2. The costs of lawsuit shall be borne by the Plaintiff.

A. The Plaintiff is a foreign corporation established in accordance with German law, and was holding 100% equity interest in the Aventis Pharma Holdings (hereinafter “Merger Corporation”).

B. On November 7, 2005, the Plaintiff entered into a merger contract with the merged corporation as follows, and merged the merged corporation on November 22, 2005. Accordingly, the 5,800,000 listed shares of the Korean Pharmaceutical Drugs Co., Ltd. (hereinafter “instant shares”) owned by the extinguished corporation were transferred to the Plaintiff.

The parties concerned in this section: The plaintiff of the absorption company, the absorption company, and the merged corporation: Article 1 of the merged corporation: the merged corporation shall transfer to the plaintiff all the essential rights and obligations of the whole assets and all the essential rights and obligations of the merged corporation in the manner of dissolution that is not liquidated in accordance with the German Company Restructuring Act. Article 2 of the 00: Since all the shares of the merged corporation are owned by the merged corporation, there is no consideration for the merger in the form of stock grant. The plaintiff's capital increase is not increased due to this reason, and there is no demand for payment

C. (1) On November 15, 2010, the Defendant: (a) on the ground that “the transfer of the instant shares constitutes the transfer of securities issued by a domestic corporation; (b)” the Defendant calculated pursuant to Article 92(2)3 of the Corporate Tax Act (amended by Act No. 7838, Dec. 31, 2005); (c) Article 131 of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 19328, Feb. 9, 2006; hereinafter the same shall apply); (d) Article 5(1)4 of the Adjustment of International Taxes Act (amended by Act No. 9914, Jan. 1, 2010; hereinafter “International Tax Act”); (c) Article 92(2)3 of the Corporate Tax Act; (d) Article 92(3); (d) of the Enforcement Decree of the said Act (amended by Presidential Decree No. 19650, Aug. 24, 2006; hereinafter the same shall apply); (v. 1000, 500

(2) In accordance with Article 7(1)2(b) of the Securities Transaction Tax Act (amended by Act No. 8838, Jan. 9, 2008; hereinafter the same) and Article 4(2)1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20629, Feb. 22, 2008; hereinafter the same shall apply), the Defendant calculated the transfer value of KRW 90,480,000 per share (=5,800,000 x 15,600 won per share) and imposed and notified the securities transaction tax (including additional tax) on the same day pursuant to Article 7(1)2(b) of the same Act and Article 4(2)1 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 20629, Feb. 22, 2008).

D. The Plaintiff appealed and filed an appeal on February 11, 201, but was dismissed by the Tax Tribunal on May 31, 2012.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1 through 5 (including additional numbers), Eul evidence Nos. 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) Transfer of shares

Since the transfer of shares by merger does not constitute the transfer of shares for the following reasons, the instant disposition is unlawful.

(A) Prior to the enforcement of Article 44 of the Corporate Tax Act (amended by Act No. 9898, Dec. 31, 2009) prior to the enforcement of Article 44 of the Corporate Tax Act, deeming the transfer of assets due to the merger as “transfer of assets,” and deeming the transfer of assets and liabilities as the comprehensive succession of assets and liabilities was a tax practice. Furthermore, the concept of transfer under the Corporate Tax Act shall be construed by Article 93 Subparag. 7 of the Corporate Tax Act and Article 94 of the Income Tax Act (amended by Act No. 8144, Dec. 306; hereinafter the same). However, the acquisition of stocks in this case is based on the comprehensive succession effect (free transfer) of the merger, which is the transfer of ownership due to sale, exchange, etc., and thus, it does not constitute a separate subject of taxation, and the extinguished corporation cannot be deemed as the recipient of the cost of the merger. The merger cannot be deemed as the consideration for the transfer of stocks by the merged corporation’s stockholders due to the merger.

