Supreme Court narrows tax breaks for knowledge industry centers

The Supreme Court said Thursday that buildings within knowledge industry centers qualify for local tax reductions only if they house actual manufacturing facilities, rejecting a broader interpretation of the exemption criteria.

In a ruling announced April 30, the high court determined that the term "facilities for operating manufacturing business" under the former Local Tax Exemptions and Restrictions Act refers specifically to factories equipped with machinery and devices that form a product manufacturing process. The court stated that tax laws must be interpreted systematically by considering not just the specific clause but also the related provisions of the Industrial Cluster Development and Factory Establishment Act it cites.

The decision overturns a lower court judgment that had granted tax refunds to Company A, which operated its headquarters and leased space within a knowledge industry center without such manufacturing equipment. The local government had previously denied the refund request, arguing the absence of production facilities disqualified the property from the tax break.

The court emphasized that tax exemption requirements must be interpreted strictly according to the letter of the law to ensure tax equity. It noted that extending exemptions without reasonable grounds violates the principle of tax fairness, particularly when the provisions constitute special privileges. Consequently, the high court found the lower court's view—that the property did not need to be a factory with manufacturing facilities to qualify—was an error in interpreting the law.