[2] Whether the so-called management premium should be excluded from calculating short-swing profits under Article 172(1) of the Financial Investment Services and Capital Markets Act (negative)

[3] Whether capital gains tax should be deducted when calculating short-swing profits to be returned by the insider of a stock-listed corporation (negative)

1. As to the grounds of appeal Nos. 1 and 2

The system of return of short-swing profits under Article 172(1) of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) is a system that indirectly regulates internal trading of stocks of a corporation using undisclosed information to the extent that it is highly probable that an insider of a stock-listed corporation used undisclosed inside information within a short period of not more than six months. In that it is highly probable that the insider would actually use undisclosed inside information, and instead, it is strictly responsible to inquire whether the insider actually used undisclosed inside information or the insider intended to gain profit by using undisclosed inside information, thereby allowing the insider to return profits acquired from such transaction to the corporation. Thus, it is not a system that indirectly regulates internal trading of stocks of a corporation using undisclosed inside information. Thus, it is difficult to view that there is no possibility that the insider could arbitrarily use such inside information under Article 172(1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (hereinafter “Enforcement Decree of the Financial Investment Services and Capital Markets Act”) as an exception under Article 172(2) of the same Act, and that there is no possibility of disclosure of such information under Article 198(1) of the Constitution.

In addition, if the right of management is transferred along with the transfer of shares, the transfer of the right of management is an incidental effect following the transfer of shares, and the transfer price is the price for the shares to the extent that it can exercise the right of management. Thus, if the purchaser acquires the so-called right of management with the transfer of shares of the corporation and obtains profits within 6 months from the acquisition of the so-called right of management with the transfer of shares of the corporation, it shall not be deemed that the management premium should be excluded in calculating the short-swing profit (see Supreme Court Decision 2002Da69327, Feb. 12, 2004, etc.).

Examining the reasoning of the judgment below in light of the aforementioned legal principles and records, the court below is just to have rejected the Defendant’s assertion, namely, the instant sales that transferred control shares, and subsequent sales that did not unfairly use internal information, and to exclude management premium in calculating short-swing profits. In so doing, the court below did not err by misapprehending the legal principles on transactions subject to return of short-swing profits, and the realization of profit and profit to be returned, thereby failing to exhaust all necessary deliberations.

2. Regarding ground of appeal No. 3

The latter part of Article 172(1) of the Financial Investment Services and Capital Markets Act provides that matters necessary for the calculation basis of short-swing profits to be returned shall be prescribed by Presidential Decree. As such, with respect to the method of calculating short-swing profits, Article 195(1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act provides that “where the relevant purchase or sale is made within six months after such purchase or sale, the amount calculated by subtracting the unit price of purchase from the unit sale price and the quantity of sale, whichever is less (hereafter referred to as “daily quantity” in this Article)” in the former part of subparagraph 1 shall be calculated as profits from an amount calculated by multiplying the amount calculated by multiplying the unit price of sale by the quantity of purchase or sale, whichever is less than the unit price of sale, and the amount calculated by deducting the unit price of sale from the unit sale price of sale, securities transaction tax, and special rural development tax, whichever is earlier, shall not be deemed profits if the amount is less than zero won.” subparagraph 2 provides that “In addition to the method of purchase or sale and sale, the aforesaid portion shall be calculated as one method or sale.”

In addition to the aforementioned provisions of the Capital Markets Act, the legislative purpose of the return system of short-swing profits, and the transfer income tax cannot be deemed as transaction tax or transaction expense incurred by the transaction of all stocks, etc. that are subject to the return of short-swing profits as a direct taxation on transfer marginal profits, and even if the insider suffers loss equivalent to the transfer income tax paid by all the return of short-swing profits, such loss is not attributable to the return system of short-swing profits, but is the result of application of the relevant laws and regulations on the transfer income tax. In light of the fact that the internal purchaser of a stock-listed corporation sells or sells stocks, etc. of the corporation within six months after the purchase, it cannot be deemed that the transfer income tax should be deducted when calculating the short-swing profits to be returned even if he/she pays the transfer income tax pursuant to such sale, and it cannot be deemed that Article 23 of the Constitution infringes on the property right guaranteed by the Constitution, contrary to the principle of prohibition of excessive restriction on fundamental rights.

In the same purport, the lower court’s rejection of the Defendant’s assertion that capital gains tax should be deducted from short-swing profits on the ground that it is not included in the transaction cost subject to mutual aid is justifiable. In so doing, it did not err by misapprehending the legal doctrine on Article 172(1) of the Capital Markets Act and Article 195(1) of the Enforcement Decree

3. 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 Kim Yong-deok (Presiding Justice)