1. Case Overview
A corporation operating a franchise coffee chain acquired a building in Seoul and relocated its headquarters, paying acquisition tax at the ordinary tax rate.
After the relocation, however, the corporation continued operating its former headquarters location as a branch rather than closing it.

The tax authority subsequently determined that, because the former headquarters continued to operate, the newly acquired property constituted “real property acquired for the establishment of a branch in a metropolitan area” under Article 13(2)(1) of the Local Tax Act.

On that basis, the authority imposed a heavy acquisition tax assessment and, together with penalties for failure to file, assessed approximately KRW 220 million in total.

2. Key Issues

• Whether the acquisition of the property was for the establishment of a new branch in a metropolitan area or for the relocation of the existing headquarters

• Whether the continued operation of the former headquarters alone was sufficient to negate a genuine headquarters relocation

• Whether the penalty for failure to file, imposed on the premise of the heavy taxation assessment, was lawful

3. Legal Strategy
Attorneys Soon-sung Seo, In-sun Ko, and Da-ae Kim, together with Senior Advisor Myung-chul Cheon of One Law Partners, LLC, represented the taxpayer and advanced the following arguments:

• A headquarters relocation should be determined not by the formality of corporate registration but by whether the corporation’s substantive central decision-making functions have actually moved.

• The headquarters functions of a franchise coffee chain must be evaluated in light of the specific characteristics of that industry.

• The continued use of the former headquarters was attributable to unavoidable circumstances.

• In the alternative, because the corporation had already reported and paid acquisition tax, even if the property were subject to the increased tax rate, the issue would constitute underreporting rather than a complete failure to file.

4. Significance of the Case
The Tax Tribunal concluded that the acquisition at issue was for the relocation of the existing headquarters rather than the establishment of a new branch, and cancelled the entire assessment, including the penalty for failure to file.
As a result, the taxpayer successfully avoided the improperly imposed additional tax and penalties, preventing substantial economic loss.
 

Attorney Soon-sung Seo | ssseo@onelawpartners.com
Senior Advisor Myung-chul Cheon | mccheon@onelawpartners.com
Attorney In-sun Ko | isgo@onelawpartners.com
Attorney Da-ae Kim | dakim2@onelawpartners.com
 

Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com