A Study on acquisition tax and accounting issues on the housing association acquires for parcels of land for the general public sale
Authors:   KOREAN SOCIETY OF TAX LAW, Bae Yeong-Seok , Bae Han-Bin 
Published: August 2023

Almost every housing reconstruction association(hereafter referred to as “Association”) acquires land parcel from the association members (hereafter refer to as “member”), to raise construction cost for the general public sales portion. There are a several acquisition tax issues and problems resulting from the association acquiring land on an acquisition tax when the association acquired the land from the members. To eliminate this controversy issues, the government authority amended The Local Tax Act after The Supreme Court judged that acquisition tax is not liable under the Local Tax Act law at that time.
According to previous discussions whether there is acquisition tax liability on the land acquired by the association from the association members on the general public sales portion of reconstructed houses, this is based on the theory that the land was remaining portion of trust property which was received on trust from the member of association to the reconstruction association. This logic influenced tax and the legislative authorities on interpretation of the relevant regulations.
However, these land parcels acquired by the association from the members to provide construction cost for the members’ house, i.e. the land is in recompense for development outlay by the regulation of the Act on the Improvement of Urban Area and Residential Environments. Therefore, this land is not trust property to the association by investment-in-kind from the members according by the legal act. Instead it is intrinsic property by the original acquisition to the association according to the regulation of law. So, it is proper and correct to tax this acquisition of land from the members to the association.
After the housing reconstruction completed, the newly reconstructed houses were registered under the name of association members because members owned the land. It means logic of “I built my own house by myself” based on the original acquisition, it is not the acquisition by succession from the association to the members based on the logic of “giving old house and receiving new house”.
Based on this kind of logic, there is no investment-in-kind of the newly constructed house received by the members from the association after transferring the old house to the association.
On other hand, we can say, if that the association received a parcel of land for free from the members to build the general public sale house, this does not also make sense because no one will provide his/her real property without proper consideration, i.e. it means the association did not acquire by succession by the investment-in-kind or free of cost from the members for the general public sale portion of house.
However, tax authorities deem that the association acquired the land by succession without cost instead of original acquisition with payment when government tax levy on the acquisition tax. This assumes very important issues because it affect the corporate income tax, accounting regulations for the association including acquisition tax to the association and dividend income tax to the association members.
According to the accounting ordinance of the Rearrangement and Reconstruction of housing in Seoul City, the city deemes that the association acquired the parcel of land by exchange between the association and its members which is the view of acquisition by succession theory. However, in order to apply view of exchange, there should be an actual exchange of the association’s the newly constructed real estate and previously owned land by the members. But no exchange existed because both the newly-built-house and previously owned land were owned by the members.
The sales of land to the general public sales is characterized as an original acquisition with consideration, but tax authorities impose acquisition tax under the view of acquisition by succession without consideration.