(B) A foreign corporation is imposed only on the domestic source income listed in Article 93 of the Corporate Tax Act, and there is no express provision that can be imposed on the transfer of securities by a merger between foreign corporations. In the case of a domestic corporation, unrealized profits owned by a merged corporation are not imposed as capital gains, but as liquidation income is taxed. In the case of a transfer of stocks, liquidation income and business income are compatible with the transfer of stocks, and in the case of a merger between domestic corporations, taxation on the stocks owned by a foreign corporation is made without separate taxation on the stocks owned by a merged corporation, and thus, it goes against the “non-discrimination doctrine” under Article 24 of the Agreement between the Republic of Korea and the Federal Republic of Germany for the Avoidance of Double Taxation

(C) Since the Plaintiff, a merged corporation, owned 100% of the equity shares of an extinguished corporation and did not pay for any form of merger, such as issuance of new stocks for merger to the merged corporation’s shareholders, capital gains from transfer (domestic source income of the merged corporation) cannot be calculated. In addition, in the case of withholding income, the corporate tax liability of the person who pays the income amount is established “when the payment is made” and thus, the corporate tax, etc. cannot be imposed on the premise of capital gains unless

(2) Calculation of the value of the instant shares

For the following reasons, there is an error in calculating the tax base of corporate tax and securities transaction tax.

(A) Calculation of corporate tax base;

In determining the tax base and the tax amount based on the arm's length price under international tax law, it should be proved that the data secured by the best effort was reasonably calculated, and that the difference between the key transaction and the factors significantly affecting the price of the comparable transaction was reasonably adjusted.

In addition, even if the final market price at the Korea Stock Exchange is based on the “interlable third-party price method” as stipulated in Article 5(1)1 of the International Trade Union Act, the comparable transaction and the transfer of the shares in this case differs from the transaction cause and legal character, and thus, it cannot be deemed the normal price that has a high comparability possibility.

Therefore, inasmuch as it falls under “cases where the arm’s length price cannot be calculated” under the International Tax Act, it should be evaluated as KRW 14,990 per share, which is the average price for the month before the transfer date, by applying Article 131(3) of the Enforcement Decree of the Corporate Tax Act and Article 165(3) of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19327, Feb. 9, 2006).

(B) Calculation of the tax base of securities transaction tax

Article 4(2)1 of the Enforcement Decree of the Securities Transaction Tax Act refers to the transfer of stock certificates, etc. of a listed corporation outside the securities market by means of sale and purchase transaction between the parties concerned. The instant stocks fall under comprehensive succession due to merger, and thus, it cannot be applied. Therefore, the transfer of the instant stocks falls under the case of transfer of stock certificates, etc. by means other than those under subparagraphs 1 through 3 under Article 4 of the Enforcement Decree of the Securities Transaction Tax Act, and thus, the transfer of the instant stocks must be evaluated as KRW 14,90 per share, an average value per month prior to the transfer date under Article 165(3)

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

(1) As to the share transferability

(A) First of all, whether transferring of stocks issued by a domestic corporation that is extinguished by a merger between foreign corporations to a merged corporation constitutes “transfer of stocks” under Article 93 subparag. 10 (a) of the Corporate Tax Act should be determined on the basis of the interpretation of the Corporate Tax Act by deeming that the increase in value inherent in the relevant stocks has been realized as gains from transfer following the merger as income subject to taxation. However, Article 80(1) of the Corporate Tax Act provides that “where a domestic corporation is dissolved due to a merger, the liquidation income amount shall be the total cost received by stockholders of the merged corporation from the merged corporation minus the total amount of equity capital of the extinguished corporation as of the date of the registration of the merger.” Article 122(1) of the Enforcement Decree of the Corporate Tax Act provides that “the total cost of the merger shall be calculated” under Article 16(1)5 of the Corporate Tax Act and Article 80(2)4 of the Corporate Tax Act provides that “the total cost of the merger shall be calculated on the basis of the acquisition of stocks from the merged corporation at the date of merger.”

