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"We won't pay the 30.4 billion won," Harim Industrial files petition for constitutional review of heavy taxation on Yangjae Cargo Terminal

[비즈한국] According to BizHankook's coverage, Harim Industrial has recently filed a petition with the Supreme Court for a constitutional review regarding the heavy acquisition tax levied during its purchase of the Yangjae Cargo Terminal site in Seoul. When a company based in a major city acquires real estate in such a city within five years of its establishment or relocation, it is subject to heavy acquisition taxes. Harim Industrial was subject to this heavy tax upon purchasing the Yangjae Cargo Terminal and is currently involved in a lawsuit against the Seocho-gu Office to cancel the tax assessment. The first and second instance courts rejected Harim Industrial's claims, and the company filed an appeal in May to await the Supreme Court's decision; attention is now focused on whether the constitutional review will become a new variable in the case.

According to the legal community, Harim Industrial filed the petition for a constitutional review in August regarding the acquisition tax imposed on the Yangjae Cargo Terminal site. Previously, Harim Industrial filed a lawsuit to cancel the tax assessment, opposing the Seocho-gu Office's imposition of a heavy tax. Both the first and second instance courts rejected the company's arguments, and Harim Industrial has been awaiting the Supreme Court's judgment since filing its appeal in May.

A constitutional review is a process to determine whether a law conforms to the Constitution and to invalidate it if it is found to be in violation. If the constitutionality of a law is a prerequisite for a trial, the presiding court may, either ex officio or upon the request of a party, petition the Constitutional Court for a review. In the case of a party's request, the court either decides to file the petition or rejects the application; the party cannot appeal this decision. If the court petitions for a constitutional review, the lawsuit is suspended until the Constitutional Court reaches a final decision.

Harim Industrial is an affiliate of the chicken specialty company Harim. It currently focuses on real estate and food additive manufacturing. As of the end of 2023, the entire stake in the company was held by Harim Holdings003380. According to corporate registration, the company’s headquarters moved from the NS Shopping (formerly Nongsu-san Home Shopping) building in Bundang-gu, Seongnam-si, Gyeonggi-do—where it was established in February 2012—to the Pangyo Urim W-City building in the same area in March 2016. In April of the same year, the company removed restaurant-related businesses from its primary business objectives, added real estate development, and relocated its headquarters once again to Iksan-si, Jeollabuk-do.

The acquisition tax in question arose when Harim Industrial purchased the Yangjae Cargo Terminal. In May 2016, Harim Industrial bought the Yangjae Cargo Terminal site in Seocho-gu, Seoul, for 424.5 billion won. It planned to build a high-tech logistics complex on the 91,083-square-meter site. The development of the site, which had been a long-cherished project for the Harim Group, was finalized following Seoul City's approval in February. The plan includes the construction of a complex logistics center with eight basement levels and 59 ground levels (a total floor area of 1.475 million square meters), featuring commercial, residential, and R&D facilities.

The core issue in the previous cancellation lawsuits was whether Harim Industrial was subject to heavy acquisition taxes for the Yangjae site. According to the Local Tax Act, companies that acquire real estate in a major city (overcrowding control zone) within five years of establishing, installing, or moving their headquarters or offices into that city are subject to heavy acquisition taxes. The intent is to prevent unchecked population expansion while promoting environmental preservation and balanced regional development. According to legal precedent, if a company that had its headquarters in a major city moves it to a provincial area before acquiring real estate in the major city, it is exempt from the heavy tax.

The Seocho-gu Office imposed the heavy tax on Harim Industrial, arguing that the company had purchased the major-city real estate within five years of establishing or moving its headquarters to such an area. Initially, Harim Industrial paid 20.8 billion won in taxes, including 18.1 billion won in acquisition tax, 1.8 billion won in local education tax, and 0.9 billion won in rural development tax, calculated at a standard rate of 4% on the 452.547 billion won purchase price. However, in April 2019, the Seocho-gu Office issued a new assessment, demanding the company pay an additional amount based on an 8% heavy tax rate, plus penalties for underreporting and failure to fulfill tax obligations.

In November 2020, Harim Industrial filed a lawsuit to cancel the tax assessment, claiming the heavy taxation was unjust. The company argued that it was not subject to the heavy tax because it did not have its headquarters or offices in the major city at the time of the Yangjae site purchase. The total amount of tax Harim Industrial is seeking to cancel is 30.4 billion won, consisting of 19.8 billion won of the 36.2 billion won acquisition tax, 3.8 billion won of the 5.4 billion won local education tax, and corresponding penalties of 5.7 billion won and 1.1 billion won, respectively.

Specific details regarding the current petition for constitutional review have not been confirmed. However, based on the arguments presented in the ongoing tax lawsuit, it is likely that Harim Industrial is challenging the old Local Tax Act for violating the constitutional principle of proportionality (prohibition of excessive restriction), the principle of equality, or infringing upon the freedom of business. A Harim Industrial official stated, "There is nothing to comment on regarding the lawsuit."

A legal expert remarked, "The heavy taxation clause regarding real estate acquisition in major cities under the Local Tax Act has been controversial since its inception for placing an excessive burden on companies. Criticisms regarding the requirements for heavy taxation, such as violation of the constitutional principle of proportionality, equality, and infringement on the freedom of occupation, remain persistent."