[2] In a case where the merged corporation Gap acquired the stocks of the merged corporation Eul within two years prior to the date of merger registration, and the tax authority imposed corporate tax on Gap corporation by including the amount calculated by deducting the value of the new stocks issued from the acquisition value by deeming the above stocks to constitute the combined stocks, the case affirming the judgment below holding that the above stocks constitute combined stocks and are subject to Article 80 (2) of the former Corporate Tax Act regardless of whether the liquidation income of Eul corporation was unjustly reduced or not

[3] Whether "total amount of equity capital before deducting losses carried forward under tax-free accounting" under Articles 79 (4) and 80 (3) of the former Corporate Tax Act reflects losses under corporate accounting (affirmative)

[2] In a case where a merged corporation Gap acquired a merged corporation Eul's stocks within 2 years prior to the date of merger registration, and the tax authority imposed corporate tax on Gap corporation by including the amount calculated by deducting the value of new stocks issued from the acquisition value by deeming the above stocks to constitute combined stocks, the case affirming the judgment below that the above stocks constitute combined stocks and thus are subject to Article 80 (2) of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001), regardless of whether the liquidation income of Eul corporation was unfairly reduced as a result of acquiring the stocks of Eul corporation within 2 years prior to the date of merger registration.

[3] In light of the language and text of Articles 79(4) and 80(3) of the former Corporate Tax Act (amended by Act No. 6558 of Dec. 31, 2001), and the legislative intent thereof is to realize the substance over form principle in liquidation income taxation by accurately grasping the equity capital of the extinguished corporation in the tax accounting of the extinguished corporation and deducting it from the cost of the merger, and to accurately grasp the equity capital in the tax accounting, it is necessary to deduct the deficit over form principle in the tax accounting, which is not reflected in the total amount of equity capital in the corporate accounting in order to accurately understand the equity capital in the tax accounting, the "total amount of equity capital prior to the deduction of deficit brought forward in the tax accounting" under the above provision refers

1. Regarding ground of appeal No. 1

A. Article 80(1) of the former Corporate Tax Act (amended by Act No. 6558, Dec. 31, 2001; hereinafter the same) provides that “where a domestic corporation is dissolved due to a merger, the liquidation income amount shall be the total sum of the cost of merger that the stockholders, etc. of the extinguished corporation receive from the merged corporation and deducts the total amount of equity capital of the extinguished corporation as of the date of the registration of the merger of the extinguished corporation.” Article 80(2) provides that “Where the merged corporation has acquired stocks, etc. of the extinguished corporation (hereinafter “combined stocks, etc.”) within two years prior to the date of the registration of the merger, and the merged corporation’s stocks, etc. of the merged corporation are not delivered to the merged corporation, the total sum of

Under the principle of no taxation without law, the requirements for taxation, non-taxation, or tax exemption, and the interpretation of tax laws shall be interpreted as the text of the law, barring any special circumstances, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. Therefore, insofar as Article 80(2) of the former Corporate Tax Act does not stipulate that liquidation income of the merged corporation is deemed to be unfairly reduced due to the acquisition of the combined shares, it shall be interpreted that the shares acquired by the merged corporation constitute combined shares subject to Article 80(2) of the former Corporate Tax Act.

B. The reasoning of the lower judgment reveals the following facts.

Gohap Co., Ltd. (Seoul Central District Court declared bankrupt on March 28, 2008. On the same day, after the Plaintiff was appointed as bankruptcy trustee, the Plaintiff taken over the lawsuit of this case; hereinafter referred to as “competing”) on March 12, 1999, merged Korea Petroleum Chemical Co., Ltd. (hereinafter referred to as “competing Petroleum”) and Gohap Co., Ltd. (hereinafter referred to as “competing Products”). Accordingly, on June 11, 1999, Gohap filed a declaration that the sum of the cost of the merger of Korea Petroleum Co., Ltd. (hereinafter referred to as “competing Products”) deducted 0 won from the total sum of the total sum of the paid-in petroleum capital of the same amount as the liquidation income by merger, and filed a declaration that there is no corporate tax thereon.

The defendant, within two years prior to the date of the registration of the merger on May 17, 2004, considered 18,285,514,384 won, such as the amount obtained by deducting the value of new stocks issued by mergers from the acquisition value, by deeming that the stocks, etc. of Gohap Petroleum acquired by Gohap Petroleum and the stocks, etc. of Gohap Petroleum acquired by Gohap Petroleum constitute combined stocks, and corrected the corporate tax amount to 10,205,672,160 won by adding the total cost of merger. On March 24, 2006, the defendant corrected the corporate tax amount to 3,175,137,150 won by revising the corporate tax amount to 3,167,803,020 won by correcting some errors in calculation on June 27, 2006 (hereinafter referred to as “the correction of each of the above dispositions”).

C. Examining these factual relations in light of the aforementioned provisions and legal principles, so long as the aggregate amount of shares of pseudo Petroleum acquired within two years prior to the registration date of the merger, regardless of whether the liquidation income of pseudo Petroleum, which is an extinguished corporation, has been unjustly reduced due to such acquisition, the shares are deemed to be subject to Article 80(2) of the former Corporate Tax Act. In the same purport, the judgment below holding that the amount calculated by deducting the value of the new shares issued for the merger from the acquisition price of pseudo Petroleum stocks should be added to the cost of merger is justifiable, and contrary to what is alleged in the grounds of appeal, there is no error of law by misapprehending the legal principles on the calculation of

2. As to the grounds of appeal Nos. 2 through 4

Articles 80(3) and 79(4) of the former Corporate Tax Act provide, “In the calculation of the liquidation income of a domestic corporation from a merger, if a domestic corporation has a loss carried forward under the provisions of subparagraph 8 of Article 18 on the date on which the merger is registered, the said loss carried forward shall be offset by the amount equivalent to the total amount of its equity capital as of the date on which the merger is registered: Provided, That the amount of a loss carried forward to be offset shall not exceed the amount of surplus funds out of the total amount of its equity capital, and if

In light of the language and text of the above provision, the purpose of legislation is to realize the substance over form principle in the liquidation income taxation by accurately ascertaining the equity capital of the extinguished corporation in the tax accounting and deducting it from the cost of merger, and in order to accurately understand the equity capital in the tax accounting, the total amount of equity capital before deducting the deficit brought forward in the tax accounting under the above provision refers to the reflection of deficit in the corporate accounting.

In the same purport, the court below is justified in rejecting the plaintiff's assertion that the total amount of equity capital before the deduction of losses brought forward in the tax accounting should not be reflected in the losses brought forward in the corporate accounting in order to prevent double deduction of losses brought forward in the corporate accounting, on the ground that the total amount of equity capital and earned surplus which reflect losses in the corporate accounting is added to the paid-in capital, and the amount of losses brought forward in the tax accounting shall be deemed nonexistent in order to prevent taxation on the paid-in capital pursuant to the proviso of Article 79 (4) of the former Corporate Tax Act, and that any losses brought forward in the tax accounting in excess of the surplus shall be deemed nonexistent in order to prevent taxation on the paid-in capital pursuant to the proviso of Article 79 (4) of the former Corporate Tax Act. There is no error in the misapprehension of legal principles as to the calculation of total amount of equity capital in the calculation of liquidation income asserted in the grounds of appeal.

3. 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 Ji-hyung (Presiding Justice)