As can be seen, Article 80(1) and (4) of the Corporate Tax Act, Article 122(1) and Article 14(1)1(a) and (c) of the Enforcement Decree of the same Act, deeming that the transfer of assets following a merger constitutes the transfer of assets realizing gains on transfer, and thus, the method for calculating gains on transfer is prescribed, except in cases where a corporation satisfies the requirements under Article 44(1)1 and 2 of the Corporate Tax Act, where the value of stocks received in return for a merger is deemed as the price for the transfer of assets so that the merged corporation is de facto unable to calculate gains on transfer, thereby providing special policy exceptions for taxation deferred to the time that the merged corporation disposes of the assets. On the contrary, a foreign corporation provides that income generated from the transfer of stocks issued by a domestic corporation under Article 93 subparag. 10(a) of the Corporate Tax Act is subject to taxation, and there is no policy special provisions for taxation deferred on the transfer of stocks, etc. between foreign corporations. Article 90(1)3 of the Corporate Tax Act does not include transfer of stocks between domestic corporations.

In addition, in light of the main text of Article 1 and Article 2(3) of the Securities Transaction Tax Act, the language and purport of Article 1 and Article 117(1)14 of the Restriction of Special Taxation Act (amended by Act No. 6538, Dec. 29, 2001) newly provides that “where stocks are transferred for the purpose of a merger satisfying the requirements under each subparagraph of Article 44(1) of the Corporate Tax Act” shall be subject to the exemption of securities transaction tax, there is no reason to deem that the transfer of stocks by a merger does not constitute “share transfer” under the said provision (see Supreme Court Decision 2010Du7208, Nov. 28, 2013).

(B) Examining the following circumstances in light of the foregoing legal doctrine, the transfer of shares issued by a domestic corporation, which was held by an extinguished corporation upon a merger between foreign corporations, to a merged corporation constitutes “transfer of shares” under Article 93 subparag. 10 (a) of the Corporate Tax Act and Article 2(3) of the Securities Transaction Tax Act.

(1) A merger refers to an organizational change in which two or more companies are combined without undergoing liquidation procedures under the Commercial Act, and a party to a merger contract is not a member of the “company”. In addition, Article 523 of the Commercial Act (amended by Act No. 10600, Apr. 14, 201) provides that “the contents and allocation ratio of stocks to be received by stockholders of a extinguished company” as the conditions of merger shall be included in a merger contract with the adoption of the principle of the merger contract, and Article 522(1) provides that “the contents and allocation ratio of stocks to be received by stockholders of the extinguished company” as the conditions of the merger shall be approved by a special resolution of the general meeting of stockholders after the merger contract. Therefore, it is reasonable to deem that a merger takes two steps to transfer all assets and liabilities of a merged corporation to a merged corporation and receive stocks, etc. of the merged corporation from the merged corporation as the consideration for the merger and transfer of stocks, etc. of the merged corporation to stockholders of the merged corporation. Therefore, it cannot be deemed that the cost of the merger is changed to the merged corporation and stockholders.

② The Corporate Tax Act imposes corporate tax on the amount of liquidation income when a domestic corporation is dissolved due to a merger, and imposes corporate tax on the merged corporation with respect to the unrealized profits accumulated in the merged corporation. This is also a taxation on the unrealized profits accumulated in the merged corporation. In addition, where profits have accrued to the stockholders of the merged corporation, it shall be deemed as a dividend and imposed. This is not a realizing profit in the disposal of stocks, but a taxation is levied on constructive dividend as it is similar to the stock dividends ordinarily transferring the earned surplus of the merged company into capital. Therefore, even if the transfer of stocks by a merger is imposed by deeming the transfer of stocks as a transfer of stocks, there is no difference in that it imposes unrealized profits from the transfer of assets. Furthermore, as to the method of calculating the amount of income, there is no difference in the calculation of the amount of income by deducting the acquisition value from the transfer value of all assets owned by the corporation,

