A plot of land worth 900 million won, which was thought to be eligible for capital gains tax exemption, turned out not to be subject to the tax reduction. When the buyer of the land did not pay the expected additional taxes, the seller filed a lawsuit demanding payment and won. The Supreme Court ruled that if the contract included a clause stating 'the buyer shall bear the capital gains tax,' then the buyer must cover the full amount even if the tax exceeded expectations.
According to the legal sector on the 12th, the Supreme Court Civil Division 2 (Presiding Judge Oh Kyung-mi) overturned the ruling of the second trial that found against the seller, Mr. Park, in a lawsuit for payment of a contractual penalty filed by the land seller against buyers Mr. Moon and Mr. Han, and sent the case back to the Incheon District Court.
In 2021, Mr. Park signed a contract to sell land he owned in Jincheon-gun, Chungcheongbuk-do, for 940 million won to Mr. Moon and Mr. Han. The contract included a special provision stating 'the buyer shall bear the capital gains tax.' Mr. Moon's side reported the tax of 90.15 million won, believing the land was eligible for the farming land tax reduction, and paid this amount to Mr. Park.
The farming land tax reduction refers to the exemption of capital gains tax for landowners who reside on and directly cultivate the land for eight years between the acquisition date and sale date.
However, the tax authorities informed Mr. Park that the land in question was not eligible for tax reduction and demanded an additional payment of 175.25 million won. After making the additional payment, Mr. Park filed a lawsuit against Mr. Moon for the extra taxes paid.
The first trial ruled in favor of Mr. Park, the landowner. The first trial court stated, 'As indicated in the special provision, Mr. Moon's side is obligated to pay the full amount of capital gains tax since their sales contract stipulated that.'
However, this ruling was overturned in the second trial. The second trial court noted, 'Considering that the land price is 940 million won, it is unreasonable to acknowledge that Mr. Moon's side had an intention to cover the capital gains tax imposed if this land is not eligible for tax reduction.'
The Supreme Court upheld the first trial's ruling and sent the case back to the Incheon District Court. The court said, 'The objective meaning of the special provision stating that the buyer shall bear the capital gains tax is clearly that the full capital gains tax imposed on Mr. Park due to the sale of the land shall be borne by Mr. Moon's side.'