close
Share with your friends

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.

1000

Related content

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


Summary

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

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal