Article 12 (Calculation of Merger Evaluation Marginal Profit, etc.)

2. The costs of the lawsuit are assessed against the defendant.

Cheong-gu Office

The same shall apply to the order.

A. On July 18, 2008, the Plaintiff (formerly: bB) merged cC Co., Ltd. (hereinafter “CC”) which is an unlisted corporation that runs the travel business, etc. (hereinafter “CC”) with the merger on July 18, 2008, and completed the merger registration on the 22th day of the same month.

B. The Plaintiff and C had the following: Article 190-2(1) of the former Securities and Exchange Act (wholly amended by Act No. 8635 of Aug. 3, 2007; hereinafter referred to as the “former Securities and Exchange Act”); Article 84-7(1) of the former Enforcement Decree of the Securities and Exchange Act (wholly amended by Presidential Decree No. 20947 of Jul. 29, 2008; hereinafter referred to as the “former Enforcement Decree of the Securities and Exchange Act”); Article 36-12 of the former Enforcement Rule of the Securities and Exchange Act (wholly amended by the Enforcement Rule of the Financial Investment Services and Capital Markets Act, No. 885 of Aug. 4, 2008; hereinafter referred to as the “former Enforcement Rule of the Securities and Exchange Act”); Article 190-2(1) of the former Securities and Exchange Act; Article 84-7(1) of the former Enforcement Decree of the Securities and Exchange Act; Article 36-12 of the former Enforcement Rule of the Securities and Exchange Act (the date of the Corporate Resolution for Merger).

C. On July 18, 2008, the date of the instant merger, the Plaintiff included the xx in the account book the difference between the net asset value of the Plaintiff’s stocks xx (hereinafter “the instant business right”) and the cC’s net asset value xx in accordance with the accounting rules on corporate acquisition, merger, etc. (hereinafter “combined accounting rules”).

D. The Plaintiff deemed that the instant goodwill does not constitute a depreciable asset, as stipulated in Article 24(4) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 22184, Jun. 8, 2010; hereinafter “former Enforcement Decree of the Corporate Tax Act”), and did not include the value of the instant goodwill in the calculation of earnings, and did not include the depreciation costs in the calculation of depreciation costs for the following business year.

E. On March 24, 2014, the Defendant: (a) on the ground that the instant goodwill constitutes a depreciable asset, as stipulated in Article 24(4) of the former Enforcement Decree of the Corporate Tax Act, and (b) notified the Plaintiff of the correction and notification of the KRWx (including additional tax) of the corporate tax for the business year 2008, by inclusion of the value of the instant goodwill in the calculation of

F. On June 16, 2014, the Plaintiff dissatisfied with the above disposition and filed a request for a trial with the Tax Tribunal. On September 17, 2015, the Tax Tribunal decided that the value of the instant goodwill shall be xxx and that the amount of tax base and tax shall be corrected, on the ground that the x member, which is the equivalent amount to the excess amount of stocks issued, falls under the merger gains.

G. On October 14, 2015, the Defendant corrected the corporate taxxx (including additional tax) of the business year 2008 on October 14, 2015 and notified the Plaintiff of the reduction (hereinafter “the disposition of this case”).

[Ground of recognition] Facts without dispute, Gap evidence 1 through 6, 17 evidence, Eul evidence 1 (including numbers, hereinafter the same shall apply) and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The instant goodwill is merely an accounting business right. The Plaintiff recognized the trade name, transaction relations, and other trade secrets, etc. (hereinafter “trade name, etc.”) of C as intangible property value that can obtain excess profits at the time of the instant merger and paid the price by evaluating the value of the pertinent business. Thus, the instant goodwill does not constitute an operating right under tax law that satisfies the requirements of Article 24(4) of the former Enforcement Decree of the Corporate Tax Act.

Even if the instant business right falls under the business right under the tax law, the instant disposition is against the non-taxable practice and the principle of prohibition of retroactive taxation.

Therefore, the instant disposition should be revoked on the grounds that it appears to be any mother or illegal.

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

C. Relevant legal principles

1) In case where a merged corporation succeeds to the evaluation of assets from a merged corporation, the former Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009; hereinafter “former Corporate Tax Act”) imposes tax on the portion exceeding the book value of the merged corporation as a merger evaluation marginal profit (proviso of Article 17(1)3; Articles 15(2) and 12(1)1 of the former Enforcement Decree of Corporate Tax Act). In addition, in the case of a merger, the business right appropriated by the merged corporation shall be deemed as depreciable assets only where the merged corporation succeeds to the evaluation of the assets of the merged corporation and succeeds to the evaluation of the assets of the merged corporation, which are worth the business value of the merged corporation and paid for the consideration (Article

2) According to the relevant Acts and subordinate statutes, in order to impose the value of business rights as a merger evaluation marginal profit in the case of a merger of corporations, the merged corporation recognizes the trade name, etc. of the merged corporation as an intangible property value that can obtain excess profits from the merged corporation and can be deemed to have paid compensation by evaluating its business value. The evaluation of business value should be objectively determined by comprehensively taking into account various circumstances, such as the details and motive of the merger, the current business status of the merged corporation and the merged corporation at the time of the merger, and the details of tax return after the merger, etc., and it cannot be inferred solely on the basis that business rights

