Article 2 of the Framework Act on Small and Medium Enterprises

2. The costs of appeal shall be borne by the Defendant.

The defendant's disposition of imposition of corporate tax of KRW 6,472,923,720 for the year 1998 against the plaintiff on February 3, 2003 in excess of KRW 4,305,742,773, and the disposition of imposition of corporate tax of KRW 10,684,748,614 for the year 1999 in excess of KRW 7,764,329,439 shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

A. The Plaintiff was established on May 4, 1994, and was manufacturing and selling a small and medium enterprise that manufactures and sells the Damond powder and props for industrial use. However, on December 31, 1997, the Enforcement Decree of the former Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 17026, Dec. 27, 2000; hereinafter the same shall apply) as of December 31, 1997

[Attachment 2] As a result of exceeding 70 billion won, which is the size of assets of small and medium enterprises as stipulated in the attached Table 2, Paragraph 1 of Article 2 of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act (amended by the Enforcement Decree of the Restriction of Special Taxation Act No. 15976, Dec. 31, 1998; hereinafter the same shall apply), it shall not be deemed a small and medium enterprise as stipulated in the main sentence of Paragraph 2 of the same Article, but it shall be a corporation under the grace period to be considered as a small and medium enterprise under the former Regulation of Tax Reduction and Exemption Act for two consecutive years from January 1, 1998 to December 3

B. On May 30, 1998, the Plaintiff merged ○○○ Co., Ltd., a small and medium enterprise with an asset size of 2.9 billion won, and ○○○○ Co., Ltd, a small and medium enterprise with an asset size of 31.9 billion won on August 5 of the same year.

C. After that, the plaintiff filed a return on corporate tax for the year 1998, pursuant to the provisions of Articles 4 and 7 of the former Regulation of Tax Reduction and Exemption Act (amended by Act No. 5584, Dec. 28, 1998; Act No. 5584, Dec. 28, 1998; Act No. 5584); deducted 1,159,83,297,112 as corporate tax; and subsequently, reported and paid 189,18,348 as corporate tax. After adding 189,189,348 won as corporate tax, the above amount was paid. In filing a return on corporate tax for the year 1999, the tax reduction and exemption amount was still applied to the former Restriction of Tax Reduction and Exemption Act (amended by Act No. 6297, Dec. 29, 200; hereinafter the same shall apply).

D. However, as stated in the above paragraph (b) above, the Defendant, as a result of the Plaintiff’s merger between ○○ and ○○○○ Stock Company, applied the proviso to Article 2(2) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act, proviso to Article 2(3) of the Framework Act on Small and Medium Enterprises, and Article 5 subparag. 1 of the Enforcement Decree of the Framework Act, was not an enterprise among small and medium enterprises which can any longer be subject to tax reduction and exemption, thereby re-calculated corporate tax, excluding the application of the above special provisions on the ground that the small and medium enterprise investment reserve was included in deductible expenses and reported and paid corporate tax by applying the special tax of small and medium enterprises. On February 3, 2003, the Defendant imposed tax on the Plaintiff amounting to KRW 2,150,45,260 as corporate tax attributed to the year 198, and the amount corresponding to 4,224,453

E. On May 3, 2003, the Plaintiff appealed to the International Tribunal for the revocation of the instant taxation disposition, but was dismissed on July 18, 2005.

[Reasons for Recognition] Facts without dispute, Gap evidence 1-1, 2-2, Gap evidence 2, Gap evidence 3-1, 2-2, Eul evidence 2-1 through 14, Eul evidence 3-1 to 3-16, and the purport of the whole pleadings.

2. Whether the taxation disposition is legitimate

A. The plaintiff's assertion

Article 2(2) proviso of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act, Article 2(3) proviso of the Framework Act on Small and Medium Enterprises, and Article 5 subparag. 1 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises are applicable only to cases where a company, which has been postponed for a certain period of time, is merged with a company deemed a small and medium enterprise, and thus, cannot be extensively interpreted and applied to cases where a company, such as the Plaintiff, merges with a small and medium enterprise. However, the instant taxation disposition based

In addition, around November 4, 1999, the Plaintiff was issued by the Defendant a small and medium enterprise certification certificate that the Plaintiff constitutes a small and medium enterprise from January 1, 1998 to December 31, 199. The Plaintiff trusted this, and filed a corporate tax return after inclusion in deductible expenses and tax credit as stated in the above 1.C., and the instant taxation disposition imposed on the expressed opinion is unlawful as it goes against the principle of trust protection.

