Lone Star Exempted from 25.2 Billion Won Tax Bill

Lone Star, which earned a marginal profit of 280 billion won from the sale of the biggest office building in Korea, Star Tower, in Yeoksam-dong, Gangnam-gu, Seoul, will be exempted from a tax charge of 25.2 billion won imposed on its initial purchase of this building.

Administration Division 3 of the Seoul Administration Court (Chief Judge: Ahn Cheol-sang) disclosed on April 10 that the Gangnam Finance Center (formerly Star Tower) won a lawsuit it brought to court against Gangnam-gu and other entities asserting that "the imposition of the tax of 25.2 billion won that includes the registration tax is unreasonable."

The Gangnam Finance Center, a corporation established in January 1996, closed the business in July the same year, but applied for another business registration permit in April 2001. Two months later, Gangnam Finance Center sold all its shares to a Belgian corporation owned by Lone Star, Star Holdings, and changed its name to Star Tower Ltd (which was changed to Gangnam Finance Center again in August 2006).

Star Tower purchased the office building, which was being rebuilt in Yeoksam-dong, in June 2001 from the Hyundai Development Company and paid taxes, including the registration tax, based on the regular tax rate.

But Gangnam-gu and other entities imposed a tax of 25.2 billion won, saying, "Purchasing a dormant corporation that is out of business and changing not only the name but the purpose of business should be considered the establishment of a new corporation, which is subject to a special tax."

Unwilling to consent, Gangnam Finance Center filed suit.

The Judiciary said, "Purchasing the shares of a dormant corporation and changing the name or the purpose of business does not constitute the establishment of a new corporation."

"The conduct of foreign capital to manipulate the method of purchasing the shares of a dormant corporation in order to avoid heavy taxes, such as the registration tax that results from the establishment of a corporation can be considered to be violating taxation justice," the court added. "But as long as Constitutional Law adopts the principle of `no taxation without representation,` a new law needs to come into existence in order for taxes to be imposed on such conduct."

wing@donga.com