A) In order to be taxed as a merger evaluation marginal profit of a merged corporation, it should be recognized as the assets of the merged corporation in the first place. Even if a corporation creates an intangible business right due to its internal business activity, it is not recognized as an asset under tax law, and it is recognized as an asset of the merged corporation only in cases where it satisfies the requirements prescribed by the former Enforcement Decree

There are cases where the purpose and purpose of tax law and corporate accounting are different, and the requirements for recognition of goodwill are also such cases. "Requirements for evaluation of the business value of goodwill" under the Enforcement Decree of the Corporate Tax Act was introduced to recognize goodwill under the tax law at the time of the amendment of the former Enforcement Decree of the Corporate Tax Act on December 31, 1998, and the framework for the merger taxation is maintained by the former Enforcement Decree of the Corporate Tax Act as amended on June 8, 2010.

B) In the case of a merger, the issue of requirements for recognizing a business right as an asset under the tax law is different from the issue of whether it is appropriate to calculate the amount of the business right in excess of the net asset value of the merger price when determining the appropriateness of the specific method of assessment. Therefore, requiring the evaluation of the business value of the trade name, etc. is inconsistent with the precedent that affirms the appropriateness of the evaluation of the business right in accordance

C) The taxation of merger evaluation marginal profit is imposed upon the acquisition of profits generated from the tangible and intangible assets held by a merged corporation prior to the merger. Article 15(2) of the former Enforcement Decree of the Corporate Tax Act merely refers to the calculation method, citing Article 12(1)1 of the Enforcement Decree of the same Act, and does not relate to the conceptual capital reserve (Article 16(1)2(a) of the former Corporate Tax Act). The merger marginal profit between the net asset value transferred by the merged corporation and the face value of the merged new stocks cannot be the requirement for taxation of merger marginal profit (see, e.g., Supreme Court Decision 2015Du41463, May 11, 2018).

(d) Facts of recognition;

1) The Plaintiff engaged in the manufacture and sales of bicycles prior to the instant merger. The Plaintiff’s sales in the business year 2007 was xx won, and xx won.

2) C was established on September 1998 and engaged in travel business, etc. According to statistical data of the Korea General Tour Association (KSA), among domestic travel agents, the order of domestic tourists sent to cC based on the number of domestic tourists was x in 2005, 2006, x in 2007, xx in 2005, xx in 2005, xx in 2006, xx in 2006, and xx in 207.

3) Sales and operating profits from C’s 2002 to 2007 are listed in the following table:

Gu Sector

202 Business year

203 Business year

204 Business year

Sales

Xx won

Xx won

Xx won

Operating Income

Xwon

Xwon

Xwon

Operating Income Rate

x.x%1)

x.x%

x.x%

[c]

Gu Sector

205 Business year

206 Business year

207 Business year

Sales

Xx won

Xx won

Xx won

Operating Income

Xwon

Xwon

Xwon

Operating Income Rate

x.x%

x.x%

x.x%

4) Sales and operating income from 2005 to 2007 of d Co., Ltd. (hereinafter referred to as “d”) and e Co., Ltd. (hereinafter referred to as “e”) engaged in the same business as C are set forth in the following table:

Gu Sector

205 Business year

206 Business year

207 Business year

Sales

Xx won

Xx won

Xx won

Operating Income

Xwon

Xwon

Xwon

Operating Income Rate

x.x%

x.x%

x.x%

[d]

Gu Sector

205 Business year

206 Business year

207 Business year

Sales

Xx won

Xx won

Xx won

Operating Income

Xwon

Xwon

Xwon

Operating Income Rate

x.x%

x.x%

x.x%

[e]

5) On December 31, 2007, as of December 31, 2007, as of December 31, 2007, the assets werex members, the liabilities werex members, and the capital were thex members.

6) The Plaintiff’s audit report (No. 7) No. 17 of the 2008 business year 2008 includes the phrase “The method of accounting for the merger”: The Plaintiff recognized assets and liabilities recognizable as a fair value, and includes the difference between the purchase cost and the purchase cost as a goodwill and redeems them for five years.

7) Around April 10, 2008, the Plaintiff requested an appraisal of the cc's business value and the business value as of the base date on December 31, 2007 on theff of the accounting corporation. The Plaintiff assessed the business value of cc's xx value by means of the cash flow discount method.

8) After the merger of this case, the Plaintiff’s sales and operating profits of the travel sector are as listed in the following table.

【Plaintiff’s Travel Business Sector】

Gu Sector

208 Business year

209 Business year

2010 Business year

2011 Business year

Sales

Xx won

Xx won

Xx won

Xx won

Operating Income

Xwon

Xwon

Xwon

Xwon

Operating Income Rate

x.x%

x.x%

x.x%

x.x%

[Ground of recognition] Facts without dispute, Gap evidence 12, 13, Eul evidence 6 to 8, the purport of the whole pleadings

E. Determination

Comprehensively taking account of the following circumstances revealed through the facts recognized as above and the purport of the entire pleadings, it cannot be deemed that the Plaintiff recognized the trade name, etc. of C as an intangible asset value that can obtain excess profits from C and paid consideration by evaluating its business value. Thus, the instant goodwill does not constitute a goodwill, which is a depreciable asset, under Article 24(4) of the former Enforcement Decree of the Corporate Tax Act. Accordingly, the instant disposition in which the value of the instant goodwill was included in the calculation of profits from the merger is unlawful.