B. Relevant statutes

Attached Form 3 is as shown in the "relevant Acts and subordinate statutes".

C. Determination

First of all, we examine whether the deferment of small and medium enterprise, which was applied to the plaintiff, is invalidated by mergers between ○○ and ○○○○○ corporation.

The principle of no taxation without law unilaterally prevents the requirements for taxation, non-taxation, or tax reduction and exemption, and the interpretation of tax laws and regulations shall be interpreted as the text of the law, barring special circumstances, and it is not allowed to expand or analogically interpret without reasonable grounds (see, e.g., Supreme Court Decisions 2003Du7392, May 28, 2004; 2005Da19163, May 25, 2006).

According to the main sentence of Article 2(2) of the Enforcement Decree of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act, if a company which was a small or medium enterprise ceases to be a small or medium enterprise due to expansion of its size, etc., the purpose of this system is to mitigate the shock caused by the suspension of existing support to a former small or medium enterprise at the same time. However, according to the proviso of Article 2(2) of the former Enforcement Decree of the Regulation of Tax Reduction and Exemption Act, the proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises, and Article 5(1) of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises, if a small or medium enterprise merges with a company deemed a small or medium enterprise, a grace period by the deferment system is not allowed if the small or medium enterprise merges with a company deemed to be a small or medium enterprise under the main sentence of Article 2(3) of the Framework Act on Small and Medium Enterprises, which may result in the application of the special provision

However, there is no provision regarding the effect of suspending the merger of small and medium enterprises as the principal agent of the merger under the proviso of Article 2(2) of the former Regulation of Tax Reduction and Exemption Act, the proviso of Article 2(3) of the Framework Act on Small and Medium Enterprises, and Article 5 subparag. 1 of the former Enforcement Decree of the Framework Act on Small and Medium Enterprises. Furthermore, if the intention of tax avoidance by a large enterprise or other similar small and medium enterprise is not peeped, it should not be interpreted that the postponement becomes effective even if a company under deferment becomes the principal agent of merger under the principle of tax equality and becomes a small and medium enterprise merger under the pretext of the principle of tax equality, it would not be permitted under the principle of no taxation without law to extend the number of small and medium enterprises to increase the size of the company including the merger of small and medium enterprises, which would result in the merger of small and medium enterprises without extending the number of companies to a date and expanding the number of small and medium enterprises including the merger, which would result in the merger between small and medium enterprises.

Therefore, even if the plaintiff who had been postponed by a small and medium enterprise under the former Regulation of Tax Reduction and Exemption Act was merged with a small and medium enterprise during that period, the taxation of this case based on the premise that the deferment was invalidated even though it cannot be deemed that the deferment was invalidated, is unlawful. Therefore, the plaintiff's remaining arguments that need not be examined further are with merit.

(d) Justifiable tax amount.

Furthermore, in a lawsuit seeking revocation of a tax disposition, the legality of the disposition shall be determined based on whether it exceeds the legitimate tax amount. Thus, when calculating the legitimate tax amount of the corporate tax reverted to year 198 and year 1999, the Plaintiff’s corporate tax shall be included in deductible expenses in accordance with the former Regulation of Tax Reduction and Exemption Act and Article 4 of the former Restriction of Special Taxation Act and Article 4 of the former Restriction of Tax Reduction and Exemption Act, and KRW 1,159,838,889, and KRW 1,718,685,870 of the special tax reduction and exemption amount for the business year 1998 and KRW 1,718,685,870 of the special tax reduction and exemption amount for the business year 1999 and KRW 7,64,329,439 of the corporate tax reverted to year 199 as indicated in the separate sheet.

Therefore, the part of the Defendant’s imposition disposition of KRW 6,472,923,720 (=4,133,297,112 + KRW 189,189,348 + KRW 2,150,45,260 + KRW 4,305,742,773 of the amount imposed by the Defendant against the Plaintiff on February 3, 2003 and KRW 10,684,748,614 (= KRW 6,328,758,524 + KRW 131,536,470 + KRW 7,244,453,620) of the amount imposed by the Defendant on the Plaintiff in 1999 should be revoked.

3. Conclusion

Therefore, the plaintiff's claim seeking the revocation of the above portion exceeding the above legitimate tax amount shall be accepted with the grounds, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed. It is so decided as per Disposition.

