One Law Partners, LLC represented a local government in an administrative lawsuit brought by five affiliates of a major corporate group seeking the cancellation of acquisition tax and related assessments imposed in connection with the expansion of a research facility. The case involved legal issues concerning ownership of the expanded portions of the building and liability for acquisition tax. As a result, the Supreme Court dismissed all appeals filed by the opposing parties, thereby finally confirming that the local government's tax assessments were lawful.

 

1. Overview of the Case
Five affiliates of a major corporate group jointly owned a parcel of land on which they constructed a research facility consisting of three basement levels and fifteen above-ground stories. Each affiliate used designated floors and spaces within the building pursuant to internal arrangements.

Subsequently, several affiliates funded the expansion of portions of the existing building and additional upper-floor areas. Under agreements among the affiliates, the expanded areas were to be used exclusively by specific companies.

The affiliates that bore the construction costs treated the expanded portions as assets independently acquired by them and either reported and paid acquisition tax on that basis or applied for acquisition tax reductions available for corporate-affiliated research institutes.

However, the competent local government determined that the building was registered in the general building register as jointly owned by all five affiliates and that the expanded portions had become integrated with the existing building and were therefore acquired by all co-owners in proportion to their existing ownership interests. Accordingly, the local government allocated the acquisition value of the expanded portions based on the existing ownership shares and imposed acquisition tax and related taxes on each affiliate.

The affiliates filed suit seeking cancellation of the assessments, arguing that the actual owners of the expanded portions were limited to those entities that had funded the construction and exclusively occupied the relevant spaces.

After their claims were rejected at both the trial and appellate levels, the affiliates appealed to the Supreme Court. One Law Partners, LLC represented the local government in the final appeal proceedings.


2. Key Issues
First, the primary issue was whether separate sectional ownership rights had been established with respect to the existing building and the expanded portions.

The key question was whether exclusive use of particular portions of the building by individual affiliates, coupled with the fact that only certain companies bore the expansion costs, was sufficient to establish independent sectional ownership rights. In particular, the issue was whether internal agreements among co-owners regarding use and enjoyment of the property constituted an objective act of division capable of creating legally recognized sectional ownership.

Second, the dispute concerned ownership of the expanded portions and the determination of the persons liable for acquisition tax.

The issue was whether the expanded portions should be recognized as separate objects of ownership or whether they had become incorporated into the existing building and therefore belonged to all co-owners. Depending on that determination, the question arose whether acquisition tax liability should be imposed solely on the affiliates that funded the expansion or on all affiliates according to their existing ownership interests.

Third, the case addressed the applicability of the substance-over-form principle and the principle of protection of legitimate expectations.

The affiliates argued that acquisition tax should be imposed only on the entities that actually used and managed the expanded portions. They further contended that, because the local government had previously recognized the building’s ownership and usage arrangements, the subsequent assessments based on a co-ownership structure violated the principles of good faith and protection of legitimate expectations.


3. Key Response Strategy

One Law Partners, LLC carefully analyzed both the relevant legal principles and factual circumstances concerning the alleged existence of independent sectional ownership rights.

The firm emphasized that an internal agreement granting exclusive possession and use of particular portions of a building is insufficient, by itself, to establish sectional ownership and that there must be an objectively manifested intention to create separate ownership interests capable of independent legal recognition. In particular, the firm relied on building permit documents, records relating to occupancy approvals, and the contents of the general building register to demonstrate that the building had consistently been managed as jointly owned property of the affiliates.

The firm further argued that even if the expanded portions possessed structural and functional independence, that fact alone did not create separate ownership rights. Ownership could not be determined solely by reference to who financed the expansion or who actually occupied the spaces. Unless sectional ownership had been legally established, the expanded portions became integrated with the existing building and belonged to the co-owners in accordance with their ownership interests.

The firm also emphasized that, even if the affiliates’ arrangement were characterized as a form of quasi-sectional co-ownership, the external legal ownership relationship would remain one of co-ownership. Consequently, neither the acquisition tax base nor the parties’ tax obligations would change.

With respect to the principle of protection of legitimate expectations, the firm argued that the local government had never expressed any official position recognizing the establishment of sectional ownership rights and that prior administrative practices could not alter legal ownership relationships or undermine the validity of the tax assessments.

As a result, the Supreme Court held that the agreements among the affiliates constituted no more than internal arrangements regarding possession and use of the building and did not amount to an objective act of division sufficient to establish sectional ownership.

The Court further determined that the expanded portions had become incorporated into the existing building and were therefore acquired by all co-owners in proportion to their existing ownership interests. Consequently, the acquisition tax assessments and related tax assessments based on that premise were lawful.

The Supreme Court dismissed all appeals filed by the affiliates and ordered them to bear the costs of the appeal, thereby confirming the local government’s final victory.


4. Significance of the Case

This case confirms that where multiple entities jointly own a building, the mere fact that particular entities exclusively use designated portions of the property and alone bear the costs of expansion does not automatically establish independent sectional ownership rights in the expanded areas.

In particular, the case demonstrates that, when determining ownership of a building and liability for acquisition tax, it is necessary to consider not only internal arrangements concerning use, enjoyment, and cost allocation but also whether there has been an objectively manifested act of division and how ownership is reflected in official public records such as the building register.

The decision also clarifies that, even where a quasi-sectional co-ownership arrangement may be recognized internally among co-owners, external ownership relationships and acquisition tax obligations must be evaluated separately. In doing so, it provides important legal guidance concerning the proper exercise of local governments’ taxation authority.

One Law Partners, LLC systematically analyzed the complex ownership structure of a corporate group’s real estate holdings and the acquisition tax implications arising from the expansion of a jointly owned building, effectively rebutting the opposing parties’ arguments through reliance on established legal principles and judicial precedent.

By securing a final Supreme Court ruling affirming the legality of the local government’s tax assessments, the firm protected the lawful exercise of taxation authority and achieved a significant result that may serve as an important reference in future disputes involving jointly owned real estate, building expansions, and local taxation matters.



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Sun-Seong Seo, Attorney | ssseo@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