Comprehensive Real Estate Tax Imposed on Scheduled Demolition House... Court Rules "Not Subject to Taxation"

The court ruled that a building that has effectively lost its residential function because all tenants have vacated and demolition is imminent is not subject to comprehensive real estate tax (Comprehensive Real Estate Holding Tax, 종부세).

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According to the legal community on the 13th, the Seoul Administrative Court Administrative Division 6 (Chief Judge Lee Ju-young) ruled in favor of plaintiff A Corporation in a lawsuit filed against the Yeongdeungpo Tax Office in Seoul seeking cancellation of the comprehensive real estate tax imposition.

A Corporation purchased five row houses in Yongsan-gu, Seoul on December 24, 2020, and on the 30th submitted a demolition permit application for the five houses to the Yongsan District Office.

The Yongsan District Office issued the demolition permit only on August 23, 2021, eight months later. The tax office imposed a comprehensive real estate tax of approximately 627.1 million KRW and a special rural tax of approximately 125.4 million KRW, claiming that A Corporation owned three or more houses as of the tax base date of June 1, 2021.

In response, A Corporation filed an objection with the National Tax Tribunal in 2022, which was dismissed, and subsequently filed a petition with the Tax Tribunal, which was also dismissed, leading to the lawsuit seeking cancellation of the comprehensive real estate tax imposition.

A Corporation argued, "Although the buildings appear to be houses, all existing tenants had already vacated by the tax base date, and the buildings were in a state of power and water disconnection with demolition imminent, thus effectively losing their function as houses and cannot be considered as such. Furthermore, despite having applied for demolition before the tax base date, demolition was delayed due to the Yongsan District Office's processing delay, so it is unfair to hold the plaintiff responsible for the delay."

The court ruled in favor of A Corporation. The court stated, "When the Enforcement Decree of the Comprehensive Real Estate Holding Tax Act was amended in February 2022, houses acquired for the purpose of demolition within three years for housing development projects were added to the list of houses excluded from the comprehensive real estate tax consolidation," and added, "Acquiring houses with the intention to demolish them actually alleviates the concentration of tax burden, enhances economic efficiency, and suppresses speculative housing ownership, which is not closely related to the legislative purpose of the comprehensive real estate tax."

It further stated, "Moreover, it is far from the inducive and formative functions of the comprehensive real estate tax, which aims to tax high-value real estate holders to actively pursue real estate price stabilization and other objectives."

Additionally, the court noted, "The plaintiff applied for the demolition permit immediately after acquiring the building, and after several reviews and application submissions, the permit was granted. There is no indication that the building was used or likely to be used during this process, so the mere existence of the building's exterior cannot be considered as being used as a house."

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