One Law Partners, LLC represented a real estate development company selected for a regular local tax audit by a local government and successfully demonstrated that its head office was substantively operated within an industrial complex and qualified for an exception to the heavy acquisition tax regime. As a result, the firm successfully defended against the imposition of increased acquisition tax on the client's real estate acquisitions and minimized the client's potential exposure to additional tax assessments.


1. Overview of the Matter

The client is a corporation engaged in housing construction and real estate development. As part of its business operations, the client acquires real property, demolishes existing structures, and constructs residential and commercial buildings for sale.

The client maintained its registered head office within an industrial complex located in the Seoul Metropolitan Overconcentration Control Region and operated the office through a shared-office arrangement during the early years following its incorporation.

The client had reported and paid acquisition tax on its property acquisitions at the ordinary tax rate. However, after being selected for a regular local tax audit conducted by the local government, the client became subject to an investigation regarding the applicability of the heavy acquisition tax provisions.

In particular, if the client's registered head office were deemed merely a nominal address and its actual principal place of business found to be located elsewhere, the company could lose eligibility for the acquisition tax exception applicable to entities located within an industrial complex, resulting in substantial additional tax liabilities.

Accordingly, the client retained One Law Partners, LLC to represent it in responding to the local tax audit.


2. Key Issues

The first issue was whether the client's head office was being substantively operated within the industrial complex.

In determining whether the heavy acquisition tax rules applicable to corporate real estate acquisitions in large metropolitan areas apply, the location where the corporation actually performs its head office functions is as important as the address stated in the corporate registry.

Because the client utilized a shared office as its registered head office, it was necessary to establish whether the premises served merely as a mailing address or constituted an actual place of business where substantive corporate activities were conducted.

The second issue was the accurate classification of the acquired properties that qualified for exemption from the heavy acquisition tax regime.

The tax treatment of properties acquired by a registered housing developer for housing construction purposes may differ from that of properties acquired for other development projects, depending upon the acquisition purpose and applicable statutory requirements.

Accordingly, it was necessary to distinguish between properties acquired in connection with housing construction projects and properties acquired for the construction or sale of commercial facilities and to analyze the applicable tax rules for each acquisition.

The third issue concerned whether indirect costs associated with the acquisition of real estate and the construction of new buildings should be included in the acquisition tax base.

In particular, it was necessary to determine which financing costs and various fees incurred during the land acquisition and building construction process should be included in calculating the acquisition tax base for the newly constructed buildings.


3. Key Strategies and Actions

One Law Partners first categorized the client's acquired properties according to their acquisition purpose and actual use and reviewed the applicability of the statutory exceptions to heavy acquisition tax available for housing construction projects.

The firm distinguished between properties acquired by a registered housing developer for housing construction and commenced within the statutory period and other categories of acquired properties, presenting the relevant legal standards applicable to each acquisition.

The firm then focused on demonstrating that the client's head office was substantively operated within the industrial complex.

To support this position, One Law Partners organized and submitted evidence including lease agreements, rent payment records, office furniture and equipment usage records, and the representative director's workplace access records, all of which substantiated the actual operation of the business premises.

The firm also explained the nature of the real estate development industry, where activities such as reviewing acquisition targets, supervising construction sites, and conducting project-related negotiations frequently occur outside the office.

One Law Partners emphasized that the use of a shared office or the representative's limited physical presence at the office could not, by themselves, negate the substantive operation of the head office. Relying on relevant Tax Tribunal decisions, the firm argued that the actual use and operation of the workplace should be assessed comprehensively.

In addition, while reviewing the acquisition tax base relating to the construction of new buildings, the firm analyzed indirect costs, including construction financing interest and related expenses, on an item-by-item basis.

The firm distinguished financing expenses directly attributable to building construction from land-related financing costs incurred after the acquisition of the land and presented legal grounds demonstrating that certain expenses should not be included in the acquisition tax base for the buildings.

As a result, the local tax audit concluded that the heavy acquisition tax provisions did not apply to the client's real estate acquisitions. Other than a minor omission involving certain small expenses related to building construction, no significant issues were identified, and the audit was concluded.


4. Significance of the Matter

This matter demonstrates how a real estate development company with its head office located within an industrial complex in the Seoul Metropolitan Overconcentration Control Region successfully defended against the application of heavy acquisition tax during a local tax audit by proving both the substantive operation of its head office and its eligibility for statutory tax exceptions.

The case is particularly significant because it confirms that even where a corporation utilizes a shared office as its registered head office, the determination of whether the head office is substantively operated must be based on a comprehensive review of the actual use of the premises, the characteristics of the business, and objective supporting evidence.

The matter also highlights the importance of separately analyzing the statutory requirements for acquisition tax exemptions based on the purpose of each property acquisition and carefully reviewing whether indirect costs related to new building construction should be included in the acquisition tax base, thereby minimizing potential additional tax liabilities.

From the outset of the audit, One Law Partners systematically analyzed the anticipated issues and responded based on applicable laws, Tax Tribunal precedents, and objective documentary evidence, successfully defending the client against the imposition of heavy acquisition tax.

This case illustrates the importance, in local tax audits involving real estate development companies, of comprehensively reviewing the substantive operation of the head office, the purpose of each real estate acquisition, and the appropriateness of acquisition tax base calculations.

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Sun-Seong Seo, Attorney | ssseo@onelawpartners.com
Eui-June Jeong, Attorney | ejjeong@onelawpartners.com
Myung-Chul Cheon, Senior Advisor | mccheon@onelawpartners.com
Property One | Property One (the Local Tax & Levy Practice Group) is the first specialized team established by a law firm in Korea focusing on local taxes and levies, providing professional services throughout every stage of a matter, from tax audit defense to pre-assessment review proceedings, administrative appeals, and litigation.
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Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com