[2] The case holding that in a case where Gap corporation acquired new shares issued by Eul corporation from Eul corporation to a third party, and did not exercise the so-called "inward option", and the additional agreement was prepared to extend the period after the expiration of the period for exercising put option, and the Eul corporation purchased the above shares from Eul corporation to Byung corporation which is the largest shareholder of Eul, and the tax authority applied the provision of wrongful calculation under the Corporate Tax Act to deny of unfair calculation under the Corporate Tax Act, thereby including the "excess amount" calculated by subtracting the value according to the complementary evaluation method stipulated under the Inheritance Tax and Gift Tax Act at the time of the above transaction from the purchase price of shares, and then disposed of them as dividends to Eul corporation and notified Eul of changes in the amount of income, the above purchase of shares of Eul corporation constitutes purchase of "property lacking economic rationality," which is subject to the avoidance of unfair calculation, and thus the tax authority should recognize the amount equivalent to the amount of income during the period from the acquisition date of the shares to the change in the amount of income.

[3] In a case where a legitimate amount of tax assessment is not calculated, whether the entire amount of the taxation disposition should be revoked (affirmative), and in such a case, whether the court is obliged to calculate the legitimate amount of tax ex officio (negative) / Whether this applies to the legitimate amount of income in the notice of change in income (affirmative)

In this context, “non-profit-free assets” under Article 3-2 subparag. 3 of the former Enforcement Decree of the Adjustment of International Taxes Act refers to assets which do not contribute to a profit wave of the corporation or are not related to the corporation’s profits in the future, and which are hard to gain profits from the operation of the assets in the future, under Article 52 of the former Corporate Tax Act (amended by Act No. 11128, Dec. 31, 201); Article 88(1)2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 23589, Feb. 2, 2012).

In a case where a corporation purchases such “non-profit-free assets”, it would be deemed that at least the profits equivalent to the recognized interest and the equivalent amount were attributed to the corporation through the management of profit-free assets during the retention period if it used the funds equivalent to the purchase price for the purchase of profit-free assets, and such profits were transferred to the other party instead of the profits equivalent to the recognized interest and the equivalent amount were attributed to the corporation. As such, in a case where the corporation denies the wrongful calculation, it is reasonable to reconvert the amount equivalent to the purchase price for the period from the date of acquisition of the assets to the date of recovery by disposing of the assets, and to add it to the other party

[2] The case holding that in case where Gap corporation received new shares from Eul corporation for the third party to issue them, and did not exercise the so-called "stock option option", and Eul corporation retroactively prepared an additional agreement to extend the period after the expiration of the period for exercising put stock option, and accordingly Eul corporation transferred the above shares to Byung corporation which is the largest shareholder of Eul after purchasing the put stock option (hereinafter "purchase transaction") from Eul corporation, and the tax authority applied the provision of wrongful calculation under the Corporate Tax Act to exclude "excess amount" from the sales price under the supplementary method stipulated in the Inheritance Tax and Gift Tax Act at the time of the purchase, and notified Eul of the change in the amount of income by disposing of them with Gap corporation's dividends, it constitutes "excess amount" of the sales price of the above shares from Eul corporation until the expiration of the period for exercising put stock option, and thus, it should be deemed that Eul corporation did not have an obligation to purchase the above shares from the original corporation until the expiration of the period for exercising put stock option, and thus, it should be deemed that it does not have an obligation to purchase the above shares.

[3] If the parties cannot calculate the legitimate amount of tax to be imposed lawfully because they failed to submit the objective tax base and the amount of tax until the closing of the arguments in fact-finding proceedings, the entire taxation disposition shall be cancelled. In such a case, the court does not have the duty to find the amount of tax to be imposed actively by its authority and to calculate the legitimate amount of tax to be imposed, but it should be viewed equally as the income amount of the notice of change

1. Case summary

A. On July 19, 2005, the ZAD Company (hereinafter “ZAD”) received from the Plaintiff KRW 13,500 new shares issued by a third party to the issuance of the Plaintiff (hereinafter “instant shares”) for KRW 665,00 per share, and if the Plaintiff fails to list the shares on the open market by December 31, 2008, it was guaranteed that the said shares can be sold to the Plaintiff within 60 days from that date with certain interest added thereto.

B. Although the Plaintiff failed to list shares in the open market by December 31, 2008, the ZAD did not exercise put options, and, around early 2010, drafted an additional agreement to extend the period for exercising put options to the Plaintiff and the put options to December 31, 201, retroactively as of February 20, 2009.

C. After that, from July 1, 2010 to August 1, 2011, the Plaintiff purchased the instant shares from ZAD to put options (hereinafter “instant transaction”), and around August 30, 2012, transferred the instant shares to ZAC Co., Ltd., the largest shareholder of the Plaintiff, the value according to the supplementary assessment method stipulated in the Inheritance Tax and Gift Tax Act (hereinafter “Capital Tax Act”).

D. On April 1, 2014, the Defendant: (a) deemed that the Plaintiff unfairly reduced the tax burden on income through the instant transaction; (b) applied the provision of the denial of wrongful calculation under the Corporate Tax Act to the purchase price of the instant shares; (c) included “amount in excess of the market price” in the Plaintiff’s gross income, subtracting the value pursuant to the supplementary assessment methods stipulated in the Inheritance Tax and Gift Tax Act at the time of the instant transaction; and (d) disposed of the amount as dividends to ZAD, and notified the Plaintiff of the change in income amount (hereinafter

2. Judgment on ground of appeal No. 1

A. Article 3(2) of the Adjustment of International Taxes Act (hereinafter “International Tax Adjustment Act”) provides that “Article 52 of the Corporate Tax Act shall not apply to international transactions,” and Article 3-2 subparag. 3 of the former Enforcement Decree of the Adjustment of International Taxes Act (amended by Presidential Decree No. 23600, Feb. 2, 2012; hereinafter the same) provides that “purchase of non-profit-free assets shall be one of the international trades for which Article 52, etc. of the Corporate Tax Act can apply. In the meantime, Article 4 of the International Tax Adjustment Act provides that a tax authority may adjust taxation based on the arm’s length price for an international transaction with a resident’s foreign related party.

