[2] Whether each subparagraph of Article 13(2) of the former Restriction of Special Taxation Act provides for a new investment in acquiring stocks by actually accompanying an expenditure of money, etc. or by any other means equivalent thereto (affirmative) / Whether a gratuitous investment in capital transfer constitutes a new investment in acquiring stocks by “a method of capital transfer of surplus funds” under Article 13(2)3 of the former Restriction of Special Taxation Act (negative) and the standard point of time to determine whether a special relationship exists between an investor and a venture business with respect to gratuitous investment acquired by capital transfer of capital surplus or whether a person holds stocks for five years

[2] The legislative intent of Articles 13 and 14 of the former Restriction of Special Taxation Act (amended by Act No. 8827 of Dec. 31, 2007; hereinafter “former Special Taxation Act”) is to grant special taxation for capital stock invested in a venture business so that a venture business can be smoothly supplied with start-up funds and funds for commercialization of new technology. Thus, each subparagraph of Article 13(2) of the former Special Taxation Act is understood to stipulate a new investment in a venture business that acquires stocks by actually accompanying an expenditure of money, etc. or by any other similar method. However, the capital transfer without compensation is merely issued by an existing investor in proportion to the existing share without receiving new payment of money, etc. from the existing investor, and the existing investor should not be affected by the existing share transfer. If such acquisition without compensation is deemed to be a new investment share, it shall be deemed that there is a new basis for the special taxation for capital transfer between the existing investor and the new capital transfer without compensation under Article 3(2) of the former Special Taxation Act based on the acquisition of capital stock without compensation.

1. Articles 14(1)4 and 13(2) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Act No. 8827, Dec. 31, 2007; hereinafter “former Special Provisions”), Article 12(1) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 22037, Feb. 18, 2010; hereinafter “former Enforcement Decree of the Special Provisions on the Promotion of Venture Businesses”) provides for the special cases of non-taxation for the transfer of stocks acquired by investing in a venture business (hereinafter “venture business”) under Article 2(1)5 of the former Enforcement Decree of the Special Provisions on the Restriction of Special Taxation Act (amended by Act No. 8827, Dec. 31, 2007; hereinafter “former Enforcement Decree of the Special Provisions on the Promotion of Venture Businesses”) within 10 years from the date of establishment of the venture business (excluding the method of transferring stocks to a venture business or venture business).

Meanwhile, Article 45-3(1) of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter the same) provides that a person who fails to file a tax base return within the statutory due date of return may file a return after the due date of return before the head of the competent tax office determines and notifies the tax base and tax amount of the relevant national tax pursuant to the tax law. Paragraph (3) of the same Article provides that where a return of tax base after the due date of return is filed pursuant to the provisions of paragraph (1) (if there is any payable

Even if a person liable to pay capital gains tax submits a return of tax base after the due date, the tax liability becomes final and conclusive only when the head of the competent tax office determines the tax base and amount of capital gains tax. If the tax authority notifies the person liable to pay capital gains tax of the return of tax base and amount of tax at the time of submission of the return of tax base and amount of tax after the due date of tax base, and thus, notified the person liable to pay tax of the return of tax base and amount of tax to the effect that there is no amount of tax to be notified separately, the notification of the determination shall be deemed an administrative disposition subject to appeal under

2. According to the reasoning of the lower judgment, the lower court: (a) acquired shares 12,00 shares (hereinafter “instant one shares”) by participating in capital increase with the Plaintiff on September 14, 2001, which was a venture business for not more than three years after its establishment and had no special relation with the Plaintiff; (b) obtained 25,542 shares (hereinafter “instant 2 shares”) as capital increase without compensation due to capital increase of 18% of the total issued shares; (c) reported the tax base of capital increase from 375,42 shares on May 9, 200 and 200 to 375,42 shares (hereinafter “instant 1 shares”); and (d) reported the tax base of capital increase without compensation to 40% of the total issued shares (hereinafter “375,420 shares”); and (d) reported the tax base of capital increase with the Plaintiff’s total amount of 50% shares and 544,000 shares (hereinafter “this case’s 205,”).

Furthermore, the lower court determined as follows: (a) the notice of recognition at the time of the instant declaration constituted an administrative disposition subject to appeal litigation; (b) on the ground that the acquisition of capital surplus by capital transfer constitutes a new investment under Article 13(2)3 of the former Act; (c) the acquisition of capital surplus by capital transfer constitutes a new investment under “the method of capital transfer of surplus”; (d) and thus, should be based on the point of time of acquiring such special relationship between an investor and a venture business; and (e) on the ground that the Plaintiff acquired the 2 stocks as at March 22, 2002 and August 8, 2006, acquired the 3 stocks as at March 22, 2002, the Plaintiff did not meet the requirements of non-taxation under Article 13(1)4 of the former Act, as at the time of acquiring the 1 stocks; and (e) on the ground that the said 3 stocks were transferred from May 8, 2007 to November 207, the acquisition date of the 2007 stocks were lawful.

3. However, it is difficult to accept such a determination by the lower court for the following reasons.

The legislative purport of Articles 13 and 14 of the former Special Taxation Act is to grant special taxation for capital invested in a venture business so that a venture business can smoothly be supplied with a start-up fund and funds for commercialization of new technology, so it is understood that each subparagraph of Article 13(2) of the former Special Taxation Act provides for a new investment in acquiring stocks by accompanying the expenditure of money, etc. or by any other means equivalent thereto. However, a gratuitous investment following the capital transfer is merely issued by an existing investor without receiving new money, etc. from the existing investor and is merely issued in proportion to his/her stocks, and the existing investor does not have any influence on the previous equity ratio due to such gratuitous investment. If acquisition of such capital transfer is deemed a new investment, the actual value of the stocks owned by the existing investor would result in the conversion of part of the stocks subject to the initial special taxation, and thus, it would be contrary to the purport of the special taxation for capital transfer, and thus, the acquisition of capital transfer without compensation should be based on the acquisition of new stocks at the time of acquisition of capital transfer and the new capital transfer without compensation.

Examining the facts acknowledged by the court below in light of the above legal principles, the plaintiff acquired 2 stocks and 3 stocks in question according to capital transfer, and held 5 years from the time of acquisition of 1 stocks as at the time of acquisition of 1 stocks, which served as the basis for the acquisition of capital surplus. Thus, the transfer of 2 stocks and 3 stocks constitutes the subject of special taxation under Article 14(1)4 of the former Act. Nevertheless, the court below determined otherwise that the transfer of 2 stocks and 3 stocks did not meet the non-taxation requirements for capital gains tax under Article 14(1)4 of the former Act. Thus, the court below erred by misapprehending the legal principles on Article 14(1)4 and Article 13(2)3 of the former Act, which affected the conclusion of the judgment. The ground of appeal pointing this out is with merit.

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)