1) The mere fact that the issue price of new shares issued in the merger of this case exceeds the c net asset fair value of c or the Plaintiff included the difference in the account book as business rights according to the combined accounting rules cannot be deemed to have existed a significant business right under tax law or there was a substantial evaluation thereof. Rather, the Plaintiff did not include the value of the instant business rights in the calculation of earnings, deeming that the instant business rights do not constitute business rights under tax law, and did not include the same in the calculation of losses for the following business

2) Pursuant to Article 190-2(1) of the former Securities and Exchange Act, Article 84-7(1) of the former Enforcement Decree of the Securities and Exchange Act, and Article 36-12 of the former Enforcement Rule of the Securities and Exchange Act, calculating the value of the stock of the Plaintiff and CC on April 20, 208 as the base date for appraisal is for the calculation of fair merger ratio, not for the evaluation of goodwill.

3) From 2002 to 2007, operating income was the minimum -xx and highest xxx members, and operating income ratio was significantly low compared to d or e running the same kind of business. From 2005 to 2007, the order of entry by domestic tourists on the basis of the number of domestic tourists on the basis of d or e was between x or x, and the order of entry by the number of persons from 2007 was between x or x and x, so it cannot be deemed that there was an intangible property value that can make it possible to increase the excess income from other companies running the same kind of business in the trade name, etc. of cc.

4) In light of the fact that the sales and operating profits of the Plaintiff’s travel business sector have increased since 2011, the Defendant asserts that there was an intangible asset value that can obtain excess profits from cc’s trade names, etc. However, since the Plaintiff’s sales and operating profits increase significantly affect the business situation due to the rapid increase of overseas tourists and the business efficiency after the merger of this case, it cannot be recognized that there was an intangible asset value that can obtain excess profits from cC’s trade names, etc. solely on the ground that the Plaintiff’s sales and operating profits increase in the Plaintiff’s travel business sector from 2011, it is reasonable to deem that there was no intangible asset value in ccc, etc., on the ground that there was an intangible asset value that can obtain excess profits from cc’s trade names, etc.

5) On the 17th page of the Plaintiff’s audit report for the business year 2008, the phrase “the method of accounting of the merger: The method of accounting was recognized as a fair value of assets and liabilities recognizable as a result of the merger, and the difference between the purchase cost and the purchase cost are appropriated as an operating right, and thus depreciated for five years.” However, the above phrase appears to be just stating the method of accounting as is stipulated in 9. A. b. 3(c) of the combined accounting rules. Thus, it cannot be deemed that the Plaintiff only recognized that there was an intangible asset value that the Plaintiff could obtain excess profits from the trade name, etc. of c.

6) On April 10, 2008, the Plaintiff requested c’s corporate value and business value on December 31, 2007, the base date of which was December 31, 2007. However, if the recoverable value of the instant goodwill falls short of the book value and the amount of such deficiency is important, it should be handled as losses for the reduction of goodwill. Thus, the Plaintiff cannot be deemed to have requested c’s corporate value with the intent to avoid any conflict that may arise in the event that the merger ratio is set and the value of the instant goodwill can be accounted for as expenses for the total amount of the instant goodwill in the business year 2008, under Article 190-2(1) of the former Securities and Exchange Act, Article 84-7(1) of the former Enforcement Decree of the Securities and Exchange Act, Article 36-12 of the former Enforcement Rule of the Securities and Exchange Act, etc.

3. Conclusion

Therefore, the plaintiff's claim of this case is reasonable, and it is so decided as per Disposition.

1) On April 26, 2007, it was listed on KOSDAQ.

2) The method of assessing the equity value of an enterprise or shareholders by lowering the current value of surplus cash flow of an enterprise expected to be created in the future at the market value.

3) Combined Accounting Rules

9. Goodwill; and

(a) Of the purchase cost, the portion exceeding the share of the purchasing company in the fair value of the identifiable assets and liabilities (net assets) acquired from the purchasing company as of the date of purchase shall be recognized as goodwill;

(b) The goodwill shall be depreciated by the fixed installment method through the durable years; and

(d) An appraisal of the goodwill recognized as an asset on the date of purchase shall be made at a recoverable amount in each period for the settlement of accounts. In such cases, where the recoverable value of the goodwill falls short of the book value and such insufficient amount is important, it shall be treated as current cost by treating it as a loss for the reduction of goodwill. The reduced goodwill shall not be recovered later

4) The Korea Accounting Institute has presented its opinion that the method of accounting set forth in Section 9. A. (b) does not recognize the existence of assets at the time of merger as a goodwill, but does not consider the existence of assets and does not recognize it as a goodwill (see evidence 16 of the A).