Supreme Court ruling could pinch tax authority

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Supreme Court ruling could pinch tax authority

The Supreme Court ruled on Sunday that the country’s tax authority may have imposed double taxation on real estate holders, a decision that could make the National Tax Service (NTS) responsible for handing back massive refunds to domestic businesses.

On Sunday, the Supreme Court sent back to the Seoul High Court a complaint stating that the National Tax Service had unfairly collected an excessive amount of comprehensive real estate holding tax.

The high court previously ruled that the taxation was lawful.

The plaintiffs in the suit - 25 companies including the Korea Electric Power Corporation (Kepco), Shinsegae and Kookmin Bank - insisted in the complaint that there was a problem in the taxation system in that they had to pay both property tax and real estate tax for property that exceeded certain standards.

If Seoul High Court reverses its decision in favor of the companies, the NTS will inevitably be faced with handing back massive tax refunds.

The 25 companies will receive 18 billion won ($16 million) in total if they win the cases.

In two separate, but similar cases, Daelim and Lotte Confectionery each asked the NTS to refund 1.6 billion won and 6 billion won, respectively, cases which the Supreme Court also ruled on Sunday should be reconsidered at the high court.

Total real estate tax revenue stood at 1.3 trillion won last year, up from 960 billion won in 2009. About 70 percent was from businesses.

If the companies are victorious, comprehensive real estate tax for Kepco in November 2009, for example, would be reduced to just 7.65 billion won, instead of more than 10 billion won, which alone would greatly impact the NTS’s revenue.

Comprehensive real estate holding tax is imposed on properties with a market value that exceeds certain standards, a measure that is designed to prevent speculative investment.

Since 2005, when the real estate tax was first introduced, concerns existed that the government may be doubly taxing real estate holders.

The law was revised in 2008 to solve those issues, but did little to reassure taxpayers.

The NTS said it was willing to bring the case back to the Supreme Court if the high court ruled in favor of the companies; however, the Supreme Court’s decision is likely to prompt a spate of similar complaints.

But even if the plaintiffs are successful, a refund by the NTS would still not cover the entire amount owed, given that the tax law was revised at the end of 2008 and implemented the following year.

Those who report real estate for taxation are allowed to file a complaint on their taxation within three years, while those who are notified of their taxation must file a complaint within 90 days after being alerted.

“The Supreme Court’s decision this time may result in deducting too much for the part that real estate taxation does not cover,” said an official from the NTS. “We will talk to the relevant ministries on how to handle this issue.”

BY KIM BONG-MOON [kim.bongmoon@joongang.co.kr]

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