In addition, in calculating the amount of domestic source income of a foreign corporation, unless otherwise provided for in the treaty or the domestic law, the laws and regulations that correspond thereto shall comply with the domestic laws and accounting standards (see Supreme Court Decision 97Nu3903, Feb. 22, 200). Article 93 subparag. 10 (a) of the Corporate Tax Act provides that the foreign corporation’s income derived from the “transfer of stocks issued by a domestic corporation” shall be regarded as domestic source income. Therefore, insofar as taxation on liquidation income, etc. between domestic corporations is recognized, it cannot be deemed that the transfer of domestic assets following a merger between foreign corporations was deemed to have been imposed on the foreign corporation by deeming the transfer of assets between the foreign corporations

③ Article 44 of the Corporate Tax Act amended by Act No. 9898 on December 31, 2009 provides that “if the merged corporation is dissolved due to the merger, the merged corporation shall be deemed to have transferred its assets to the merged corporation” and the new structure is as follows:

(1) Where a surviving corporation succeeds to the evaluation of assets of a merged corporation (limited to assets prescribed by the Presidential Decree) with the requirements falling under the following subparagraphs after the amendment on December 31, 2009, which is included in the main sentence of this Table, on or before the amendment of December 31, 2009, an amount equivalent to the evaluation marginal profit from the merger may be included in deductible expenses in the calculation of the income amount for the business year which includes the date of the registration of the merger as prescribed by the Presidential Decree. (1) Where an extinguished corporation is dissolved through a merger, the amount equivalent to the evaluation marginal profit from the merger of the concerned assets shall be included in deductible expenses. In this case, where the surviving corporation receives the total amount of gains or losses accruing from such transfer (referring to the amount subtracting the value of subparagraph 2 from the value of subparagraph 1; hereafter the same shall apply in this Article and Article 44-3) from the total amount of net assets of the merged corporation as of the date of the registration of the merger from the date of the merger to the date of merger to the merger:

Article 80(1) of the Corporate Tax Act prior to the amendment provides that “the liquidation income of a merged corporation shall be imposed as “settlement income” after deducting the total amount of equity capital of the merged corporation from the total amount of the cost of the merger received from the merged corporation, and that “the merged corporation” may be included in deductible expenses in the calculation of the income amount for the business year which includes the date of the merger when it satisfies the requirements under Article 4(1)1 through 3. On the other hand, the amended Corporate Tax Act deleted the provision on liquidation income (Article 80) and provides that “if the merged corporation is dissolved, the corporation’s assets shall be deemed to be transferred to the merged corporation.” In this case, the transfer income or loss shall be included in the calculation of the income amount for the business year which includes the date of the merger registration.” Therefore, the former Corporate Tax Act amended by deeming “the total amount of liquidation income of the merged corporation” as “the transfer income of the merged corporation and the transfer income amount of the merged corporation shall not be deemed to be the transfer income amount of the merged corporation’s net assets subject to the merger taxation theory.”

In addition, the main text of Article 88(1) of the Income Tax Act provides that the concept of “transfer” in capital gains shall be actually transferred for price regardless of the registration or enrollment of the assets, and it shall be interpreted that the assets are sold, exchanged, or invested in kind in a corporation as an example of the transfer for price of the assets. In addition, it does not mean that only the transfer of the assets caused by sale, exchange, or investment in kind in a corporation does not constitute “transfer” in capital gains, and even if the assets are actually transferred for price, it shall be deemed that the transfer, which is the taxable cause of capital gains tax, is made if the assets are actually transferred for price (see Supreme Court Decision 2010Du15452, Dec. 9, 2010). Therefore, even if the concept of transfer under the Corporate Tax Act is considered as the same as that of the Income Tax Act, even if the stocks in this case were actually transferred for price by merger contract.

(2) As to the merger with no cost of merger

The plaintiff holding 100% of the shares of a merged corporation did not pay the merged price to the merged corporation.

