등록세와 실질과세 등에 관한 고찰 = The Application of the Substance-over-Form Doctrine to the Registration Tax Imposed on a Corporation upon the Purchase of Real Estate Property

다국어 초록 (Multilingual Abstract)

The central issue of this study involves an example case where a foreign based investment company (hereinafter “A” company) acquired a domestic dormant corporation that had already been incorporated, and change its name and business purpose, while at the same time increasing its capital by 5 billion won and acquiring a building of considerable size in downtown Seoul, after which “A” company paid the registration tax at a general tax rate when registering the capital increase and the property.
To this, the tax agency reacted by ruling that the heavy tax rate, rather than the general rate, must be applied in this case on the ground that if all the shares of a dormant corporation are bought and any changes other than the corporate registration number and the establishment date are made, then the dormant corporation should be treated as a new company that becomes incorporated at the date when the trading of the relevant shares occurred.
In relation to this, the Local Tax Law, Clause 138, Item 1-1 and 1-3 provide that the registration tax rate shall be the heavy tax rate, 300% of the general tax rate, in the following cases: when registering ⅰ) a newly established corporation, ⅱ) a capital increase within 5 years after the corporate establishment, ⅲ) a newly acquired real estate property within 5 years after the corporate establishment, respectively, in metropolitan areas.
As “A” company filed an administrative litigation to nullify the decision, claiming that it is illegal, the defendant, the tax agency, building on the above provisions of the Local Tax Law, protested against the claim of “A” company and even went so far as referring to the “Piercing the corporate veil”.
The Supreme court reversed and remanded the case back to the review court, concluding that the establishment of a corporation, as referred to in the relevant provisions of the Local Tax Law, must be construed to be an establishment by means of registration since there is no establishment that can be made twice on the basis of the same registration procedure. Consequently, the High Court made its final decision to that effect.
Motivated by this particular case, this study explored whether it is appropriate to apply the substance-over-form principle and the Piercing the corporate veil when the tax agency levies a tax for the registration of a newly established corporation or a newly acquired real estate property in metropolitan areas at a heavy tax rate.
My conclusion about the particular case was as follows: Regardless of whether the tax authority takes either the substantially beneficial owner approach or the substantial content of wealth approach, the substance-over-form principle cannot be applied, nor, under the current tax legislation system, the Piercing the corporate veil based on the interpretation of Clause 15 of the Basic National Tax Law regarding The Principle of Good Faith cannot be applied.