The Seoul High Court has ruled that a tax imposed on the Government of Singapore Investment Corporation (GIC) for an office building acquisition was justified.
The final ruling made last Monday and reported by the Korea Times concludes an eight-year-long legal battle over 16.7 billion won (S$18.8million) of taxes levied on GIC after it bought an office building in Seoul.
The decision comes despite GIC having earlier sought and obtained a tax ruling from the government that no such taxes would be paid on the acquisition.
The Singapore sovereign wealth fund bought the 45-storey Star Tower building in Gangnam, southern Seoul, from United States private equity firm Lone Star for an estimated 900 billion won back in 2004.
In 2006, after investigating the deal, the Seoul Metropolitan Government (SMG) levied 16.7 billion won in acquisition tax on GIC's real estate unit, claiming that it used two paper firms to evade taxes.
GIC, which manages over US$100 billion (S$122billion) of Singapore's reserves, paid the tax but still fought the decision, taking the case to court.
In 2008, after two years in court, the Seoul High Court ruled in GIC's favour and ordered the tax office to cancel the tax assessment.
But the SMG lodged a counter-appeal with the Korean Supreme Court to review the High Court's decision, culminating in the High Court's ruling last Monday.
"We rule that GIC Real Estate actually took charge of acquiring the tower," the Seoul High Court said in its ruling. "The subsidiaries that were used for the deal had no prior business performance or any employees. GIC Real Estate and the two subsidiaries even shared the same address.
"We believe GIC Real Estate established the two subsidiaries in order to avoid the acquisition tax."
A GIC spokesman said it was disappointed with the High Court's decision. "GIC had complied with all corporate regulations and obtained a specific tax ruling from the Ministry of Government Administration and Home Affairs that no acquisition taxes would be payable based on the structure for this investment at the time of acquisition.
"GIC is a long-term investor committed to the highest standards of professionalism and investment ethics. We have, and will continue to conduct our business and investment strategy in full compliance with all relevant Korean laws and regulations."