A Study confirming whether supply of goods or not, providing a newly built apartment from the Residential Condominium Reconstruction Projects to the member of association
Authors:   KOREAN SOCIETY OF TAX LAW, Bae Yeong-Seok , Bae Han-Bin 
Published: November 2022

After completion of the reconstruction of a residential condominium (hereafter referred to as “Apartment or Real Estate”)(Usually, condominiums are called apartments in Korea) the association members’ apartments will be constructed together with the apartments to be sold to the general public upon approval of construction permit from the local government.
After completion of construction, each member of an association will proceed to register under his or her own name at the government registry office and general public sales units will be registered under the name of the association of reconstruction.
For construction permit aspect, the association of reconstruction(hereafter referred to as “association”) builds the apartments and provides to the member of reconstruction association(hereafter referred to as “member”), but another of view i.e. association members, this can be construed as a transfer of existing apartment (old house) to the association and receive a new house(an exchange of an old house for a newly built house) For preservation registration aspect, the association provides its name to use when they build apartments for the members of the association. But from the viewpoint of association members, they built their own apartments by themselves.
At the real estate reconstruction(Reconstruction members’ portion+general public sales portion), ① acquisition tax, value added tax and capital gain tax will be imposed as if members built their own apartment.
From the viewpoint of preservative registration of real estate, the obligator of acquisition tax is the association member, accordingly, value-added-tax is not imposed on the association member. Also this real estate is not considered a transfer of ownership. Accordingly there is no capital gain tax because the newly built apartment considered the same as existing apartment.
② An association tax will be imposed as if the member of reconstruction invests investment-in-kind by the existing real estate and buys a newly constructed apartment from the association(exchanging the existing old apartment and receiving newly built apartment). Accordingly the association will appraise the real estate property based on investment-in-kind and determine the value of land when the association sells a newly built apartment.(An association shall be taxed as a corporation entity) This existing real estate appraisal value is very important because the association tax (corporate tax) and dividend tax to the member of association will be determined by this appraisal value as tax basis for the gain on sale on the general public sale portion of real estate.
This kind of two different aspect generate a few issues of taxation on acquisition tax, value added tax, and capital gain tax etc.
This thesis presents a view of dual status position right on the association.
The association is the original acquirer of the apartments sold to the general public but the original acquirer is the association member for the member portion of real estate, and the role of association is permitting to use the association’s name to build the new apartment.
Given the dual status position right, the association can claim both positions: first as the supplier to the general public sale of newly constructed apart- ments, and second as the joint purchaser of real estate for the association members.
This thesis reviews issues and dual status position right in connection with reconstruction projects under the current tax law and suggests an amendment for the Restriction of Special Taxation Act, Corporate Tax Act, and Value-added-Tax Act.
If tax laws apply the following dual status position thesis, the grounded jurisprudence theory of acquisition tax, value-added tax and capital gain tax (original acquisition value of apartment for the member portion) will apply to the association tax. That means the theory of tax law will be consistent with the theory of that the member built