However, considering the following: (a) the Plaintiff, a merged corporation, holds 100% of the stocks of the merged corporation; (b) the acquisition price of the Plaintiff’s stocks increases by acquiring the assets of the merged corporation; (c) the acquisition of the stocks of the merged corporation is in fact equivalent to the acquisition price; (d) the acquisition of the stocks of the extinguished corporation is in violation of the laws such as merger after acquisition of the stocks of the extinguished corporation; (c) the acquisition of the stocks of the extinguished corporation is contrary to the equity in taxation; and (d) the acquisition of the assets by merger is in violation of the equity in taxation; and (e) the acquisition of the stocks of the extinguished corporation is for the purpose of taxation on unrealized profits; and (d) the payment of the merger price and the transfer of the assets of the extinguished corporation are in a quid pro quo relationship, and thus, the transfer of the stocks of this case can not be deemed to have no payment of free transaction or actual income tax, and thus, the corporate

(3) As to the assessment of the value of the instant shares

(A) As to corporate tax

Article 92(2)3 of the Corporate Tax Act and Article 131(1) of the Enforcement Decree of the same Act provide that “domestic source income of a foreign corporation with no domestic place of business shall be the value calculated by applying mutatis mutandis the method prescribed in Article 5 of the International Tax Adjustment Act and Article 4 of the Enforcement Decree of the same Act where the transaction price is lower than the arm’s length price as the transaction price is between a foreign corporation with no domestic place of business and a foreign corporation with a special relationship prescribed by Presidential Decree (including a nonresident).” However, only where it is impossible to calculate it, the amount assessed by applying mutatis mutandis Article 99(1)3 through 6 of the Income Tax

On the other hand, the “normal price” in the International Tax Adjustment Act is a price applied or determined to be applied to ordinary transactions with residents, domestic corporations, or domestic business places, other than foreign specially related persons. However, as seen earlier, the transfer of the instant shares constitutes a transfer of shares, and the Defendant applied Article 4 subparag. 3 of the Enforcement Decree of the said Act pursuant to Article 5(1) subparag. 4, rather than Article 5(1)1 of the International Tax Adjustment Act, not a comparable third party’s price method. Considering that the instant shares are listed stocks, the instant shares are not calculated by a comparable third party’s price method; domestic residents are listed stocks; the instant shares are ordinarily traded at the Stock Exchange; if assets are transferred by a merger are determined based on the ordinary price at the Stock Exchange, the price traded at the Stock Exchange is deemed to be a method deemed to be reasonable in view of the substance and practice of other transactions; and Article 99(1)3 through 25 of the Enforcement Decree of the International Tax Adjustment Act can only be deemed to be a transfer of the instant shares.

(B) As to securities transaction tax

According to Article 4(2) of the Enforcement Decree of the Securities Transaction Tax Act enacted pursuant to Article 7(1)2(b) of the Securities Transaction Tax Act, “1. In a case where a listed corporation’s stock certificates, etc. are transferred outside the securities market, 2. In a case where an Association of Securities and Exchange transfers stock certificates, etc. of an Association-registered corporation under the Securities and Exchange Act outside the securities market, 3. In a case where the Association of Securities and Exchange of Securities transfers stock certificates, etc. designated as trading items in accordance with the standards under Article 84-27(5) of the Enforcement Decree of the Securities and Exchange Act by means other than those under subparagraphs 1

As above, it is reasonable to view that “cases where share certificates, etc. are transferred by means other than those under subparagraphs 1 through 3” refer to share certificates (e.g., unlisted stocks, etc.) except for such share certificates, since the instant shares are the shares of listed corporations. Therefore, the transfer value should be assessed according to “the standard value of transaction at the date of the transfer published by the Korea Stock Exchange under the Act on Evidential Transactions” under subparagraph 1.

In addition, pursuant to Article 30(1)1 of the Enforcement Rule of the Securities Market Business Regulations (amended by Presidential Decree No. 458 of Feb. 3, 2009), the trading standard value refers to “all-day price” and the day preceding the date of merger is November 21, 2005. Therefore, since the preceding day is KRW 15,600, it should be evaluated as KRW 15,600 per share.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Cho Han-chul (Presiding Judge)