In this context, “non-profit-free assets” under Article 3-2 subparag. 3 of the former Enforcement Decree of the Adjustment of International Taxes Act refers to assets which do not contribute to a corporation’s profit wave or are not related to corporation’s profit in the future, and which are hard to gain profits from the operation of the assets in the future. This refers to assets which do not contribute to the operation of the assets in the future, as stipulated under Article 52 of the former Corporate Tax Act (amended by Act No. 11128, Dec. 31, 2011; hereinafter the same shall apply) concerning the denial of wrongful calculation.

In a case where a corporation purchases such “non-profit-free assets”, it may be deemed that the corporation used at least profits equivalent to the recognized interest accrued from the management of profit-free assets through the management of profit-free assets for the retention period if it used funds equivalent to the purchase price for the purchase of profit-free assets, and the profits equivalent to the recognized interest were transferred to the other party without reverting to the corporation. Thus, in a case where a wrongful calculation is denied, it is reasonable to reconvert the amount equivalent to the purchase price to the other party for the period from the date of acquisition of the assets to the recovery of the purchase price by disposing of it, and to add the amount corresponding to the recognized interest accrued during the period to the other party and to make a notification of change in income amount (see Supreme Court Decision 98Du12055 delivered on November 10, 20

B. Examining the factual basis as seen earlier in light of the aforementioned legal doctrine, the instant transaction constitutes a purchase of “non-profitable assets” that lack the economic rationality subject to the avoidance of wrongful calculation in an international transaction, and the Defendant, while denying the wrongful calculation of wrongful act and calculation, must add the recognized interest and equivalent amount on the amount equivalent to the purchase price during the period from the acquisition date of the instant stocks to the collection of the purchase price, and notify the change in the amount of income accordingly. The specific reasons are as follows.

1) The Plaintiff lost the right to exercise put options with respect to the instant shares due to the expiration of the period for exercising put options initially agreed upon by the ZAD. Therefore, it is difficult to find out that there was no obligation to purchase the instant shares again from ZAD, and that there was a business need for the Plaintiff to purchase the instant shares.

2) Furthermore, it is difficult to find out circumstances such as that the holding of the instant shares under the Commercial Act itself results in the Plaintiff’s loss if the Plaintiff did not purchase the instant shares. Furthermore, in light of the purchase and transfer price of the instant shares, and the Plaintiff’s failure to list the shares in the open market, it seems that the Plaintiff was unlikely to obtain profits from the management of the instant shares at the time of the instant transaction.

3) Therefore, since the transaction of this case, which the Plaintiff purchased the instant stocks, which are treasury stocks from ZAD, a person with a special relationship under the former Corporate Tax Act, constitutes the purchase of “non-profitable assets” under the lack of economic rationality, the Defendant’s income amount re-calculated through the denial of wrongful act and calculation should be the amount equivalent to the interest recognized during the holding

4) On the contrary, even though the Plaintiff purchased the instant shares, which are “non-profitless assets” from ZAD, which are not a foreign related party, deeming the amount of income calculated again as the market price of the instant shares as the price exceeds the market price of the instant shares, is unacceptable as it contradicts the provisions and purport of the International Tax Adjustment Act, which excludes the application of Article 52 of the Corporate Tax Act, in cases where a foreign related party grants tax adjustment according to the arm’s length price only for an international

5) Even if the special relationship between the Plaintiff and the ZD was terminated at the time of the instant transaction, insofar as it is recognized as the purchase of “unprofitless assets” that lack economic rationality at the time of the instant transaction, the amount equivalent to the recognition of the amount equivalent to the purchase price cannot be calculated until the special relationship between the Plaintiff and the ZAD ceases to exist.

C. Examining the reasoning of the judgment below in light of the aforementioned legal principles and records, although the reasoning of the judgment below on this part is somewhat insufficient, the court below did not err by misapprehending the legal principles on the purchase of non-profitable assets in its judgment that the instant transaction constitutes the purchase of “non-profitable assets” which lack economic rationality. Although the Defendant asserted that the Supreme Court Decision 98Du12055 Decided November 10, 200 should be modified, it is not necessary to change the precedent like the assertion. Accordingly, the allegation in the grounds of appeal on this part is without merit.

3. Judgment on ground of appeal No. 2

A. In a case where the parties cannot calculate the legitimate amount of tax to be imposed lawfully because they failed to submit objective tax bases and materials to support the amount of tax until the closing of the arguments in fact-finding proceedings, the entire taxation disposition should be revoked. In such a case, the court does not ex officio impose the duty to identify the amount of tax to be imposed on the taxpayer and calculate the legitimate amount of tax to be imposed (see, e.g., Supreme Court Decisions 94Nu13527, Apr. 28, 1995; 2015Du1243, Feb. 18, 2016). This ought to be seen equally as the income amount of the notice of change in income.

B. According to the records, in case where the plaintiff disposes of the shares of this case from the date of acquisition to the date of recovery of the purchase price in the first instance court and the lower court recognized the amount equivalent to the purchase price and added the amount to gross income during the period from the date of purchase of the shares of this case, the defendant did not make any assertion as to the legitimate income amount of the disposition of this case, and it is difficult to view that the materials submitted by the lower court at the time of the closing of argument can clearly calculate the legitimate income amount

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)