Attorney Jeong Byung-chul et al., Counsel for the defendant-appellant

1. Case summary

가. 주식회사 내츄럴엔도텍(이하 '이 사건 회사'라 한다)의 임직원들인 원고들은 2012년 또는 2013년에 이 사건 회사로부터 미리 정한 가액으로 신주를 인수할 수 있는 주식매수선택권(이하 '이 사건 주식매수선택권'이라 한다)을 부여받았다.

B. On April 24, 2015, the Plaintiffs paid the subscription price by exercising the instant stock option, and acquired new shares issued by the instant company (hereinafter “instant shares”). The Plaintiffs thereafter reported and paid global income tax on the profits from exercising the stock option, which is calculated by calculating the difference between the market price of the instant shares and the exercising price of the stock option at the time of exercising the instant stock option, as the difference between the market price of the instant shares and the exercising price of the stock option at the time of exercising the stock option.

C. On August 20, 2018, the Plaintiffs filed a request for correction to the Defendants for reduction of global income tax on the grounds that the instant stock option constitutes a preemptive right and thus, when calculating gross income from the exercise of the stock option, the value of the instant stock at the time of calculating the total income amount shall be deemed the lowest price within one month following the day when the exercise price is paid in accordance with Article 51(6) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 29523, Feb. 12, 2019; hereinafter the same shall apply). The Defendants rejected the Plaintiffs’ request for correction (hereinafter referred to as “each of the instant dispositions”).

2. Judgment on the grounds of appeal

A. Relevant provisions and legal principles

1) Article 20(1) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016; hereinafter the same) provides for wage and salary income, and Article 20(3) provides that matters necessary for the scope of wage and salary income shall be prescribed by Presidential Decree. Following delegation, Article 38(1)17 of the former Enforcement Decree of the Income Tax Act provides that “the profits earned by exercising stock options granted by an executive officer or employee of a corporation during the period of his/her work in the relevant corporation shall be included in wage and salary income, and such profits refer to the difference between the market price and the actual purchase price at the time of exercising the stock option.”

Meanwhile, Article 24(2) of the former Income Tax Act provides that where a resident receives any income other than money in calculating his/her total amount of income, such income shall be calculated according to the value at the time of the transaction. Article 24(3) provides that the scope and calculation of the amount of income already received or received shall be prescribed by the Presidential Decree.

Article 51 (5) 4 of the former Enforcement Decree of the Income Tax Act provides that when a corporation that has issued new stocks receives preemptive rights from such corporation (excluding the case of being a shareholder), the amount calculated by deducting the issue value of the relevant new stocks from the issue value of the new stocks on the date of payment of the preemptive rights shall be calculated as the revenue amount, and Paragraph (6) of the same Article provides that when the value of the new stocks under subparagraph 4 of Article 51 of the former Enforcement Decree of the Income Tax Act falls within one month from the

2) In light of the language, structure, etc. of such relevant provisions, it is apparent that Article 51(5)4 and (6) of the former Enforcement Decree of the Income Tax Act applies to cases where a person acquires new stocks by obtaining a preemptive right from an issuing corporation of stocks based on such preemptive right. In addition to the following: (a) the concept of preemptive right and the right to purchase new stocks are clearly distinguishable from the exercise method; (b) the acquisition by exercising a stock option is not a preemptive right; and (c) the acquisition by exercising a stock option is a new stocks, not a preemptive right, but a new stocks; and (d) there is no ground to view that each of the above provisions has existed prior to the establishment of the provisions related to stock option under the Commercial Act and other tax laws, and thus there is no need to interpret the meaning differently depending on such establishment

B. Determination

Examining the aforementioned facts in light of the aforementioned provisions and legal principles, since the Plaintiffs acquired the instant shares by exercising the stock option granted by the instant company, the exercising profit should be calculated based on the difference between the market price of the instant shares and the exercising price of the stock option as of April 24, 2015, which was the date of exercising the stock option pursuant to Article 38(1)17 of the former Enforcement Decree of the Income Tax Act. Nevertheless, the lower court deemed that Article 51(5)4 and (6) of the former Enforcement Decree of the Income Tax Act can be applied to the Plaintiffs on the grounds of its stated reasoning, such as that the instant stock option was acquired as a result of exercising the stock option, and that the exercising profit should be calculated by deducting the exercising price from the minimum price within one month following the date of paying the exercising price, and thus, determined that each of the instant dispositions on different premise was unlawful.

In so determining, the lower court erred by misapprehending the legal doctrine on the taxation provision on the profits from exercising stock options, thereby adversely affecting the conclusion of the judgment. The Defendants’ ground of appeal assigning this error is with merit.

3. Conclusion

Therefore, 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 Cho Jae-chul

Justices Min You-sook

Justices Lee Dong-won