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Korea: Land sale, resulting capital gain also subject to corporate income tax

Korea: Land sale, resulting capital gain

The tax tribunal issued a decision holding that if a company purchased land with a known restriction for business use, capital gain realized on the sale of the land is also subject to additional corporate income tax.


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The case identifying information is: Tax Tribunal 2019Seo0391(30 July 2019)


Under South Korea’s corporate income tax law, 10% of capital gain realized from the sale of nonbusiness-use land is also to be included in the taxable income of a company. There is an exception for land that was not able to be used for business purpose because of a restriction on the land’s use under applicable law.

In this case, the taxpayer company (a fishery product distribution business) acquired land to build its logistics center subject to a caveat that acknowledged an existing city plan for continuous use of part of the land as a road. The taxpayer failed to obtain an approval for repurposing the road site for construction of the logistics center and ended up selling the land after few years.

The tax authority asserted that the transfer of the land was subject also to corporate income tax because the land was never used for a business purpose after acquisition.

The taxpayer countered that its circumstances qualified for the exception to the rule from the additional corporate income tax on capital gain realized on the disposal of nonbusiness-use land. 

The tax tribunal found that the exception to the rule referred to situations when the use of the land was restricted or prohibited only after the land’s acquisition. Further, the tribunal noted that whether the taxpayer originally purchased the land for investment purposes or not would not affect this tax treatment. Thus, given that the taxpayer was already aware of the restriction in having to use part of the land as a road at the time of acquisition, the position of the tax authority was justifiable.

Read a 2019 report [PDF 816 KB] prepared by the KPMG member firm in South Korea

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