[2] In a case where the taxing authority imposed global income tax on Eul, a stockholder, who invested 100% of shares in the foreign corporation Gap, located in the Banddo, a tax haven, as global income tax have been deemed as distributable retained earnings under Article 17(1) of the former Adjustment of International Taxes Act, the case holding that the judgment below erred by misapprehending the legal principles on the premise that the distributable retained earnings should be calculated based on the financial statements deemed to have been prepared in accordance with the generally accepted accounting principles in the resident state of the corporation Gap, on the premise that the distributable retained earnings should be calculated by applying Korean corporate accounting standards, etc.

[2] In a case where tax authorities imposed global income tax on Gap corporation's distributable retained earnings under Article 17 (1) of the former Adjustment of International Taxes Act (amended by Act No. 9914, Jan. 1, 2010) on the amount calculated based on the earned surplus, etc. before disposal as stated in the financial statements prepared by Gap corporation to the foreign corporation located in B, which is a tax haven place, the case holding that the court below erred in the misapprehension of legal principle on the ground that the above financial statements were prepared in accordance with the generally accepted accounting principles at the time of preparation of the financial statements in the resident state of the corporation Gap, and that the accounting principles applied at the time of preparation of the financial statements are significantly different from the Korean corporate accounting principles, barring any special circumstance, the distributable retained earnings of Gap corporation should be calculated based on the earned surplus before disposal as stated in the financial statements prepared in the financial statements prepared in accordance with the generally accepted accounting principles in the resident state of Gap corporation's resident state, and that the distributable retained earnings should be calculated based on the distributable earned surplus before disposal calculated by applying Korean corporate accounting standards, etc.

1. Article 17(1) of the former Adjustment of International Taxes Act (amended by Act No. 9914, Jan. 1, 2010; hereinafter “International Tax Adjustment Act”) provides that “where a national has invested in a foreign corporation whose head office or principal office is located in a state or region where taxes are not imposed on the whole or a substantial part of a corporation’s actually accrued income or where the corporation’s tax burden is not more than 15/100 of the corporation’s actually accrued income, the amount to be reverted to the national out of the distributable retained earnings as of the end of each business year of the corporation having a special relationship with the national (hereinafter “specific foreign corporation”) from among the said foreign corporations, shall be deemed to have been paid to the national.” Article 31(1) of the former Enforcement Decree of the Adjustment of International Taxes Act (amended by Presidential Decree No. 23600, Feb. 2, 2012) provides that “where the foreign corporation prepares the amount of distributable retained earnings under Article 17(1) of the Act from the country of residence adjusted in accordance with the following accounting principles:

According to the language and structure of the relevant provisions, the distributable retained earnings of a specific foreign corporation, in principle, shall be calculated based on the earned surplus before disposal computed by applying the generally accepted accounting principles in the resident state. Only when the generally accepted accounting principles in the resident state of the specific foreign corporation are substantially different from the Korean corporate accounting standards may be calculated by applying the Korean corporate accounting standards. In such cases, the burden of proving that the generally accepted accounting principles in the resident state of the specific foreign corporation are significantly different from the Korean corporate accounting standards shall be borne by the claimant.

2. Review of the reasoning of the lower judgment and the evidence duly admitted by the lower court reveals the following facts.

(1) The Plaintiff is a single shareholder who has invested 100% of shares in the Clbal Limited (hereinafter “Codi”), a foreign corporation located in the Blinaland, a tax haven.

(2) In 2009, Codia recognized USD 41,736,678 as profits and 20,429,627 of the remainder after deducting USD 2,840,00 as purchase cost, etc. from USD 44,576,678 as “Ronex International Holdings Limited” (the trade name after revision thereof)’s sales price for shares, which is the Hong Kong listed corporation, at USD 20,307,051 ($ 41,736,678,629,627), and entered USD 20,429,627 in the income statement for the same business year as expenses (ExP).

(3) The financial statements for the business year 2009 (hereinafter “instant financial statements”) prepared by Codia contain USD 19,935,559 as earned surplus before disposal.

(4) Based on the instant financial statements, the Defendant: (a) deemed USD 28,135,113 (32,591,714,899) as the distributable retained earnings under Article 17(1) of the International Tax Adjustment Act by adding USD 19,935,559 to USD 1,100 as contingent liabilities of USD 7,09,00 as well as USD 7,09,554 as securities appraised loss of the said financial statements (32,591,714,899) as the distributable distributable retained earnings; and (b) issued the instant disposition on January 13, 2012, imposing KRW 14,532,270 as global income tax for 2010 on the Plaintiff on January 13, 2012.

3. Examining these facts and the circumstances indicated in the record in light of the aforementioned provisions and legal principles, there is no de facto dispute between the parties as to the fact that the instant financial statements were prepared in accordance with the generally accepted accounting principles in the resident state of Cloatia when preparing the financial statements, and there was no proof that the accounting principles applied at the time of the preparation of the instant financial statements are significantly different from the Korean corporate accounting standards. Thus, barring any special circumstance, the distributable retained earnings shall be calculated based on the earned surplus before disposal as stated in the instant financial statements, which appears to have been prepared in accordance with the generally accepted accounting principles in the resident state

Nevertheless, solely based on the circumstances indicated in its holding, the lower court erred by misapprehending the legal doctrine on the scope of “ distributable retained earnings” under Article 17(1) of the International Tax Adjustment Act, and thereby adversely affected the conclusion of the judgment, on the ground that the income equivalent to USD 19,935,559, which was the earned surplus prior to the disposal as indicated in the instant financial statement, has not yet been generated in the business year 2009, Codia. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of “ distributable retained earnings” under Article 17(

4. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)