Relevant statutes

(1) The former Regulation of Tax Reduction and Exemption Act (amended by the Restriction of Special Taxation Act No. 5584, Dec. 28, 1998);

Article 4 (Inclusion of Investment Reserves in Loss)

(1) Where a national operating a small or medium enterprise as prescribed by the Presidential Decree (hereinafter referred to as the “small or medium enterprise”) appropriates the investment reserve to his deductible expenses in order to appropriate for the funds needed for replacement or new acquisition of the business assets as prescribed by the Presidential Decree (hereinafter referred to as the “business assets”), such reserve shall be included in the deductible expenses in calculating the income amount for the relevant taxable year within the limit of the amount calculated by multiplying the value of the business assets as of the

Article 7 (Special Tax Abatement or Exemption for Small and Medium Manufacturing Business, etc.)

(1) With respect to small and medium enterprises engaged in manufacturing business, value-added network business, research and development business, broadcasting business, engineering business, information processing business, computer operation-related business, or logistics industry, an amount of tax equivalent to 20/100 of income tax or corporate tax on income accrued from the business shall be reduced

(1) Enforcement Decree of the former Regulation of Tax Reduction and Exemption Act (amended by the Enforcement Decree of the Restriction of Special Taxation Act No. 15976 of December 31, 1998)

Article 2 (Scope of Small and Medium Enterprises)

(1) "Small and medium enterprises prescribed by Presidential Decree" in Article 4 (1) of the Act means enterprises engaged in manufacturing, mining, construction and transportation business (referring to the distribution industry and passenger transport business under Article 6 (9); hereinafter the same shall apply), fishery, wholesale, retail, value-added network, research and development business, and broadcasting business under Article 6 (3) of the Act (hereinafter referred to as "broadcasting business"). Engineering business under Article 6 (7), data processing and computer operation-related business under Article 6 (8), automobile maintenance-related business under Article 39 (1), business operating medical institutions under the Medical Service Act, business operating waste disposal business under the Wastes Control Act (including the case of recycling wastes after making a report under Article 44-2 of the same Act; hereinafter the same shall apply). Waste treatment business under the Water Quality Conservation Act (hereinafter referred to as "relevant enterprise"):

1. The number of employees of the enterprise shall be within the standards (300 in case of fishery) as shown in the attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises; and

2. The total assets of the relevant enterprise shall be within the standards listed in attached Table 2 of the Enforcement Decree of the Framework Act on Small

3. Actual independence of ownership and management shall meet the provisions of subparagraph 2 of Article 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises.

(2) In the application of the provisions of paragraph (1), if a small or medium enterprise becomes not a small or medium enterprise as it exceeds the standards under subparagraph 1 or 2 of the same paragraph due to its expansion, etc., it shall be deemed a small or medium enterprise for the taxable year which includes the day on which such a cause occurs and the taxable year following the second taxable year: Provided, That this shall not apply

/ former Restriction of Special Taxation Act (amended by Act No. 6297 of Dec. 29, 2000)

Article 4 (Inclusion of Investment Reserves in Loss)

(1) Where a national operating a small or medium enterprise as prescribed by the Presidential Decree (hereinafter referred to as the “small or medium enterprise”) appropriates the investment reserve to his deductible expenses in order to appropriate for the funds required for replacement or new acquisition of the business assets as prescribed by the Presidential Decree (hereinafter referred to as the “business assets”) not later than the taxable year ending on or before December 31, 2003, such reserve shall be included in the deductible expenses within the limit of the amount calculated by multiplying the value of the business assets as of the end of the relevant taxable year by 20/

Article 7 (Special Tax Abatement or Exemption for Small and Medium Manufacturing Business, etc.)

(1) With respect to a national small or medium enterprise engaged in a manufacturing business, value-added network business, research and development business, broadcasting business, engineering business, data processing and computer operation-related business, or logistics industry, the tax amount equivalent to 20/100 of the income or corporate tax on any income accruing from the business shall be reduced or exempted until the taxable year ending on or before December 31, 2003.

