply accept the NTS calculation of taxes due, they have only 90 days to sue.

The initial NTS reaction was combative. “The ruling of the Supreme Court will result in an excessive exemption of property taxes,” that official said. “After negotiation with other government organizations, we will actively prepare for an appeal.” He was referring to new hearings at appeals courts that had originally supported the administration’s position.

BY KIM HEE-JIN, LEE YOO-JEONG [kim.heejin@joongang.co.kr]