Lee & Ko successfully obtained a favorable ruling to revoke the refusal of refund of tax on capital gains from the sales of resident building built on the empty land after 5 years as the capital gains incurred before the construction of such building are subject to exemption.
Regarding to the Restriction of Special Taxation Act that prescribes “a transfer of unsold housing unit constructed by the taxpayer within 5 years shall be exempted from 100% of the capital gain tax, and the transfer after 5 years shall be exempted from capital gains incurred in 5 years,” the Korean tax authority argued that the capital gains incurred during the period when the land was empty cannot be subject to exemption when the taxpayer transfer the resident building 5 years after the construction. However, Lee & Ko effectively attested that there is no legal basis to exclude capital gains incurred during the empty-land period from the exemption as the capital gain includes gains from the transfer of both the resident building and the land, and that calculation of capital gains subject to the exemption should be based on the Supreme Court Decision 213Du2273. This case has significant that it opens a door to taxpayers who have not received tax refund in amount of capital gains earned during the empty-land period.