(1) The former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 16693 of Jan. 10, 200)

Article 2 (Scope of Small and Medium Enterprises)

(1) For the purpose of Article 4 (1) of the Restriction of Special Taxation Act (hereinafter referred to as the “Act”), the term “small and medium enterprises as prescribed by the Presidential Decree” means the manufacturing industry (including the business which is deemed the manufacturing industry under Article 31 of the Enforcement Decree of the Income Tax Act; hereinafter the same shall apply); the mining industry, construction industry, transportation business (referring to the distribution industry and passenger transport business under Article 5 (8); hereinafter the same shall apply); the wholesale industry, retail industry, value-added network, research and development business; the broadcasting business under Article 6 (2) of the Act (hereinafter referred to as the “broadcasting business”); the engineering business under Article 5 (6); the data processing and computer operation-related business under Article 5 (7); the business of operating medical institutions under the Medical Service Act; the waste disposal business under the Wastes Control Act (including the case of disposing of wastes after making a report under Article 44-2 of the same Act; hereinafter referred to as the “waste disposal business”); or the wastewater treatment business under the Water Quality Conservation Act (hereinafter referred to as the “wastewater”):

1. The number of employees of the enterprise shall not exceed the standards (300 in the case of fisheries) as shown in the attached Table 1 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises;

2. The total assets of the relevant enterprise shall be within the standards listed in attached Table 2 of the Enforcement Decree of the Framework Act on Small

3. Actual independence shall meet the provisions of subparagraph 2 of Article 2 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises.

(2) In the application of paragraph (1), if a small or medium enterprise becomes no longer a small or medium enterprise as it exceeds the standards prescribed in subparagraph 1 or 2 of the same paragraph due to its expansion, etc., it shall be deemed a small or medium enterprise for the taxable year to which the date on which such cause occurs belongs and for the following two taxable years: Provided, That this shall not apply

m. Framework Act on Small and Medium Enterprises

Article 2 (Scope of Small and Medium Entrepreneurs)

(1) A small and medium enterprise owner subject to a policy for fostering small and medium enterprises (hereinafter referred to as "policy for small and medium enterprises") shall be a person who runs an enterprise whose scale does not exceed the standards prescribed by the Presidential Decree, taking into account the characteristics of the business type, the number of workers ordinarily employed, the size of assets, sales, etc., and whose substantial independence of its ownership and

(2) Small and medium enterprises shall be classified into small enterprises and medium enterprises, as prescribed by Presidential Decree.

(3) In applying paragraph (1), if a small or medium enterprise ceases to be a small or medium enterprise due to its expansion, etc., it shall be for three years from the year following the year when such cause occurs: Provided, That this shall not apply where it becomes a small or medium enterprise due to a merger with enterprises other than the small or medium enterprise

(1) Enforcement Decree of the Framework Act on Small and Medium Enterprises (amended by Presidential Decree No. 17026, Dec. 27, 2000)

Article 5 (Exemption from Deferment of Small and Medium Enterprises)

The term "other reasons prescribed by Presidential Decree" in the proviso to Article 2 (3) of the Act means the following reasons:

1. Where a small or medium enterprise merges with an enterprise deemed a small or medium enterprise under the main sentence of Article 2 (3) of the Act;

2. Where notification is received from a member company of a large enterprise group under Article 9 (1) of the Monopoly Regulation and Fair Trade Act under Article 14 (1) of the same Act;

Standards for regular workers of small and medium enterprises in attached Table 1

Standard Industrial Classification

relevant type of business

The number of regular workers (unit: Name)

15-37

Manufacturing industry

300

Standards for total assets of small and medium enterprises in attached Table 2

Standard Industrial Classification

relevant type of business

Total amount of assets (units: Cost of detention)

28

Manufacturing of prefabricated metal products (except machinery and equipment)

700

Finally.

W. M.T. M.C.

(unit: Won)

Classification

For the portion reverted to year 1998

For the portion reverted to year 199

Current net income on the settlement

16,738,427,064

28,255,642,632

Amount of income adjustment;

Gross income

8,093,926,983

19,027,705,900

Inclusion in Loss

4,223,225,143

12,375,472,243

Amount of income for each business year

20,559,128,904

34,907,876,289

Carry-over deficits

Tax Base

20,559,128,904

34,907,876,289

Tax Rate

28%

28%

calculated tax amount

5,755,756,093

9,762,205,360

Tax amount deducted or exempted

1,493,816,193

2,536,893,716

Calculation Amount of Tax

Underreporting

20,380,672

97,908,210

Non-payment

23,612,586

41,109,585

Total

43,802,873

539,017,795

Total final tax amount

4,305,742,773

7,764,329,439

Finally.