Korean Tax Agency to Levy Surtax against Lone Star Funds | Be Korea-savvy

Korean Tax Agency to Levy Surtax against Lone Star Funds


The Seoul High Court, partially upholding an earlier lower court decision, said there is a legal basis for the NTS to levy the corporate tax on the proceeds of the sale. (image: Yonhap)

The Seoul High Court, partially upholding an earlier lower court decision, said there is a legal basis for the NTS to levy the corporate tax on the proceeds of the sale. (image: Yonhap)

SEOUL, May 28 (Korea Bizwire)After its partial victory in a lawsuit against the U.S. private equity firm Lone Star Funds over the taxation of income generated by the sale of a skyscraper in Seoul’s Gangnam district, the National Tax Service (NTS) is expected to levy the additional tax on Lone Star.

On May 27, the NTS achieved partial victory in a lawsuit raised by the American company asking the court to cancel taxation levied on the profits of the sale of Star Tower, now known as Gangnam Finance Center. NTS levied a total of 104 billion won (US$93.8 million) in taxes including 64.8 billion won in corporate taxes and 39.2 billion won in additional taxes.

The Seoul High Court, partially upholding an earlier lower court decision, said there is a legal basis for the NTS to levy the corporate tax on the proceeds of the sale. However, the court sided with Lone Star Funds on the additional taxes, saying they lacked procedural grounds.

“As a taxation agency, the NTS can levy additional taxes by taking proper procedural steps,” the court added.

An NTS official said, “According to current laws, additional taxes can be levied within a year of the court ruling. We just need to provide the reason for the taxation by providing the basis and levy the tax again.”

For the NTS, it doesn’t need to appeal to a higher court for the partial loss, as it can impose additional taxes, so it is not expected to appeal to the Supreme Court.

The decade-long legal battle dates back to 2001 when Lone Star’s Belgium affiliate purchased and sold the skyscraper, gaining nearly 245 billion won in profit. The NTS withheld 50 percent of the sale proceeds and levied 100 billion won in transfer income tax, against which Lone Star filed a suit. The Supreme Court ruled in 2012 that the tax agency’s levying of the 100 billion won transfer income tax was contrary to local tax law, and ordered the refund.

Challenging the ruling, the tax authorities then levied nearly 100 billion won in corporate taxes and additional taxes, which again prompted Lone Star to file a lawsuit to cancel the tax.

By M. H. Lee (mhlee@koreabizwire.com)

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