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Winning a seminal case involving a transfer tax on the assets obtained through a corporate spin-off

2021-01-26

Lee & Ko Tax Practice Group won a seminal case on a transfer tax issue at the Uijeongbu District Court. Our tax experts represented Starfield Goyang, the largest indoor retail complex in the northwestern area of Korea, in seeking the cancellation of transfer tax imposed on certain real properties obtained by the client through a corporate spin-off.

 

This case is one of the recent cases where taxpayers challenged the Korean local governments’ practices of aggressively imposing a transfer tax on the assets obtained by the taxpayer as a result of a division of a business, with no consideration of the economic substance of the business division (e.g., whether it constitutes a spin-off, split-off, divesture, or care-out). This case, among them, is the first case where the local government’s imposition of transfer tax on the assets obtained by the taxpayer through a spin-off is challenged and will have a significant impact on the similar cases that follows.

 

Lee & Ko Tax Practice Group disputed against the unreasonable imposition of transfer tax on various grounds. Our experienced litigators successfully and persuasively argued that i) a spin-off, as provided under the Korean Commercial Act, is a means of a corporate reorganization; ii) the acquisition of assets through a spin-off is significantly different from a contribution in kind and does not constitute an acquisition of assets for value; iii) issuance of new shares in the course of a spin-off was a mere byproduct of the reorganization conducted under the Commercial Act. As the result of the effective representation, the Uijeongbu District Court canceled the imposition of transfer tax in its entirety.

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